The Past, Present and Future of Gold

Posted on February 16, 2023

A few things about history have to be said before delving deep into it. We'll avoid Napoleon's quote and instead say that history should be taken with a grain of salt. And we generally have a worse idea of what transpired the further we go back, especially when talking centuries. An example being...

The times long gone... kind of

Why does the code of Hammurabi refer to silver 55 times and gold only four? If we are to believe recorded history as-is, it seems silver might have occupied a kind of central currency role while gold was perhaps an exotic item of far greater value and scarcity. Maybe it was just less popular.

Then, King Kurigalzu the First of Babylon stirred things up by making goods far more uniformly exchangeable with gold. Clearly, meeting the request of his Anunnaki bosses. By 635 BC, we have the first account of gold and silver in a mixed alloy becoming coinage.

To us, one of the more interesting and certainly believable parts in these far-back historical accounts is the case of the Romans debasing their currency. When the government wanted more money, it would skew the gold/silver ratio in coins to favor silver more and more. Then, it would add copper to the alloy mix. Does this sound like the early makings of the Federal Reserve to anyone?

As we get to central banks that are still around, we see just how bizarrely long a poorly-conceived financial experiment can run.

Central banks: never sound, but always around

It might be more accurate to say that a central bank is well-conceived, so long as we understand its purpose is to enrich the government and impoverish the populace. So was true in England: the creation of the central bank in England was part about control and part about taking real money out of people's hands. Instead, money was now IOUs, a piece of paper that refers to increasingly unsustainable debt.

It took all of two years before England's government had to bail out its own wealth-sucking program. 2008-2011 vibes? The intervention gave the Bank of England more freedom and less accountability, making it very modern in that regard.

Amsterdam had the first truly centralized monetary entity, as it opened shop in 1609, but the Bank of Amsterdam lasted longer without trouble, having "only" started collapsing in 1790. In essence, the BoA took our love of growth a little too seriously. It expanded from being mostly a storage intermediary for gold and silver to a lender. And, when it turned out it had nowhere near the gold and silver holdings it should to lend the amounts it has, a crisis hit… until banking was made very modern once again, with banks being able to lend far and away in excess of what they have.

What about gold and silver in a world where crypto is the future of money?

Cryptocurrency is the latest trend in the world of currency, and it certainly is here to stay.  That doesn’t mean that gold hasn’t found ways to innovate and keep up with the times too, though.  And crypto certainly isn’t here to replace good ol’ physical metals.  Miguel Perez-Santalla, who gave us a lengthy overview of why modern finance disappoints so often, is very bullish on cryptocurrencies. He believes they might be the future of money. And still, he doesn't see the use case for gold and silver disappearing.

It's not difficult to see why. These days, cryptocurrencies are either traded in Bitcoin or U.S.-dollar pegged stablecoins. They tend to be priced in one of these two things. The first has proven enormously difficult, as a blow to Bitcoin drags hundreds of tokens with it.

The second might prove difficult down the line, if just a small part of the warnings about hyperinflation we've been hearing materializes. Crypto works in Venezuela because the U.S. dollar is still kind of stable: it wouldn't work if it was mainly priced in the bolivar.

Might we see a true merger of digital finance where cryptocurrencies become intrinsically tied to gold and silver, giving them underlying stability that they continue to lack? The people's gold standard? Sounds good to us.