• Christian Armbruester

Gold, Revisited, Again



Why coins are better than bullion and the eighties will never die.


For some reason, whenever I think of Gold I can’t get that rather uninspiring song by the same name from Spandau Ballet (1983) out of my head. In any event, the subject of Gold, like the eighties, does seem to come up in conversation every so often and it did, last week, over lunch amongst lovely company. The question we debated was, should we buy some here?


There are several reasons why people like to invest in Gold. Foremost, it is perceived to be safe. That has to do with the long history of using the shiny metal as a store of value. From the pharaohs of old, to the treasuries of today, we have been hoarding Gold for millennia and there is a reason we call it “precious”. Lest we forget, the world’s entire monetary system was once linked to the aptly called Gold Standard. Allegedly, Gold is also an inflation hedge, but it has a rather dire track record.


As an investment, it is like anything else. We need the price to go up in order to make money. There are no dividends, it is costly to custody, and usually more expensive to execute than stocks or bonds. Most of that has to do with the confusion as to whether it is a currency, a commodity, and if we want to hold it physically or as a derivative. Having said that, is Gold more likely to go up than the Nasdaq, Oil, or property? That’s anyone’s guess and as such, we should also not allocate more or less than to any other investment we make, whatever the structure we may choose.


Which brings us to the Armageddon trade and should we buy some physical Gold as our harbour of last resort? That depends on the nature of the apocalypse. If we experience social unrest or even war, then Gold is something we should have. Being the child of one who had two hours to pack all they had to flee an advancing army, my advice is to buy Gold in coins, rather than bullion, as it is much easier to carry that way. However, if quantitative easing leads to a currency collapse and stock markets crash, then Gold is no better than any other asset, as correlations go to one.


Then it got interesting, and as we contemplated what it is we could do to protect ourselves against the unthinkable, the subject turned to Bitcoin. There were two generations present and whilst one was quite happy with putting a few percent of our wealth into Gold, the other argued that we lived in a digital world where precious metals have no value. The prospects of buying a Tesla or other goods on Amazon certainly seem much brighter for cryptocurrencies than presenting pieces of Gold for payment. We hence concluded that buying both would make more sense than one or the other. Different investments, stores of values and mediums of exchange entirely, but uniformly priceless under certain scenarios.


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