This next paragraph contains what Grant Williams believes is the fundamental principle of investing in gold and silver, which so few people genuinely understand — despite the multitudes of commentators expending countless thousands of words.
"So these anti-gold idiots are just that, idiots, or else they have the memory of a goldfish, because currencies come and currencies go, as sure as night follows day. It is the natural order of things. And as you can see, it's not about trading gold to get rich or getting long gold or buying one by two call spreads or getting fancy, it literally is about protecting yourself in the end. It's not like Williams got rich. He just stayed rich. Everyone else got poor."
It's not like Williams got rich. He just stayed rich. Everyone else got poor.
That's it. Right there.
If you talk to most people in the West about gold, they have no idea about the price or its recent direction. Narrow your sample audience down to those with a passing interest in finance, and they will likely know that gold is an awful investment whose price only goes down. (Had we conducted this little survey in 2011, the results would have been different, but that only illustrates the point.)
Ask a random group of people in the East about gold, however, and the conversation is completely different.
In this part of the world, people talk about how much gold they (or their parents or their grandparents) own. They will tell you stories of the first time they handled a gold coin (usually as a child), and they will know the price but not have much of an opinion on how good or bad gold's performance has been — it will be far less relevant to them. They just know that you don't trade gold; you own it.
To further illustrate this point, let's talk about our old friends the world's central banks.
The chart showing the 25 largest central bank holders of the world's gold looks like this:
If we take a look at the changes in those holdings between 2008 and 2013, an interesting phenomenon emerges: central banks in the East, as their reserves have grown, have been accumulating gold:
Central banks continually rubbish gold as a worthless asset class because it constricts their ability to produce money at the push of a button. Not only that, but it offers their citizens the means to reduce their reliance upon a nation's fiat currency — one has only to look at the goings-on in India last year to see what THAT looks like.
Deep down, though, central bankers know what gold is for and why you hold it. They know.
In 1999, a group of central banks came together through the Washington Agreement on Gold to jointly manage sales of the precious metal.
The Washington Agreement worked when central banks were selling their gold because there were always buyers, at lower and lower prices — those were the investors soaking up the bullion.
NOW we have a bunch of central banks aggressively trying to BUY gold; and what they're finding (unsurprisingly) is that the investors aren't sellers, so the only people left from whom to acquire gold are the traders — and they have a very limited supply of actual metal
When Western central bankers rubbish gold as a "barbarous relic" or, as in the case of Ben Bernanke shortly before he started his job at The Brookings Institution left office in January, admit to a complete lack of understanding of it, does it not strike you as strange that, having accumulated significant stockpiles of gold over the years, they aren't in a hurry to swap any of it for paper money (well, with the notable exception perhaps of the United Kingdom, thanks to the antics of Gordon Brown, King of the Idiot Chancellors)?
Gold is held by Western central banks for exactly the same reason individuals ought to hold it: protection.
Central banks are accumulating gold because it cannot go BANG! like fiat currencies do.
Individuals should be doing the same — not being sidetracked by the distractions.
It's not about price. The story Jared shared with us demonstrates that beyond any doubt.
If you own gold, it will do all the heavy lifting for you when the time comes
And that's where Grant Williams gets really deep in his latest excellent letter...