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Friday, September 26, 2014

Gold : it makes sense to hold it for diversification

Well, first of all we had the gold bull market from 1999 to 2011 and we’ve been in depression since then. If I compare the credit growth, monetary growth and asset growth among central banks and the whole banking wealth accumulation that we had in the last fifteen years, I don’t think that gold is terribly expensive. I hold physical gold for the reason that one day I may not be able to remit money from one country to another. I don’t know when this final systemic collapse that I am foreseeing will occur but all I can say is that in monetary, inflationary times, when inflation is measured properly, in real terms: stocks usually don’t do particularly well but gold does. Nobody knows how the world will look like in five years’ time. I don’t think that gold investment is the best over the long run, because it doesn’t generate cash flows and doesn’t “grow”. But I think it makes sense to hold it for diversification. My business depends on financial markets, so I own stocks, bonds etc. Most of it is in “paper” and I want to be diversified out of paper into something that is not the liability of someone else. In the bank account, I depend on the bank. If I own corporate bonds, I depend on the corporation to pay me back. In the case of physical gold, I don’t depend on anyone to pay me back, but I do rely on well-established property rights. All governments now largely consist of bureaucrat socialists that are anti-wealth – and this also goes for the Swiss bureaucrats. If a proposal to collect all the gold from banks and Swiss owners of gold comes up, they are likely to follow through. I think that the collection of one’s gold by the bureaucrats is the largest risk we have today.

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