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Eat Gold

A popular phrase in segments of the mainstream financial media is that “You Can’t Eat Gold”. We don’t know who first uttered this comment, but it was more than likely a talking-head or Wall Street analyst on CNBC or Bloomberg.

The disparaging claim seems to be based on concluding that in a financial or monetary crisis, if you own gold, that “You Can’t Eat It”. And so, according to the logic of whoever came up with the phrase, this would make gold useless during a financial crisis.

In addition to the misleading and irrelevant nature of the comment, which we will discuss below, the claim that “you can’t eat gold” is actually factually wrong. And that is because you can eat gold. And also drink it.

Eating and Drinking Gold

While gold can be eaten, it cannot be digested. But it is non-toxic to the human body. And it does not react chemically in the human body. That is why gold can and does appear safely in a number of foods and drinks, not surprisingly foods and drinks which are predominantly at the luxury end of the market.

Some readers will have heard of Goldschläger, a Swiss/Italian liquor which has flakes gold suspended within it. On a similar note, a Swiss gin called ‘Studer Swiss Gold Gin’ also contains flakes of gold. Staying within Switzerland, you can also buy edible gold products including “Swiss chocolate truffles with gold flakes”. Not to be outdone by the Swiss, the Emirates Palace Hotel in Abu Dhabi (United Arab Emirates) offers a ‘Palace Cappucino” which is sprinkled with gold flakes.

In Selfridges department store in London, you can buy a “billionaires soft serve” ice cream cone topped with both sprinklings of gold leaf and a gold leaf covered flake. While in New York, in Manhattan’s Upper East Side, a high-end restaurant offers a "Golden Opulence Sundae” topped with gold leaf, for US$ 1000 a glass. Back in England, a specialist cheese producer in Leicestershire created Britain's most expensive cheese - "Clawson Stilton Gold", a stilton cheese interwoven with edible gold leaf and shot-through with gold liqueur. These uses of gold in food and beverages illustrate that gold is a sought after and prestigious substance, but also that gold is real, that gold is tangible and that gold is of value.

Wall Street's Selective Focus

The logic of the “you can’t eat gold” comment, as well as being wrong, is also flawed. Because by extension, you can’t eat any of Wall Street's favorite investment assets. Imagine chewing on financial securities or fiat currencies. But whoever coined the phrase “you can’t eat gold” conveniently failed to mention this on CNBC. We would challenge anyone, especially CNBC and MSNBC, to eat share certificates or bond certificates or the electronic equivalent thereof.

Nor can you eat the electronic coins of cryptocurrencies such as Bitcoin, Ethereum’s Ether or Litecoin. Real assets such as art, antiques, real estate, agricultural land, or vintage cars are also off the menu. A possible exception is that can drink an expensive investment wine collection, but would you really want to do this, as then you would be consuming your principal investment?

Wall Street analysts fail to mention that you can't eat stocks and ETFs

Gold's Many and Varied Benefits

But beyond the fact that you can in fact eat gold, and that Wall Street never points out the non-edibility of stocks and bonds, there are many beneficial reasons to buy and own investment grade physical gold of which we recently pointed out in 28 reasons to buy and own physical gold. What we are talking about is real physical gold in the form of gold bars and gold coins. This is true both during times of financial crisis, and also over the long-term as a form of investment and savings.

Gold is without doubt the ultimate safe haven asset. In times of financial crisis and turmoil, investors and savers flock to gold as a wealth preservation strategy. The reason for investing in gold during times of crisis is based on the fact that investors instinctively know that the gold price behaves differently to the prices of other assets, particularly during crises. This is because the gold price moves independently of economic and business cycles.

In times of war and social upheaval, physical gold's benefits also come to the fore. Since gold has a high value to weight ratio, significant personal wealth can discreetly be carried in the form of gold across borders and frontiers and within areas of conflict.

Since gold is a universal money supported by a highly liquid global market, it will always be accepted everywhere at the going gold price. Gold can easily be sold. Gold can easily be traded or even bartered with, especially in non-functioning economies where the local paper currency has collapsed or has become worthless. The fact that gold coins are regularly issued to elite military personnel in areas of conflict attests to gold's critical benefits in times of monetary crisis and localized economic collapse.

Gold as Store of Value

But gold is not just of use during financial crises. It is also an essential asset to own over the long-term as a strategic form of saving and investment. Physical gold retains its purchasing power over long periods of time. This is in contrast to fiat currencies issued by the world's central banks, which generally lose most of their purchasing power over time. In other words, gold is a great hedge against inflation, as the gold price adjusts upwards to offset inflation. The gold price even adjusts to inflation expectations, hence it is sometimes called an inflation barometer and is watched like a hawk by central bankers because the gold price signals future inflation.

Physical gold is also an asset without counterparty risk. This is because when you own physical gold in the form of gold bars or gold coins, there are no counterparties. In other words, the physical gold that you own outright is no one else's liability. Nor are there any governments or central banks involved in issuing gold, or in trying to increase and debase its supply. Gold also lacks default risk, because it cannot default.

Physical gold is also inherently valuable because it is a scarce precious metal that is difficult and costly to mine and refine. Gold's price will never go to zero because it has a finite and significant production cost. Physical gold is difficult to counterfeit, impossible to create artificially, and cannot be debased.

These are just some of the reasons for buying and owning physical gold. Please see BullionStar's recent article "28 Reasons to Buy Physical Gold" for a  list of reasons why you should consider buying physical gold.

Gold in Zimbabwe & Venezuela & South Korea

In the real world, owning physical gold can be of critical importance in scenarios where trust in a nation's money supply has evaporated, such as is currently the case in Venezuela or Zimbabwe.

