“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.
Markets and Money