4. Gold Is an Article of Faith, Not Rational Investing
Some people denigrate gold to a relic of the past in terms of its economic importance. The most recognized of today's detractors is perhaps Nouriel Roubini, the famed NYU economist who repeats John Maynard Keynes' cry of the 1930s that gold is a "Barbarous Relic". Still others go further, saying that choosing to own investment gold is anti-social. The argument is that there is no longer any need for gold as a form of exchange, nor as a store of value. Governments and central banks have done away with the need for gold. So apparently, gold's only value today lies in the jewelry and electronics trades.
In addition, other analysts write about gold being a faith-based investment and mock it as a type of religion. There are certainly those who invest on faith, and they can be loud, giving the impression that investors in gold are extreme. But this can also be said about the defense of the U.S. Dollar. That currency in the end is only a piece of paper that has no other use than that ascribed by the government. If you put fire to a dollar bill it will turn to ashes and float away. But if you put fire to gold, at the right temperature, you get a liquid metal that not only is useful to the arts but important in the electronics and high-technology industries.
"We may one day become a great commercial and flourishing nation," wrote George Washington, the first president of the United States of America, on the subject of paper money in a letter to Jabez Bowen, Rhode Island, on Jan. 9, 1787. "But if in pursuit of the means we should unfortunately stumble again on unfunded paper money or similar species of fraud, we shall assuredly give a fatal stab to our credit in its infancy.
"Paper money will invariably operate in the body of politics as spirit liquors on the human body. They prey on the vitals and ultimately destroy them."
It is difficult for those in power to try to overcome this truth, embodied by all of recorded economic history. And it becomes more ludicrous as governments also hold gold bullion in vast amounts.
The modern central banking system, now more than 100 years old, may seem to shape this perception. Yet in the last decade, central bankers themselves, albeit in Asia and other emerging economies, have been significant buyers of the yellow metal. Western governments as a group have stopped selling gold.
Why? Economic chaos causes distrust among governments and central banks, leading those in power to seek out avenues to strengthen their position with other parties. The position central banks look for to strengthen their balance sheet and ensure their place in the global economy is gold. The United States rose to dominance worldwide alongside its dominant gold reserves. Now becoming a market economy, and hoping to become the next big global economy, China is also building its central bank gold reserves. It becomes obvious that gold has a very deep, very human value, ascribed to it by history and by all major powers today.
Value isn't the same as price, of course, which explains, perhaps, how gold investing remains such a mystery to some people.
Adrian Ash is head of research, and Miguel Perez-Santalla is vice president of business development for BullionVault, the physical gold and silver exchange founded a decade ago and now the world's No. 1 provider of physical bullion ownership online. There you can buy fully allocated bullion already vaulted in your choice of London, New York, Singapore, Toronto or Zurich for just 0.5% commission today.
