The New Case for Gold

"Gold is intrinsically worthless or intrinsically priceless. You can build a financial model to value it, but every input is just going to be your imagination..." - <a href="http://www.levitt.com/essays/wise-2015-10" rel="nofollow noopener">Mark Levitt</a> <br /><br />I write as someone whose semester-long capstone course for the political science major was "Lessons of the Great Depression," in which I read all of the same major academic literature (Keynes, Friedman, Eichengreen, Bernanke, etc.) that this book alternates between citing from or dismissing. This author either misread– or deliberately misrepresents – the reasoned conclusions of this research into why having a gold-based monetary system is a very, very bad idea (e.g. <a href="https://goodreads.com/book/show/775143.Golden_Fetters_The_Gold_Standard_and_the_Great_Depression__1919_1939" title="Golden Fetters The Gold Standard and the Great Depression, 1919-1939 by Barry Eichengreen" rel="noopener">Golden Fetters: The Gold Standard and the Great Depression, 1919-1939</a>). Nor does he mention gold's numerous public policy downsides for a modern economy, such as the inability of governments to finance popular social insurance programs... which on second thought, may not be downsides to this author (as I note the Ron Paul endorsement on the dust jacket). I just want to clear the air about that, because if you don't share this book's underlying "sky is falling" economic assumptions, his argument that an ounce of gold will <i>inevitably</i> be worth up to $10,000 – so you should stake a major chunk of your life savings speculating on these intrinsically worthless rocks, instead of investing in productive assets – doesn't make any sense, once the veneer of supportive peer-reviewed evidence falls away.

This book was constructed from a series of taped audio interviews, and it shows. There are repetitions, chapters overlap, parts of the argument are glossed over, it uses a spoken not a literary vocabulary.<br />If you are expecting this to be an impassioned plea to sell everything and buy gold, you would be quite wrong. Rickard recommends you don't touch your non-liquid assets - house, land, business, revenue streams - and only use 10% of your investment portfolio to buy gold bullion. Keep a balanced portfolio. This is nothing new. The word "new" should be dropped from the title.<br />On page 10, Rickard says "Inflation transfers wealth from rich to poor, from savers to debtors, and from citizens to government. Inflation is the preferred policy of socialists and progressives who favor income distribution. The objection to gold based on mining output is not that it stands in the way of growth, but that it stands in the way of theft." You can gather, from that, that Rickard doesn't like socialists, he wants small government that favor rich people, and, for him, there is nothing wrong with recession.<br />Later Rickard admits that severe recession will cause chaos, riots, demonstrations, political instability. On page 140 he writes "If an economy is in distress, riots over money will be breaking out, people will be demanding their money back, and social unrest will go from bad to worse. A neo-fascist response cannot be ruled out." It is no wonder that government don't like deflation when it can lead to negative growth, followed by riots and a neofascist response. But - according to Rickard - if you have gold bullion, you will be relatively unscathed by the unfolding disaster.<br />Near the end on page 169 he concludes that "fine art and land have many of the same wealth preservation properties as gold, but still add diversification to a portfolio." He concedes that gold is not the only way to protect your investments in troubled times.<br />As for gold mining shares, he gives very little advice. They are like physical gold on steroids. They go up faster than gold, and they plummet faster than gold. Gold mining shares are not generic but each mining company is idiosyncratic - based on their management, the quality of the ore, the historical performance and so on. You have to have a depth of knowledge in order to pick the right ones. "Basically, you have to be an equity analyst, which is what I'm trained to do, but I don't do that kind of analysis because it's not my area of expertise." (Page 160) There is very little advice there, and that is a huge gap in the book.<br />Finally it all comes down to timing. When do you buy gold and when do you sell gold?. If you bought in 2011 and sold in 2016 you would have lost 30% on your capital, and -remember this - there is no yield, no dividends, no interest on physical gold.<br />Finally I enjoyed reading about the location for your gold deposits and on page 155 he says "Australia is another good option, but of course, it's not close to anywhere. (Australia works fine if you live in Australia.)" I live in Australia, so I guess that's fine for me.

A very good book that explains why the fiat currency system is doomed to fail at some point in the not too distant future. Most governments (most importantly to us, the U.S.) are running huge deficits and are printing money to pay their debt interest. They are only able to even come close to paying the debt payments because interest rates are near Zero. There is no actual asset backing the dollar except the trust that the government will make good on their promises to pay their debts. But, confidence could be shattered when the debt becomes too big to manage and the confidence in the worthless paper money becomes a reality for "Joe Average" citizen. Hyper inflation could result as people try to spend what money they have now while it still has some purchasing power. In the panic, banks could close to avoid a run in the bank (as happened in Greece and Cyprus already). Stores would run low on food and other items and it could spiral into a nasty level of unrest.<br /><br />So if the fiat money is doomed this author points to many reasons why gold as a "Store of value" is the best substitute for paper currency. Gold can be as small as 1 oz coins or 1 KG bars and does not tarnish, rust or break down over time and for all of humanity it has always been welcomed as a rare and valuable asset that can be traded for other assets. He believes in a financial currency collapse that the major world powers would have to come up with a new currency that will have some backing on gold so that people can trust it. For this to work this currency would have to value Gold at near $10,000- $50,000 per ounce. Anything close to the present level would only result in hyper inflation even with a new currency. <br /><br />His conclusion is to accumulate gold soon, as he believes once a financial crisis is obvious, most of the gold vendors that you can presently buy gold coins or bars from will have no supply left to sell (at any price) as the big Governments such as China, Germany, Russia and the Oil Rich middle east countries (which have already started accumulating gold in record quantities) will buy up everything the Miners can produce before the gold ever gets to the retail gold vendors.<br /><br />A very interesting and short (4-5 hr) audio book that I highly suggest people read or listen to soon.<br /><br />It may feel like a bit like of a doomsday scenario but logic dictates that a government can not go on indefinitely printing more and more money with nothing backing it, without having some nasty consequences when people lose faith in the currency.

