This Ancient Asset is Making a Comeback in 2024 - And It Could Make You Rich

Gold's Allure is Ancient, But Its Monetary Role Has Fluctuated Wildly Through History

It's ingrained into our psyche!

Gold holds a unique place in human history. Its beauty and scarcity have fascinated humankind for millennia. As far back as 2600 BC, gold artefacts were fashioned in ancient Sumeria. In 1500 BC, the Egyptians buried pharaohs in gold death masks. The first gold coins emerged in Lydia around 700 BC.

Yet while gold's allure appears timeless, its role as money has been anything but stable over the centuries. Gold coins first emerged as an alternative to primitive, unreliable commodity forms of money. But over time, gold oscillated between being embraced by governments as backing for their money to being spurned or even outlawed. The international gold standard of the 19th century ultimately broke down, culminating in the US ending dollar to gold convertibility in 1971. This ushered in today's era of purely fiat, government-issued currencies.

So where does this leave gold now in today's rapidly evolving monetary system? Will it remain atop the 'monetary asset pyramid' as a trusted, eternal store of value and safe haven in turbulent times? Or will cryptocurrencies and financial innovation relegate gold to the past?

Looking forward, there are compelling reasons to believe gold not only will endure as a monetary asset, but potentially thrive in coming years as currency debasement and financial volatility rise. However, the road ahead may be bumpy. Gold has always had an adversarial relationship with governments. This struggle will likely continue as today's unprecedented global debt levels and monetary expansion lay the groundwork for inflation and financial instability.

The Love-Hate Dynamic Between Gold and Government

Rulers have long had a dichotomous relationship with gold. When financed with gold reserves, budgets remain in check and currency reliably stores value. But governments frequently come to dislike gold's fiscal discipline and blame their economic woes on 'gold shortages'. Oftentimes what they desire most is a cheap, easily controlled money supply to fund priorities like wars or welfare spending.

The 20th century in particular saw governments explicitly move to marginalize gold from official monetary systems. However, their management of unchecked fiat money since then has frequently wrought havoc in the form of inflation, asset bubbles and financial crises.

Are we poised to enter a 'golden age' where gold reasserts itself as an anchor for the global monetary system? Perhaps. The financial crisis and successive waves of stimulus spending have left the world awash in debt and questionable fiat money. Meanwhile, rising geopolitical tensions point to a more fragmented world order lacking coordination mechanisms or shared monetary principles. In this unstable environment, gold stands ready to partially stabilize and 'internationalize' currency systems again. This will occur not through a rigid 'gold standard' but organically through investor choices.

Key Demand Drivers  Fuelling Gold's Resurgence

There are several key demand drivers with staying power that could fuel gold's renaissance as 'real money':

Central bank purchases: After being net sellers for decades, central banks have once again become net buyers of gold since 2010 - a sea change not seen since the US abandoned gold in the 1960s. China and Russia are leading the charge as they seek to diversify reserves and reduce reliance on dollars for international trade and finance.

Negative real interest rates: For years, real rates across many countries have turned negative, diminishing the opportunity cost of holding gold and undermining faith in fiat currencies.

Rising inflation expectations: Despite central bank assurances, inflation expectations have been rising. Gold has historically been embraced as an inflation hedge when faith in fiat currencies wavers.

Financial market instability: Periodic illiquidity and volatility spikes in financial markets highlight gold's unique liquidity and diversification during crises.

This mix of fundamentals provides support for years to come. Meanwhile, gold supplies are ample but unlikely to overwhelm growing demand. New mine production grows modestly each year. But gold recycling from existing jewelry and fabrication will increase as prices rise, stabilizing potential price spikes.

