Not Investing Has In Fact Been Quite Rewarding!

What this means is that deciding to defer investing part or all of your money and opting instead to save it for the time being, by simply exchanging it for gold or silver bullion (which are monetary metals or another form of money, yet to be fully recognised again as such), can be quite rewarding. This is the case, in our opinion, simply because our current global monetary system is failing and our fiat currencies are being debased and losing their purchasing power.  In other words, it is no longer necessary to invest to increase one’s purchasing power.

The two monetary metals are priced in US dollars, but investors in any country can purchase bullion by converting their fiat currency.  The price in USD of gold has now increased on average by 8.7% per annum or a total of 554% since the year 2000.  The silver price has done less well during the same period, but still rose 434% or 7.7% per annum.  These price appreciations or rates of return represent a significant increase in purchasing power which can be quite easily achieved by simply hoarding gold or silver, the physical metals. How do these gross (before any tax and fees) rates of return compare with your investments? 

If your base currency is not the USD, then the following document will be of particular interest to you.  It shows what those gross rates of return were across ten major currencies and for each of the past twenty-two calendar years, as well as cumulatively. The document presents two tables, one for gold and one for silver, showing the reward for hoarding the metals in ten major currencies, based on their price change in those currencies.  For example, you’ll see that for 12 consecutive calendar years, the price of gold in USD (and broadly across all ten currencies) increased; but it dropped significantly (by 28.1%) in 2013.  In 2014, the price in USD stayed much the same (rising only 0.1%).  In 2015, it dropped again; this time by 12.1%.  Then, in 2016 and in 2017, the gold price resumed its course of rising prices.  In 2018, the gold price fell by less than 1% in USD, but rose in 7 of the 10 currencies. 2019 and 2020 saw the gold price rise once again significantly, by 18.4% and 24.6% respectively, in USD. In 2021, the gold price dropped in six currencies, but rose in four, averaging a loss of 1.2% for the year. In 2022, the gold price rose in all ten currencies, the least in USD terms (0.4%) and the most in JPY, averaging a gain of 7.9% across all ten currencies.

For any investment to have outperformed simply hoarding gold bullion, for example, its past performance measured in fiat currency units must be greater, before tax and fees.  For US based investors for example, an investment must have earned more than 9.0% p.a. during the past 22 years, or have increased by more than 566%, to have been more rewarding than simply hoarding gold.  On the other hand, some currencies have been much stronger over this period than the US dollar: for example, the NZ dollar.  At the beginning of 2001, it took more than two NZ dollars, i.e. NZ$2.25, to buy one USD; at the end of 2022, it took a lot less (i.e. NZ$1.57) to buy the same USD.

As a result, hoarding gold (or silver) has not yet been as rewarding for New Zealanders as it has been for Americans or indeed most anyone else based in the countries of the eight other currencies considered.  But what if the NZD/USD exchange rate was to fall back to, say, US$0.50 (after all, it did fall from US$0.80 to US$0.50 in 2008 and it also fell to US$0.56 in March 2020…and another crisis could be just around the corner)?  Then the gold price in NZ dollars would rise by 44%, even without any change in the price of gold in USD, and the reward or cumulative increase in purchasing power for the NZ hoarder of gold would rise from 7.2% per annum or 359% (as indicated in the table) to 8.3% per annum or 483% cumulatively over that twenty-two year period. 

In other words, although gold is indeed priced in USD and its price is normally expressed or quoted in USD only, the true value of hoarding gold is the increase in the purchasing power you get from it in your own currency. The question for investors to ask themselves is: how confident are you that your country’s central bank will preserve the purchasing power of your currency? In fact, since no central bank anywhere has ever succeeded at preserving the purchasing power of its fiat currency over time, the question then becomes: do you prefer to place your full faith in central bankers or do you also want to protect yourself from their prolonged and systemic debasement of fiat money? The choice is yours.

On top of that historical fact, there is this fundamental fact as well: New Zealand or its central bank, the Reserve Bank of New Zealand, has no gold reserves at all: zero ounces. That’s despite the fact that central banks around the world have lately been buying more gold for their reserves than they have done since the 1960s. Why? I can only assume that it is to provide a stronger backing for their currencies during these highly uncertain monetary times. Yet, here we are in 2023 and still, New Zealand has no gold. So what exactly is backing the NZ dollar? Nothing, really, other than the belief that the Reserve Bank of New Zealand will be able to preserve the purchasing power of its fiat currency. Hummm…

Maybe that’s enough; maybe not. You decide. Here’s what another central banker said recently on the importance of gold, as a suggestion for you to use as food for thought on this important matter:

“If the system collapses, gold can serve as a basis to build it up again. Gold bolsters confidence in the stability of the central bank's balance sheet and creates a sense of security.”
De Nederlandsche Bank (Dutch Central Bank)
October 12, 2019