Maybe you have heard of gold investing, or maybe you have thought it was something only done in ancient times. Well, today I bring you an informational video, full with written transcript, for anyone looking to learn from the great Andrie Jikh. I’ve been following his YouTube Channel for quite some time now, and felt this was a video worth sharing with you all as it’s very informative.
Look, there’s a big reason he has over 650,000 subscribers!
Making Money With Gold
Andrei: Gold. Worshiped by all, since the dawn of man and stemming from the Latin word, “Aurum,” meaning, “Shining dawn,” gold symbolized the gods and it represented power and immortality in ancient times. In return for bringing Silenus back to Dionysus, King Midas was granted just one wish, and he asked that everything he touched be turned to solid gold. He was soon overjoyed that everything he touched in his rose garden would immediately turn to gold, but he soon realized that even the food and the drink that he wanted to consume would also turn to gold, and it was in that moment that he realized he was cursed.
When his daughter ran to him upset that all the roses in the garden turned hard and lost their smell, he tried to comfort her, but as soon as he hugged her, she too turned to gold. When he prayed to Dionysus to take back this curse, she told him to wash his hands in the River Pactolus and as soon as his hands touched the water, the power of the golden touch flowed from his hands into the river, and the river sands turned to gold.
The legend goes that this explains the color of sand and why you can find so much gold in all the rivers across all the world. It’s a true story. This is why today let’s talk about gold, the original hypecoin. Hi, my name is Andrei Jikh. Yes, my intros are pretty extra but I figure worth the extra three hours that I spend shooting and editing my videos. With everything going on in the world, with the Federal Reserve printing and injecting trillions of dollars into the system, I wondered, “Is gold now worth our money?”
Where does gold come from? Why do people love it so much? What’s the best way to buy it? Is it something that you buy physically and buy it through something like eBay or should you invest in it through something digitally like Robinhood? Is there an ETF of some sort? Will gold even make us money? These are all questions that we’re going to explore today because I think the answer is going to surprise you.
Voltaire once said, “Paper money eventually returns to its intrinsic value – zero,” and believe it or not, Voltaire was right. If we look at what the dollar has done since the creation of the Federal Reserve, we can see its value decreasing over time. In fact, the US dollar has lost 95% since the creation of the Fed in 1913. Imagine your money losing 95% of its value, and all that’s left is this tiny little piece of its purchasing power.
Now, I can do this because YouTuber money is amazing [laughs] I’m just kidding. That’s not real money. It’s actually prop money and I’m not really committing a federal crime, or am I? Now, you and I are probably very familiar with these. These pieces of paper have been with us for our entire lives, but that’s not entirely true because money evolves and adapts roughly every 20 to 30 years, which brings us to today where we have long since abandoned the gold standard since 1971.
Where we no longer have a currency that represents anything real, which is what money was supposed to be. Think about it. What is money? As far back as Ancient times, we used to barter and trade physical goods. I’d give you a turtle and you’d give me a fire-breathing lizard but we quickly realized that carrying our entire stock was a real burden. Instead, we experimented with things that could represent gold.
We tried all sorts of different metals and other precious stones until we all settled on something that we all agreed was both valuable and desirable. Something that was relatively evenly spread throughout the world that not a single person or country had control of all of it, and that, of course, was gold. It had all the qualities of good money that we wanted to see. Like it was malleable for one. It was easy to float, I don’t know what that means, and it was stable. But gold too had its problems, like it was difficult to divide.
It was hard to spot a fake when you saw one and our neighbors always wanted to steal it. Instead, someone wealthy came along and promised us to hold our gold in their fancy vaults so that they could protect it. Now, that sounded like a really good idea, because in exchange, they would give us little certificates that would represent exactly how much gold we gave them. We entrusted all of our gold out of necessity and out of convenience, and in turn, we made these people be the most powerful entities in the world. They became the banks.
They were able to influence elections, fund their own self-interests like wars on both sides and they even were able to create laws that benefited only themselves, and inevitably this created something very powerful. The United States owned two-thirds of the entire world’s gold reserves. This put it in a very powerful position to do something really interesting. Enter the Bretton Woods Agreement of 1944.
