CHISWICK, WEST LONDON – Greetings from my childhood home. It’s time for our Friday mailbag edition, where I answer the latest questions you’ve sent in…

This week, gold is on readers’ minds.

We discuss why, in our July 16 mailbag edition, I disagreed with the popular narrative that gold is a hedge against inflation… whether the government could impose a windfall tax on gold profits, like a reader suggested in that same Postcard… and why looking at gold in terms of its dollar price is irrelevant.

Plus, readers weigh in on our decision to homeschool the kids… and extend a welcome invitation for our travels. Let’s dive in…

Reader question: A few days ago, you said that gold is not a hedge for inflation. But gold is a store of value. How is that not the same thing?

Great question. It’s true that “gold is a hedge against inflation.” But that’s a very narrow and unsatisfying way of looking at gold.

First, it doesn’t give credit to the other protections gold offers. What I mean is, I prefer to see our gold ownership as a shelter from general financial mayhem and discord.

Given the situation we find ourselves in (a gigantic credit bubble), that may be more important today than gold’s role as an inflation hedge.

Second, I do think “inflation” will play a role in the price movements across bonds, stocks, currencies, etc. in the next 10 years. But I don’t think the inflation will be linear, and I don’t think it will cause the outcomes everyone expects.

For example, I think it’s possible the U.S. government will have to choose a policy of austerity at some point in the near future (next 10 years), which no one expects today or even talks about.

This would be deflationary, but it would have been caused by inflation. And it would certainly be very good for gold’s purchasing power in terms of nearly everything except the dollar.

The point I’m making is, gold is a way of preserving the purchasing power of our savings in all sorts of turmoil, not just “inflation.” And I think that’s a very important distinction to recognize.

Reader question: I thought the writer’s suggestion was very feasible regarding the possibility that the government would impose a windfall profits tax on the sale of gold. (Perhaps even more likely, the sale of cryptos.) Have you considered that possibility regarding our gold investments?

I think it’s possible to worry endlessly about all the ways they could take our money and freedom away, including worrying about a windfall tax on gold profit.

I suppose it’s possible, but it doesn’t change my decision to get our money as far away from the financial system as we can. It is the right thing to do.

If they find some deus ex machina way to screw us in the future, so be it. At least we tried.

I know this isn’t the answer you’re looking for, but I don’t have any other solution.

Reader question: In a recent postcard you wrote: “I just think gold’s time to shine hasn’t arrived yet. That happens when the credit bubble bursts and the Fed isn’t allowed to keep intervening in the market. And that still could be some ways off into the future…”

I am confused; it seems to me that the credit bubble bursting will be very deflationary – which should work against gold. And if the “Fed isn’t allowed to keep intervening in the market,” it seems that real rates will be rising, which should also work against gold. Can you help me understand?

Gold is a hedge against chaos and bedlam so it’s important to monitor its value in terms of all those things we want to buy in the future… bread, gas, healthcare, the stock of great dividend-raising companies, et cetera.

This is why I watch gold in terms of the Dow. The gold price in USD is almost beside the point. It’s nearly irrelevant.

It’s gold’s future purchasing power that’s important. And I think that’s going to rise regardless of whether we get inflation or deflation…

Reader question: I do not understand why both gold and interest rates keep dropping together. My understanding was that lower rates were good for gold. It appears they are racing each other to the basement.

You’re looking at gold purely in terms of the USD.

As I mentioned in my previous response, I try to look at gold as a store of purchasing power for all the things I intend to purchase in the future.

When I look at gold in those terms, I see that gold does well whenever investors seek safety and it does poorly whenever investors embrace risk.

It’s not about interest rates. Gold has done poorly recently as investors are embracing risk perhaps more than they’ve ever embraced risk before in history.

But the time to buy is not when everyone is seeking safety, and gold’s price is already soaring higher. The time to buy is a time like now – when most investors are embracing risk and leaving gold for dead.

Reader question: What I’ve found is that the most profound and thoughtful living choices are born of hardship. Those without life challenges seem to become unfulfilled. Challenge may be what life is all about – the impetus for moves of great courage bring great living.

I’m reading the book Dune by Frank Herbert at the moment. In a passage I read earlier today, he asks rhetorically, “If you were going to raise tough, strong, ferocious men, what environmental conditions would you impose on them?” As parents, Kate and I think about this often…

Reader question: The one major danger I see with homeschooling is that the children’s thinking will be strongly weighted towards what their parents think and say (even if it’s not overt). Of course, the parents will always believe their thinking is the correct analysis, and this will carry over to the children.

I see this very clearly with regard to religious affiliations. Religion is, and always has been, a cultural/social phenomenon that is considered by adherents to be immune from critical thinking.

Exposure to school teaching is certainly not by itself the answer, since biases there will also prevail. Children need to be taught to focus on independent critical thinking, both with regard to their parents’ points of view as well as societal and school biases. This is likely to be a hard thing for home-schooling parents to swallow.

It’s true… I often hear Dusty expressing opinions he’s heard me express first. Luckily for Dusty, his dad changes his mind about things all the time, so Dusty is forced to make up his own mind.

For example, a few years ago, I told Dusty that I had changed my mind about the existence of God, just to throw a wrench in his belief system.

Then, Kate and I got divorced and then remarried. That threw in another wrench – though this time, not an intentional one…

Look, kids are going to absorb ideas from somewhere until they’ve learned the skill of critical thinking. I’m not going to sit here and say homeschooling is better than regular schooling or vice versa.

But if we are just talking about the spread of ideas, the big advantage homeschool has is that the ideas are being curated by grown-ups who have the best interest of their kids at heart.

The problem with regular school is that so many uncurated ideas and behaviors are spread around by the other children.

Reader question: Sir, I love reading about travels and economic lessons! When you make it to Israel, if you have time, let me know. I am a long-time reader and follower. I am active-duty military assigned to the U.S. Embassy here in the Tel Aviv area and would enjoy meeting for dinner or something. Safe travels.

Yes, we’d love to accept your kind invitation. Israel is at the top of the list of places we want to go next.

And that’s all for this week! As always, please keep your questions and comments coming at [email protected].

I read every note you send us, and I’ll respond to as many as I can in future Friday mailbag editions. (I’ll never reveal your name or potentially identifying details if I decide to republish your note.)

– Tom Dyson

Like what you’re reading? Send your thoughts to [email protected].