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Richard Russell on the Advantages of Gold

Richard Russell has some interesting thoughts on gold that most of the gold lovers out there will enjoy.  Basically, gold is a fantastic asset class for many reasons.  I don’t entirely disagree, but I’ve already made my peace on gold summarizing my stance as such:

1)  Gold will never work as a global currency – single currencies don’t work without government intervention (which defeats the purpose of the gold as currency argument).  See Europe.

2)  Gold IS money.   Anything so broadly accepted as a medium of exchange is money.  End of story.

3)  Gold should never represent a substantial portion of one’s investment portfolio (over 5%), though this does not mean it has NO place in a portfolio.   I fall along the lines of Howard Marks and Buffett to some degree here – any asset that doesn’t generate cash-flows is hard to value and nearly impossible to manage risk around.   But an investment portfolio should not only contain growth vehicles.  At times, it should contain assets that negatively correlate and help to reduce overall portfolio risk.  Gold fits this story given the right environment (e.g.,  as a negative real interest rate environment has proven).

Russell has a bit of a different view and I can only assume that he would agree with point 2 of mine and reject points 1 and 3 (via King World News):

“Stocks can declare dividends, but they can omit their dividends during hard times.  Furthermore, stocks can go broke.  But gold represents indestructible wealth.  Gold rises in terms of fiat money, and gold declines in terms of fiat money.

Gold possesses some properties that are beyond the scope of other investments.  Gold can’t go broke, because gold does not derive its purchasing power from the edict or control of any sovereign power or central bank.  Gold has no counter-parties.  Gold is tangible and is accepted everywhere — in good times or bad.  Gold exists outside the world’s banking system.  Unlike fiat money, gold is wealth on its own.

It’s tangible and not the fantasy-creation of central bankers.  Gold does not need a sponsor or the acceptance of an expert (such as pricing a Picasso painting), because all gold is intrinsically the same.  Gold does not tarnish nor does it degenerate — the gold in your watch may be the same gold that Cleopatra wore around her neck.

The supply of gold, unlike paper money, is limited.  Alchemists have tried for centuries to turn other metals into gold — but have never succeeded.  Gold is a beautiful metal on its own and the lust for gold seems to be built into the DNA of mankind.  If you own ten thousand ounces of gold, you can say that you will ALWAYS be wealthy.”

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