|
Buy it for the gold bug in your life this
Christmas...
SINCE STOCK-MARKET BULLS never read history (meaning anything from the day before yesterday
and least of all the pink pages' price/earnings column today), the library
shelves marked "332" are typically left free for bears and gold
investors to roam.
Given how long the stock-bull of 1982-2000 ran, you can see why.
During that time gold lost three-quarters of its purchasing power. Only the
grand sweep of history has proved that the glass is neither half-empty or
full, but shattered, as the much-fabled "gold bug" always believed.
"Gold has two interesting properties: it is cherished and it is
indestructible. It is never cast away and it never diminishes, except by
outright loss..."
So wrote Professor Roy Jastram in The
Golden Constant (John Wiley & Sons, 1977). Alongside Peter
Bernstein's The Power of Gold and
H.W.Brands' The Age of Gold –
but swapping their ripping yarns for dry, scholarly tables of grain prices
from the 18th century – it's one of the very few books to acknowledge
what die-hard gold investors feel so sure to be true:
Gold is much more than mere metal. It's history itself.
"[Gold] can be melted down, but it never changes its chemistry or
weight in the process. The ring worn today may contain particles mined in the
time of the Pharaohs. In this sense it is also a constant."
It's not something you can say of many other
investments. Atomic weight 79; melting point 1064°C at sea level; cooled density
19.25 grams per cubic centimetre...gold's got everything a collateralized
debt obligation has not. Time cannot dull or change it. Debt default can't
diminish its value (provided you own it, securely, outright of course). And
as Jastram's detailed study of four centuries shows, gold's value, like its
nature, also displays something of a constant – constant across the
long term at least – as measured against wholesale prices.
Trouble is, as Marc Faber of the Gloom,
Boom & Doom Report reminded us late in 2008 – just as gold was
sinking alongside everything else – "Gold has kept its purchasing
power over the course of history...[but] the problem is that the owners of
the gold changed over time."
How long can you wait for your wealth-store to return to full value?
Or as Faber put it, "When Timur sacked Aleppo
and Damascus
in 1400, it didn't help to have your savings in gold. You lost your life and
your gold."
Tamberlaine's Mongol heirs soon enough lost that gold, too. But amid
such cataclysms, Jastram saw instead what he called "The Attila
Effect" – the plain fact that, as Jill Leyland explains in her
additions to the new, re-issued and updated text of The Golden Constant, "Men and women have turned to gold in times
of distress, whether political, economic or personal..."
"The Latifundia passed gold bars secretly to their heirs,"
wrote Jastram 32 years ago, "who thus survived barbarian invasions to
become nobility under the Merovingian kings of the fourth century...Austrian
refugees, escaping Hitler's storm troopers, often owed their survival in a
new country to the gold and jewels they could carry on their persons...The
French peasant was astute when he buried his coins on the threat of invasion
and pillage..."
Through such crises as the French and Bolshevik Revolutions, as well
as Hungary's post-war hyperinflation – worse even than Weimar Germany's
one trillion per cent on some accounts – gold retained its ability to
raise cash, if not act as payment itself, for those lucky few who'd chosen to
hoard it ahead of the need.
Nor does history require "extreme episodes", as Leyland
writes in the new 2009 edition, "to demonstrate the value of gold in a
crisis..."
Jastram's study famously split the history of gold's
purchasing power into inflation, deflation, and the rest. Since gold was
usually money during the first 350 years of his scope, it also acted quite
oddly to our 21st century view:
Gold's value rose during deflation, but fell during inflation. Whereas
today, of course, everyone expects gold to rise when the cost of living
increases, but fall when the threat of inflation recedes. Which may or may
not be wrong, but the first post-Gold Standard inflation said otherwise, and
it most likely won't matter given the volume of faith this very modern idea
now stores.
Hence Leyland's labels for her
post-Jastram charts (the thirty years from 1977), which first concur with but
tweaking his framework ("High Inflation: 1970-1980";
"Disinflation: 1980-2000"). To fit non-money gold's four-fold
increase so far this decade, however, a whole new category's needed –
"2000-2007: Inflation fears revived".
And the future? Inflationary fears will be revived by the price of the
new Golden Constant, costing $110 in the US,
or a shocking £79.95 in the UK...equal to a Dollar exchange rate of just $1.37.
Yet this is a scholarly tome, and even corduroy jackets aren't cheap.
Second-hand stores, meantime, are still charging $181 or more for the 1978
hardback (worse yet again in the UK,
priced at £157.98 with a quarter-century-busting $1.14 on cable. How's that for
the grand sweep of history!).
If you or the gold bug in your life needs reassurance this winter that,
in the long-run at least, gold's constant purchasing power is as rare and
precious as its substance, you could do much worse than treat them for
Christmas. Just don't expect to see much of him (or less likely, her) outside
your library on Boxing Day.
Adrian Ash
Head of
Research
Bullionvault.com
Also
by Adrian Ash
Receive your first gram
of Gold free by opening an account with Bullion Vault : Click here.
City correspondent for The Daily Reckoning in London, Adrian Ash is
head of research at BullionVault.com – giving you direct access to investment
gold, vaulted in Zurich, on $3 spreads and 0.8% dealing fees.
Please Note: This article is
to inform your thinking, not lead it. Only you can decide the best place for
your money, and any decision you make will put your money at risk.
Information or data included here may have already been overtaken by events
– and must be verified elsewhere – should you choose to act on
it.
|