Thursday, July 10, 2014

Gold as a Symbol of Power, Perfection and Prosperity

It’s incredible just how widespread the use of Gold is in western culture, as a symbol of power, perfection and prosperity.

It's used in figures of speech to note something being of excellent quality (that’s gold) or as something that should always be followed (a golden rule).

It's used to colour jewellery as decoration and/or a display of wealth, sometimes where the piece contains little or even no gold (the west shows off Gold poorly compared with many other places, see 'Gold in Istanbul').

It's used as a symbol of winning the ultimate prize such as in the movie 'Charlie and the Chocolate Factory' (golden ticket) or in competition (gold ribbon, medal or trophy).

Despite all this, the west seems to have lost it's connection with the physical metal this symbolism represents. Take for example the front of the current issue of Money magazine which displays Gold bars (3D rendered, that look plastic) as a symbol of wealth (prosperity), but Gold didn't even get a mention on the cover (only property, shares and cash).

Now I couldn't bring myself to buy the magazine at the time and didn't want to treat the newsagent as a library, but I'd be fairly confident that Gold doesn't even get a mention in their article on wealth building strategies. 

I did find a portion of the article online (read here) which talks about some of Australia's favourite investment strategies including negatively geared property and borrowing to buy a diversified share portfolio. The writer of this section was Suzanne Haddan, Managing Director of BFG Financial Services who claim on their website to specialise in "holistic personal financial planning". How 'holistic' is their approach when Gold, the most commonly used symbol of wealth, doesn't even rate a mention on their website?

In comparison a search for 'property' returned 33 hits and 'shares' was 29 hits. I'm sure this deficiency of Gold on the websites of financial planners is common and it's one reason I think Gold is still heading higher in the near future (lack of exposure to the asset even after a magnificent price gain over the past 10-15 years). While there were signs of the market heating up a few years ago (I speculated we were entering the third phase of the bull market), I think it's unlikely that 2011 was the pinnacle. The correction we've had over the last several years is not unlike that experienced in the midpoint of the 1970s Gold bull market (see below from The Short Side of Long):
"After a few requests to compare the current correction to 2008 as well as 1975/76, I am posting this chart below. The timeframe is from September 2011 peak all the way until this mornings Asian low at $1179 per ounce."

Of course when talking about wealth, PRICE shouldn't be the only focus, even if we are constantly bombarded with such thinking... especially so in Australia where rising house prices have led to Australian's having record household "wealth":

Wealth that is "accumulated" through the flipping of an asset amongst investors at higher and higher prices can just as easily reverse, whether it be held in property, Gold or shares. Furthermore, wealth measured in nominal dollars doesn't account for the decay in value of the fiat currency used to measure it.  A better way to measure wealth is in a tangible sense such as ounces or acres, either that or by the income it returns (yield).

Yields can fall of course (though the flavour of our current monetary system with inflation targets tends to keep pushing them nominally higher measured against purchase price), but those who have some wealth tied up in tangible assets need not worry about the number of their ounces or acres reducing. The definition of wealth is simply an abundance, plentiful amount or great quantity of something valuable, there's nothing to say that the measure used must be dollars.

So stack some Gold for price gains if you like, personally I am positioned for this too (with intention to exit when Gold represents poor value relative to other assets), but put aside some ounces that you aren't selling and don't measure in dollars... because it doesn't need to be in order to be considered wealth.
"To most Westerners, gold is an investment. To the gold bugs and HMS crowd, gold is money. And to the bullion banks, gold is a currency (ISO code XAU) upon which credit is issued and traded. So what did A/FOA mean by the statement that gold is wealth, not any of these other things? I mean, surely gold is whatever its users think it is, subjective use value and all, right?

Actually, that's exactly right! Gold is whatever its users think it is. And the point A/FOA was driving at was that the vast majority of the above-ground gold, today somewhere around 165,000 tonnes, is held by people who understand it as wealth." - FOFOA

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