3,000 Year Old Logic: Don’t Sell Your Gold

Recently, the London auction house Christie’s offered for sale what it described as a ‘stunning piece of jewelry’. Christie’s advertised a solid gold bracelet that’s about 3,000 years old. It dates to the Iron Age, and was unearthed — yes, dug out of the ground — in Portugal, or old pre-Roman Lusitania.

Per the Christie’s fact sheet, the bracelet contains 599 grams (over 21 ounces) of gold. Also, according to Christie’s write-up, this item ‘clearly demonstrates the technological advancements of the Iron Age,’ including the use of high-temperature furnaces and intricate tools specialized for metalworking

What is the bracelet worth?

Just the gold alone would fetch about $32,000 at current prices. Then there’s the value of piece as both art and a historical artefact. Thus, the bracelet sold in London, at Christie’s, for nearly $805,000.

What’s the lesson? If archaeologists are correct — let alone the Christie’s auctioneers — then gold and precious metals have been a haven for wealth protection for millennia. Still, why discuss this ancient Lusitanian bracelet?

Because there’s an important lesson here. This 3,000-year-old relic is more than just a museum curio. It speaks volumes about why we should respect one of mankind’s oldest forms of money, and not walk away from gold in the face of its recent price decline.

Indeed, the mainstream media is all but reading last rites over gold. Yet I foresee new opportunities, and I don’t mean mere ‘walking dead’ investment analogies. No, I believe that, like that bracelet from Lusitania, gold will continue to come out of the ground and offer great wealth and security to those who are brave enough to stick with it.

Rumours of Gold’s Demise Have Been Greatly Exaggerated

What did Mark Twain once remark about his obituary, published in a local newspaper? He said, ‘Reports of my death have been greatly exaggerated.’ It’s the same thing with gold.

We’ve had a superb, 10-year run for gold pricing. Yet we recently experienced a big sell-down. After a decade-long, relatively steady rise, gold prices plummeted from the $1,700 range per ounce to $1,400.

Media accounts — many from the usual suspects — relate that gold is no longer a safe haven for either wealth protection or long-term gains in the face of global inflation. This line of anti-gold argument seems to have popped up on the screen exactly when investors everywhere seek a safe haven in rough economic seas. Like the man says, be careful what you read in the newspapers.

In a curious twist of fate, while the ‘paper’ price for gold plummeted, buyers everywhere walked into gold shops and souks and walked out with everything they could carry. Chinese buyers scooped up physical gold literally with both hands.

What’s happening in China reflects what’s happening across the world. Individuals are protecting themselves against an oncoming monetary storm. At the retail level, people are buying gold, and lots of it.

From my perspective, it’s a harbinger of things to come, and one of the few times you’ll ever see ‘small guy’ investors take a position ahead of the so-called ‘Big Money’. That is, usually, the little guy is late to the party. Not now.

The Big Gold Mining Smackdown

The divergence between paper gold and physical metal helps explain what happened with ‘Big Mining’ in recent months. Consider some of the top names, like Barrick Gold or Freeport-McMoRan Copper & Gold.

Gold, silver, copper and base metal miners have all had a tough spring in the share trading pits, losing significant value. It was a smackdown worthy of professional wrestling at its best. What happened?

Well, there’s a strong disconnect between the nominal paper price for gold and personal demand for physical metal. Thus, large institutional money has exited the mining space.

That is, gold (and by extension, gold miners) may be an investment for individuals over the long haul, but in the short term, people who run big, institutional money don’t see it that way. They fail to see what they call ‘growth’ in the sector and head for the exits.

Right now, large money managers, pension funds, hedge funds, etc., are choosing to buy government and corporate bonds, and bondlike equities, rather than gold. Institutional money has taken the Dow Jones index up to 15,000 and more, while walking away from gold, which — see the Christie’s auction, above — has been a store of wealth since long before the days of the Roman Empire.

There’s an ‘apples and oranges’ investment issue here. Individual investors can think long term, even over generations. Individuals, however, are not constrained like pension funds, with quarterly performance mandates — for example, ‘assumptions’ of 8% annual returns in a world of Sahara-like overall yields.

Thus, individuals make long-term choices to protect their wealth in gold. Meanwhile, institutions and other Big Money buffaloes follow their herd instinct.


Bryon King
for Markets and Money


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Byron King currently serves as an attorney in Pittsburgh, Pennsylvania. He received his Juris Doctor from the University of Pittsburgh School of Law in 1981 and is a cum laude graduate of Harvard University. Byron is also co-editor of Outstanding Investments.

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