Gold: Maintaining Investment Value When Most Metals Are Overpriced

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“Gold is acting as money,” said our old friend Paul van Eeden. “It is almost perfectly keeping up with consumer price inflation since the 1920s. It is doing what it is supposed to do. It provides people with a store of wealth that really maintains it value.”

When asked about the future of metals, generally, Paul guessed that they were already overpriced. You make money by buying low and selling high. Most metals are not low; they’re high. “You don’t make money that way,” said Paul.

But gold is different, says Paul. Gold is money. It is not just a metal. It will vary inversely with the dollar. True, gold is at a 27-year high. But if the dollar goes down, gold – in order to maintain its purchasing power – has to go up. So maybe you can’t count on making a lot of money by holding gold, but it’s not a bad thing to hold if you want to preserve your wealth.

“The very thing that makes gold a bad place for your money most of the time makes it an excellent place occasionally. It has no sales or profits; but its sales do not decline. It benefits from no technological enhancements; but it needs none. It produces no earnings…but it announces no earnings disappointments either. It holds no press conferences; but it tells no lies. It uses no leverage; but it doesn’t go bankrupt. You can’t buy it with No-Money-Down…but it doesn’t get foreclosed. It doesn’t go anywhere; but it doesn’t go away.”

That’s exactly why we like gold – it is been around the block a few times…and it’s not going anywhere any time soon. Which, interestingly, is why certain investors won’t touch it with a ten-foot pole: there is no ‘instant gratification’. But that’s OK with us – we would rather hold gold as insurance than invest in a flash-in-the pan stock.

Bill Bonner
The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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Comments

  1. This gels with (a) The Mogambo Guru’s YouTube extract about the 2-cent dolar and (b) my recent (29 July) exploration:

    “According to GoldPrice, gold today is going for $21,242.64 per kilo. The World Gold Council says that as of June 2007, the USA holds 8,133.5 tonnes of gold. So that means America’s gold stock should be worth $172.777 billion.

    This site says “as of early 2007, M3 is about $11.5 trillion”, which is 66.56 times the value of US gold reserves. So if everybody insisted on having their money out in gold, which they can’t do any more, they’d get about 1.5 cents-worth back for every dollar they were owed.

    I suppose that’s what inflation means.”

    Have I got my sums wrong?

    http://theylaughedatnoah.blogspot.com/2007/07/gold-and-m3-us.html

    Reply
  2. I’d say the numbers are pretty close to correct there. Gold keeps on going strong. Maybe headed for $1000/ounce next year while the dollar continues to plummet. It may be a good year to hold reserves in gold rather than most other investment opportunities.

    Reply

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