Safe Haven: Why Precious Metals Matter

Investments in precious metals, such as gold and silver, offer unique advantages not found in many other assets. Physical gold and silver exist outside the traditional financial system, eliminating counterparty risks. Historically, they serve as a reliable safe haven for capital, protecting assets and purchasing power during periods of economic instability.

Stefan Gleason, president of Money Metals Exchange, explains that investing in precious metals is quite simple. The main motivation for investors is not quick enrichment, but rather the preservation of finances from the threats of currency devaluation in times of crisis. Gold and silver have been used as money for centuries, which confirms their fundamental value.

Unfortunately, the path to understanding this simple truth is often complicated by an abundance of false news and myths. The financial and monetary sectors actively spread disinformation about precious metal investments, which can mislead investors. Gleason highlighted five of the most common 'big untruths'.

Myth 1: Gold is Not Money

Financial intermediaries, including brokers, bankers, and even central bankers, prefer that the public not view precious metals as a primary asset. They actively promote the idea of gold as a 'barbarous relic' of the past, which has lost its monetary function. This position is a serious distortion of the facts.

A clear example of this misinformation was an exchange in 2011 between then-Federal Reserve Chairman Ben Bernanke and Congressman Ron Paul. Bernanke then categorically stated that gold is not money. However, this contradicts not only centuries of history but also the current practices of central banks.

Central banks themselves continue to actively store and accumulate gold as part of their monetary reserves. In 2018, central banks worldwide, led by Russia and China, added hundreds of tons of gold to their holdings. In the first quarter of 2019 alone, Russia increased its gold purchasing pace by a staggering 68%. For major world powers seeking to move away from reliance on the U.S. dollar and protect themselves from perceived threats from Washington, D.C., gold is clearly not a 'barbarous relic'.

Myth 2: Silver is Not Money

Some experts recognize the monetary function of gold but deny it for silver. However, historical facts suggest otherwise, especially in the context of the USA. The so-called "Founding Fathers" of the United States initially defined the dollar in relation to a specific amount of silver grains.

According to the Coinage Act of 1792, the dollar was legally fixed as the equivalent of 371.25 grains of silver, which is approximately three-quarters of an ounce. This clearly shows that silver was the true basis of circulating currency in the USA. Although silver has now been removed from circulating coins and replaced with cheaper metals, and central banks typically do not hold it in their currency reserves, its role persists.

Stefan Gleason argues that silver remains the tangible asset of the people. In the event of a currency collapse, when the population is forced to abandon paper money, silver is more likely to be used as barter money in everyday transactions than gold. This confirms its potential role in unstable times.

Myth 3: Gold and Silver Are Too Risky for Investments

This "untruth" is actively promoted by Wall Street financial advisors as part of anti-gold propaganda. A conflict of interest is evident here: the financial industry loses its commissions when investors prefer to invest capital in solid financial assets. This is why precious metals are often classified as "exotic and risky" investments.

While putting everything into gold and silver would indeed be risky, experts advocate for a sensible asset allocation. The recommended share of precious metals in a portfolio varies from 5-10% to possibly 20-25%. Such an allocation allows for effective use of the protective properties of these assets.

• A study by Ibbotson Associates showed that investors allocating 7.1% to 15.7% to precious metals portfolios achieve superior risk-adjusted returns.
• The price of gold has virtually no correlation with stocks and bonds, meaning it can potentially rise even when paper assets fall.
• For example, when the stock market crashed in 2002, precious metal prices rose.
• Or, for instance, when the financial sector entered a crisis in 2008, gold ended the year with moderate growth.
• When the United States suffers from a debt-money crisis (which many analysts believe is inevitable), the biggest risk for investors will be the lack of a sufficient percentage of precious metals in their investment portfolio.

Myth 4: Cryptocurrency Is More Valuable Than Physical Gold

The cryptocurrency craze has spawned many misconceptions, including the idea of Bitcoin as "digital gold." However, it's important to understand that cryptocurrencies are backed solely by numbers, so they cannot be equated with gold. They are not capable of replacing physical gold, whose value has been proven for centuries.

Some cryptocurrency promoters use negative arguments against gold to highlight the benefits of digital assets, for example, claiming that "cryptocurrencies like Bitcoin have real utility unlike gold." This assertion, according to Gleason, is a continuation of the myth of gold's uselessness, which was previously propagated by the financial sector.

In fact, gold was recognized as money precisely because it had numerous applications beyond monetary use. It is useful not only to jewelers and artisans but also to scientists using space technologies. Its multifunctionality ensures its lasting value.

Stephan Gleeson urges us to ask: how exactly will Bitcoin be useful outside its digital ecosystem? While cryptocurrencies have their market today, their value may disappear in 100 years with the advent of new technologies. The value of gold, however, is real, immutable, and eternal, and its unique physical properties and rarity guarantee its significant worth always.

Myth 5: Collectible coins are more profitable for investment than bullion coins

Some misinformation about investing in gold and silver comes from interested dealers of numismatic coins. They aim to convince clients to pay large premiums for supposedly rare collectible coins, sometimes using absurd arguments, for example, that a coin collection cannot be confiscated by the government or valued higher than regular coins.

In reality, these high-premium but relatively illiquid products are only suitable for those with a special interest and deep knowledge in numismatics. Such investors must be well-informed about the intricacies of the collectible coin market to make sound decisions.

For the vast majority of precious metals investors whose goal is simply to buy ounces of gold and silver, regular bullion coins with low premiums are a far more advantageous investment. They offer better liquidity and lower costs, making them the preferred choice for long-term capital preservation.