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Education

This Kid and Granddad Dialogue Best Explains Why We Invest in Gold

The other day, Hard Assets Alliance customer Ron Saunders reached out to me. It turned out, Ron was not only a gold investor but also a novel writer.

He was gracious enough to send me a copy of The Aurykon Chronicles, a tale about teenage boy Mack Thomas learning his crucial life lessons through conversations with his life mentor and grandfather, Pappy.

In one chapter, Pappy bought his grandson a Gold Eagle as a birthday present and explained to him why society has valued the metal for thousands of years— and will continue to do so for the foreseeable future.

Their dialogue is a fascinating read that I recommend to each of you.

Essentially, the conversation between Mach and Pappy boils down the fundamentals of investing in gold, explained in 5-year-old terms.

Sometimes cases for gold may be dull and boring. But Ron, using his uncanny storytelling, explains (or reminds) you of the reasons to invest in gold through a compelling narrative—telling but also entertaining.

I hope you enjoy reading this excerpt as much as I did.

Excerpt from: The Aurykon Chronicles: Books 1 to 5—A tale of a young man’s search for truth in America

(reproduced with the permission from the author, Ron Saunders)

Chapter 13: The Sound of Money 

Mack rode his bike into his grandparent’s driveway, which extended from the street alongside their two-story traditional home and into a spacious backyard. The large Victorian-style house harkened back to Ukiah’s past. Round columns enclosed the porch and veranda. Multiple gables projected from the steep-pitched roof, and ornate brackets supported wide eaves. The manicured lawn and gardens brimmed with shrubs and flowers, displaying pride of ownership.

A large detached garage with matching decor stood behind the house at the end of the driveway. An open double door revealed a workshop full of woodworking tools—table saw, lathe, sanders, and a shaper. Covering the walls was a cluttered collection of hand tools, cords, jigs, and boards stored on shelving. Standing on the floor in the center of the work area was a large, unfinished armoire, awaiting doors, drawers, and crown molding.

Reg Woodward, a slender senior man with thinning white hair and a trimmed beard, sat on a tall stool at a well-worn workbench. He tied a feathered fly mounted in a small vice behind a magnifying lamp suspended on a metal swing-arm stand.

“Yo, Pappy! How’re you doing?” Mack asked. He leaned his bike against the doorjamb, dropped his backpack, and removed his helmet.

Reg glanced over his wire rim glasses. “I’m fine as frog’s hair. Come and check out this emergent caddisfly. I just finished it.”

Mack inspected his grandfather’s handiwork. “Awesome. It would look good in my fly box.”

Reg removed the fly from the vice jaws. “That’s where it’s intended to be.” He presented it to his grandson.

“Ah, thanks, Pappy. I’ll try it out today.”

“It should work. We’re entering the caddisfly hatch.”

“This is my birthday present.”

“Heck no, son, I got you something special this year. I’ll give it to you now so we can talk about it in private, rather than at your party. Too many people and noise won’t let me explain it properly.”

Reg reached into his pocket and withdrew something grasped in his fist. “Happy birthday.”

Mack held out his hand. “Is this a trick?”

“No, son, I’m serious.” He placed an object in Mack’s palm, a large, yellow coin encased in a round, clear acrylic holder.

“Pappy! This is an American Eagle, a gold coin. It’s worth a fortune!”

The old woodworker nodded. “It doesn’t matter what it’s worth today. What’s important is what its value will be in a few years. That’ll start your hair on fire.”

Mack held the coin under the magnifying lamp. “It says one-ounce fine gold—fifty dollars—but, I know it’s worth more.”

“Its value is the market price of an ounce of gold, plus a premium for coinage and distribution. Now, promise me you’ll keep it safe. Son, I’m telling you, this coin will be worth many times its current value when the collapse happens. Hang on to it. Hide it good. Don’t let people know you have it—just your mom and dad.”

“I promise!” He hugged his grandfather. “Thanks so much!”

