Gold and it's Economic Importance

"[Dollar bills] have no value for themselves, but for what they will buy." – from the website of the U.S. Treasury:

Dollar bills actually have no value... And the US government actually tells us that.

But somehow, we believe they do. We save dollars like they're valuable... After your home, dollars in the bank are probably your second-largest asset. People seem to be completely oblivious to the fact that their second-biggest possession of wealth has absolutely no inherent value.



While we don't think much about this, it drives Burt Blumert crazy...
Burt, if you don't know, started Camino Coin back in 1959. With a half century of experience dealing in money and gold, Burt knows a thing or two about the topic.

Burt has a "silver room" in his office, where silver bars are strewn around like discarded Kleenexes. He has a "$20 Liberty" gold coin.

"In my lifetime, this coin really was worth $20," he say's. It's brilliant. It's big. And it's heavy. $20 gold coins like this contain just under an ounce of gold. Today, an ounce of gold is worth around $680 dollars. A $20 bill is worth $20. But a $20 gold coin could be melted down for $660 worth of gold.

This coin was money in Burt's lifetime... It is a real representation of the destruction in the value of a dollar during that lifetime. This is the first part of Burt's visual lesson... "Steve, this destruction of wealth will continue. It is inevitable. Fortunately, you can protect yourself from it. And you must."

Burt's show-and-tell continued... Next up was a gold certificate...Gold coins have been money for centuries. Yet gold certificates started to appear in the U.S. in the late 1880s. Certificates were fine... they represented gold coins in a vault. But they were one step away from the real gold. Burt pulled out a $20 bill here from 1928 to make another point:

While it looks almost identical to recent $20 bills, there is a crucial difference... across the top in small letters, it says: "This Certifies that There Have Been Deposited in the Treasury of the United State of America" then across the bottom "Twenty Dollars in Gold Coin Payable to the Bearer on Demand."

The next chapter in the story was far more drastic. Gold ownership was outlawed in the U.S. in the 1930s. (No kidding. You were forced to turn in your gold.) The United States, in essence, moved to a silver standard.

At first, silver certificates circulated, with the same promise as the gold certificate above. But the degradation of the promise to pay continued... Then, the promise took out the portion about being payable in coin. By the 1960s, they were no longer redeemable in silver.

The visual lesson continues. "Steve, please pull a dollar out of your wallet... What promise is written on it? What does that dollar entitle you to? What, exactly is stored in a vault somewhere that you have a claim to?"

The answer, of course, is "absolutely nothing." End of visual lesson.

Even the U.S. Treasury admits it. "Federal Reserve notes [dollar bills] are not redeemable in gold, silver or any other commodity, and receive no backing by anything. The notes have no value for themselves, but for what they will buy."

In the last five years, the price of gold has more than trebled. Said another way, it takes three times as many paper dollars to buy an ounce of gold today than it did just a few years ago. At the same time, the U.S. dollar has weakened by about 30% versus the other major currencies of the world.

Why are dollars your second-biggest holding? You really must sell some worthless paper and own the real asset, or as Burt would likely argue:

The only real money – gold.

By Dr. Steve Sjuggerud