It was signed by all the countries of the world, thus beginning the shift away from the gold standard. In this agreement, the countries agreed that they would exchange their native gold-backed currencies that could be redeemed for real physical gold at any moment for the US dollar, which also could be redeemed for gold. In exchange, the central banks promised to keep the US dollar at an equivalent of 1/35 of an ounce of gold.
All was fine for a little while until there was a realization that these banks could print more of these pieces of paper than actual gold that was contained inside the vault. As you can imagine, this allowed their greed to run wild as they mismanaged funds, created deficits, and then tried to pay for those recessions by paying it with debt. As the situation kept getting worse and the United States kept printing more money and more money when everyone decided to run back and reclaim their gold.
It was this event that led to the collapse of the Bretton Woods Agreement when Richard Nixon said and I’ll paraphrase here, “Never mind. Never mind. Remember that thing we agreed upon how the dollar, man you could exchange it for actual gold? [laughs] We don’t have any more gold. We sold it all. No. No. No. Your pieces of paper are worthless now. Yes. What’s that? [laughs] We got nuclear energy. Okay, thanks. Bye.” Basically, what happened should have kept Einstein employed. Yes.
Now we have something called fiat currency, which is very different from a gold-backed currency. Fiat literally means to rule by decree, and it was put in place by the government which is backed by nothing. Now, the US dollar is nothing more than a measure of how much debt is owed. In fact, it even says so right here. It says, “This note is legal tender for all debts, public and private.” The only thing that gives this thing value is your belief in it and nothing more.
Unfortunately, in order to make something as complicated and as intricate as money work for the long term, it requires more than just our faith in it, which is why so many people believe that the fundamentals and the future of our money is in jeopardy. I felt really dramatic. I like that. It almost feels rehearsed. It wasn’t, but I’m going to keep that in. Research done by DollarDays shows that when looking at the past 775 fiat currencies, from both the past and the present, that 20% of them have failed through hyperinflation, 21% destroyed by war, 12% by independents, 24% reformed and the remainder 23% are still around and approaching one of these outcomes.
In fact, if we sat in a time machine and we’re able to travel all the way back to 1913 and we had $1 in our pocket, we would see that back then $1 had the same purchasing power as $26.46 today in the year 2020. That’s how much more the dollar was worth back then in 1913, and that is hyperinflation in action and it happens every single day, like clockwork. It is for all of these reasons that some people believe history may repeat itself again or at the very least, it’s about to rhyme with the past, and that’s this belief that gold will once again be the standard of money as all the other currencies continue to debase themselves into nothingness.
That brings us to the most important point of this video which is, is our money actually worth investing in gold? To understand that better, we have to take a look at how gold has performed recently and historically. Many people believe that gold does not make money or does not appreciate in value. That is not entirely true. Let me show you right now. We can open up Robinhood and I can show you the difference of what’s going on between the S&P 500 and gold’s performance during the last five years.
We’re going to open up Robinhood. Get your free stock. [laughs] We’re going to take a look at something called VOO which is an exchange-traded fund from Vanguard that represents the S&P 500 or the top 500 companies in the US. It’s like the gold standard, pun intended, of stock market investing. It’s the benchmark that everyone recommends if you want to effectively invest your money. We can see that this fund’s performance in the last five years has grown 20.25%.
No thanks to that giant dip in the market that’s lost me $60,000, but that’s another video. [laughs] Now let’s take a look at a gold ETF. Something like GLD. I’m going to type that in. In the last five years, GLD has had a return of 34.78%, significantly higher than the S&P 500. Now, this is obviously in part because of the stock market crash that we’re kind of experiencing right now. Otherwise, without that dip, VOO or the S&P 500 would be far outperforming the price appreciation of gold except, it isn’t, that’s not the case. That’s not reality.
We have to take stock market crashes into account which is why gold is the clear winner when looking at it over the last five years. In fact, during the last recession in the years between ’07 and ’09, we can see that the S&P 500 has dropped 36% while gold went up 25% which is a huge difference. Clearly, there are times when investing in gold is better. I think we can confidently say that it is smart to invest in some gold, especially if you’re a beginner and you’re not used to seeing your stock market portfolio drop so much in value during times like this.
