What is the personal gold standard? what is the gold standard? when someone buys gold and/or silver and personally stores it, that is a personal gold standard. Currently, no country backs their currency with gold, even though you have countries like Russia who have been amassing gold aggressively for the past few years. People are under the impression that a countries currency should return to some version of a gold standard similar to before Nixon took the US dollar off of the gold standard.
Gold standard bugs figure that using gold in some regard to stabilizing your countries dollar was helpful for economic growth. Over the long term and in many ways it most likely is. Historically governments push to get off a gold standard and stay off of it. The way this has been often achieved either on purpose or not through the debasement of the monetary supply.
Throughout history, there have been many different types of gold standards. The most common probably being a 100% Gold based/backed money economy, others being 70-75%, 50%. Many of these you can see a decrease in the overall percentage of gold per coin over short periods of time. Rome and many medieval European coins have this demonstrated over time. The Mark Twain quote “History doesn’t repeat itself, but it rhymes” is pretty accurate when it comes to different types of debasement and inflation.
A Possible Option?
One version of the gold standard could work, instead of backing the countries total currency. Instead, base the amount of gold backing at a rate of 5-10% of commercial banks’ outstanding loans. For example, a newly married couple walks into a bank looking for a mortgage. The bank ends up giving them a 200, 000$ Mortgage.
The bank would be required to purchase 20,000$ worth of gold. This could be accomplished with an ETF created with 100% physical backing for the banks). In the event, the gold price dropped they would have to buy more(which would discourage predatory loans). Once the mortgage is paid off the gold could then be sold at a profit or wait till that’s possible. This system would have to be watched so that banks don’t pass these expenses onto customers.
Part of the reason this would be effective during economic downturns is from the government’s deficit spending. Currently, governments try to bail out the citizens and businesses while having to keep banks liquid. Multitasking so many things can cause improper or not enough spending in certain areas according to some economists.
Gold would assist with this, deficit spending historically pushes gold prices higher. Banks would have greater liquidity in the short term(meaning the government could give banks the okay to sell their gold storage, giving them a decent cash cushion mixed with the standard 10% cash reserves on top of the 5-10% gold). The government would have time to focus on helping out citizens and small businesses with larger amounts of capital and could worry about bank liquidity after citizens and businesses are taken care of.
While this would be beneficial I doubt it would be worth the effort to get it implemented. Similar to previous gold standards, it wouldn’t last due to the outside pressures to come off of the gold standard. Once the market and economic stability are returned the desire to get rid of it will return.
“We have gold because we cannot trust governments”Herbert Hoover
How to use a personal gold standard
So what is the solution to this? It’s what people have been doing all along since we’ve come off the gold standard. A personal gold/silver standard is very doable and easier to protect provided the proper taxes/regulations are in place. An example is how Canada treats gold & silver bullion with a 0.999%+ purity. In Canada Gold and Silver bullion/coins/bars that are 0.999%+ pure are exempt from GST/HST that is included when ordering from abroad/importing.
By simply purchasing Gold & Silver at 5-10% of your total net worth (What most professionals suggest but every individual’s situation is different). This should protect you to a major from a variety of negative economic situations without having to align the politics, laws, elections, the policy’s to establish a federal gold standard.
A lot of people will buy a mixture of gold and silver. Common break downs are 50/50 or 75% Gold and 25% silver. Silver bugs will often do the opposite with 75% silver and 25% gold. People often try to buy gold and silver either weekly, bi-weekly, monthly, or quarterly. Whatever you personally use, the key is to be consistent and cost average your gold and silver.
Deficit spending is a lot like a person who is addicted to drugs. If going back on a federal gold standard is compared to signing into rehab. The issue arises once they come out of rehab. Say 1/3rd to 1/2 of your friends start encouraging you to relapse. Government politicians who like or need deficit spending to make their political platforms work. What do you think the long-term outlook would be of maintaining the proper monetary policy based on a gold standard?
It has to be pointed out that we are not financial advisors. We do not offer picks/or financial advice, our blog is always a starting place for people to begin doing their own research. Any investment decisions made are your own and based on your own research.
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