Looking Ahead: Three Scenarios, All Generally Constructive for Gold

There are three broad scenarios worth pondering when it comes to the global monetary system and gold over the next decade:

1. Status Quo 'Muddling Through': Under this scenario, the current unstable monetary system persists, with high debt/slow growth, negative real rates and periodic financial volatility. In this climate, gold would likely build substantially greater relevance as investors gradually lose more faith in fiat currencies and seek alternatives.
2. 'Reflation' Scenario: Here, central banks allow high inflation to take root to diminish the real value of excessive debt levels. Confidence in fiat currencies plunges as inflation soars well beyond expectations. Gold demand would likely hit record highs in this scenario.
3. 'Crisis' Scenario: This most severe outcome would involve a geopolitical or global economic shock that drives officials back toward international monetary coordination - with gold resuming at least a partial backing role to restore stability.

In all three scenarios, gold seems poised for a new golden age. Of course, nothing moves up in a straight line. Gold will almost certainly remain a volatile asset with occasional multi-year bear markets. Patience and discipline will remain key virtues for investors. But with monetary stability deteriorating and gold demand drivers intact, gold’s upside potential appears significant.

Allocating a Small Portion of Wealth As Insurance Makes Sense

For most investors, allocating a modest portion of assets to gold as 'insurance' still makes sense today. Consider a 5-10% allocation to physical bullion, gold mining stocks, or a diversified commodities fund. This protects against currency debasement and tail risks while providing historically low correlation to other assets.

The key is finding a holding period and threshold for pain that allow one to stick with the allocation, even if purchased at higher prices. A horizon measured in years, not days or months, is ideal. Remember, central banks are now buyers and will help put a floor under gold prices.

Of course, higher allocations increase risks as well. Gold mining equities can provide leverage, but introduce volatility. Emphasizing physical coin and bullion over miners reduces volatility. Conservative investors may opt for a larger share in physical form.

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Wealth can provide security and opportunities but also comes with potential pitfalls if not managed thoughtfully. Moderation may be the healthiest approach.

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The Bottom Line: Gold Likely Still in Early Stages of Revival

Gold remains far from its past highs - and far below historical averages compared to the global money supply. Meanwhile, debt is at record levels in both absolute terms and relative to GDP. The ingredients for the types of crises, negative real interest rates, and fiat currency debasement that boost gold are clearly present.

This implies gold may still be in the early stages of a revival as 'real money' - as an asset class that provides a degree of protection against reckless central bank policies and geopolitical uncertainties. Its role as a rare tangible asset with no counterparty risk gives it enduring appeal.

While nominally 'strong' currencies like the dollar have held up so far, trillions in stimulus spending have set the stage for future inflation that has yet to materialize. The opportunity cost of holding gold is low, while portfolio insurance benefits are high. Gold's golden days may still lie ahead, both as prudence and as a hedge.

A Deep Dive into Gold's Expansive Monetary History

To better understand gold's current resurgence, it's helpful to review its extensive monetary history and why it was embraced as money for millennia in the first place.

Gold emerged as currency in ancient times due to its unique metallurgic properties. Its scarcity, divisibility, durability, uniformity, and fungibility gave it obvious advantages over commodities like cattle, seashells or salt as a medium of exchange and store of value. Most importantly, gold is extremely difficult to counterfeit, enabling it to retain value and build trust across borders and eons.

These attributes enabled gold coins and bullion to circulate widely from Ancient Egypt to Imperial Rome and throughout early economies in Europe and Asia. Rulers coveted gold as a prestigious way to project power, levy taxes, and fund warring armies. Gold facilitated trade expansion along the legendary Silk Road from China to Europe. It brought monetary coherence to diverse regions of empire and commerce.

Of course, gold was far from perfect as money. Supplies were limited and production erratic, causing periodic localized scarcities, hoarding, and price swings. But it was vastly superior to primitive barter systems, cementing its dominance as the premier global money for civilization until just a few generations ago.

The Classical Gold Standard's Rise and Fall

The classical Gold Standard took hold in the 19th century, linking major currencies like the British Pound and US Dollar to fixed amounts of gold. This imposed fiscal discipline on governments, constraining debt-fueled speculation and military adventurism. Under the gold standard, persistent trade deficits between nations had to be settled with outflows of physical gold. This spurred moves back toward balance. So gold flows settled balances of payments between nations and stabilized exchange rates over the long run.