Having some exposure to gold takes a little bit of the edge off and gives you a little bit more confidence when investing. Now personally, I have lost over $100,000 investing in Bitcoin so I have nerves of steel. It’s a separate video though. Imagine, we built pyramids, we’ve invented the computer, we’ve conquered outer space and in those thousands of years, gold has still retained its value.
Despite its longevity and stability, gold can still be considered a pretty risky investment because as tempting as it is to invest in gold right now, the returns of gold are somewhat of an illusion. I’m going to show you right now and be a devil’s advocate and show you the bigger picture, so let’s zoom out. Assuming a gold price of roughly $1,600 per ounce, 2000 years ago, a Roman centurion, that’s the guys with the funny, fuzzy, red-looking helmets, made around 38.58 ounces of gold per year during ancient times.
That equates to roughly $61,730 dollars per year. That means, when averaging the annual growth rate of gold in the last 2000 years, we get an annual rate of return of 0.02%, which is worse than Robin Hood’s debit card right now which is pretty bad. That also means that gold’s purchasing power has largely remained the same, regardless of the value of its price which is why it’s known more as a store of value rather than an investment, which makes total sense because gold, it doesn’t produce its own goods and services like a business would.
Instead, it’s kind of like my ex-girlfriend, it looks pretty, does nothing. It can be a great investment in the short term when times are uncertain, especially if you can invest at the right time and it can even beat stock market returns. You can be exposed to gold by owning jewelry, gold teeth, gold bars, gold coins, bullion. I don’t know if that’s the right way to pronounce that word, bullion in French. I just made it up, no idea.
If you’re somebody who believes that the world is not going to be in a good place tomorrow because maybe we get hit by some solar flare and technology is going to set us back to the dark ages, then the best way is to really own some physical gold, but be careful if you do it and you go that way because you may be paying a premium on what buying individual gold is between what it actually is worth.
The easiest way to do this is to really just invest in an ETF like GLD through your favorite brokerage and just be done with it. Really, the best way to own gold is directly tied to how paranoid you are. The less paranoid, own ETFs, the more paranoid, you may want to own actual physical gold. This also isn’t real because this would not be affordable for me, even though it says one kilogram of gold, this is not what one kilogram of gold would look like.
This is closer to what one kilogram would actually look and feel like, which may be closer to anywhere between 53 to $55,000 for this little brick of gold. This is 400 ounces of gold, which be closer to $660,000 worth, I cannot afford. Amazon really needs to update their specs, product description, not accurate. “Gold is money, everything else is credit,” to quote JP Morgan of JP Morgan Bank.
If you are going to invest in gold, there are two major risks that I want to mention. The first is that throughout your investing career which is hopefully long and prosperous, the stock market is going to give you better returns for a lot longer. This is the risk of opportunity cost. You could potentially miss out on big gains in the stock market if you’re investing your money in gold.
The second risk is that we live in the age of technology, and humanity tomorrow could just announce a new mission to go to a nearby asteroid where we find tons and tons of gold and then we discover that gold is not really as rare as we thought it was and that throughout the universe, it’s actually everywhere. These are real risks to consider and that’s why you want to diversify and never keep all of your eggs in one basket no matter how old, stable, or shiny it might be.
Now personally, I don’t own any gold but it doesn’t mean I think it’s a bad idea to invest in some, especially right now. Personally, I’m a dividend growth investor so I’m happy with where I’m at in terms of volatility, I’m in the stock market for the long term, not really care too much how my portfolio moves up and down, but I would not think less of you if you had invested in some gold.
I would think less of you if you did not smash that like button and you didn’t subscribe to my channel, and you didn’t get your free stock from Robinhood and you didn’t get your other free stock from WeBull by funding your account at least $100, or any dollar amount, and got another free stock worth up to $1,400 because that’s free money right there. That’s it, love you all. Enjoy the rest of your week.
I will see you all on Monday and Friday, and I’d love to know if you’re an investor in gold with that Midas touch, but don’t touch it too much [unintelligible 00:15:57] member. I’ll see you all soon. Bye-bye.
And there you have it, a solid update on gold from a very popular YouTube personality. If you are into learning about gold, and how to use gold in your retirement account, check out goldiraaccounts.com, the leading gold ira custodian review site.