Pappy returned the embrace. “Well, you’re a Californian, the Golden State. You should own some gold. Now, let me show you something. Give me the coin.” He held out his hand.

Mack gave it back. Reg opened the holder and removed the Eagle. He fished through a junk drawer in the workbench and found a similar-sized steel slug. “Come over to the table saw.”

The big saw had a flat, polished, cast steel top. Reg dropped the slug from a few inches above the surface. It made a dull thud. “Hear that?”

“Yeah, so what?”

He then dropped the gold Eagle from the same distance. It rang a melodic, soft tone.

Mack’s eyes lit up. “Unreal!”

“That’s the sound of sound money.” Pappy repeated the demonstration.

“The gold has a beautiful ring,” Mack said. “The steel doesn’t ring, it just clunks.”

“Right. A pure silver coin will also ring. It is a characteristic of gold and silver most other metals don’t have. You see, for thousands of years, ever since man could refine metals, gold and silver were considered valuable. They are rare and have unique physical qualities. Gold can sit at the bottom of an ocean and won’t rust or corrode. These two precious metals became money—true money—recognized throughout the world for trade and as a store of wealth.

“Most of man’s history revolves around the acquisition and retention of them. We explored new lands in search of them. We fought battles to acquire them and ravaged native cultures to plunder them. Empires rose, driven by the lust for gold and silver. But they all fell, losing their riches through expensive wars and unwise politics.”

The grandson shrugged. “That’s not what they teach us in history class.”

“Of course not,” Reg said, shaking his head. “In today’s world, the ‘Powers-That-Be’ don’t want you to understand this. Back in the days of the Roman Empire, their military conquered much of Europe and North Africa. They had to police the subjugated lands—often brutally—to keep the Empire intact. This required money, which they minted from gold and silver. Over time, the cost of running an empire became burdensome, and the gold and silver reserves grew scarce. What did they do?”

“I dunno.”

“Well,” Reg said, “they mixed cheaper metals, like copper, zinc, and tin, with the precious metals. This debased the true value of the coin, but the government claimed it was worth the same. They lied. At first, just a little non-precious metal was added. Eventually, the gold and silver content of the coins became so small people realized the money no longer retained value. It was a chunk of worthless metal. The Roman Legions who were guarding the Empire in distant lands were paid with coins of no real value. Do you know how they knew they were being stiffed?”

“No, but I think you’re gonna tell me.”

“Exactly what we just did. They would listen for the sweet ring of precious metals. At first, the coins rang the reassuring sound. Over time, they thunked. The soldiers had no interest in risking their lives for a corrupt government, which desperately hung onto power while cheating them. They became disorganized and rebellious. The Roman Empire failed as it lost the ability to finance its Legions. The Visigoths, Vandals, and Huns overran the Empire and sacked Rome. Throughout history, empires collapsed because they grew so large they were incapable of financing their armies and bureaucracies.”

“But gold and silver aren’t money anymore,” Mack said. “They’re just something you collect, like jewelry.”

“Really? Then why do governments and the big banks in the world, including central banks like the US Federal Reserve, hold much of the world’s gold? Maybe they know something you don’t. Gold and silver were once money in America, but the government phased it out. Years back, they even confiscated everybody’s gold. Yeah, President Roosevelt made it illegal to own. For one hundred and fifty years, we Americans used gold coin as currency, but then FDR destroyed what the Constitution established for sound money, and replaced it with a system of paper money. You can’t print gold into existence, but you can print paper dollars in the extreme. And they did!”

“Why? If people see so much value in gold and silver, why not use it as money?”

“Now that’s a good question.” Reg pulled a money clip from his pocket and slipped off a bill. “What’s this?”

“Come on, Pappy—it’s a twenty-dollar bill.”

“Actually, it’s a Federal Reserve Note—a credit slip, printed by a private bank. It promises the bearer this bill is exchangeable for twenty dollar’s worth of value. There was a time you could go to a bank and redeem your dollars for gold or silver coins. But no more. This is just a piece of paper representing a debt. American dollars—many trillions of them all over the world—are IOU’s. They have value because the Fed and the government say so, not because they’re backed by a hard asset, like gold or silver as they once were.”

