Gold thought exercise

Article by Colonel Nogov   Jan. 11, 2015

Imagine, if you will, 100 years ago, your grandfather had the idea to give you financial support by giving you some money.  He didn’t want this money confiscated, through taxes or any other way, by the government; he wanted you to have this money when you turned a certain age.  He had $100 in U.S. currency to give.  To get this money to you unmolested he decided to bury it and make a treasure map.

He could have buried the $100 bill, but your grandfather was smarter than that.  He redeemed his $100 bill for five ounces of gold.  That was the going rate at the time; $20 of U.S. currency could redeem one ounce of gold.  So he got the five ounces of gold, buried them and made a treasure map to be passed on to you.

Fast forward 100 years and the day arrives you are to dig up the treasure your grandfather left you.  When you dig up the treasure you find the 5 ounces of gold.  Those 5 ounces of gold are worth $6,000 in today’s U.S. currency ($1200 per ounce).  How much would you have if he had left the $100 bill?  You would have $100.  The U.S. currency lost 98.3% of its value.  Would you rather have the $100 bill or the 5 ounces of gold?  The answer is obvious.

Let’s take the same scenario, but instead use German Marks.  If your grandfather had buried 1000 German Marks, he would have left nothing; those bills are no longer in use.  They buy nothing.  You would be holding a souvenir.