Bug Bites: Gold, Crypto, and Currency in the times of Inflation

“There is no honest, not one, that can resist the attraction of gold!” – Aristophanes

Frequent readers and friends of mine will instantly chuckle that I would seek out a quotation from ancient Greece’s greatest comedian to start off a blog post about the strangest and most enduring asset in world history. It is fitting to note that there were quite a few to choose from, multiple of them concerning the utility of gold, seeing as it is drawn from the ground and then “reburied” by investors seeking to dodge political and economic turmoil. But before we get into the uses of gold…

Gold has been mined for over six thousand years and shows no signs of stopping. Ancient Greek societies were the first to adopt a gold weight standard and in 550 BC put the first gold coin into circulation. Gold standards were very common until August 13th, 1971, when President Richard Nixon ended the Bretton Woods Agreement and unpegged the dollar from the price of gold. ETFs then changed gold history again by allowing individual investors to be exposed to gold without having to old gold directly.

Why hold gold?

You’ve probably seen those commercials about people who own gold and try to convince you to invest in gold as well. Why is that? And why hold gold? Gold’s uses are limited, other than jewelry and some machinery, and yet it seems to be a commodity that garners a tremendous amount of attention from investors.  

Gold provides a hedge against inflation when inflation gets out of hand because it is no longer tied to any government. Inflation’s causes are numerous, including consumer behavior and panic as we’ve mentioned on Today y Mañana on multiple occasions, as well as a lack of faith in centralized government, as happened frequently in ancient times. The Romans experienced this same phenomenon, given that their currency, while devalued, was done at such a rate that it would have been extremely difficult to detect without modern tools or melting down the coins for their underlying silver. What many historians suspected, was that the average citizen simply lost faith in the empire’s ability to rule effectively. Hence, inflation, hence, gold, because governments don’t have a monopoly over gold while they do over their own currencies.

Crypto as Gold

Some investors are touting the cryptocurrency market as a hedge against inflation for the same reasons that gold bugs have touted gold: governments don’t control it.

Opponents of centralized banks’ history over the last roughly twenty years believe that the government manipulating currency is not the best thing for the economy, especially when currency is how we store value and our wealth. The average person’s savings are generally in cash or valued in dollars. As a result, a devaluing of our currency devalues that store of funds we are saving for the future.

Holding a currency that is based entirely on mathematical principles and not on the faith and credit of the government is a benefit in the sense that it will be “safe” from ruling parties’ attempts to devalue their own currency.

Whether or not gold is really valuable or cryptocurrency is really anything at all is irrelevant. What really matters is that they exist outside of the ability of central governments to control them, and that is why gold and cryptos have been lauded as hedges against inflation.

What’s interesting to me? That these arguments are gaining heat thanks to the rising inflation that is not quite as transitory as the FED would like us to believe.

I’m Nickolas Urpí

From Emergent Financial Services

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