Gold Losing Its Luster

I often cover and discuss paradigm shifts that are taking place. We are in unique times where things are changing very quickly. Beliefs from the past are being obliterated as ideas that were true for decades are being proven invalid.

This can have a great impact on investing especially when one is looking long-term.

Gold is something that I feel is in for a major paradigm shift. For hundreds of years, this metal was a proven commodity for wealth. It served as money for many centuries while also proving to be a solid store of value. Governments and, later, central banks, stocked up on gold as a means of controlling the wealth.

But, like most things, this is being called into question. Failure to question our beliefs can have negative impacts on our financial health.

With gold, it was one of the tried and true assets people turned to when uncertainty hit. Basically, gold served as a hedge against catastrophes that arise periodically.

I am led to believe that recent events could qualify as a catastrophe. With the fear associated with the coronavirus, the global economy basically screeched to a halt. Gold should have exploded in this environment. Looking at a 6 month chart, we see gold did fare rather well.

At the turn of the year, gold was at a $1523. Due to the coronavirus fear-mania, it shot up to the high $1600. This is certainly a worthy return over a 2.5 month period. That is more than a 50% on an annualized basis.

However, what we are seeing is unprecedented. The level of fear is through the roof. Here is a look at the VIX which shows the volatility of the market. Things tend to get a lot more volatile as the markets experience a great deal of fear.

The VIX finished 2019 at 13 and change. It is now around 70. To contrast, the highest reading during the '08 financial collapse was 62. We certainly are seeing something never witnessed before.

So while gold provided a good safe haven and good return, you would think it would have exploded to a much greater degree. Historic events scare the pants off people and investors flee at times like this. Gold is a traditional path to safety.

In the long-term, we could also be seeing some major headwinds for the proven metal.

To start, Millennials do not feel the same about gold. It is important to remember the shift in money. In the United States, nobody under 60 remembers when gold was money. When Nixon severed the USD from gold, we saw the end of gold as money. At the same time, we saw another shift with those born in the 1990s. That generation does not remember money as anything other than basically digital.

For this reason, Millennials have a different view of things. In a survey, they prefer Bitcoin to gold by a rate of 9 to 1.

ccn.com/generation-bitcoin-90-of-millennials-prefer-crypto-to-gold-etf-expert/

If this mindset continues, it will have a major impact on the long-term pricing of gold. This is something to keep in mind.

The other factor is that gold is abundant. This might sound odd but it is true. There are 20 million pounds of gold in our oceans. Amounts of this size would absolutely kill the scarcity aspect of the precious metal.

Of course, there is a caveat to this. The gold is very diluted, ringing in at parts per trillion.

“Each liter of seawater contains, on average, about 13 billionths of a gram of gold.” There are also gold deposits within the seafloor, but profitably mining them is far beyond our current abilities.

https://www.atlasobscura.com/articles/gold-ocean-sea-hoax-science-water-boom-rush-treasure

In other words, we simply cannot access the gold in a cost effective manner. The technology to pull the gold from the seawater in quantities that are economically viable do not exist. Of course, that is today. We do not know if this will be true in 10 or 20 years.

Then there is also the question of space mining. While that might not have any impact on Earth if it does come to fruition, near Earth asteroids are estimated to have quadrillions in raw minerals. Any of this making its way back to Earth could have profound impact on the supply of a metal such as gold.

Here we see some major questions arising with gold. What will the long term implications be? This is something that everyone should consider. Many tend to operate blindly based upon old beliefs that were never questioned.

The way things are going, it is best to question all beliefs when it comes to investing and business. Things can change very quickly.

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Posted via Steemleo