HomeOpinionGold as the best wealth insurance

Gold as the best wealth insurance

By Alexander Maune

EB Tucker`s 2020 book, Why Gold? Why Now? The War against Your Wealth and How to Win It is a fascinating read. The book is an essential guide to the world of gold. It gives a summary of gold. Why gold? Tucker argues that history reveals an ugly pattern of governments spending tomorrow’s hard-earned savings today leaving unknowing savers holding the bag. Why now? — Recent global events foretell a dangerous future for money today.

The world’s elite holds and counts on gold as a core asset for a reason. During periods of financial turmoil, gold is invaluable. Gold is the only asset that’s not someone else’s liability. Other assets, for example, apartments rely on paying tenants, stocks rely on the company profits, and bonds rely on stable interest payments. Gold doesn’t rely on anyone or anything for its value.

Gold is God’s money. Gold is difficult to ban or prohibit. In the Tanakh, gold is mentioned 448 times as a medium of exchange.

Until the development of coinage, gold was owned by monarchs and priests. Gold was for the kings and queens. Its use was ceremonial in large part, a medium for advertising power, wealth, eminence, and proximity to the gods.

Why gold? Why now?

Stores of wealth sit. Money moves. It travels from one pocket to another. A store of wealth is mass; money is a measurement of wealth. Gold’s durability, density, and glow made it a natural choice as a store of wealth long before people thought about using it as money. But why are many developing countries with vast gold deposits poor and sinking in debt from multilateral institutions like the IMF and the World Bank? In the 16th century the Spanish Parliament or the Cortes gave the answer when it declared, “The more of [gold] that comes in, the less the Kingdom has. … Though our kingdoms should be the richest in the world … they are the poorest, for they are only a bridge for [the gold and silver] to go to the Kingdoms of our enemies.”

In 1608 Pedro de Valencia wrote: “So much silver and money … always has been fatal poison to republics and cities. They believe money will keep them and it is not true: ploughed fields, pastures, and fisheries are what give sustenance.” Instead of transforming the gold and silver into new productive wealth, we pay the precious metals out to other countries and spend so much that debts to foreigners soared. We see this happening today before our eyes.

The Indians seem to be different. As noted by Earl Hamilton an economic historian who stated that India is the largest buyer of gold in the world. India is where gold continues to be the most popular form of portable wealth. Hamilton argues that the Indians spend more on gold than on cars, two-wheeled transport, refrigerators, and colour televisions combined. The Indians are like the Japanese. The Japanese prefer to save their money and accumulate treasure instead of going out and spending it on imports from abroad. One thing is certain: Asians derive much pleasure from their ownership of gold. Gold’s natural attributes of malleability, indestructibility, and dazzling beauty appeal to people in any part of the world.

Asians are different from us. We can risk everything to smuggle the precious mineral out of the country in exchange for paper money. The OR Tambo arrest is one case. It’s so sad that we can’t differentiate real assets from fake assets. But what is an asset?

The IASB defines an asset as a resource controlled by the entity (individual) as a result of past events and from which future economic benefits are expected to flow to the entity (individual).

What we fail to understand is that gold remains a definitive mark of opulence. Thus, the mystique of gold as a store of wealth, which is critically dependent on its scarcity, has added lustre to gold as a symbol of power.

There was never a time when gold was not in constant demand either for ostentation or for hoarding. Hoarding is similar to buying an insurance policy. Like an insurance policy, hoarding gold has a cost, for the idle metal earns nothing. However, we sleep better knowing that we hold some kind of a hedge against the chance that the catastrophes we fear may occur. This motive is as powerful among poor peasants and labourers as among kings and princes.

For 5 000 years, gold has served as humanity’s most effective uncertainty insurance. To Simon Mikhailovich, gold is behaving exactly like insurance should behave — rising and falling with confidence and catastrophic risk perceptions. Dylan Grice argues that confidence in central bankers’ ability to learn from past inflation is as likely to be misplaced …. Gold remains the cleanest insurance against such overconfidence.

Metallic money, or paper money convertible into metal, is usually considered to have more value than a system that uses paper only. As Ma Twan-lin reminded us, “Paper should never be money [but] only employed as a representative sign of value existing in metals or produce.”

Recently, the vice-chairman of the Swiss National Bank asserted that, “We are convinced that gold will continue to play a role as a currency reserve, especially in times of crisis.”

In April 1998, the annual report of the Bank of France of 1997 sounded like old times: “Gold remains an element of long-term confidence in the currency…. Above all, holding gold is, from the political point of view, a sign of monetary sovereignty [and] an insurance policy against a major breakdown in the international monetary system.” About the same time, a former managing director of the IMF affirmed that, “Gold remains at the heart of a collective belief in the credibility of an international economy … a sort of ‘war chest’, indispensable for a tomorrow whose needs we can only guess.”

Why gold? Every piece of gold reflects the same qualities. All the gold in the world is all made of the same stuff. Gold`s chemical symbol AU derives from Aurora, which means “shining dawn,” but despite the glamorous suggestion of AU, gold is chemically inert. That explains why its radiance is forever. In Cairo, we will find a tooth bridge made of gold for an Egyptian 4 500 years ago, its condition good enough to go into our mouth today.

Gold is almost as soft as putty. The gold on Venetian glasses was hammered down to as little as five millionths of an inch-a process known as gilding. We could draw an ounce of gold into a wire fifty miles in length, or, if we prefer, we could beat that ounce into a sheet that would cover one hundred square feet.

Unlike any other element on earth, almost all the gold ever mined is still around. But in comparison with steel, gold seems to play an insignificant role, especially in industry. We can further argue that out of steel, we build office towers, ships, automobiles, containers, and machinery of all types; out of gold, we build nothing. And yet it is gold that we call the precious metal. We yearn for gold and yawn at steel. Why then gold?

When all the steel has rusted and rotted, and forever after that, gold will still look like new. That is the kind of longevity we all dream of.

Gold may be volatile when measured in nominal dollars. Still, the volatility has more to do with the value of the dollar than with the value of gold. Historically, gold has done well in inflation and deflation because it represents a real store of value.

In 2013 Justin Rowlatt of the BBC World Service interviewed Andrea Sella, professor of chemistry at University College London, in which Professor Sella provided an in-depth review of the periodic table to explain why gold is the only element amongst the 118 elements in the periodic table that has all the requisite physical characteristics — scarcity, malleability, inertness, durability, and uniformity—to serve as a reliable and practical physical store of value. Wiser societies than ours knew what they were doing, concludes James Rickards.

Savers of paper money are the biggest losers given the prevailing financial environment. It’s high time we change our mindsets and wake up to the realities of life and start investing in real assets. Gold is one of those real assets that has been tried and tested as the best wealth insurance.

The government needs to legalise the holding and ownership of gold by its citizens. Allowing one entity to be the sole buyer of gold has not done any good to our economy. Local ownership and trade in gold must be legalised with stiffer penalties imposed on smugglers.

  • Maune is a Talmudic scholar, researcher, and consultant as well as a member of IoDZ.  — alexandermaune6@gmail.com.

Recent Posts

Stories you will enjoy

Recommended reading