Gold's Endless Era

There have been several headline-grabbing declarations made recently about gold being “bust” or the “gold era” being over. Such pronouncements of gold’s apparent demise are not only misguided, but somewhat silly. To declare gold “dead” one must not only deny economic history but reject human cultural history as well.

Gold has multiple lives. It is beautiful, highly versatile and historically valuable. Throughout civilization, almost every culture has held gold as the enduring symbol of splendor. It has been the ideal choice for our most momentous and noteworthy objects from wedding rings to war medals … from church domes to high art.

And of all of the earth’s minerals, gold is perhaps the most useful. It is the most malleable metal in existence. It can be hammered, sculpted, cast and melted for art, jewelry, adornment, and decoration. And since it conducts electricity, gold is also a critical component of electronics, computers, dentistry, medicine, and aerospace.

And then there is its role as money. Gold has functioned as currency as far back as 700 BC. Its economic history spans thousands of years … through countless civilizations, wars, conflicts, and empires. There are few civilizations that have not viewed gold as a symbol of enduring value. And, no other material has consistently held a stronger association with wealth throughout time.

The most stable currencies in history have also been backed by gold. Gold-backed paper money has benefited from the store of value and stability that gold provides. But, as the world divorced itself from the gold standard, we have seen virtually every fiat currency dating back to Roman times suffer eventual collapse. Why? Because fiat currencies lack intrinsic value and often rely on government decree or a country’s economic health to back them. And for the many nations that have been living beyond their means, money-printing has become a kind of panacea, an enticing manna, and an economic elixir that few can resist.

There are not many long-term bright spots for nations that spend too much. Government indebtedness creates a volatile environment of inflation, loss of purchasing power, rising interest rates, and tumbling growth rates. Our current economic climate reflects precisely the type of uncertainty that has sent millions flocking to gold the last few decades … as gold’s dramatic value surge over the past 30-40 years has closely followed the rise in world debt. As a matter of fact over the past 15 years, the US Debt-to-Gold correlation tracks at an astonishing 98%!

It’s ironic that it was Spain and Portugal that actually sent Columbus off to the New World in search of more gold so they could garner more Old World wealth. Both countries were among the first casualties of the modern Euro fiat bailout. The most recent casualty, Cyprus, had to tap another resource to secure a bailout. … their gold reserves.

Like all investments, gold must be considered within the context of time and current economic circumstance. To disregard the backdrop of fiat currencies, soaring sovereign debt, quantitative easing practices, and unprecedented market intervention is simply naïve. 

Physical demand for gold remains at record levels and central banks around the world continue to stockpile it … clearly understanding that debt is rampant, loose monetary policies rule the day, and money devaluation is painless …but only for the short-term.