What We Learned
The founders accepted a utopian financial package was going to be difficult to achieve, and yet all things are possible, if you pursue the right course at the right time. From adversity comes strength and opportunity. The key to the strategy would be to find a way of utilising the gold, once acquired to generate revenue. Researching gold, it quickly becomes apparent that the metal is so much more than a commodity. Too many people have lost sight of what money is, was and will be to us.
Money, the thing under pressure today at the bank is only fiat money and is currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material that the money is made of. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on faith. Fiat is the Latin word for “it shall be”. Because fiat money is not linked to physical reserves, it risks becoming worthless due to hyperinflation. If people lose faith in a nation’s paper currency, like the dollar bill, the money will no longer hold any value
We also noted that some of the richest individuals on the planet, George Soros and Stan Druckenmiller have considerable gold holdings. In fact, as much and possibly over a third of their wealth is gold. We were aware these men had sufficient income from many other sources and holding gold as a last reserve made sense. However, we considered it unlikely that such prudent men would not let such a large percentage of their wealth sit idly by and just rely on it as a resource of last resort.
On closer inspection it was clear what they did. They had adopted the model of central banks historically. Unable back in the day to just print money ad infinitum, central banks once held sufficient bullion and other tangible commodities or assets to actually meet the value of currency they put into circulation. In other words, the paper was supported by gold value. This is clearly the case for these men, and they have cash flow linked to their bullion, should the require it for opportunity in the market place.
We also know that in 2012 the LCH Clearnet, the world’s largest clearing house began accepting gold as security for margin. Prior to this only hard cash was acceptable, no matter how big or who you were. So gold really is just another currency, but one which goes up in value like a finite commodity. So we realised we needed to think like a central bank and use our gold like money as well as a capital asset.
The thing we had to find was something risk averse, which we could be directly involved with and made sense. The base rates at the central banks are at zero or thereabouts and in some cases negative. Money, cash, savings are not achieving anything in any bank, unless they are placed into some form of speculative investment attached to risk.
The risk to reward is relative; with limitless global business failure and political strife we were unable to find anything which offered us a realistic return with minimal risk. If it was to be a gamble then we decided we would prefer to go to the casino ourselves, rather than sit naively by while another threw the dice. This of course we did not do, we continued to work for something better.