Gold is good. And this gave me a few new reasons why

I think that the case, as it is, can't be better argued. The book is eminently quotable and it's argument solidly conducted.<br /><br />"A bank deposit is not money; it’s a bank’s unsecured liability." "Bank depositors in Cyprus in 2013, and Greece in 2015, received a painful education in the difference between a bank deposit and money." "Money can be a medium of exchange, a store of value, and a unit of account, but true money is not a risk asset."<br /><br />"My point was that the entire edifice of the Federal Reserve and the dollar rests on a single point of failure—confidence."<br /><br />"As a practical matter, honest citizens cannot get access to large quantities of cash without being suspected of drug dealing, terrorism, or tax evasion." but "Digital wealth is subject to power outages, infrastructure and exchange collapses, hackers, and online theft."<br /><br />Going on to our dyspotian future: "Finance was a little bit like grease on the gears—a necessary ingredient but not the engine itself. But in the last thirty years, finance has metastasized: it has become like a cancer. It acts as a parasite on productive activity." Michael Hudson wouldn't state the following any better: "Finance does not create wealth; it extracts wealth from other sectors of the economy using inside information and government subsidies to do so. It’s a parasitic or so-called rentier activity. Finance needs to be contained before it triggers the next crash. This involves breaking up big banks, banning most derivatives, and constraining the money supply."<br /><br />The narrative ultimately flirts with full dystopia: "The State of Texas is building a state bullion depository outside the banking system. Texas will rely on state sovereignty and the Tenth Amendment of the U.S. Constitution to resist any efforts by the federal government to confiscate gold. That’s an option definitely worth looking into. It’s only a one- or two-day drive by car from most of the continental United States. In an extreme situation, you should be able to drive down to Texas, pick up your gold, and drive home before the highways are closed. If the highways are clogged, use a motorcycle."<br /><br />So: A great read, some valuable practical lessons and advice, and very intelligent speculation on the more than likely dystopian future being built right now.

I am giving it three stars because I am not sure what it adds and who the audience is. If you don't think gold should be an investment, I don't think the book is good enough to make you change your mind. If you are a "gold" bug, you probably won't read anything new, but will probably enjoy the book because it just affirms your view that fiat currencies and Fed monetary policy are worthless.<br /><br />When I read his argument about Chinese gold purchases and their desire to be able to emerge with a gold backed currency after the next crisis, I just wonder why anyone would trust China even if they claimed to have a gold back currency. The United States is transparent and has some rule of law, and we have stolen gold from our citizens and left the gold standard before, why would anyone trust a Chinese government that has no qualms about manipulating its own stock market?<br /><br />The author also hedges his positions and provides good advice about storing gold, but overall, I don't know if I would recommend this book.

An excellent description of the world of gold and how the metal relates to international finance. The author recommends holding about 10% of one’s assets in gold. He is expecting a major collapse of the world’s financial system. One’s gold holdings will act as a “lifeboat” to that event. However, timing is problematic – could happen within weeks or a couple of years.<br />5 stars.<br />

A great point of reference from a somewhat more believable voice in a sea of conspiracy theorists and preppers. Rickards has a better grasp than most on why the significance of gold is downplayed, and -- despite appearances -- how important gold truly is on the world stage and in the U.S. financial system. A solid book without fluff and filler, which I really appreciate too.

<strong>Succinct Status Report and Round-up</strong><br /><br />Simple arguments are often the best, and they are made well in this book. Jim's understanding of and work experience in "complex" financial systems enables him to cut through the bull.

• Money = 1) medium of exchange 2) store of value 3) unit of account <br /> • Gold (Au, 79) is money as physical gold and the most suitable of the elements. It has all requirements for money; scarcity, malleability, inertness, durability and uniformity. It has "golden" color and historically been very important. Gold is resistant to cyberattacks.<br /> • Gold (in physical form) is not paper, not a commodity and not an investment (no return, similar to cash)<br /> • Price for gold stays about the same, but can gain when other asset classes are depressed <br /> • Only about 35000 tons of "official" gold. This does not include private gold like jewelry <br /> • SDR = world money (special drawing rights) from the IMF<br /> • Gold/GDP ratio important if meeting to discuss the rules of the game<br /> • China's gold unknown but estimated at 4000 tons<br /> • Russia and china increasing gold hordes <br /> • When international monetary collapse happens countries will sit at the "poker" table to discuss the new rules and their influence can be measured in their stash of gold <br /> • "Shadow gold standard" implications<br /> • Gold = insurance <br /> • Gold is simple<br /> • The economy is complex<br /> • Critical threshold and complexity theory <br /> • 2008: "Conditional correlation" when hedge funds sell Japanese stocks to raise money for other positions (= emergent property in a complex system)<br /> • "Extreme financialization almost destroyed the global economy in 2008." 71<br /> • Annual output of gold about 1,6% per year <br /> • Gold is not correlated with the stock market<br /> • Allocation of 10% to gold is recommended. But physical which can be tricky.<br /> • Claims of a possible 10000 dollar gold future. Maybe.<br /> <br />