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Episode 46: A Deep Dig into Gold with Phillip Ramsey and Bryan Dewhurst
168 Plays6 years ago
Gold is money. But don’t be fooled, there is a difference between money and currency. Currency can be either backed by a commodity, which historically has been gold and, to a lesser extent, silver or it can be backed by debt via central banking systems, as is the case throughout most of the world today. So while currencies come and go throughout history, gold has stood the test of time throughout recorded history.
Unless you are mining it, gold does not produce income. It is a resource that throughout recorded history has protected purchasing power over a long period of time.
In episode #46 we are going to be digging into gold – Why has it been a source of wealth, adornment, and means of transacting business for so many thousands of years? How can it be used today as a hedge to protect your purchasing power? And what does this mean for you today?
Until the rise of central banks, the world operated basically on a gold standard. In our latest episode, we discuss the ramifications of this change and we’ll even get into some comparison and contrast between gold and cryptocurrency.
what you will learn in this episode:- The historic roots of gold as a source of wealth
- Why the end of the gold standard is so significant
- Why gold has remained so valuable throughout history
- Why gold is still a good investment
- Similarities and differences between gold and cryptocurrency
Recommended
Transcript
Introduction and Podcast Purpose
00:00:02
Speaker
Everyone dreams about living an uncommon life, but how we define that dream is very different for each of us. And for most, it's a lifelong pursuit. Welcome to the Uncommon Life Project podcast. We're going to introduce you to people who are living that life or enjoying the journey to get there. We're going to also give you some tools, tricks, and tips for starting or accelerating your own efforts to live an uncommon life.
00:00:27
Speaker
A life worth celebrating and savoring.
Meet the Hosts: Phillip and Brian
00:00:30
Speaker
Please welcome your hosts, Brian Dewhurst and Phillip Ramsey. Hello and welcome to another episode of the Uncommon Life Project. I am your host, Phillip Ramsey. And I am Brian Dewhurst. Welcome back to another jam-packed episode where we get down and dirty and talk about gold.
Goals and Gratitude for Listeners
00:00:49
Speaker
Brian's favorite topic. Again, thanks again for joining us. And also thanks again for those people who have subscribed and rated our podcast. We are on a fast track to a hundred and we're grateful that you're on this with us.
Diving into Gold: Jokes and Anecdotes
00:01:03
Speaker
Where do we start on gold, Brian? This is a topic that when you start going, I got to start the timer because
00:01:11
Speaker
Super interesting by the way and I think it's all interrelated of this whole uncommon path that we take and we've kind of galvanized our philosophy mainly because of just one interacting with many many clients. But two there is part of this that's interlocked with gold and kind of the backstory of it. So I'm excited to get into it. I'm starting the timer right now because I took some of your seconds and where do we start and go.
00:01:36
Speaker
Well, I'm gonna start with a joke just because gold is such a brutal topic. We have a drink in Iowa.
00:01:53
Speaker
I like Smokey Rose version, so shout out to Smokey Rose and their egg nog latte. The secret sauce is the A&E egg nog. If they're not using A&E, don't bother. But it's my joke that if gold had a liquid taste, this is what it would taste like, is an egg nog latte. Do yourself a favor and get an egg nog latte.
00:02:17
Speaker
with, make sure it's any egg nog or else it just run away. Like Brian said, for our guests that stay with us today, we have a special gift for them. You just need to go to www.uncommonwealth.com backslash gift. Yes. And this is about gold. So I think we produced a ebook on gold specifically. Uh, so if you want more on gold,
00:02:43
Speaker
Uh, we have it for you and it's for our podcast listeners only. You won't see it on our website otherwise. So, uh, gold is money.
Gold's Historical Significance
00:02:52
Speaker
I think that is the big thing that I want people to take away there. And the reason that we've been talking about money and gold more is because of the seven sources of residual income. The downside of gold, I won't say the downside because it does provide a hedge to your purchasing power is
00:03:12
Speaker
that a lot of people say it doesn't produce income. But what it has done historically over the last basically 5,000 years of documented civilization has protected your purchasing power over a long period of time. And it was said in basically the ancient Roman times that an ounce of gold would get you a suit of armor or a sword, that type of thing.
