The Secret to Longtime Wealth Protection is Gold
The idea behind long-term wealth protection is simple.
It’s a similar concept to the farmer that plants a tree today, knowing they’ll never lie under the shade the tree provides.
Growing your wealth isn’t a sprint. It’s a marathon.
Something that happens over decades…
But in order to do that, it helps to understand what you’re trying to protect.
People think that just keeping cash in the bank is the answer.
Of course having some cash aside is always a good idea. But in these days of low rates, cash in the bank doesn’t keep pace with central bank policies.
The Reserve Bank of Australia has joined the rest of the Western world by lowering rates.
And those moves essentially weaken the value of the Aussie dollar.
That can happen to all fiat currencies, like the US dollar, Aussie dollar, Japanese yen, euro, British pound, and even the Chinese yuan too.
Every government and central bank the world over has the ability to make decisions to make their money worth more or less than others.
They can do this, because there is nothing backing these currencies…only the faith in the government to control the value of them.
Simple acts like local central banks increasing or decreasing rates have an impact on the value of a currency.
As does inflation.
However, while inflation eats away at your purchasing power, there is one form of money that remains the same…
Gold has been money for thousands of years
Historically, gold has proven to be an excellent hedge against inflation. This is because prices tend to rise when the cost of living increases.
In other words, your money starts to buy less and less each day.
As inflation erodes the purchasing power of your dollars, gold’s buying power remains the same.
Yet when deflation strikes — that is prices fall — the ability of gold to buy things remains constant.
This was analysed by historical gold expert Roy Jastram in 1977.
As Jastram pointed out in his book The Gold Constant, it’s not that gold’s nominal price increases during inflationary or deflationary periods…it’s that gold’s purchasing power increases.
Let’s explain that another way.
The nominal price, is another way of saying the current dollar value price. Whereas the purchasing price is what gold can buy.
We have several points in history that prove this too.
During the deflation period of 1814–30 in the US, prices fell by 50%.
However, Jastram discovered that the purchasing power of gold rose
It was similar again to the next American deflationary period in 1870–1914.
Overall prices dropped 65% in this time, but gold’s purchasing power rose 40%.
This is particularly important, as during 1870–1914, the gold price was fixed to US$20.67 per ounce.
The point is, in both examples the prices of goods fell. But each time gold’s ability to buy goods increased.
Even during a time where the gold price was fixed by the government, prices of goods and services still fluctuated…
…yet the price of gold remained steady.
Throughout history — several millennia of it — gold has proven to protect its purchasing power time and time again.
The point is, gold isn’t a one-trick pony.
It maintains its worth through central bank policies, and inflationary and deflationary periods.
And as Jim points out today, gold could even save a life.
Until next time,
Gold Can Preserve Wealth, but Can Also Save Your Life
The fact that gold will preserve wealth in the face of financial crises, inflation, and deflation is well known. The record speaks for itself.
In the early 1930s, during the longest period of sustained deflation in US history, gold went up 70% from US$20.67 per ounce to US$35 per ounce.
In the late 1970s, during one of the longest periods of sustained inflation in US history, gold went up 460% from US$150 per ounce to $850 per ounce by the end of the decade.
Gold’s performance during the 2007–10 financial crisis was equally impressive. During that period, it went from US$635 per ounce to US$1,420 per ounce, a 123.5% gain.
Whether it’s inflation, deflation or panic, gold preserves wealth.
But did you know gold can also save your life?
As documented by Bullion Star, military forces around the world have consistently included gold coins in survival kits for elite military units.1
These coin kits have included a 1.08 troy ounce coin issued to pilots and paratroopers in Vietnam, and packets of 20 gold sovereigns (about a quarter-ounce each of 22-karat gold) issued to troops and pilots of the Special Air Service by the UK’s Ministry of Defence during the Gulf War.
The reasons are obvious.
Troops stranded in remote areas or behind enemy lines have no use for paper money.
It either won’t be accepted or will give away their allegiance or both.
On the other hand, gold is universally recognised and universally accepted in barter or simply as money.
It can be used to buy food, secure transportation or as a bribe to escape difficult circumstances. Investors subject to power outages, natural disasters or social unrest are just as much in need of gold for survival as elite troops operating at the tip of the spear. Got gold?
The secret to generational wealth
In the United States, the ‘old money’ is generally about 150 years old, with fortunes dating to the mid-19th century.
Families in this category include the Vanderbilts, Rockefellers, and Carnegies. More fortunes were created about 100 years ago including the Fords and Firestones.
Some US family fortunes are almost 200 years old (the Astors, Girards, and Biddles).
Most of the great wealth today is not old at all.
It comes from success in the past 30–50 years, including Mark Zuckerberg, Jeff Bezos, and Warren Buffett. What about family fortunes that are 300 years old or even older?
Fortunes that old are unheard-of in the US, but can be found in Europe?
I’ve written often about the Colonna family in Rome, who have preserved their wealth for 800 years.
This family fortune has survived the Black Plague, the Thirty Years‘ War, the Wars of Louis XIV, the Napoleonic Wars, both the First and Second World Wars, and more.
‘A third, a third, and a third’
My interest in the Colonna family began when I was a guest in their palazzo in Rome and learned the secrets of long-term wealth preservation from a member of the extended family.
My dinner companion at Palazzo Colonna told me that the secret was ‘a third, a third, and a third’.
By this, she meant that wealth should be allocated one-third to land, one-third to gold, and one-third to fine art (of course, some cash needed for operating costs and some business investment is fine also).
The latest example of this strategy at work is described in by The Telegraph about the Italian family, Torlonia, also of Rome.2
The Torlonias followed the same strategy as the Colonnas with allocations to land, fine art, and gold.
The Villa Torlonia in Rome is so impressive that it was temporarily expropriated by Italian dictator Benito Mussolini as his personal residence during the Second World War.
(One point of an allocation to property is that despite temporary occupation or expropriation, it can usually be reclaimed later if the original title was good.)
The Torlonia’s vast wealth preserved in their collection of Greek and Roman marble statuary.
The family collection is considered to rival the collections in the Louvre and British Museum.
Of course, not everyone can afford to collect 2,300-year-old Greek statues.
But museum-quality 20th century art or valuable numismatics are well within reach for many wealthy families.
The ‘old money’ shows that true wealth preservation comes from art, gold, and land rather than stocks and bonds.
All the best,