(Mike Gleason, Money Metals Exchange) These are the times that prove the indispensable role precious metals play in a balanced investment portfolio. Year to date, the S&P 500 is down 6%. The bond market is also down. And Bitcoin is suffering a double-digit drop so far in 2022.
There has been nowhere for investors to hide except in hard assets.
Bitcoin is touted by promoters as “digital gold.” Yet cryptocurrencies have been trading more like tech stocks than sound money.
The Bitcoin versus gold debate won’t be settled anytime soon. Crypto enthusiasts still anticipate a massive price run-up ahead, while skeptics warn the bubble may have burst.
Regardless of where crypto markets head from here, the claim that digital tokens are somehow a substitute for physical precious metals is absolutely, positively, 100% wrong. Anyone venturing into crypto markets thinking they can obtain the digital equivalent of gold or silver is making a huge mistake.
Precious metals and cryptocurrencies are entirely separate asset classes. While they both serve as alternatives to fiat currencies and conventional investments, speculative digital assets ultimately can’t stack up to physical bullion when it comes to long-term wealth protection.
Blockchain-based cryptocurrencies, like all technologies, can eventually become obsolete. Gold and silver are basic elements that can never be replaced. They will always be valued for their aesthetic properties and industrial utility even if their historic role in the monetary system diminishes to nothing.
Of course, that’s not likely to be the case. Central banks around the world continue to accumulate gold in their reserves. Meanwhile, individual investors have been accumulating their own gold and silver reserves at a robust pace over the past couple years – clearing out U.S. Mint coin inventories in the process.
In other news, the Federal Reserve on Thursday released a paper on the prospects of issuing a central bank digital currency.
Steve Leisman (CNBC): The long awaited paper on the central bank digital currency being issued at this time by the Federal Reserve, in which they say that a CBDC could offer a range of benefits and risk, don’t come to any particular conclusion about it, but they say could offer the, the general public, a risk free digital money that is free from credit risk, free from liquidity risk, would not place existing digital money, but would be an addition to it. The Fed will not proceed as Chair Powell has said with the CBDC without support of Congress and the executive branch, but it is potentially the biggest change to money since, I don’t know, currency consolidation after the Civil War. So, we’re watching it very carefully.
CNBC Anchor: Yeah. A huge step for mankind.
Critics warn that a central bank digital currency would be a huge step toward a Chinese-style social credit and financial surveillance system.
Under a CBDC, the Fed could control access to digital wallets and, together with federal agencies, monitor how digital dollars are used and by whom. Perhaps people who are behind on child support or tax bills would be denied the ability to transact in “Fedcoin.” Fed-issued digital wallets could also carry data on personal vaccine status or a host of other things governments and businesses may be interested in knowing.
Although officially the Fed hasn’t yet announced that it will move to implement a CBDC, the concept is backed by Fed Governor Lael Brainard. Brainard has been nominated by President Joe Biden to serve as Vice Chair of the Federal Open Market Committee.
Some members of Congress are trying to prevent the Fed from issuing a central bank digital currency before it gets the chance. Representative Tom Emmer of Minnesota introduced a bill that amends the Federal Reserve Act to prevent the central bank from assigning digital accounts or issuing digital currencies to the public.
But there is zero chance that Congress will take away the Federal Reserve’s digital printing press. The vast majority of the money supply pumped into the economy by the Fed is in electronic form rather than in coins and paper bills.
The power to inflate by means of computer entries entails the power to destroy purchasing power at the push of a button.
Inflation is now running at a 40-year high. It threatens to wipe out holders of bonds and cash instruments that sport deeply negative real yields.
While there are many alternatives available in financial and crypto markets, the ultimate alternative to the risks inherent in paper and digital profusions is to seek out hard assets instead.