00:03:41
Speaker
And it'll basically give you the basic necessity stuff to provide for your needs and get a job and all those different things. And if we look at the price of gold today, roughly about $1,520 an ounce, we don't really wear suits anymore. But it gets you a nice business suit, a briefcase, a laptop, whatever.
00:04:03
Speaker
And we basically still provide for those same needs. Now, you know, you get multiple outfits for $1,500. And so, uh, when you look at it that way, yeah, it doesn't produce income. The bank isn't producing, you know, get paying you gold, uh, interest in gold on your gold, but, uh, it has protected your purchasing power over a long period of time. And so most people don't understand gold. And I think that is mainly the point. And like that's by design is that, uh, the major,
00:04:32
Speaker
financial institutions and the, you know, the governments and all these things basically don't want you to understand gold because they want to understand gold and they want to own and control gold. And so, um, you know, gold, basically we see the introduction of it in Genesis one, two, God, you know, sends them to the land of Havela and it is rich in gold. And so gold has been money since, you know, every documented civilization has had,
00:05:00
Speaker
a fascination fixation, um, with gold and have used it, uh, in terms of wealth preservation, adornment and jewelry and a way to, um, transact economically. For sure. And so let's talk through that because the dollar used to be backed by gold. Correct. And then it transitioned out of that and that's significant. So let's talk through that.
Evolution of US Monetary System
00:05:24
Speaker
Yeah. So, um, you know, I'll start with Rome real briefly, but like Rome,
00:05:29
Speaker
had gold coins. And then as their kingdom expanded, they couldn't mine it fast enough. And as their kingdom expanded really over the world, then they, you know, basically subverted the gold coinage with, you know, tin, copper, different base metals that are worth, you know, less value than gold. And so we've really predominantly done the same thing. You know, when our constitution was founded,
00:05:55
Speaker
the Constitution said that basically gold is money, and they gave that right power and control to print money, which was gold, to the Congress and the Senate. And so that operated from, you know, like whatever it was, 1777 or 79 until basically 1913. There was a short period for the Civil War where they did print money, dollars, or like paper money,
00:06:24
Speaker
outside of the gold standard to finance the Civil War. And that was only for a brief period of time. And then I think there was some stuff that happened in terms of silver coinage, like in the 1870s. But the major, major legislation was passed in 1913, along with the introduction of the tax code or income taxes, if you will, was passed in 1913 by our President Calvin Coolidge, ahead of World War I.
00:06:53
Speaker
And that changed the power to coin and print money from Congress to the Federal Reserve. So the Federal Reserve Act was enacted along with the income tax legislation in 1913. And so that was the major shift. And if you read one of the quotes, I think it was from JP Morgan,
00:07:16
Speaker
banker, the original guy. Um, he basically said something to the effect of like, if you give me the power to coin money for a nation, we will control that country. And so that's what happened. So let's talk through why that's so significant. Sure. So today's
Inflation's Impact on Purchasing Power
00:07:33
Speaker
yeah. Yeah. So if you look at from 1913 to today, 2019, the value of a dollar has lost basically 99% of its purchasing power.
00:07:44
Speaker
And the biggest number, biggest financial, um, silent killer to your finances is inflation. And most people don't, I mean, they know about it, but they don't appreciate it. They don't understand it by any stretch. Yeah. Yeah. And so I, you know, I was just used, if we were talking about this with the client, I was just used the, you know, when you were a kid and you wrote your bike down to seven 11.
00:08:08
Speaker
and you bought a Snickers bar, how much did it cost? I think it was like 50, 55 cents when we were rocking the BMX. I think it was more like 32 cents at the grocery or gas station. But when you went to like the ball fields, it was 50 cents. And it was like pretty good size. Now it's like whatever, like a dollar 29 and they've cut the size of the actual candy bar by 20% too. That's really interesting too, because packaging has changed.
