NZ Gold ::: Why Those Who Hold Gold Are Not So Bold

Why those who 'hold gold' are not so bold

Sunday 2nd March 2008

'Holding gold' is more about strength and avoiding temptation than being bold

One of the problems for those of us who write about gold and silver - at this point in history - is getting the wider public to take the precious metals seriously as money. In a sense this is comforting, for although gold and silver prices have risen dramatically in recent years we still seem a long way from the frenetic 'blow-off' phase where people just 'pile in' regardless. Indeed, despite what has been a very active precious metals market since the new year, with gold not far from US$1,000 per ounce and silver threatening US$20 per ounce, we still discern very limited interest. We would suggest, that beyond jewellery, most people still see no role for gold and silver within their financial armamentarium. In adopting such attitudes we fear 'Joe Public' is making a serious mistake!

A variety of factors conspire to keep consciousness about the precious metals, as anything other than an adornment, below the 'radar screen'. Perhaps the most important of these, certainly since the early nineteen eighties, has been the perception that inflation is largely 'dead and buried'. Whilst this hypothesis can be advanced with some 'nominal' credibility we would suggest it is on far more shaky ground than is commonly understood. At NZ Gold we remain substantially persuaded that inflation is caused by an expansion in the supply of money and not by such 'convenient to blame' factors such as wage increases or the price of oil. Indeed, when addressing a group of businessmen in Newcastle-upon-Tyne in 1975, that great British Parliamentarian Enoch Powell put it perfectly: "the disease of inflation in its modern form is caused by an exorbitant increase in money". Moreover, with great prescience when we consider what is now unfolding in the United States, Britain, and New Zealand he warned in 1979 of: "a never-never land where it would be possible - given "moderation" on all sides - to enjoy the sweetness of inflating the currency without suffering the punishment that follows". The most potent manifestation of Powell's "never-never land" has - of course - been the "sweetness" of apparently growing ever 'wealthier' from residential housing! Well, anyone who keeps themselves abreast of what has been happening to the property market within the United States, what is now happening in Britain, and what is just beginning to happen in New Zealand will recognise the "punishment" of which Enoch so severely warned.

Clearly, it is to the huge advantage of governments, who are inflators par excellence, to convince the 'peasantry' that they are getting wealthier - especially if they can be persuaded that they have actually 'got something for nothing'. At NZ Gold a flirtation with logic suggests to us that if it now requires five, six, seven, eight, or nine times current annual income to secure a property, that could have been purchased with less than three times annual income some years ago, then 'Joe Average' is not getting richer - he is getting poorer! He believes he is rich because his house price went up and for a historically brief period - due to a convergence of very unusual circumstances - it appeared that house prices could rise faster than incomes forever whilst the general cost of living remained relatively benign. Unearned luxuries could then be paid for by the house, via that 'wonder of the modern world' - equity release. Oh dear, how things change! Now, as house prices at best stagnate (and fall in the United States and Britain) the cost of every necessity is going through the roof. Suddenly, the euphoria associated with seeing houses skyrocket in price (but not in value) is giving way to fear as the surging cost of living appears to bear no relationship to the consumer price index (what a surprise!). It would appear that the great political and financial lumini, who bless us with their leadership and fiscal genius, are going to deliver us back to the nineteen seventies - if we are lucky!

Frankly, it is not possible to know where global financial recklessness on the scale of recent years will deliver us, but at NZ Gold we are persuaded that the precious metals have a mitigating role. Throughout history, as illustrated below by the ancient coins of Britain's Iceni tribe, gold and silver have found a role as money.

At NZ Gold, as we consider the history of money and the vast disturbances it has periodically undergone, we are persuaded that the holding of precious metals is not in fact a 'bold' act - but a conservative one. Independent thinking may be increasingly frowned upon - in the stifling 'new socialist utopias' that our leaders are determined to build - but opportunities for the expansion of knowledge have never been greater. Affordable books and the extraordinary powers of the internet offer an astonishing opportunity for discerning and critical minds to augment their knowledge and to critique pre-conceived ideas. Within this our own extensive research on the subject of money has persuaded us that politicians and bankers simply cannot be trusted to maintain the integrity of a paper means of exchange - that is underpinned by nothing more than their promises. Quite simply, the temptations to expediently inflate the supply for short term advantage are too great. Yet they cannot simply increase the supply of gold or silver by fiat. Thus the precious metals provide an important antidote to the virtually ubiquitous willingness of contemporary politicians (be they of the nominal left or right) to progressively destroy the value of the average citizen's already outrageously taxed income and savings.

