In a video from June 2020, finance guru Dave Ramsey received an interesting call on his show.  The caller told of his fears about Federal Reserve inflation and asked Ramsey about where he sees inflation going and whether gold should occupy a place in one’s portfolio.

Ramsey immediately responded, “Well, you’ve been listening to me for a while, so you know I’m not going to tell you to buy gold.”

Ramsey then says, for the sake of argument, that we pretend that hyperinflation does occur.  He then goes on to talk about the double-digit price inflation of the 1970s.

Right here, I do not agree with his definitions.  What happened in 1970s America was not hyperinflation.  It is admittedly difficult to nail down a good definition of hyperinflation, but I don’t think I had ever heard anyone refer to the 1970s as hyperinflation.  It was a period of high inflation, but 10 to 12 percent annual price increases does not meet the definition of hyperinflation for most people.

For me, I would want to see annual prices overall going up at 50% or more before I would consider it hyperinflation.  Even then, when we talk about hyperinflation from Zimbabwe or Weimar Germany, that was hyperinflation where prices were going up virtually every single day.  At its worse, prices were easily doubling in less than a month’s time.

Next, Ramsey says, if there is heavy inflation, “There is no promise that gold follows that.”  He says, “…they are not tied together in any way.  There is no index.  We do not operate on the gold standard any more.”

Of course there is no promise that gold follows.  There is also no promise that stocks will go up forever, even though Ramsey would have no problem recommending index funds.  But gold did go up significantly in the 1970s.  The last ties of the dollar to gold ended in 1971.  Gold went up in price substantially after this time.  So while we have no guarantee that gold will go up significantly with double-digit price inflation, there is a high degree of probability that it will, and it makes a good hedge against severe inflation.  It provides diversification for a portfolio.

Ramsey then says that gold is like all other commodities such as oil, silver, and wheat and that they go up based on a perceived shortage or they go down based on a perceived over supply.  He says gold goes up when people are greedy or when they are afraid.

It is curious why Ramsey doesn’t talk about depreciating dollars.  Isn’t that enough reason for any of these commodities to go up, or really anything at all?  If you have more money chasing the same goods and services, then eventually prices are likely to rise.  Gold wasn’t primarily going up in the 1970s because of a perceived shortage.  It was going up because of an oversupply of dollars.  It boggles my mind how Ramsey cannot understand this basic economic point.

Ramsey then says, “It is a golden colored rock.  It has no intrinsic value except for the fact that two different people are fighting over it, and that’s the only thing that gives it value.”  To his credit, he says the same thing about the dollar and other currencies.

In a sense, Ramsey is correct in that all value is subjective.  That’s the world we live in.  But you could say the same thing about any stock index fund.  They only have value because customers put a value on the products sold by the companies.

Gold does have value though outside of just being a form of money or investment.  It is used for jewelry.  It has many industrial uses.  There is a reason that gold was used as a form of money for thousands of years, which Ramsey seems to miss.

It was all frustrating to listen to from a libertarian standpoint.  Actually, it should be frustrating to anyone who just understands some basic economics.

I have written about Dave Ramsey and Suze Orman several times in the past.  I think they are both intelligent people who give great, and much needed, advice on money.

When it comes to investing though, I wouldn’t listen to them.  They do not understand the benefits of owning gold in a portfolio.  They do not understand the threats of a severely depreciating currency.  They have full faith in the U.S. dollar, which apparently means that have faith in the Federal Reserve System.

You can, and probably should, listen to Dave Ramsey when it comes to saving money, paying down debt, buying life insurance, getting a mortgage, and several other topics dealing with money.  Stay away from the bad investing advice though.