Would you bet against technology in this day and age? Is that a smart move?
Most would say no. Yet a large portion of those are also the ones who are doing just that. They are putting their money into something that could literally collapse over the next decade or two. The challenge is that it is a deeply drilled ideology.
The idea of investing in precious metals is staking a claim that one is against technology. Gold is the epitome of anti-technology. It is also not learning the lessons from commodities over the years.
In this article we will delve into the idea that, long-term, precious metals are cooked.
The Most Valuable Metal In The World
Watch television shows or films set before the 1700s and what do you see the royalty drinking from. Are the challises gold?
The answer is no.
While gold was always a unit of value, it was not top to the precious metal food chain. That title went to aluminum.
That is right. One of the most abundant metals on Earth was the most valuable. How can that be?
The simple fact is that aluminum bonds to other metals. Before the 1800s, even though it was abundant, it was difficult to separate the metal from the others. That gave it extreme value.
It also was reflected in the way we used it.
In 1884, when the Washington Monument was completed, it was capped with a large casting of aluminum. The capping ceremony and the dedication of the monument "were given front-page publicity in the nation's newspapers and the aluminum point or apex was creditably described," according to a 1995 article published in the journal of the Minerals, Metals & Materials Society. "Hundreds of thousands, perhaps millions, of people who had never before even heard about aluminum now knew what it was."
That is similar to how we deal with gold. Today we look at golden domes on churches or other important buildings. Yet here is a case where, less than 150 years ago, aluminum was gracing the top of one of the nation's most iconic sites.
And my how it all changed.
At the time, a pound of aluminum was worth $16 ($419 in today's dollars).
Two years later, a commercially viable method for extracting aluminum from ore was discovered, and by 1889 the price had fallen to $2 per pound. Within 10 years of commercial refining, it plummeted to just 50 cents a pound.
That is a major hit. Can you imagine having $10K or $20K in aluminum during that move? How would it feel to ride something down 97%?
Many feel that couldn't happen again. We can presume that those who were investing in it at that time didn't see it coming.
The Lesson Of Oil
Oil is the most used commodity in the world. There is no way to deny that we are a world that runs on this. Not only is it our fuel but it goes into an assortment of products that we use daily.
One of the biggest use cases is plastics. We are a world consumed by it, as evidence by our pollution problem regarding this. Most everything around us has plastic in it. We find it in cars, computers, and phones. Basically, we cannot get away from this substance.
Over the last 20 years, the world grew in population along with wealth. Many countries saw massive increases in their standard of living, pulling hundreds of millions out of poverty. This creates a world where even young adults in 3rd world countries all have smartphones.
You would think with this demand, the price of this precious commodity would shoot up. At present, we are in a commodity bull market, yet oil is still far from its all time highs.
As bad as $90 oil is, it is still a long way from the high of $140 we saw 15 years ago or even the $120 a little more than a decade ago.
So what changed?
Here is where we see technology entering the picture. Many are against horizontal drilling because of the environmental issues. However, one thing it did do is allow for the United States, in particular, to drastically increase its oil output. This changed the entire supply side of the equation.
Oil is still a major force in the global economy. Our consumption is at record levels and not going to diminish anytime soon. Yet, we are still below the price levels of a decade ago due to the ability to extract more oil from the ground.
Do you remember "peak oil" from 15 years ago? Today, we use the term to denote when the demand for oil will peak. This is radically different from what it use to mean. For decades, many experts were concerned the world would run out of oil. Peak oil meant that our supply would be maxed and it heads down from there.
Obviously, anyone who believes that today gets laughed at. It is amazing how quickly things can change in just over a decade (notice the example of aluminum from above).
Of course, there could be breakthroughs in the next 10-15 years that hurts oil even more. Technology is not done. Either advancements within the industry itself will be made or alternatives will be found. Whatever path it takes, technology is not going to allow things to stand still.
The Death Of Gold?
Like aluminum, gold is abundant. That seems odd to say but there is little doubt among experts that it is the case.
Where is all this gold? We only need to look to the oceans. In fact, there is an estimated 2,000 times the amount of gold there than Australia has.
Australia has the largest mining gold reserves anywhere in the world at 10,000 metric tons, followed by Russia at 7,500 metric tons. But there is another place that actually has about 2,000 times more gold contained in it than Australia. It is the world’s oceans.
There is believed to be about 20 million metric tons of gold in the ocean worth a mind-boggling $1.1 quadrillion based on today’s gold prices. This is more than 12 times the entire world’s 2019 Gross Domestic Product (GDP) at $87.55 trillion. The oceans have so much gold that every person on earth could have almost 6 pounds of it.
That is enormous potential and it is just that, potential. At this moment, technology is not advanced enough to pull this from the ocean. However, that might not be the case in a decade or two.
What happens if someone suddenly finds a way to pull this out? Could we see underwater drilling? Have you heard of autonomous underwater drones? This technology is getting more advanced. We are starting to probe the deepest parts of our oceans. This could spell disaster for people who believe precious metals are scarce.
In fact, the wheels are already in motion.
Here is an article from two years ago detailing the industry and the quest access these minerals.
As we can see, to bet on precious metals means we are betting against technology. Anyone staking this is claiming that we will not see technological breakthroughs (or replacements) over the next decade or two to obliterate the value. As we see with both aluminum and oil, this is not necessarily the case.
It is easy to fall victim to belief systems constructed because this is how things always were. However, technology can upend things in a very short period of time.
Commodities teach us that technology has a way of seriously altering the landscape.
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