As years go by, how do gold and silver keep their value? What is more important: how many dollars you paid for precious metals, or how many ounces you own?
These questions are key to understanding the intrinsic value of gold and silver, and why they are considered stores of value: An asset that accretes value over time as inevitable inflation and devastating devaluations erode the value of fiat currency.
A Value with Specific Weight.
It is natural to estimate the value of precious metals in dollars, because you paid a dollar-denominated price for your bars or coins. However, the right way to value your precious metals goes beyond this currency based accounting approach.
Instead of calculating the value of your gold and silver in dollars, count your precious metals in ounces. This stops you from worrying about drops in dollar price, which should be viewed as an opportunity to add more ounces to your holdings.
Measure Your Wealth in Ounces, not Dollars.
The concept of safe haven in relation to precious metals is comparable to owning a house. You can get a general idea of your home’s worth in dollars, but its valuation is not necessarily its value to you. If you are not interested in selling it, a dollar-figure may not be enough money for you because the valuation is not the same as the value.
You may not care about the market price, whether it is higher or lower than it was six months or a year ago, because your home represents a more important value: security, protection and shelter.
Gold and Silver Do Not Change, Paper Money Does.
Metal can be melted down and transformed into ingots, coins or jewelry, but in itself, it is the same material that remained in the ground for centuries before being extracted and refined. An ounce equals an ounce, a gram equals a gram; today, tomorrow and always. It offers you the same security and refuge that it has provided to humanity since ancient times.
The same cannot be said for paper dollars or fiat currency. Its value is very volatile, especially since the United States abandoned the Gold Standard. Actually, that one-dollar bill began losing value around the time the Federal Reserve started producing paper money almost 110 years ago. It's losing value right now as you read this. And that loss will continue.
A Matter of Focus
The following graph represents our usual way of thinking. If we consider the dollar as our reference, we can see gold has appreciated 5,370% since 1970. In 1970, an ounce of gold cost $36.56 dollars, and today it costs more than $2,000 dollars.
Now, let's flip the same graph over. This is the other side of the story, which we rarely see. If we consider the value of gold as our reference, we can see the dollar has lost 98% of its value since 1970. In 1970, one dollar could buy 0.027 ounces of gold, whereas today (December-2023), one dollar can only buy 0.0005 ounces of gold.
In Real Life
In order to better visualize this, imagine that your grandparents left you $4,000 dollars in 1970. With that money it was possible to buy 110 ounces of gold at that time or a new family car (Chevrolet Caprice, 1970 = $4,000 dollars).
If you kept that money in US dollars, in the best-case scenario today you would be able to buy an electric bicycle or a simple scooter. If you had, on the other hand, bought 110 ounces of gold, today they would be worth $220,000, which would buy you almost 6 new cars of the same category as the Chevy Caprice (Chrysler 300, 2023 = $38,000 dollars).
Finally, if you do not live in the United States and your currency of reference is even weaker than the dollar (and therefore has devalued against it over the last 50 years), your loss of purchasing power would have been even more dramatic and gold value accretion would have been even greater. This example clearly demonstrates why gold is considered an asset of generational wealth.
In short, it is gold and silver that increase in value, not your paper money.
A New Way of Thinking
When you value your precious metals in ounces and not dollars, you will see your paper dollar (or your local currency) for what it is worth: A mere fraction of an ounce of gold or silver. You will find that fraction gets smaller over time.
It is a fact that the value of the dollar has degraded over time, whereas gold has a history of preserving wealth over centuries. When gold is valued in dollars, a currency with no intrinsic value or physical backing, it is impossible not to appreciate the true value of gold as a safe haven and insurance against inflation, devaluation and other economic disasters. Gold and silver are worth their weight, a weight whose value will steadily increase over time. They truly are worth their weight in gold!
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