I went back on Boom/Bust today to discuss the merits of gold in the economy. Regulars know my position here:
- Gold is an unproductive asset that shouldn’t be the center of a portfolio.
- Gold can serve as a hedging or insurance component of a portfolio.
- Going back to the gold standard isn’t a wise move because it would lead to imbalances similar to what we’re seeing in Europe today with the fixed exchange rate.
- Gold is “money”, but it’s generally not a very good form of money because its utility as a medium of exchange is not very high.
This was a fun interview which included some gold heavyweights like Rick Rule, Peter Schiff and Marshall Auerback. Everyone was very courteous and I thought the overall discussion was very fair and balanced. Peter and Rick made some smart points (though we also disagreed at points) and I obviously agree with Marshall on a number of things. Erin Ade and Ed Harrison did a great job moderating the discussion and keeping it on point.
I don’t say much in the first 9 minutes, but I was just lurking in the tall grass (or maybe I was just confused/intimidated by the whole 4 person panel thing going on). I made a couple of key points after that:
- The value of the dollar declining in terms of gold or CPI is a useless metric. You have to compare it relative to real wage rates which have vastly outpaced inflation over the last 100 years (see here for more).
- It doesn’t make a lot of sense to build a portfolio around an unproductive asset class like gold because its value is based more on the belief that it’s valuable as opposed to some inherent utility (see here for more).
- The 1800’s were a period of great turmoil. This commonly cited era included a number of financial panics and depressions. My favorite line of the debate was at minute 24 when Peter says we should just ignore those depressions….
- The hyperinflationists have been wrong for 10 years running. How much longer can these predictions garner attention before we all begin to question the foundation upon which they rest?
Watch the full video below:
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.