00:08:33
Speaker
Yeah, packaging might not look any smaller, but if you take off the peel, you'll see a hole in the middle. You know, like, Oh, okay. It's like two thirds air pocket and a bag of chips at the top. Yeah. Or cereal. I'm, this is kind of off topic, but cereal looks like the same as big as it is, but you turn it sideways and it's thinner. So there's a lot of different ways that they can mess with that, but you're right. And so underlying in 1913, 20 US dollars.
00:09:02
Speaker
two zero was one ounce of gold. And then basically in I think it was like 1933 in the midst of the Great Depression, that's when the US government made owning gold illegal and they confiscated all the gold and then they immediately revalued the exchange rate in gold from $20 an ounce to $35 an ounce. And if you think about that, that's like a two thirds, 75% devaluation of the dollar.
00:09:32
Speaker
you know, 15 divided by 20, you know, 75%. So, you know, what used to cost, you know, $20 is now $35. And so from there, you know, we were on a gold standard still until the 1970, 71 when Nixon took us off.
00:09:51
Speaker
So let's go back to gold standard. Gold standard, gold standard means what? All currency in circulation was backed or transferable
Gold's Role in Economic Development
00:10:00
Speaker
to gold. So you could go to the bank and say, Hey, here's my a hundred bucks. I actually want the five ounces of gold. Yep. Okay. Um, so there was a fixed exchange rate or, and what you'll read, if you really get into this topic is that we had a commodity driven currency. It was back to commodity backed currency, which is gold.
00:10:19
Speaker
Um, and then there was silver in there too, but mainly it was just focused on gold because it just gets more confusing. Yeah. And so inflation and why this is so important is that gold really maintained that purchasing power. And so from 1777 to 1913, we, you know, you really, we went into the industrialized age when, you know, we had the steam engines help with the railroads really helped expand economy. And then really the introduction of oil really expanded the economy.
00:10:49
Speaker
And then you had the formation of the industrial age of what Henry Ford created with the assembly line, that type of stuff, and bigger manufacturing plants. All that was due to oil. So in all of that, the economy grew very stable. And the reason that is is because the annual gold supply, so that's like the gold that comes out of the ground, annually only increases by 1% to 2% a year. It's hard to get out of the ground.
00:11:16
Speaker
And so that's why it's a great mechanism for money because the supply of it is very consistent. And so what happened was or happened with Rome and it happened with the United States is that when you have governments that want to go to war and do all these different things, well, that takes a ton of money. Well, you can't print that because your supply of gold, it only increases so much. And so it forces them to then alter the rules and then go to a more of a credit based system for currency.
00:11:46
Speaker
And so the word credit currency, all those things are not money their credit money is gold. It's the only form of money because it's not backed by debt. It's backed by, you know, work. You got to work and get out of the ground.
00:12:02
Speaker
and it's very arduous. And there's a physical duty to get it out of the ground and it's not based on debt. And because they needed more of the monetary value to go buy more things and they couldn't get it out of the ground fast enough, they needed to change something over to now paper-based. Yep. Okay.
00:12:22
Speaker
And that's why they gave the banks control of the ability to print money. And that's the current form we have today. And really every country in the world now, I think with maybe the exception of like North Korea and one other country, every country uses a central banking type bank driven system to manage the currency. And if you think about it, this is staggering. No currency in the history of the world has ever lasted.
00:12:49
Speaker
No currency in the history of the world has ever lasted. Gold, silver are the only two things that have stood the test of time. You know, the Roman coin doesn't, you know, you can find them now. I mean, it might be worth something as a collector, but it has no value in terms of their economy, that type of thing. But if you found an old Roman gold coin, that gold is worth money. Vice versa, like if you have a quarter, like a US quarter from before 1963,
00:13:18
Speaker
It was basically 90% silver. That coin right now, based on the weight of silver and everything, would be worth probably about $4.25. They'd buy you two gallons of gas per quarter. That's the purchasing power that it protected. And the quarter after that is worth 25 cents. It won't even buy you a gallon of gas. And so not getting any more valuable. In fact, it's devaluing. That's right. And so that is the insidious killer.
