WEEKLY ROUNDUP

[Weekly Roundup] Paper Is Hardly Scarce… and That’s Why Gold Beats It

Hello, Reader.

Buying scarcity is usually a good idea.

Scarcity is the “active ingredient” of timeless investments like beachfront properties, mint-condition rare coins, and limited-production luxury automobiles.

It is also the attribute that gives precious metals their sparkle, enabling them to preserve purchasing power throughout good times and bad.

Nevertheless, precious-metals “haters” are legion. They dismiss these shiny metals as investment has-beens that retain no real value or purpose in the modern world.

For instance, 20 years ago a financial writer named James Surowiecki scorned gold as “a testament to the tenacity of popular delusion.”

It is valuable, he said, “only as long as we collectively agree that it is… just because it has a long history of being used as money doesn’t mean that it has a future.”

He then broke out his thesaurus and condemned gold’s allure as “increasingly atavistic.”

Although I consider Surowiecki’s perspective to be as valid and timeless as gold itself, I do not share it. Instead, I would submit that buying gold reflects far less atavism than uncritically trusting paper assets, like the U.S. dollar or Treasury bonds.

According to my dusty, unabridged dictionary, “atavistic” refers to any trait produced by the “reappearance of a characteristic in an organism after several generations of absence, usually caused by the chance recombination of genes… also called a throwback.”

In other words, the impulse to buy gold, according to Surowiecki, is a kind of congenital oddity, like a “vestigial tail.” That is, the impulse to buy gold sporadically reappears, even though the rationale for doing so has long since vanished.

Unlike a precious metal, a U.S. dollar contains no measurable quantity of any element on the periodic table, nor any resource whatsoever that could contribute to any industrial application. Furthermore, a U.S. dollar is a poor conductor of electricity and combusts near an open flame.

In other words, a dollar possesses no intrinsic value.

We value them simply because we have for centuries. To borrow from Surowiecki, the dollar will remain valuable “only as long as we collectively agree that it is… just because it has a long history of being used as money doesn’t mean that it has a future.” By extension, the appeal of dollar-denominated assets like Treasury bonds seems “increasingly atavistic.”

Relative to paper assets like T-bonds, gold has become increasingly scarce. To illustrate, let’s take a look back at history…

Back in 1979, when the federal debt first crossed the $1 trillion mark, the current market value of our gold reserves was about $150 billion. In other words, our total debt was about seven times larger than our gold reserves. Fast-forward to today and our $34.7 trillion federal debt has become 52 times larger than the value of our gold reserves.

Interestingly, since the day Surowiecki penned his critique of gold 20 years ago, the value of sterile, zero-yielding gold has soared more than 400%. By contrast – as you can see in our “Chart of the Week” below – long-term Treasury bonds (as represented by the iShares 20+ Year Treasury Bond ETF (TLT)) produced a gain of just 93% over the same time frame.

In other words, the relic asset outperformed dollar-based T-bonds by a factor of 4-to-1. This “bad math” may not matter to folks like Surowiecki, but it might matter a lot to folks like you and me.

To be clear, we mostly focus here on identifying great businesses with superior growth potential. Gold is not one of those, and neither is silver or platinum.

Therefore, I do not recommend “loading the boat” with precious metals. But I do recommend buying them as a hedge against potential dollar weakness or other unforeseen financial trauma. In other words, I recommend buying scarcity, at least as a hedge.

For deeper insights on managing precious metals in your portfolio, learn how to join us at Fry’s Investment Report.

And for a closer look at what else we covered here at Smart Money in the past week, read on…

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Smart Money Roundup

This “Money Calendar” Tips You Off to the Market’s Biggest Shifts As a trader, having an edge is crucial – a method, strategy, or insight that can help secure some wins. My colleague Tom Gentile has created a tool that has helped him pinpoint the right time to buy and sell. In this special guest issue, Tom shares more about his Money Calendar tool… and what he sees coming in the AI sector. Click here to read more.

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Is It Too Late to Buy Nvidia? See Shocking Answer from Legend

Are AI stocks in a massive bubble that’s ready to pop?

Will this AI boom end in tears, just like the dot-com bust in 2000?

Should you buy AI stocks like Nvidia…

Or is it too late?

Click here to see the answers from the legendary trader who predicted the rise of AI stocks five years ago.

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Tomorrow, July 9, at 8 pm ET, legendary trader Tom Gentile is hosting an urgent strategy session to answer these questions.

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Tom predicted the rise of AI in early 2019… and gave his readers a chance to turn $10,000 into as much as $325,000 in shares of Nvidia.

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(By clicking the link, your email address will automatically be added to the Event RSVP list.)

A Look Forward

Watch out Wednesday for your next Smart Money, where I’ll keep diving deeper into big-picture trends that continue to shape my investment outlook.

And stay tuned on Friday. That’s when I’ll be exploring these major trends in much greater depth in the July issue of Fry’s Investment Report. If you’re already a Fry’s Investment Report member, you can log in here late on Friday to get that issue. But if you’re not yet a member, find out how to join us by going here.

Regards,