Gold can also be of critical importance when entire nations suffer economic shocks.  A case in point is the interesting experience of South Korea during the Asian financial crisis that swept the region in the late 1990s. This crisis left the South Korean economy severely impaired, with it’s currency, the Won, collapsing against the US dollar.

In addition to a bailout by the International Monetary Fund, the South Korean government also launched a patriotic campaign in early 1998 to actually collect physical gold from the South Korean citizens which was then sold on the international market to raise much-needed foreign currency. This collective campaign was pursued precisely because the South Korean government understood that gold is a high-quality liquid asset that has substantial value.

National Mobilization of Gold

By mid-March 1998, the South Korean citizenry had donated more than 220 tonnes of gold, worth over US$2 billion, in the form of investment gold coins and bars, and other gold in the form of rings, jewelry, and gold medals. More than 3 million households were said to have contributed. This collective mobilization of gold to overcome a nation's economic adversity and raise financing is a great illustration of how gold comes to the fore in a time of crisis, due to its store of value, safe haven, and high liquidity characteristics.

In conclusion, knowing the many compelling reasons to buy and hold gold, and how gold can sometimes be a lifeline in a time of crisis, the claim that "you can't eat gold" is exposed for what it is, misguided and disingenuous, and shows either ignorance on the part of the people who use it, or more likely, a deliberate intention to mislead and deceive.

Saving in Gold vs. Investing in Gold

There are differing views on choosing the optimal percentage of gold to hold in an asset portfolio.

These different viewpoints depend on how one views gold. Those looking for a return on their money in currency terms perceive gold as an investment which they can sell at a currency price higher than what they bought it for.

We would however argue that the idea of trading your fiat paper currency for gold today, hoping to trade the gold for even more fiat currency in the future, defeats the purpose of owning gold in the first place. Saving in gold is an insurance against the failure of fiat currency, not a means of accumulating more of it.

The healthiest and most natural way of looking at gold is to view gold as savings or as a form of wealth preservation.

Saving in Gold

Gold is, and for thousands of years has been, the focal point for many prominent savers of wealth. The European aristocrats, the Middle East oil barons, the ultra-rich, and even the central banks, all save in gold to preserve generational wealth. They save in gold without thinking about the return in currency terms because they understand the fundamental principle of gold as a generational and long-term store of value. They understand that gold is not an investment but that its a form of money that cannot be printed or controlled by central bankers.

As the world's financial and monetary systems become increasing fragile, saving in gold is the ultimate safe haven for protecting you against a systemic collapse. In the inevitable transition that will follow such a collapse, holding gold as wealth is the ultimate strategy for survival.

Prudent savers understand that gold cements wealth over time which is why you do not need to care much about the ‘gold price’ as denominated in fiat currencies.

If you do not want to bear the high risk associated with chasing returns on the currency markets, you should save in physical gold because gold is the safest form of liquid money. Staying liquid is the same as keeping your wealth in gold. There is nothing wrong with investing, but buying physical gold is not an investment in the real sense – it is a timeless wealth-preserving asset.

When fiat currencies crash, your gold will become a truly priceless asset that will empower you through the transition.

A 100 trillion dollar note can't buy you any bullion. By saving in gold you can sleep at night.

Gold as Wealth

If you are trapped in relentlessly chasing paper profits while worrying about your positions, it is time to consider a shift of mind-set. To become a saver, you have to shift your focus from profit-seeking to sustainability, from chasing egoistic personal highs to becoming a family provider for generational wealth.

With a mind-set of viewing gold as a savings asset, you will not only solidify your own wealth but have the power to pass on your wealth to the next generation. This has been the case for many European aristocrats who were able to pass on wealth from generation to generation.

As we can appreciate from history, cash is not king when the cash is not backed by anything. In fact, the world’s fiat paper currencies have all lost 99% or more of their value in the last century.

Gold is the safest and most stable store of value known to man. No other asset class comes close to gold in terms of stability over history. Gold is not an investment per se. Gold is money. Gold is savings. Gold is wealth.

If you have the mind-set of a saver and want to minimise your risk, it is actually natural to keep most of your savings in gold. If you are unable to determine a favourable risk-reward ratio for any of your potential investments, you might even consider keeping close to 100% of your savings in gold. It is certainly better to keep 100% of one’s savings in gold than keeping one’s savings in the form of constantly depreciating fiat currencies. Ask yourself, are you buying gold as a means of generating fiat currency returns or are you acquiring currency as a means to buy gold (as wealth). We much recommend the latter.

Work and invest to acquire currency but hold your wealth in gold. This is the fool-proof strategy that has worked for thousands of years.

Saving in gold frees your mind. With gold, you can sleep well at night and do not need to worry about inflation, financial markets and currency risks. By saving in gold you can stand strong and avoid the flawed western mentality of chasing paper money returns.

Investing in Gold

If gold is viewed from a western investment portfolio perspective, studies have shown that the gold price is inversely correlated with the prices of most other financial assets. Adding gold into an existing investment portfolio can therefore lower portfolio risk. This use of gold as a risk-reducing strategic asset class has been empirically validated by numerous studies (such as studies by the World Gold Council), and from the perspectives of different classes of portfolios, different investor backgrounds, and varying base currencies. Optimal allocations of gold in multi-asset portfolios by these empirical studies are usually found to be in the 5 - 20% range.

The reason that there is a negative correlation between the gold price and other asset prices is due to the gold price not being as dependent on economic and business cycles as most other financial asset or commodity prices. Therefore, the gold price does not react to events in the same way as the prices of most other asset prices react.

However, we advice you to view gold as savings/wealth rather than as an investment. Gold has the power to change your life for the better. It can give you peace of mind like nothing else if you just let it sit there without worrying about it.