Gold and silver have a 5,000-year track record as money. Not in one culture, not in one corner of the world. Across every major civilisation, independently, without any of them ever sitting down to agree on it. That tells you something.
Right now, with the largest debt bubble in recorded history sitting over the global economy, I think understanding what precious metals are and why people hold them is more important than ever. So let me break it down.
Why Precious Metals Have Stood the Test of Time
Gold and silver are what's called "hard assets." You can hold them in your hand. They are nobody else's liability. Unlike money sitting in a bank account, they carry no counterparty risk. There is no institution that needs to remain solvent for your gold to retain its value.
They are also scarce by nature. Governments cannot print them. They cannot conjure more into existence when it suits them politically. That scarcity is what gives precious metals their enduring value. It is also why cultures across history, without ever meeting each other, arrived at the same conclusion independently.
The Case for Gold: Safe Haven and Portfolio Protection
Gold is often called the "fear metal." When share markets fall sharply, gold has historically moved in the opposite direction. In the five worst years on the ASX, shares declined an average of 23.2% per year. Over those same years, gold rose an average of 29% per year. That inverse relationship is why academic literature consistently recommends a 10-20% precious metals allocation in a portfolio. It reduces overall risk without sacrificing long-term returns.
Beyond portfolio protection, gold becomes increasingly scarce over time. The easy deposits have already been mined. As yields decrease and the cost of extraction rises, upward pressure builds on the gold price. If the price does not keep pace with production costs, miners simply stop mining. Supply tightens further.
The Case for Silver: Industrial Powerhouse with Monetary Roots
Silver sits in an interesting position. It has been recognised as a monetary metal throughout history, yet today it is also one of the most industrially useful metals on the planet. Silver has more patents issued for its use than all other metals combined. It is extremely conductive and resistant to corrosion, which makes it indispensable in modern manufacturing and technology.
Unlike gold, most industrially used silver is consumed and lost permanently. It ends up in products, and eventually in landfills, where it is not cost-effective to recover. This means silver faces a structural supply challenge that gold does not. Demand has been growing steadily, and the market has experienced meaningful supply deficits in recent years. Many analysts expect that trend to continue.
Silver is sometimes called "gold's crazy cousin" or the "Devil's metal" in financial circles. It moves in correlation with gold but to a far greater degree, both up and down. That volatility comes from its dual identity: sometimes it trades as an industrial metal, other times it trades as a monetary metal alongside gold. Lower market liquidity amplifies those swings.
The Gold-to-Silver Ratio
The gold-to-silver ratio (GSR) is simply the number of ounces of silver it takes to buy one ounce of gold. It is the oldest continuously tracked exchange rate in history. In Roman times, the ratio was set at around 12 to 1. In 1792, the US Congress fixed it by law at 15 to 1.
Today, many investors use the GSR as a guide for which metal to hold at any given time. When the ratio is high, silver is historically cheap relative to gold. When it falls, silver is outperforming. During precious metals bull markets, the ratio typically falls. Silver tends to outperform gold on the way up, and underperform on the way down.
Fiat Currency, Government Debt, and the 50-Year Experiment
On the 15th of August 1971, US President Richard Nixon took the US dollar off the gold standard. Before that moment, the dollar was pegged to gold at $35 USD per ounce. After it, the world's reserve currency became a fiat currency. Backed by nothing but government dictate and public confidence.
What followed is the most instructive case study in what happens when governments control the money supply without constraint. During the high inflation of the 1970s, gold went from $35 USD per ounce in 1971 to $850 USD per ounce in 1980. That is a 24x increase in a decade during which the share market moved sideways. Silver went from $1.30 USD per ounce in 1971 to just under $50 per ounce in 1980. A 38x increase. Meanwhile, those holding dollars watched their purchasing power erode year after year.
Today, global debt sits at levels never seen before in history. Governments around the world have relied on money printing. Quantitative Easing, stimulus, bailouts. Every time the system has looked like it might crack. This is why many precious metals investors talk about the "central bank guarantee." Not a guarantee that prices will rise, but a guarantee that governments will never stop printing. That backdrop is what drives my own thinking on holding physical metals.
The CBDC Question: What Comes Next
Governments and central banks around the world are actively trialling Central Bank Digital Currencies, including the Reserve Bank of Australia. A CBDC would be a digital form of currency issued directly by the central bank, giving governments an unprecedented level of visibility and control over individual financial transactions.
Whether or not you think that is a concern, the direction of travel is clear: the world is moving toward a more surveilled, more controlled financial system. Physical bullion sits entirely outside of that system. It cannot be frozen, tracked, or devalued at the click of a button. For those thinking about how to protect a portion of their wealth from systemic risk, that is a meaningful distinction.
"Betting against gold is the same as betting on governments. He who bets on governments and government money bets against 6,000 years of recorded human history." - Former French President Charles de Gaulle
I am not a financial adviser. What I write here is insight into how I think about my own money and the macro forces I am watching.
What a time to be alive.
Sam from Liberty Bullion
