What Good is a Bar of Gold When the Shelves are Empty?

What Good is a Bar of Gold When the Shelves are Empty?

There’s a fair amount of worry currently about the spread of the CoronaVirus into a global pandemic.

In China, there have been many supermarkets where the shelves have been completely cleaned out by people stocking up.

Judging by how busy our sister website – Emergency Food NZ -has been, many people are stocking up. Just in case the virus was to reach New Zealand and force people to remain isolated.

In light of this current issue, the following question from a reader is likely to be of interest to you too…

Thanks for the course, I am 5 modules completed. [Our free ecourse begins here – Ed.]

Q – can you tell me or point me to resources that will help me answer this objection to metal investment:

PAMP 1KG Gold Bar

What good is a bar of gold when the shelves are empty?

My assumed answer is that when the shelves are stocked again, and everyone’s savings have disappeared into air, I will have something to trade.

What do you say? Or where can I look for answers?

Many thanks, C

Our Response:

You’re on the Right Track By Our Way of Thinking

A common response when discussing the need for gold might be:

“Well you can’t eat gold, so you might as well just have food, guns, whisky and cigarettes to trade.”

Of course you can’t eat paper money either though. But we don’t all barter goods and services with each other currently. We use a government mandated “medium of exchange” for convenience.

But if there was a collapse of the current government enforced monetary system. And if you had more than a few thousand paper dollars you wanted to protect, you’d need a lot of space to turn these savings into the likes of food, alcohol and cigarettes. Plus you’ll also run into the problem of stopping them from perishing over time. So hence why gold and silver have been money for millennia.

Doug Casey Refers to Aristotle’s Reasons Why Gold is Money…

Aristotle-Why-gold-is-money
Aristotle

“A good form of money must be: durable, divisible, consistent, convenient, and have value in and of itself.”

See more here.

And Richard Russell of the Dow Theory newsletter expands upon these in regards to money saying:

(1) It must be durable, which is why we don’t use wheat or corn or rice.

(2) It must be divisible, which is why we don’t use art work.

(3) It must be convenient [portable], which is why we don’t use lead or copper.

(4) It must be consistent, which is why we don’t use real estate [or diamonds].

(5) It must possess value in itself, which is why we don’t use paper.

(6) It must be limited in the quantity that is available, which is why we don’t use aluminum or iron.

(7) It should have a long history of acceptance, which is why we don’t use molybdenum or rhodium.

So Back Specifically to Your Question…

If the shelves are bare as you say, it may be that they don’t fill up again at all.

For example, read anything about the German Weimar hyperinflation or more recently Zimbabwe. You’ll see a side effect of high inflation was that there was actually very little on the shelves. People simply got rid of their cash as quickly as they could because it was losing so much value – hence the empty shelves.

We’ve read how German farmers during the Weimar Republic eventually refused to accept German Marks as payment for their food, but accepted gold for their produce back then.  

With a Long Term Store of Value You Could Exchange This “Store of Value” for the Goods and Services You Need

Medium-of-exchange

And history says gold and silver will likely be valued most as a means of exchange.

Our thinking is that if you want some financial insurance for the end of the current monetary system and paradigm – or even just for the altering of it rather than the end of it – then physical gold and silver under your control are the only financial assets that are not someone else’s liability – i.e. they have no counterparty risk.  

Even if an Apocalyptic Scenario Doesn’t Happen, Paper Currency Will Likely Continue to be Devalued Due to the Massive Global Debt Load

Despite what those in charge would have us believe this debt load isn’t shrinking. The only way to be rid of it is by default (unlikely) or by debasing it away.  

Our Guess: The Purchasing Power of Gold and Silver Will Conversely Continue to Increase in the Coming Years

Our guess is that the purchasing power of gold and silver will continue to increase – albeit probably not in a straight line.

So it may be that you eventually swap precious metals for another beaten down asset of some type like property, shares etc. As occurred at the end of the 1970’s precious metals bull market – and get more for your money then.

For example, at the end of 1970’s bull market, silver was at US$50 and the average house price in USA was US$49,000. So 1000 ounces of silver could have bought you a house.

See these articles for some New Zealand historical comparisons:

NZ Housing to Gold Ratio 1962 – 2019: Measuring House Prices in Gold‎

NZ Housing to Silver Ratio 1968 – 2019 – Measuring NZ House Prices in Silver

But Gold (and Silver) Also Acts as Insurance in Case of a Complete Breakdown of the Monetary System.

Either way, you should be able to swap gold for something else you want/need more. Just as you have been able to for a couple thousand years.

We’ve also received a somewhat similar question a while back. So that might be worth your while to have a look at that too: Why Gold is More Valuable Than Worthless Paper

So in short – yes you would likely be able to swap gold for the goods you need. Although in the case of a full monetary collapse, history shows that it might not actually be with a shopkeeper. But rather could be with the end producer of the good instead.

P.S. This video by Chris Duane also looks at this question. Skip forward to the 10:20 min mark to hear his take on silver in a collapse. He makes the point that you should have all other vital supplies – food, water etc – before you even start thinking of buying silver which makes perfect sense. As the Christchurch earthquakes prove it pays to be ready with emergency food, water, clothing and shelter for natural disasters – as well as government made ones.

Editors note: This article was first published 8 October 2013. Updated 3 February 2020 with information about Coronavirus and other updates.

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