Good as Gold

“A MAN may buy gold too dear,” wrote the English playwright John Heywood (1497-1580) in his collection of proverbs published in 1546. Here is some almost classical food for thought, so let’s discuss gold and Heywood’s famous saying about it. (And for a brief discussion of John Heywood and a list of some of his other very famous proverbs, see the P.S. at the end of this article.)

Vancouver — Good as Gold

If you attended the Agora Financial Wealth Symposium in Vancouver last week, you might not be inclined to believe Heywood’s advice. Not just now, anyway. None other than Richard Daughty, aka the Mogambo Guru, gave a powerful talk entitled, “We Are All Freaking Doomed,” in which he discussed the century-long history of debasement of the U.S. dollar at the hands of the Federal Reserve (or “the damnable Federal Reserve,” as Mogambo calls it). And then Mogambo advised the audience to, as he so subtly put it, “Buy gold. Just buy it. Get up off your butt, and go out and buy gold. Stop staring at me like a bunch of idiots. Get moving. Go buy some gold.” Mogambo is what they call, in the trade, a “motivational speaker.”

I collared Mogambo later on, after his talk, and asked if he had any recommendations besides buying gold. He squinted at me and said, “You are not a federal agent, are you? If you are, I am asking you to tell me, and my lawyer says that you have to tell me or it is entrapment.” After I assured Mogambo that I am not a federal agent, he whispered to me, “Silver. Silver and oil. Gold, silver, and oil. Accumulate as much as you can. Get rid of those rotten, stinking, no-good, piece-of-crap Federal Reserve Notes. Buy gold, silver, and oil.” And then Mogambo added, “And buy brass. Lots of brass. Get it with the magnum load, hollow-tip.”

So there you have it from the Mogambo himself. Buy gold. And silver. And oil. And buy brass, if you know what I mean.

Decline of the Dollar

Other speakers at the Vancouver conference also advised the audience of savvy investors to accumulate gold, although not with such inimitable Mogambo-style fervor (MSF, for short). Agora’s own Addison Wiggin discussed the long-term decline in value of the U.S. dollar, of which he knows quite a bit, having written a book on the subject last year entitled The Demise of the Dollar.

Another Vancouver commentator noted that, over the past 25 years, the price of gold in dollars has severely lagged the increase in the U.S. consumer price index (CPI). He noted that if gold had simply tracked the CPI for the past quarter century, an ounce of the yellow metal would currently trade for about $2,100, or more than three times the posted price.

Several other speakers noted, in their talks as well as in sidebar chats, that numerous central banks, such as those of Russia, China, and most of the oil-producing nations in the Middle East, are lightening up on U.S. dollars and adding gold positions to the state vaults. My Agora colleague Justice Litle went so far as to propose that the world is headed toward adopting a de facto “gold standard” for global trade, albeit with no overt cooperation from the central bankers of the planet.

That is, the central bankers are facilitating the demise of the world’s key fiat currencies by rapidly expanding what they so euphemistically call the “money supply.” Excess creation of credit causes inflation in the prices of goods and services. This erodes the long-term value of the underlying currency, destroying the value of both saved and invested capital that is denominated in fiat currency. So the future of the world economy is one of monetary inflation and capital destruction.

Thus by permitting varying degrees of inflation to erode the long-term value of their respective currencies, the central bankers are cooperating, after a fashion, in the world economy moving back to a gold standard. As one Vancouver speaker colorfully put it, “In a beauty contest between the world’s leading fiat currencies, the judges are faced with the prospect of choosing the one that is least ugly.” Whereas gold is not just the oldest form of money known to mankind (excepting seashells and bear hides, perhaps), gold is downright pretty. Got gold?

Peak Oil and the World Economy

I have written many articles in the past couple of years on the subject of Peak Oil. In brief, the world economy is moving away from one of the fundamental tenets and economic assumptions of its past. That is, since the 1860s, the world’s collective sum of economic activity has benefited from the developed world’s continuing and assured access to relatively inexpensive supplies of oil. These oil supplies were based on an excess of industrial capacity to extract light, sweet petroleum from the crust of the Earth, whether in Texas or Saudi Arabia. Only wars and other very occasional, singular events, such as the Iranian Revolution of 1979 and 1980, interrupted the trend. The result is that the industrial plumbing, as well as the financial wiring of the global economy is tied to a rapidly vanishing legacy of available and relatively affordable oil.

The future will be one of accelerating transition to a world economy dominated by irreversible decline in volumes of conventional oil extracted from the Earth. Oil supplies of the future will be severely constrained and highly volatile, very expensive by historical standards, and see production and distribution of liquid fuels and related petrochemicals marked by chronic shortages. The ability of nations all over the world to maintain real, inflation-adjusted gross domestic products (GDPs) will be severely constrained by these impending energy shortages. The increased cost of energy across the board, and certainly for the energy contained within a useable barrel of oil, will drive up the rate of inflation.

Hard Money and Real Assets

So can you “buy gold too dear,” as Heywood cautioned? Heywood lived in a 16th-century era of hard money, based on the gold and silver that was flooding into Europe from the Spanish mines of Mexico and Peru. So perhaps Heywood was referring to trading your gold “too dear” for other real assets. Heywood was cautioning people not to get swindled in their trades. If you look at many other of Heywood’s proverbs (see the P.S. below), he counseled patience and prudence in one’s dealings in both life and finance. Heywood did not live in a world of fiat currency that was steadily declining in value, such as is the case in our rather sordid economic environment of today.

Can you “buy gold too dear” in our current global monetary environment? Certainly, the spot price will trade up and down in the short term. Gold was trading for well over $700 per ounce on some days of May, and under $600 per ounce on some days of June. But there was a relative consensus at Vancouver that the value of the U.S. dollar is heading for a long-term decline. Hence the dollar-value of gold is due for a long-term increase. So if nothing else, by trading some of your green dollars for some of that yellow gold, you will, in all likelihood, preserve your current purchasing power. And as John Heywood said long ago, “This hitteth the nail on the head.”

Until we meet again…
Byron W. King
August 3, 2006

P.S.: I commenced this article with a quotation from an English Writer named John Heywood. Heywood was born and raised near London, and educated at Oxford. In his day, Heywood was well known for his plays, poems, and collections of proverbs. His skill in music and his inexhaustible wit made him a favorite with King Henry VIII and Queen Mary. Heywood is important in the history of English drama because he was among the first writers to turn the abstract characters of morality plays into real persons. There is quite a bit of Heywood’s influence in the writings of William Shakespeare (1564-1616). Under the reign of Queen Elizabeth I (1533-1603), Heywood fled to the European mainland to avoid religious persecution for his Catholic faith. Heywood died in Belgium. Heywood’s legacy to the English language is immense. Some of his more famous sayings, from an anthology published in 1546, are as follows:

Haste makes waste.
Beggars should be no choosers.
All is well that ends well.
You might have gone further and fared worse.
Rome was not built in one day.
Blind men should judge no colors.
Better late than never.
Many a man speak of Robin Hood that never shot his bow.
It is a foul bird that foulest its own nest.
You cannot see the wood for the trees.
This hitteth the nail on the head.
The more the merrier.
The green new broom sweeps clean.
When the sun shineth, make hay.
One good turn asketh another.
An ill wind that bloweth no man to good.
Look ere ye leap.
I shall cut my coat after my cloth.
The fat is in the fire.
Half a loaf is better than none.
I know on which side my bread is buttered.
Two heads are better than one.
Love me, love my dog.
A penny for your thought.
Every man for himself, and God for us all.