The Work of Gold, Part 2

Learn why your coin-collecting grandfather understood economics better than the Federal Reserve

Authored by Oliver Bateman 

I recently spoke with precious metals guru VBL about gold, inflation, and why the world is divorcing the dollar. Vince writes Goldfix, which I've been reading for years to understand what's actually happening in markets versus what the propagandists at Bloomberg and CNBC want you to think is happening. Vince trades options, reads central bank reports, and spotted the global monetary divorce before most people knew there was even a trial separation.

The work of the Austrian Crown Jewels

Read on (or listen) to learn why gold is having its moment, what nickels have to do with currency debasement, and how Bruno Sammartino taught Vince everything he needed to know about marketing.

Get ready for some actual financial literacy from someone who, Bane-like, clawed his way out of the trading pits alive.

Gold Is a Pet Rock (That's the Point)

"Gold is a pet rock," Vince told me right off the bat. Finance bros hate it because you can't add value to it, can't make it into something better, can't innovate with it. "Gold is the only thing on Earth that man can't take and improve."

This drives people crazy. In our post-Renaissance world where man controls everything, gold just sits there, doing nothing, worth something anyway. Like belief in God for atheists, its persistence pisses people off.

But that's exactly why it matters now. In many ways, gold is outside the system. It doesn't change in value so much as everything else changes around it. During the 2008 financial crisis, banks collapsed, stocks tanked, bonds dropped. "What'd the gold do?" Vince asked. "It did nothing." [EDIT- Gold actually went much higher. The point is it didn't care about stocks]

The old sales pitch still works: an ounce of gold has bought a first-tier men's suit throughout history. Try that with your inflation-wracked savings account.

The Day the World Changed (February 24, 2022)

Everyone thinks they know when everything changed. COVID, 9/11, pick your crisis. But for the global financial system, Vince has a precise date: the day Russia invaded Ukraine.

Here's what happened in terms my car dealer father would understand. Everyone in the world keeps their money in dollars, like having an account at the same bank. Russia invades Ukraine. The U.S. says, "We're seizing all your money in our system." Not freezing. Seizing. Taking. Forever.

"So what did we do by doing that?" Vince explained. "We told every other country in the world that we can do it to them as well. For any reason that we want to."

Brazil watches this and thinks: Russia has nuclear bombs and the banks froze their money? What's stopping them from doing that to mine? One by one, quietly at first, central banks started converting dollars to gold. Not all their dollars. Just enough to have something outside the American banking system. Something that can't be seized with a keystroke.

The Good (and Bad) Old Days

The inflation story Vince tells matches exactly what I saw growing up. In the late 70s, my father was killing it at a series of used car lots he owned. Money was cheap, unions were strong, everyone was working, prices kept going up but so did wages. Classic wage-price spiral. "Your dad was taking a car that was made with steel that cost more, and so he was raising the price, but everyone had the money to pay for it."

Then 6’7” Fed chief Paul Volcker1 came in with his medicine. My dad saw it coming, shut down the dealership in 1980, bought a 100-acre farm in Scenery Hill, PA, and didn't return to work until he stupidly bought a Chrysler dealership in 1988. He parked his money in land and subdivided it through the 80s while everyone else got crushed.

"The genius of what your dad did was he made money and he spent it before it got debased," Vince said. "Can you think of a better hedge for inflation? Gold. But you can live in a house. You can't live in gold. So land was smart back then. Now, am not sure"

The China Deal That's Breaking Down

After we crushed inflation in the 80s, we made a deal. America buys cheap stuff from China. China takes the dollars and buys our bonds. The circle of life, global trade edition. It worked beautifully through the 90s and 2000s. Walmart could mark down prices every day, we got our flat screens, everyone was happy.

But then 2008 happened and we printed our way out. COVID happened and we printed more. Russia-Ukraine happened and we weaponized the dollar. Now China's looking at their Treasury holdings thinking what every bag holder thinks: maybe I should diversify.

The technical term is de-dollarization. The real term is divorce. And divorces are expensive. Gold's up because it's the only thing both sides trust. It's Switzerland in metal form.

Manufacturing Is Coming Back, So Brace for Inflation

Here's what nobody wants to tell you about bringing manufacturing back to America: it's going to make everything more expensive. We're going from buying stuff made for pennies overseas to building factories here. "How do you build a factory?" Vince asked. "You have to buy steel. You have to make a steel factory."

We're essentially rebuilding the entire industrial base while the consumer economy is dying. It's like replacing your engine while driving down the highway. The government's solution? Print money to build the factories, print money to keep consumers consuming until the factories are built. UBI isn't some socialist dream, it's what happens when AI takes your job but we still need you to buy stuff.

Vince thinks we're looking at 3-5% inflation annually for the next five years if everything goes perfectly. If things get messy with Taiwan? If the BRICS really commit to dumping dollars? That nickel in your pocket worth six cents in metal might start looking like genius.

The Czechoslovakia Connection

The last members of my mother's family fled Czechoslovakia in 1920 when the regime changed from Habsburg to Beneš. They were tax farmers (not a popular occupation) who saw currency debasement coming and got out with their modest wealth intact. They bought a farm in Pennsylvania that's still in the family.

Vince's grandparents left Italy when they saw Mussolini coming. Every Christmas, his grandfather hung bags of silver coins on the tree. When young Vince wanted to spend them at the arcade, grandpa showed him an Italian lira. "This is worth two cents," he said in broken English. "The coins I gave you are made of silver."

Every immigrant story from that era has the same thread: small businesspeople who understood currency, saw debasement coming, and protected their wealth with real assets. They instinctively knew that when governments get desperate, they make the money worth less.

How Much Gold? (The Uncomfortable Answer)

In the old days, financial advisors said keep 5% in precious metals, max. That was when the world loved the dollar and trusted the system. "The new thing is," Vince said, "what happens if the system is fraudulent?"

His answer: 12-15% outside the system entirely. Not in gold ETFs (that's still in the system), but in physical metal you can hold. Gold, silver, and here's the (beautiful, silly) part: nickels.

A nickel is worth six cents in metal. It's illegal to melt them, but Vince doesn't care about that. "In a world where commodities are becoming scarce, the United States over the next 5 to 10 years is going to stop making nickels with so much nickel in them." Give your kids rolls of nickels for Christmas. They'll think you're crazy until they don't..

The Bruno Sammartino Epilogue

We ended with wrestling, because of course we did. When Vince was 14, he took his grandfather to see Bruno Sammartino fight Spiros Arion in a steel cage match at the Spectrum. Watching his Italian immigrant grandfather beam at his Italian hero, Vince had an epiphany: "Oh, he knows it's fake, and he's just enjoying it!"

That's the perfect metaphor for where we are now. The dollar system, the inflation numbers, the idea that we can print our way to prosperity. everyone knows it's fake. The question is whether you're enjoying the show or preparing for when they change the script.

Fed chief Jerome Powell just abandoned the average inflation target at Jackson Hole. Translation: "I can't get it back to 2." The Fed's going to lower rates into an economic boom because they can't afford for the money to stop moving. It's Volcker in reverse, financial repression for a new generation.

"In the 70s, people who put their money in a savings account at 5% while inflation went to 20% went broke," Vince warned. Don't be those people.

More in The Work of Gold, Part 1 [Unlocked]