But cracks formed under the strains of economic depression, wars, and political pressures. Central banks occasionally suspended bullion convertibility to freely print money financing government deficits. The pressures became immense in World War I, causing many countries to fully abandon their gold commitments. The international gold exchange system broke down entirely in the interwar period, giving way to currency wars and trade protectionism. Efforts to reestablish a reliable Gold Standard after WWII failed as well. The US dollar emerged as the primary reserve asset by the 1960s under the Bretton Woods system.

In 1971, President Nixon dealt the final blow to bullion's monetary role by ending dollar-gold convertibility to fund ballooning public debt and the Vietnam War. Currencies were fully decoupled from gold, beginning the modern era of unrestrained fiat money manipulation. Monetary volatility and stagflation soared in the 1970s, but the financial world gradually adapted to pure paper money regimes. Gold entered a long bear market as its monetary relevance faded. It was increasingly viewed as a mere commodity, not an essential anchor for the global financial system.

The Forces Behind Gold's Modern Resurgence

But gold's demise as the basis of money was premature. As recent history has shown, unrestrained fiat money is prone to immense debasement and instability. Since severing paper currencies from gold, central banks have printed trillions of dollars, pounds, euros and yen - stoking asset and consumer price bubbles of increasing amplitude. When bubbles burst, more aggressive money printing was the only policy response, progressively devaluing currencies. Near-zero interest rates have distorted the pricing of risk assets and crushed savers.

Geopolitics have also shifted markedly over the decades, as the US, Europe and Japan's share of global GDP declined. China, Russia, the Middle East and other emerging markets grew wealthier and began challenging the dollar's singular status as a primary reserve asset. This unstable new monetary order cried out for renewed discipline and a connection to real value. Gold was perfectly poised historically to fill that role. The 'Golden Revolution' was at hand.

The Global Financial Crisis Marks the Turning Point

The global banking crisis of 2008-2009 marked the tipping point for gold's revival. Central banks slashed interest rates to zero and unleashed torrents of quantitative easing to try and prop up their economies. However, this immense money printing failed to reignite real economic growth and job creation as hoped. Instead, it sparked fears of inflation and currency debasement, sending investors flocking to gold as a hedge. Gold prices entered a structural bull market as confidence in unconstrained fiat money cracked.

In 2010, central banks halted decades of gold sales and reversed course to become net buyers for the first time since the 1960s. They sought to diversify foreign exchange reserves away from dollars and euros into assets with more enduring value. Developing countries like Russia, China, India, and Turkey led the charge into gold. The rotation by monetary authorities back into gold has continued steadily over the past decade, reestablishing its credentials as a critical reserve asset.

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Croesus would rethink Solon's pronouncement later when his empire was overthrown by the Persians. Croesus' name shows up in the phrase "rich as Croesus," meaning "filthy rich," and it has also entered English as a generic term for someone extremely wealthy.

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Loose Monetary Policies Spark Demand for an Inflation Hedge

Ultra-easy monetary policies were intended to spur economic growth by encouraging borrowing and spending. But they also directly erode the valuation of currencies. Real interest rates in dollars and other currencies turned decisively negative in the 2010s when adjusted for rising prices.

Savers found bond yields and cash interest offered woefully insufficient returns after inflation. This environment makes gold, which cannot be debased by central banks, an increasingly alluring asset to protect purchasing power. Gold demand has climbed in lockstep with rising inflation expectations. Further currency depreciation seems likely given still astronomical national debts and persistent deficits in most developed economies.

Geopolitical Fragmentation Increases Safe Haven Appeal

Simmering geopolitical tensions between Western powers, Russia, China, and the Middle East reinforce another pillar of gold's appeal - its utility as a safe haven in uncertain times. Gold diversifies portfolios as political insurance, being an asset beholden to no single government. This geopolitical uncertainty has become ingrained in recent years:

• Ongoing regional conflicts in Eastern Europe, the South China Sea, Africa and the Middle East.
• Mounting global competition for resources, export markets, and technological dominance.
• A fraying rules-based international order with declining cooperation between great powers.
• Economic sanctions, trade disputes, and supply chain disruptions that restrict growth.

