Getting Gold Back Into the System

There are people who think the financial system based on the dollar will collapse sooner rather than later. For this event, they are hoarding gold, silver, and sometimes guns and canned food.

“If people lose confidence in the other forms of money, they’ll go to gold,” said James Rickards, author of “The New Case for Gold.“

“Sometimes gold rallies because it’s an inflation hedge, which it is, but gold can also be a deflation hedge. But most importantly gold is money, and when I see the dollar price of gold going up in this environment, it tells me that people are losing confidence in central banks, thinking of gold as money, thinking they want to allocate part of their portfolio not to dollars, or yen, or euros, or yuan, but to gold.” Rickards recommends a 10 percent allocation to physical gold to protect the investor from extreme economic risk.

The problem with this strategy is that hoarding gold outside the financial system in safe deposit boxes, or by burying it in the back yard, is akin to taking your chips off the poker table and going home. You are not participating in the economic game anymore.

Getting Gold Moving Again

Keith Weiner, CEO of Monetary Metals, wants to fix this. Similar to Rickards, he recognizes the weaknesses in the fiat-based monetary system, like close to zero interest rates for savers and too much debt. He also recommends that people hold a certain amount of gold.

But he’s found that rather than waiting for a financial reset or for governments to return to the gold standard, there’s a way for investors to own gold, make it productive in the economy, and even earn a rate of return. The ultimate goal is to bring the world back onto a private gold standard, irrespective of what the government is doing. 

“Mostly due to government action, gold’s utility is locked away,” said Weiner. “You can’t use it as a medium of exchange. You can’t earn interest on it. The only thing it’s good for is waiting for the end of the world or waiting for the price to go up.

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“So today if you buy gold, you’re not providing a corrective feedback mechanism to the monetary system. You might [or might not] do well as a speculator … but you’re not changing the monetary system by buying and selling it.”

To provide the market with accurate price signals not distorted by central bank policy, Weiner’s company Monetary Metals Inc. brings together gold savers and gold borrowers, who negotiate a rate of interest entirely paid in gold.

“Anybody who wants to can deposit gold and earn interest on their gold in gold. If that’s true, you basically have a gold standard,” said Weiner.

The company is still in its infancy, but already closed some of these financing deals in 2016. For example, Monetary Metals sourced physical gold from savers and used it to finance the gold working inventory of Valaurum Inc., a company that manufactures bills made out of very thin gold. The bills, called aurums, are 404 nanometers thick, with a gold content of one-tenth of a gram. The company needs to hold gold in its inventory for the manufacturing process.

At the closing of the deal in July, Valaurum President Adam Trexler said, “Monetary Metals offered Valaurum an unusually affordable and simple product for financing gold for our manufacturing process. By helping us expand production and lower our costs, Monetary Metals has advanced our mission of putting gold into the hands of everyone who wants it.”

Investors, on the other hand, will earn 5 percent of interest paid in gold. 

“We’re not about locking up the gold with the picture of that vault door, two and a half meters in diameter, half a meter thick, with the gold sitting there basically gathering dust,” said Weiner. “I’ve been inside actual vaults, and all you have, it’s not very pretty.” 

Instead, the gold is being put to productive uses. Any company that needs gold in its production could benefit from Weiner’s initiative. So could gold producers or state governments that house gold producers, like Nevada. They could borrow in gold and pay back in gold. A for-profit institution, Monetary Metals collects a spread for their services.

“The amount of gold that it took to run the entire world’s commerce engine during the times of the classical gold standard [1870–1914] was astonishingly low. In those days, a little gold did a lot of work because the gold was in motion. Gold was moving. If the gold is not moving, then no amount of gold is enough,” said Weiner.