An enduring register

A great number of investment “experts” deride gold.

They cite the fact that it pays no dividends, and for some periods, it fails to adjust to changing prices.  Despite the naysayers, gold however, is a tangible store of value and is gradually moving higher.

In the Middle Ages, a soldier who bought a suit of armor would pay for it with one ounce of gold.  Nowadays, a wealthy business man could buy a suit, again selling for an ounce of gold. That encapsulates the principal reason for owning gold.

Physical gold can never go bankrupt and cannot validate a company’s common stock. Gold cannot be created by government fiat (authorization by decree). Companies can issue more common stock and governments can print more money, as is going on right now.

A piece of paper issued by the government with an amount denominated on it may be accepted, but essentially it is only a piece of paper whose recognition depends on the public’s wish to trust it.  History repeatedly shows that the average life span of paper currency has been 27 years and there is nothing now that will change that.

Banks are in the process of classifying gold as a risk-free asset.  That increases new demand for gold. Some nations are debasing their currency in order to boost exports, a zero sum game. Everybody loses.

Yet, in 1970, to hide what was going on, the gold pool in Europe spent literally billions of dollars in a vain effort to keep gold at $40 an ounce. Nowadays, major investment firms short gold after being quoted as saying that gold prices are headed lower.  They then dump huge amounts of gold on the market just before closing time when the market cannot easily absorb such selling. That took place right after the U.S. election of Donald Trump, when logically, that election and Trump’s plan to run huge deficits should have entailed fears of inflation.

In the long run, this kinds of speculative nonsense can only be a temporary interlude. The U.S. bond market has taken a tremendous decline as it correctly assumed that Trump’s presidency will bring about inflation. Like King Canute trying to hold back the tide, nothing will prevent the underlying fundamentals from pushing gold prices much higher.

The investing public, who can actually possess gold anonymously, a major attribute, should hold onto their hats as they watch these events unfold.



Bruce Whitestone