In this environment, gold provides a form of insurance and protection against extreme tail events that can freeze mainstream financial markets. The future of a multipolar world order lacking a single dominant superpower remains unclear. Gold stands ready to instil confidence and reduce volatility when political instability inevitably rears its head.

How Gold is Reasserting Its Monetary Role Today

Rather than through a top-down bureaucracy like the classically rigid Gold Standard, gold is reemerging organically through countless individual decisions of investors, institutions, and central banks around the world. This decentralized process is sometimes referred to as the reconstruction of money 'from the bottom up'. The aggregated choices of global savers are driving gold's remonetization.

This reassertion has been subtle but steady since the early 2000s. Gold is already reestablished as an essential reserve asset diversifying portfolios and stabilizing the international monetary system. And this trend is likely still in its infancy. Considering gold's checkered monetary history, its future is never guaranteed. But given rampant currency debasement and accumulating debt burdens worldwide, gold's best days may well lie ahead. Its role is both rediscovered and evolving.

Gold Likely Still Early in Its Resurgence Higher

Gold remains far from its past peaks, and far below historical averages compared to money supply and global GDP. The macro-environment that catalyzes gold investment is firmly in place: excessive debt, negative real interest rates, rising inflation expectations, and geopolitical fractures.

This implies gold may still be early in rediscovering its role as 'real money' - as a scarce asset that provides protection against imprudent monetary policies, and hedges systemic risks like another global financial crisis.

While leading fiat currencies like the dollar have held up thus far, trillions in stimulus have set the stage for future inflation that has yet to materialize. The opportunity cost and risks of holding gold seem modest compared to its potential insurance value. Gold's golden days as prudence and hedge likely still lie ahead.

Some Thoughts to Leave You With

As 2023 dawns, the macroeconomic trends that have driven gold's resurgence since the early 2000s remain firmly in place. Global debt levels stand at staggering all-time highs after more than a decade of extraordinary monetary stimulus. Major central banks are still running near-zero interest rates and asset purchase programs to try and prop up their heavily-indebted economies.

This backdrop sets the stage for growing risks of inflation, currency devaluation and financial instability as we look ahead over the next 3-5 years. Periods of rampant money printing and negative real interest rates have historically sown the seeds for higher inflation taking root. They also foster the formation of asset bubbles and increase the likelihood of volatile boom-bust cycles in financial markets.

In such an environment, gold is poised to continue acting as a hedge and store of value for prudent investors seeking diversification, wealth preservation and insurance. Allocating 5-10% of a balanced portfolio to physical gold bullion or gold-backed ETFs remains a wise choice. Gold offers a safe haven from both volatility and the erosion of purchasing power.

Unlike fiat currencies, gold cannot be debased by central banks. This makes it especially attractive if inflation surges more than expected or confidence in monetary policy unravels. Gold has served as resilient crisis insurance throughout history - from the stagflationary 1970s to the GFC in 2008. This asymmetric upside protection deserves a strategic role in portfolios looking to smooth volatility and preserve wealth through the tempestuous waters ahead.

Of course, higher allocations to gold come with greater risks too. Outsized exposure can lead to painful drawdowns if the US dollar strengthens significantly. Consulting with a financial advisor can help determine the optimal gold allocation based on risk tolerance and investment time horizon. 10-20% positions may make sense for some aggressive investors with a decades-long horizon. But a 5% core allocation is prudent for most.

In summary, gold still appears early in rediscovering its role as 'real money' - as a scarce asset that hedges both systemic risks and the debasement of unchecked fiat currencies. While the road ahead may be volatile, gold's golden days likely still lie ahead. Its unique properties should keep it shining in portfolios for years to come.