Have you wondered why banks don’t lend to invest in Gold?
For as long as money existed, humans had the urge to manifest it by borrowing it and repaying it later. For millennia, most borrowing was local people borrowed from them friends and family, and most legal systems have evolved to support this activity.
Since borrowing from friends and family is primarily based on trust, it doesn't scale to bigger groups; banks mainly fill this void by acting as trusted middlemen between unknown parties. In the past, however, most lending was limited to business lending. Over the last 50 years or so, banks have become far more ingrained in their customer's lives.
Today, banks offer loans for pretty much everything.
Everything from buying a coffee via credit cards to personal holidays to houses via mortgages, Pretty much anything that can bought with cash can also be purchased with credit.
The keyword to observe is ‘pretty much anything’ and not everything because buying Gold is not on that list. Banks let you blow money on holidays, cars, heck, they will let you gamble it away in casinos, but they somehow get very partial when it comes to Gold.
Gold — the world's most trusted investment for most of recorded human history remains a pariah in the banking world
But have you wondered why?
Why don’t banks lend money to invest in Gold?
Banks are in the business of lending and making more commissions right, so the more assets they lend to ( as long it’s not a risky asset class), the more they make.
So, why don’t banks lend money to invest in Gold again?
They are perfectly happy to lend you insane amounts of money to buy your unaffordable dream home and make you a mortgage slave for the rest of your life. But they don’t want to lend you should you decide to invest in gold instead, despite Gold being a far more reliable investment compared to Real estate.
What exactly do we mean by lending to buy Gold?
As of this writing, a kilo of gold costs $63000, and an average house in London costs $630,000 or 10 kilos of gold.
If you have a $100,000 household income, banks are happy to lend you money to buy that London home. However, they would never lend this kind of money to buy 10 kilos of gold even though gold has its value preserved far longer than the average home in London.
To understand this conspiracy further, let's assume what would happen should banks decide to lend you to buy gold with a deposit of 10% like they would do it for a home. You invest like $60k and borrow $540k to buy 10 kilos and custody it with the bank until you repay the full amount over 20–30 years.
As you know, Gold is far easier to buy than real estate; houses need a bunch of inspections compared to gold, which just needs its purity and weight to be verified ( which ideally means banks can lend against gold at lower rates due to savings on the operational costs).
Gold is already a well-performing asset, imagine what would happen if banks would lend you money to buy Gold?
No prizes for guessing, but yes, the price of Gold will shoot up higher, as the new supply of gold is extremely scarce, unlike ‘Real estate,’ which gets easier and easier thanks to better building technologies.
As the price of gold goes up, more and more people would want to invest in gold, but unlike ‘Real estate,’ Gold has far fewer operational hassles, as discussed previously, which makes the whole buying process happen much quicker in a few hours instead of weeks to months ( as it happens in case of homes ) which pushes the prices of gold much faster.
What happens if gold prices keep going higher and higher for 10–20 years much faster than the rest of the assets?
People’s interest in investing in bank deposits comes down.
This forces banks to offer higher and higher interest rates, and the only way banks can offer higher rates without one of them bankrupting is by more and more money printing by central banks.
This, unfortunately, only worsens the problem for banks as this excess money printing pushes inflation higher and even pushes the price of gold further, which means after a few more years, even the most risk-averse folks ( like your grandmom ) could simply hold Gold and make far better returns than investing in bank deposits.
This has a major deflationary effect on the economy as people hold onto gold instead of bank deposits and could eventually threaten the stability of the entire banking system.
‘Strong price growth of hard assets like ‘Gold’ is the real nightmare for bankers’
This is the real reason why banks hate lending for Gold investing, and now you can’t unsee it 😁
Here is where things get interesting.
In the past, when the banking system came perilously close to bankruptcy, Governments stepped in and forced holders of gold to offload gold beyond a certain limit, like a few kilos.
This happened in the past in almost all countries.
In the USA, the land of the free, President Roosevelt famously forced people to convert gold into dollars in 1933, and the UK did something similar during World War 1.
Every government and its central banks have confiscated their citizen's Gold in the past.
Gold is a dense metal that is difficult to carry and is incredibly easy for governments to confiscate during border crossings, which is why most rich people don’t invest heavily in gold as they know during a crisis, governments will simply come after their gold, which means they will simply lose everything they worked hard their entire life.
The Rich and upper middle class can’t invest in Gold because it’s a physical asset; however, should there be an asset that’s not physical but has properties of gold like scarcity and decentralization, that will become a real solution to the generational wealth storage problem that we all suffer from.
As you guessed by now, the solution is ‘Bitcoin’ as it has all the great properties of Gold, like scarcity and durability, but none of the hangs up like security and portability.
With the help of 2-of-3 multi-sig wallet technology, you can safely borrow to invest in Bitcoin eventually, and there’s nothing anyone can do to stop it.
