Besides, speaking from experience, this is the first time in almost
10 years that we can remember gold being a hated asset. It was hated
in the early part of the decade for all the same reasons: It had no
real economic use... it produced no yield, but imposed storage
costs... it didn’t do anything other than sit there and look pretty
in a cold, dark room.
The people who didn’t understand gold then don’t understand it now.
The only difference today is that the horrible price action has
brought out the gold bears from the woodwork. They are exacting
their verbal revenge. The crowd is bleating for lower prices.
Of course, it could be that we are so embedded in our own position,
so wedded to our own beliefs and so complacent after 12 years of
rising bullion prices that we’re incapable of considering the
evidence in front of us. It is possible we’re refusing to see the
gold bear market because we’re emotionally attached to a long-term
gold bull market.
Yes, of course, it’s possible. It’s important to know your
limitations as a human being and not to mistake good fortune with
personal brilliance. But we suspect gold’s days as the premier
monetary asset are far from over. In fact, we suspect that gold will
be around long after the yen, euro and dollar are being used for
toilet paper.
Even artists -- not famous for their interest in financial matters -
- seem to know this. One of the exhibits we relished at Hobart’s
Museum of Old and New Art took some time to sort out. This is as it
should be with a good piece of art, whether it’s a book, a movie or
something else. The meaning -- if there is one -- shouldn’t come
right out and hit you on the head. If it’s too obvious, it’s either
a soup label or a traffic signal.
The exhibit in question looked like a long line of leaf patterns on
colored paper, at least from a distance. As you got closer -- and
you’d have to lean in really close to examine the paper each leaf
was matted on -- you could see that the colored paper was really a
collage of old paper currencies. Most of them were from places in
South America or Southeast Asia.
This work of art conveys many different emotions and messages,
depending greatly upon the individual mind that absorbs it. But for
the narrow purposes of today’s essay, the leaves of defunct paper
currencies convey a monetary, and perhaps ecological, message. All
those forests cut down to make paper currencies that are worthless.
Something real turned into something unreal. Something valuable
lost; nothing worthwhile gained. That is one meaning you might
extract from this canvas.
Paper money possesses value only because everyone tacitly agrees
that it does. When that agreement breaks down, the money becomes
worthless. That’s why paper money is ephemeral, everywhere and
always. It has always come and gone through history, because those
who print it cannot resist the temptation to print more. They always
do.
But gold is untreelike. It doesn’t grow on trees. And you can’t
extract more of it from a printing press. That’s why people have
always used it as a store of wealth and a medium of exchange. Its
physical properties give it a reliability you can never get from
paper money that’s backed by nothing but the “full faith and credit”
of a government.
Are we articulating an overly orthodox or unfashionable view of
money? It certainly looks like it, based on the last few days of
trading in the gold market. Does gold care? Not a jot. Will today’s
paper currencies be the museum exhibits of tomorrow? Only if they
don’t all get burned to produce something useful first, like heat.
For now, however, all the heat is on gold owners.
