Rats Can’t Touch Your Gold

Not much action in the markets last week. The players are at the beach. They’re playing tennis and beach ball. They’re not playing in the stock or commodities markets.
But the real story is not the zigzagging stock market anyway… and not the endless bobbing and weaving by European policy makers either.

And it doesn’t really matter either, whether Obama or Romney wins in November.

The price of corn is soaring. But so what? The UN has urged US authorities to stop using corn to power automobiles. They’re worried about a worldwide food shortage. People can eat corn. They can’t eat petroleum. Besides, ethanol is just another flimflam scheme by the feds to redistribute money from the people who earn it to the people who control government.

In America, people use corn to power automobiles not because it’s cheaper energy, but because the US government requires it.

By the way, thanks to the forces of nature and venality, which is to say a record-breaking drought on the one hand and the feds’ intervention in the markets on the other, corn has been the best thing you could have bought over the last five years. Better than stocks. Better than Treasuries. Better than oil. Even slightly better than gold.

This is not to say that the ‘investments’ are of equal value. Neither is an investment. Corn is a speculation. Gold is just a way to preserve wealth, not a way to earn more. As an investment, gold stinks. But as a way to hold wealth, it is unbeatable. Which would you rather have: a few gold bars buried in the yard or a crib full of corn on top of it? Rats don’t eat gold.

Also, still sidetracked by gold, there was an article in the Financial Times last week in which Peter Tasker advised investors to sell their gold and “send their kids to college”.

Tasker notices that gold is expensive in terms of other consumer goods. On that basis, he believes it is time to sell. In his mind, it is “just another financial asset”, so it should be bought when cheap and sold when dear.

There is some truth to that. Gold goes up and it goes down. If you own gold, you think you are smarter when it is going up rather than down. But it is a mistake to think about it at all. Gold is merely a convenient way to store wealth, because rats don’t eat it. And if you bury it well, the two legged rats won’t find it either.

Fundamentally, gold is real money, not just another ‘financial asset’. And it protects you from both inflation and deflation. There is no counterparty risk when you own gold. There’s no one on the other side of the trade who can go broke and destroy your investment.

And gold adjusts much more quickly and surely to monetary inflation than do other consumer prices. Over the last five years or so, the world’s supply of central bank assets has approximately doubled. Consumer prices have not. But gold has doubled too, probably anticipating a big rise in the CPI.

But Tasker not only advises people to sell gold, he also suggests that they should use the money to ‘send their kids to college’. Good luck with that trade, Peter. You’ll probably lose money on both sides. In the end, your family will have no gold and another useless piece of paper – a college diploma.

But that’s a different story.


Bill Bonner
for Markets and Money

From the Archives…

When the Trickle Becomes a Flood
10-08-2012 – Greg Canavan

What Central Planners Can Never Know
09-08-2012 – Bill Bonner

The Central Bank Big Bazooka in Theory and Practice
08-08-2012 – Bill Bonner

In Thrall to the Iron Fist
07-08-2012 – Dan Denning

Cracks in the Foundation
06-08-2012 – Dan Denning

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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