Moreover, when we consider the unfolding financial shenanigans that have done so much to batter credit and equity markets in recent times, we are bound to ask - is 'holding a bit of gold' really so bold? Remember - when correctly held in allocated form - gold and silver do not carry the variable 'counterparty risk' associated with depositing your funds in a financial institution. How much better off would those who have fallen victim to New Zealand's finance sector receiverships have been if they had taken a 'precautionary position' by putting a proportion of their deposits into gold and silver? Moreover, be aware that if all your wealth is denominated in fiat currency then it is effectively subject to a 100% taxation regime - whatever 'tax cutting drivel' you may hear from vote-hungry politicians. This iniquitous system comprises the 'honest' taxation impost that they tell you about - and the 'dishonest' impost called inflation. One only has to look at Pound Sterling, which lost some 99% of its purchasing power during the twentieth century (mostly since the 1970s) to realise what an effective tax inflation is.

In our view 'those who hold gold are not so bold' but they do need to be strong and resistant to temptations. Despite recent actions in the precious metals markets the price of gold, and especially silver, cannot be relied upon to move up in a straight line. On the contrary, since we became interested in the precious metals we have witnessed periods of sharp correction and sideways drift. Moreover, it is always 'tempting to sell' when the price has moved up dramatically (especially after a recovery from weakness) but such sentiments go against our core rationale for 'holding gold' - long term financial insurance.

As we have indicated before, at NZ Gold we cannot predict the future - but we can hypothesize with some of the lessons of history under our belts. Given the unimaginable magnitude of debt that has been accumulated worldwide and the grotesque distortion of 'transparent market signals' that this folly has caused we are confident that the process of fiat money debasement will continue apace. Mindful of this we discern 'the bold' - not as those who prudently 'hold gold' - but as the 'politically persuaded' who are willing to repose all their financial interests in residential housing, commercial property, equities, and bank deposits.

Information published on the website is the copyright of the publisher unless otherwise indicated. You may save to disk and reprint images and other information contained on this site for non-commercial, private purposes only. You must not reproduce, copy, alter, distribute, publicly display, distribute or manipulate the information contained in the website without the permission of the publisher

Disclaimer

The information contained in the website and associated pages is the privately held opinion of Caerleon Publishing Limited ["the publisher"]. The publisher is not an investment advisor, migration consultant or practicing healthcare professional but rather researches subjects that it believes will be of interest and importance to you and disseminates that information via both the website and conventional publications. Investing in precious metals confers a significant element of risk. It is important to realise such financial arrangements could result in the loss of some or even all of your financial investment. Moreover, any borrowing/leveraging to fund such investments will further increase your risk and could result in a loss that exceeds the value of the sum originally invested. Caerleon Publishing Limited does not consider the borrowing of money to fund precious metal investments as an appropriate activity for the conservative readership profile it is seeking to establish. The publisher also may provide information and opinion relating to immigration primarily for United Kingdom residents. It recommends that those with an interest in moving to New Zealand research their intended destination very carefully. The publishers "About Health' section of the website is solely designed to encourage interest in, and debate about, healthier attitudes to living and should not be considered to advocate/endorse any kind of therapeutic modality/alternative therapy. The publisher accepts no liability for any direct, indirect, special, incidental, or consequential damages of any kind (including lost profits) regardless of the form of action whether in contract, tort, [including negligence], or whatsoever based on your use of this website and the information contained therein. You should obtain your own independent specialist advice when using the content of the website. You will have access to a variety of third party sources of content through the use of the website for your convenience only. No effort has been made to verify, endorse or guarantee the accuracy, availability or suitability of any information contained in any other website that you can link from the website. Accordingly the publisher accepts no liability or responsibility whatsoever as set out above for any content or products or services provided on another linked or associated website and should you visit other sites then you are subject to the policies [including privacy] of such sites. When visiting the website, your web browser may produce pop-up advertisements. These advertisements may have been produced by other websites you visited or by third party software installed on your computer. The publisher accepts no liability or responsibility whatsoever as set out above for any content or products or services from a pop-up advertisement on your computer screen while visiting the website. Further the publisher does not guarantee or warrant that files available for downloading from this website will be free of malicious code in any form that may adversely affect you, your computer or computer systems, your data or your files.