00:13:48
Speaker
is inflation. That's why we talk about so much, the seven sources of residual income, is that you have to take and convert your dollars into assets that produce cashflow, real estate, business. That's why we talk about Airbnb so much. The stock market in some degree is a hedge towards inflation and then earning interest on your money with our uncommon banking process and those different things.
00:14:17
Speaker
you've got to convert your dollars into assets that generate cash flow because as cash flow is inflated or devalued, you have a mechanism to fight that inflation. And I think one of the simplest examples of that is like owning a rental property. Well, you could have bought a house in 1970 or 25, 30 grand, but if you would have rented it out, you would have been able to raise rent, you know, one to 2% every year.
00:14:42
Speaker
along the way and yeah granted you would have to put money into renovate but you'd still be getting cash flow off that property today in today's dollars. And that's why it's powerful because that asset keeps growing with inflation. But there's another reason why real estate can be a good option is because they have a fixed interest rate or you can get them at fixed interest rate over 30 years.
Real Estate vs. Inflation
00:15:04
Speaker
If you think about let's say 30 years ago thinking about
00:15:09
Speaker
just costs and all that stuff. You think about the monthly rate you can now charge them and how much you actually really owe. It's a lot less. So let's just take today's dollars. Let's say you pay $2,500 towards your mortgage or let's say a thousand. I don't know what it is. $1,000 to your mortgage. Think about that in 20 years. $1,000 might be able to buy you a
00:15:33
Speaker
a tank of gas. Now that's totally, I'm exaggerating, but you totally get what I'm saying is like, it's really important that those are fixed. And if you can keep those over time, that fixed expense, you can charge those renters more than that fixed expense, meaning that it's fighting inflation even better. Yeah. So to go back to gold, it's really unique. We talked about it a little bit on the PDF, a couple other interesting things when you really researched this.
00:16:01
Speaker
gold's physical properties, you know, it's on the periodic table of elements, those types of properties is what I'm talking about. Gold is actually like every ounce of gold that's ever been mined in the world is still in existence today. And you can't really get rid of it. And you can't really copy it either. It's one of the most hardest metals to fabricate because it's so dense, but it's malleable. And that's what makes it really good. And so in the PDF we talk about,
00:16:30
Speaker
There's five characteristics to money and it's like transferability, divisibility, scarcity. I can't remember the durability and I think maybe I already said divisibility, but anyways, I can't remember all five, but it's in the PDF. But gold serves all those things. You could have a couple of gold coins in your pocket, which is like three to five ounces and you could be carrying around five to 10 grand and nobody would even know that you have it.
00:16:55
Speaker
Um, and so, and when you cross any country in the world right now, I think there's like 196 countries. You got gold in your pocket. You can do business and set up shop in any country in the world. If you got gold, you got Argentinian pesos. I don't know. Not so much. Um, you know, and so that's why gold is so powerful. Um, the other thing that I think is super interesting about gold is you got to look at
Global Gold Reserves Overview
00:17:20
Speaker
who owns it. And we talk about this in the PDF as well.
00:17:23
Speaker
America is actually the number one holder of gold reserves in the world. And you kind of hear about Fort Knox, and there's a lot of, you know, type of movies, you know, rating Fort Knox, that type of thing, heist movies, that type of stuff. But gold, America owns the most gold. And then when you look at the euro, you know, the combination of countries that came together across that single currency, what you hear about Janet Merkel, who is in Germany, and like the chancellor of Germany,
00:17:52
Speaker
and runs their banking operations there for the euro. Germany gets to make a lot of the decisions as relates to the euro. Well, if you look, Germany is the number two country in the world that owns gold. You hear a lot about China trying to do a lot with their currency. They're buying gold in record amounts. Russia and China are doing a lot of business trying to get outside of the United States and more specifically the dollar. They're settling oil contracts in Chinese won and stuff like that and actually gold now.
