As a counterbalance to my own somewhat gloomy take on the near-term prospects for precious metals as noted here a short time ago in It’s Getting Hard To Be A Gold Bull These Days, I highly recommend a look at this commentary(.pdf) by Tim Price of PFP Wealth Management, reacting to the views of economist Tim Harford’s thoughts on the Germans plan to “take home” their gold.
Few publications have the capacity to enrage like the Financial Times. On the one hand, it carries thoughtful, well written and engaging commentary from the likes of John Kay, Luke Johnson and Gillian Tett. On the other hand, it regularly publishes Martin Wolf. The latest weekend edition does not disappoint. Tim Harford, hitherto unobjectionable, publishes what can only be an elaborate ironic joke against gold, ‘The Bundesbank takes back its doughnuts’.
For anyone that missed it, Germany’s central bank is in the process of moving 54,000 gold bars from the US Federal Reserve and the Banque de France back to Frankfurt. What is that all about ? Tim Harford:
“There is no thinking behind that. This is gold we’re talking about, so we’re entering the asylum.”
Strike One.
But gold has been a good investment – if one can call it that – over the past decade. Tim Harford:
“It’s been an excellent investment. But there’s no logic behind the gold bubble.”
Strike Two.
Perhaps he could be more expansive. Tim Harford:
“..gold is a bubble because its investment value isn’t connected to the stream of income it produces. Housing produces rent. Bonds produce interest payments. Shares produce dividends, or at least the prospect. But gold doesn’t produce any income stream.. Therefore it is a bubble. It may remain an excellent investment: any bubble that has persisted for 4,000 years has to be pretty resilient.”
Strike Three. You’re out.
It takes either guts or self-delusion to call yourself an economist when you plainly don’t understand money. JP Morgan once said that gold was money, and everything else was just credit. That isn’t a bad definition.
This is well worth reading in its entirety and, in doing so, you’ll come across more than a few gems such as “There is admittedly something rather endearing about the concept of a 4,000 year old bubble”.