Jim Rickards’ on the Poor ‘Case against Gold’

Jim gives the three main arguments economists make against gold, and why they’re dead wrong:

1. ‘Experts’ say there’s not enough gold to support a global financial system. Gold can’t support the world’s paper money, its assets and liabilities, its expanded balance sheets of all the banks and the financial institutions in the world.

2. Gold cannot support the growth of world trade and commerce because it doesn’t grow fast enough. The world’s mining output is about 1.6% of total gold stocks. World growth is roughly 3–4% a year. It varies, but let’s assume 3–4%.

3. Gold has no yield. It’s true, but gold isn’t supposed to have a yield. Gold is money. Pull out a dollar bill, hold it up in front of you and look at it. Does it have a yield? No, of course it has no yield, money has no yield.’

If you want yield, you have to take risk. You can put your money in the bank and get a little bit of yield — maybe half a percent. Probably not even that. But it’s not money anymore. When you put it in the bank, it’s not money. It’s a bank deposit. That’s an unsecured liability in an occasionally insolvent commercial bank.

You can also buy stocks, bonds, real estate, and many other things with your money. But when you do, it’s not money anymore. It’s some other asset, and they involve varying degrees of risk. The point simply is that, if you want yield, you have to take risk. Physical gold doesn’t offer an official yield, but it doesn’t carry risk. It’s simply a way of preserving wealth.

“I believe the primary way every investor should play the rise in gold is to own the physical metal directly. In fact, I always say that at least 10% of your investment portfolio should be devoted to physical gold—bars, coins and the like.”

“But there are good ways to do this. And bad ones.”

Why did Jim Rickards write this book?

In part because he became sick to death of hearing stupid arguments AGAINST owning gold over the next three years. Jim said:

I wrote the book so, when you hear these arguments, you don’t have to be cowed or intimidated.

You’re at a cocktail party and you say something, you know, I’m interested in buying gold, or you just bought some gold. And immediately someone has something to say to you that’s designed to embarrass you or humiliate you, or whatever.

And it doesn’t hold water.

Let me give you a simple example. People say there’s not enough gold to support the international monetary system. A gold standard sounds good, but the global financial system is so large, there’s not enough gold to support the money supply.

As I show in the book, that’s nonsense.

There’s always enough gold. It’s just a question of price. At $1,250 an ounce, no, the amount of gold we have would be highly deflationary. You’d have to shrink the money supply to maintain the parity and that would be deflationary.

That would repeat Churchill’s blunder of 1925, which threw the UK into a depression, three years ahead of the rest of the world.

But at $10,000 an ounce? At that price the same amount of gold will support a much larger financial system. So you always have enough gold to support finance, it’s just a question of price.

So the math is: What is the implied non-deflationary price of gold if you’re on a gold standard or something like it? And the answer is $10,000 an ounce at the low end, $50,000 an ounce at the higher end.