00:18:22
Speaker
And Russia is one of the largest holders of gold. And so because what was happening from 1913 to 1970 and why we went off the gold standard is countries started to just print money. And what they would do is they would print money and then they could just come over and buy our gold from us at a fixed rate. So the international demand was basically they're stealing our gold with fake money and there wasn't much we could do about it because we were on this fixed system.
Debt and Modern Economies
00:18:50
Speaker
So it wasn't so much that like the government's nefarious or conspiracy theory, that type of stuff. Uh, I think there is some of that, you know, the banking cartel does control quite a bit, but if one, if it's kind of like, if you're going to have a fixed gold system and you open the most gold, everybody else kind of has to play by the same rules or they're going to be able to steal your gold. And so it wasn't sustainable. And so from that now, and I've talked about this on our YouTube episodes quite a bit is just really every system
00:19:18
Speaker
Every monetary system is a debt-based currency. And so every dollar is debt. And so for our economy to expand, the supply has to expand because it's debt. You have to facilitate the interest of that debt. And so for our economy to expand, the money supply has to expand. And that's debt. And so you see our national debt in the United States is up to, I think, like 22 trillion. And it's just going to morph from here because we're spending money we don't have.
00:19:47
Speaker
And the boomers are really just getting into social security. And so it's going to be a huge problem, but that's why I don't believe the Fed can raise interest rates is because they're turning over our debt. And that interest expense on our debt, 22 trillion, that's rather expensive at five to 6% interest. You know, you're talking about over a trillion dollars a year interest. What's that analogy that you use about the trillion dollars worth of credit card debt? Yeah. It's like, I'm going to carry a balance forever on my Amex. Will you triple my interest rate?
00:20:16
Speaker
Like no one ever would do that, right? And that's essentially what we're doing as a country is like, yeah, we're going to carry this debt forever.
00:20:24
Speaker
Let's raise our interest rate 3,300%. Here's my two questions for you.
Gold as a Hedge, Not Investment
00:20:30
Speaker
One, I'm going to ask first, and then the other one, it'll probably take us the rest of the time. So hang on. Is gold a good investment? Yeah. So I think that becomes, when you look at it and we address this kind of in the PDF, I'm going to answer that in two part, one part short term, one part long term. I'm going to go the long term part first. Most wealthy people and a lot of the stuff, and we talked about this in the PDF,
00:20:54
Speaker
I've heard even that Kevin O'Leary guy who's on Shark Tank and now he's on like CNBC, but I think he owns like 5% of his net worth in gold. And so what you got to look at as gold, I wouldn't say as an investment, you got to look at gold as a hedge of your purchasing power and your lifestyle. And you got to look at almost like insurance because it doesn't produce income.
00:21:14
Speaker
But what it will do over a long period of time is it's basically been money for 10,000 years, we documented civilization. So in the longer term, you're viewing it that way. In the short term, yeah, you can buy gold. I think gold in the last 12 months, you know, we're in August 2019 shooting this. I think gold in the last 12 months is up 25%. So if you would have bought in dollar terms a year ago, sold now up 25%, it was a good investment, right?
00:21:43
Speaker
But it's all about investments about when you sell it, when you buy it. So it could be looking at it. You know, and I think a lot of people like I like I bought gold in like 2003, 2004, wrote it up to the high in 2012. I actually sold it as one of the better trades in my life. And so it is going to go up and down versus the dollar. The key is if you're trying to build wealth is like,
00:22:07
Speaker
how do I get more ounces of gold? How do I have five or 10 ounces now and in 10 years have a hundred ounces of gold? You got to look at it that way. Not like, oh, well, gold is, I have one ounce of gold and I bought it a thousand. Now I have one ounce of gold and it's at $5,000. Well, it's at $5,000 because the purchasing price of the dollar is worth less than it was when you bought it at a thousand.
