Book Review : The New Case for Gold
Updated: Aug 9
Author: James Rickards
Topics: Commodities, Gold, Currencies
Summary: James Rickards is an expert on financial workings and Macro economics. His book outlines the arguments against gold and disproves why those arguments hold no validity. The book is highly critical of the Federal reserve and central banks and states that there excessive printing of money devalues the currency. He states that when the price of Gold increases, it is relative to the value of the currency it is being compared against (decreasing in value). When gold increases in price, it is actually the currency at which you are purchasing losing its purchasing power (as reflected in the chart). What makes this book such a fascinating read is many of the key concepts/ excerpts of the book (summarized below) which was written in 2016 have started to come true in 2020 (excessive money printing by Central Banks, sharp increase in gold prices (devalue of the dollar) to name a few). Jim suggests 10% of your investible assets being allocated to Gold. After reading this book, and tracking the growth in gold price since 2017 it is hard not to agree.
Key Concepts/ Excerpts from the Book:
· The entire edifice of the Federal Reserve and the dollar rests on a single point of failure- confidence.
· The United States Dollar, used to be backed by Gold. Once the US left the gold standard in the 1970’s the US Dollar (Fiat currency) is backed by nothing.
· The United States confiscated gold from its citizens in 1933 at $20.67/ oz, then re-priced gold to $35.00/ oz.
· Physical Gold is an asset which has no counter party risk (liabilities to other).
· The price of gold has been increasing since the US left the gold standard.
· Central Banks hold a large portion of the Gold in the world as a reserve asset. Roughly 33,800 tons of gold bars across central banks worldwide.
· Gold will eventually rise to $10,000.00/ oz (Jim Richards recently has now predicted $15,000/oz based on excessive money printing from the Federal Reserve).
· Gold is insurance against a financial collapse/ loss on confidence in currencies.
· Gold is highly liquid. Liquidity means one can buy and sell gold with relative ease and minimal market impact.
· Finance does not create wealth it extracts wealth from other sectors of the economy.
· The difference between the real rate an the nominal rate is inflation or deflation.
· The Fed must have inflation and will do ‘whatever it takes’ to achieve it. (Recently the Fed has announced they won’t increase interest rates to curb inflation. An article on this will be coming soon).
· Gold has a place in every investor’s portfolio because it is one of the few asset classes that perform well in both inflation and deflation.
· Think of gold as a constant unit of measurement or a counting device.
· If the price of gold goes up it takes more dollars to buy the same amount of gold. Therefore, the dollar went down (the price of gold stayed constant, it is the dollar which declined in value RELATIVE to gold).
· When you have gold, you should think about the quantity of gold by weight.
· Gold allocation should be kept to about 10% of your liquid/investible assets. (15 to 20% of your investible assets if you’re somewhat more aggressive. Note: you should exclude your principle residence and any equity in your business from the investible asset pool. · Think of Gold as a mechanism to preserve wealth.
· Investors will wake up one day and find that the dollar is in free fall and they won’t know why.
· If the dollar collapses from a lack of confidence, the entire monetary system collapses too. That is what Jim Rickards expects.
· Jim Rickards expects the gold price to go up gradually for a time, then that rate will accelerate to a hyperbolic phase.
· Gold mining stocks are like gold on steroids.
· There are other assets that will preserve wealth the way gold does. Fine art and land have many of the same wealth preservation properties as gold, but still add diversification of a portfolio. (I would personally include, Silver and Bitcoin as other wealth preservation assets. Of note: Jim Rickards is strongly against Bitcoin as an asset. Jim and I differ in our assessments of Bitcoin).
· When you want to purchase Gold, it will be harder to acquire.