“I’m not following you,” Mack said. “What do you mean, ‘backed by a hard asset?’ This is American money. It’s good anywhere!”

“What I mean is, many years ago, it said right on the bill—a legal tender note—it was payable to the bearer on demand in gold or silver coin. It was as good as gold! Now, it no longer is. It doesn’t amount to a bucket of warm spit!”

“No, no, no, Pappy!” He glared at his grandfather. “I understand that gold is valuable, but don’t tell me an American dollar isn’t. If that’s what you think, then give me your wad of money. I’d be happy to exchange it for a new saddle on my BMX racer. Of course it has value!”

Reg waved a hand. “Now, don’t go getting your dander up. An American dollar only has value because you believe it does. And, you believe it because you’re told it does by your government and the banking system. But what if the government and the banking system are insolvent—you know—bankrupt? How can they keep the promise they make about the currency they print out of thin air?”

“I dunno.”

“That’s what’s happening today and has been for decades. And that’s why the dollar is no longer backed by gold. The government doesn’t have enough gold to cover all the trillions of dollars the Fed printed.”

This confused Mack. “I understand gold is valuable, but why do people think it’s money? I still don’t know why paper bills aren’t just as good.”

“Okay, son, consider this: I said man accepted gold as money for thousands of years. But, those civilizations lived on different continents at different times. Each was unaware of the existence of the others. There was no contact or trade between them. Yet, gold emerged as money everywhere in the world. It possessed a natural—almost spiritual—appeal throughout time, unlike any other form of money. Paper substitutes, however, have come and gone. History teaches us they always fail, and always will.”

The logic of his grandfather’s argument made sense. “So gold keeps its value, while paper money loses value?”

“That’s correct,” Reg replied with a nod. “Over the past century, fiat currencies have lost much of their purchasing power, while gold has retained, even increased, its purchasing power.”

This baffled Mack. “What’s ‘feet’ currency?”

“Fiat. Fiat is paper and digital currency issued by governments, usually through a central bank. It’s a note that says it’s worth something. But it’s not linked to anything of value—it’s just a promise. A false promise because inevitably too much fiat currency is issued, diluting the value of previously circulated currency.”

Mack shook his head. “I don’t know about this. All I know is when Hank gives me a paycheck, I can cash it and spend it. Dollars have value to me.”

“Sure, but it’s a big, hornswoggling lie. The day will come when the lie is exposed. When that happens, people won’t want American dollars anymore. They’ll get rid of them. Fast! Their value will crater. It’ll be gone like a lean hog in a ripe cornfield. People, all over the world, will want to replace their paper US dollars with something of recognized value. They’ll remember how precious metals are a trusted store of wealth. Gold will become insanely valuable, as measured by paper money, including our dollar. That’s when you’ll be glad to have your gold coin.”

“Okay, Pappy, I know you’re always reading about this stuff. But, I’m just a kid. What do I know? Anyways, I understand this coin is precious, and I’m thrilled to have it. I promise to keep it safe and hang on to it. It’s my new good luck charm. It will always remind me of you.”

“No, no.” Reg shook his head. “This Eagle isn’t a charm. When the day comes, you’ll want to sell it to gain the high value it’ll hold.”

“Nope. This is a keeper, my way of remembering you.”

Pappy hugged him. “Okay, I love you, son. Keep it forever if you wish. But, I think you might change your mind when the price goes sky-high.”

* * * * *

If you ever wanted to present a gift of wealth and prosperity to your special child or grandchild (or any other minor you care for), you may want to consider opening a UTMA account with the Hard Assets Alliance.

Precious metals are both a symbolic and practical gift with timeless appeal. Your loved ones will appreciate and value it for many years to come. And there’s a real chance that they will greatly prosper from it as they come of age!

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