00:22:30
Speaker
You know, it's the Snickers example, like it costs $1.29 to buy a Snickers instead of 50 or 30 or 50 cents. So when you're measuring gold and the value of a debt-based currency in a short period of time, it can look like a good investment if you're adjusting your net worth to dollar terms. And so that's what we're trying to challenge people of. It might make sense over time to
00:22:57
Speaker
put a portion of your net worth into gold and try to get more gold and not worry about what the dollar terms value it is at the current price.
Gold vs. Cryptocurrency
00:23:08
Speaker
My last question is, is that why you get so hyped up about crypto cryptocurrency? Yeah. So I think, you know, you hear a lot of things about Bitcoin being the digital gold. I think it honestly has a lot of the similarities. If you look at the five characteristics of money,
00:23:23
Speaker
I think the two inherent differences for me between gold and Bitcoin, and it's probably an advantage too. But if you look at it in a negative sense on Bitcoin, Bitcoin has been around for 10 years, gold has been around for basically 10,000. So you have 10,000 in a documented history that gold has been wealth and you just can't refute that. There's nothing else other than like food and real estate, Maslow's five hierarchy of needs, gold, guns, food, and shelter, right?
00:23:52
Speaker
Those are the five biggest assets. Um, and so in that, but the, the knock against gold has been like, I don't want to convert my net worth into these little coins and carry them around in my pocket is the, is the digitization of gold. And there are cryptocurrency projects that are backed by like an ounce of gold. Actually a gram of gold is like one coin. And so, you know, they're vaulting the gold and then digitizing it through tokens, uh, in cryptocurrency.
00:24:20
Speaker
And that's the advantage of Bitcoin is that if I have gold in my pocket, I can't send it to somebody in Russia for economic terms or a transaction. If I have them painting or send me something through Etsy, I can't send them that gold. And I can send them Bitcoin instantly. And so a lot of the
00:24:40
Speaker
negatives of gold are solved by Bitcoin and a lot of the negatives of Bitcoin are solved by gold. And so I think that's where you're seeing a lot of these comparisons. And I'd say the other factor, cause I said there was two, you know, 10 years of Bitcoin, 10,000 years of gold. The other factor to me is if you turn off the internet, Bitcoin is nearly worthless and gold's not, you know? And so gold has that physical sense, even outside of the internet. And so those are the two main
00:25:07
Speaker
distinctions for me when I look at cryptocurrency. But I do think cryptocurrency is the future in terms of money, or I would say currency, excuse me. And I think you're seeing that through the investments of corporate America, global companies all over the world, they're investing rapidly into cryptocurrency, because it is better, it's faster. And so I think we're going to see that proliferation. But I don't think that means that it's going to come at the expense of gold. I think they're both
00:25:34
Speaker
going to appreciate in value relative to these debt-based currencies because these currencies are printing so much money.
Conclusion and Listener Appreciation
00:25:42
Speaker
Yeah. Well, that was a quick 25 minutes and deep 25 minutes on gold. Again, if you'd like that gift, please, this is for our podcast listeners only. Go to our website, www.uncommonwealth.com forward slash gift.
00:25:57
Speaker
You'll find that PDF as well as believe the seven sources of residual income as well as the Airbnb ebook that we did. We are so grateful that you listened to our show. We're grateful that you are fans and we are only going to keep giving you more and more content. So you've been listening to the Uncommon Life Project. I'm your host, Phillip Ramsey. And I am Brian Dewhurst. Thank you for listening. Goodbye.
00:26:24
Speaker
That's all for this episode of The Uncommon Life Project, brought to you by Uncommon Wealth Partners. Be sure to visit uncommonwealth.com to learn more about our services. Don't miss an episode as we introduce you to inspiring people who are actively pursuing an uncommon life.