“Is Gold Money?” No, It’s an ETF.
- Joshua M Brown
- July 20th, 2011
Is gold money?
That’s the question Ron Paul famously asked Dr. Bernanke on the Hill last week and the question on many of your minds. Bernanke’s answer, presumably inspired by a late-night viewing of Fiddler on the Roof, was that gold’s value is basically “tradition”. That answer was hilarious, btw.
I have a few smartass remarks to make here about gold, and before you guys howl at the moon and come after me, please understand that I’ve had gold as a part of the portfolios I manage for over four years now via ETFs and active managers with big allocations toward the precious metals.
Anyway, gold has, at times, been more like a drug than like money. The Spaniards in the 16th Century were like meth addicts for gold; their lust driving them across the oceans to slaughter millions of people in an endless quest to melt down as much of it into the shape of a cross that they could. And like all the best drugs, gold (and the pursuit of more gold) deluded the conquistadors into a sense of invincibility.
You’ve heard of “Beer Muscles”, the phenomenon during which an intoxicated man is convinced that he can fight the entire bar? Well Gold Muscles enabled Francisco Pizarro, a very ordinary campaigner, to march a starving, bedraggled army from Panama to Peru. Upon his arrival in 1532, with only 180 men left and a handful of horses, Pizarro’s gold muscles led to his conquest of 30 million Incas in half an hour – they take Emperor Atahualpa hostage and demand that the Incas bring them every shiny object in the kingdom (the entire west coast of South America) that’s not nailed down.
And when that ransom is paid, they kill Atahualpa anyway – drunk on gold, high on silver.
These days, gold has morphed from being a drug into being a religion. I’m long but not religious about it. To me it’s a trade. Gold is an ETF. So long as the uptrend is intact, I’m happy to be a part of it all, but I’ll lose my religion faster than Michael Stipe should it feel “over-ish”. Gold is a trade, a “play”, a tool to express a popular theme. Not money, but a means of getting more money.
One final point, gold is not money in that where I live (earth), I can’t pay for things with it. Last Thursday my friends and I went to Phillipe Chow on the upper east side of Manhattan. The bill was a few hundred bucks. My friend Dave (a big-time gold business guy) plunked down a few thousand dollars in coins on the check:
Those big ones you see there are 1-ounce minted gold coins. They are worth $1600 each at today’s prices. The little ones Krugerrands, also worth quite a bit apiece.
But the bill couldn’t be paid in gold -gold coins, gold bullion, Goldschlager or otherwise.
“Cash or credit, gentlemen.”
In 2011, gold is not money. It’s an ETF. Let’s move on, shall we?
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.