Gold Outlives Paper Money, Empires and Governments

“Who goes borrowing, goes sorrowing.”

– Ben Franklin

Today’s reckoning is going to be short. We’re on the road again…this time to Ireland where our Family office is headquartered.

The quote above comes from one of America’s founding fathers. But it was recalled to us neither by America’s president, nor America’s secretary of the Treasury, nor by America’s top banker. Instead, the Telegraph in London reported it from the mouth of Cheng Siwei, a “top member of the Communist hierarchy.”

The Telegraph reports:

“Cheng Siwei, former vice-chairman of the Standing Committee…said Beijing was dismayed by the Fed’s recourse to “credit easing”.

“We hope there will be a change in monetary policy as soon as they have positive growth again,” he said at the Ambrosetti Workshop, a policy gathering on Lake Como.

“If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies,” he said.

China’s reserves are more than – $2 trillion, the world’s largest.

“Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets,” he added.

The Chinese now have the wind at their backs. Having done the stupidest things a nation can do – for a period of about half a century – the Chinese are getting smart. They’re discovering the wisdom Americans have forgotten.

“A penny saved is a penny earned,” is another of Franklin’s quips. In China it is practically the national motto. The Chinese save 25% to 40% of their income.

And now, with their $2 trillion in national savings, they’re going on a buying spree. But unlike Americans in the Bubble Epoque, the Chinese aren’t buying cheap consumer goods. They’re buying real assets…raw materials…and key supplies of essential resources, such as rare metals.

Chris Mayer, who has been way ahead of the curve throughout the gold bull market of the last few years, has guided his Mayer’s Special Situations’ subscribers to many large gains in the gold mining sector. “Sure, gold may be a little overbought over the short term,” Chris admits, “but we’re still in the middle of a great big bull market that is not even close to exhausting itself.” Despite Chris’s bullish outlook for gold, however, he always tries to identify unique opportunities in the mining sector that will flourish, even if gold doesn’t budge.

Ultimately, gold is money…it’s a way to store wealth over the long term.

Just ask Terry Herbert. The man spent his time with a metal detector, looking for treasure in England’s green and golden fields. He’d been looking for years, but when he finally found something important it “brought tears to my eyes,” he says.

What Mr. Herbert found was perhaps the greatest discovery of buried treasure in English history – 1,500 different artifacts of gold and silver…dagger hilts, crosses, helmet cheek pieces and other items of war booty from the Anglo-Saxon period, about 1,400 years ago.

Had Mr. Herbert stumbled upon some IOUs from a Saxon chieftain, it would have been a remarkable discovery. Its historical value might have been inestimable. But what he found weighed in at 11 pounds of gold. In addition to the value to museums and historians, it has monetary value. Even if you melted it down, erasing all trace of its history and provenance, it would still be worth about $160,000 at today’s price – probably about as much as it was when the Saxons stole it.

Gold’s “price has been remarkably similar for centuries at a time,” wrote Roy W. Jastram in his 1977 book, The Golden Constant. “Its purchasing power in the middle of the twentieth century was very nearly the same as in the midst of the seventeenth century.”

Gold outlives paper money, empires, governments…all of us and all our institutions.

The Chinese have metal detectors too. And they know there’s not much real value behind the dollar.

“The dollar is finished,” says historian Niall Ferguson. The Chinese are dumping it, he says.

Ferguson speaks for the popular intelligentsia. His ideas reflect those of fund managers, hedge fund operators, bankers, politicians and speculators. They’re all convinced that the dollar is doomed.

The Financial Times elaborates:

“The financial crisis vividly taught investors the importance of tail risk, a massive one-off event that can crush the value of portfolios. As the dust settles, fear of another ‘tail’ to sting portfolios is uppermost in the minds of many investors and money managers.”

Oh, Mr. Market…where’s thy sting? It’s inflation, they believe.

It’s the risk “that the huge liquidity injections being made by central banks could spark a surge in either inflation and/or long-term interest rates beyond 2012,” continues the FT.

“Inflation is the single biggest topic for discussion among our clients,” says a private banker.

What’s remarkable about inflation is that there is so little of it. It makes us think this story may have a twist.

Bill Bonner
for Markets and Money

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 Markets and Money.
Bill Bonner

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Daniel Newhouse

It outlives the gods too.

Btw, does anyone know if APMEX is reputable?

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