Gold

Ever since early times gold has been one of man´s most prized possessions.  Monarchs waged war in hope of plundering treasures of gold from their conquered rivals.  Kings and princes sent expeditions of the earth in search of new sources of gold; and thousands of people have joined the “gold rush” to any place on each that held either an actual or rumored prospect for finding gold.

From any of the great civilizations of the past, man has treasured gold as a medium of exchange and a store of value in both good times and bad.

What we learn from history is that gold maintains its purchasing power over the long-term and serves as an excellent portfolio diversifier by providing a hedge against the erosion of paper assets such as stocks, bonds, and currency.

Gold is unique, in that it is the only asset that is not simultaneously someone else´s liability.  It is not directly influenced by economic (monetary and fiscal) policies of any individual country.  Gold is extremely liquid and is universally accepted as a means of payment.  Because of these characteristics, gold had long been held by the world’s wealthiest people and central banks, as the “ultimate asset.”

Gold is scarce-so scarce that all the gold ever mined would fit into a cube measuring just 30 yards on each side.  New supply is growing by less than 2% annually.  Competing for this limited supply are jewelry manufacturers, industrial and medical users, national governments (central banks) and private investors.

From an investor standpoint, both ancient and modern history proves the importance of holding gold in one´s portfolio.  When you realize that all of the world´s currencies are now fiat currencies (money that has no intrinsic value, and is not backed by anything tangible like gold) you quickly begin to understand the need to own gold.

This anonymous quote sums it up best.

“Distrust of ‘fiat´ paper money cannot be prevented by even the most powerful dictator.  The more a government abuses its money-credit system and impairs the buying power of its currency through inflation, the greater will be the demand for ‘hard money´ (gold), the value of which cannot be altered by the whims of politicians or the money managers.”

Since 1971 when the United States went off the gold standard, our currency, the dollar, had been a fiat currency.  As George Bernard Shaw said, “You have to choose as a voter between trusting to the natural stability of gold and the natural stability and intelligence of the government.  And with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold.”

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