Wednesday, November 4, 2009

America's Lost Generational Wisdom - The Myth that "Gold Has No Intrinsic Value"

How many times have you heard the words "Gold has no Intrinsic Value"? In our case the answer is countless. Today these words should be permanently relegated to the dust bin. They have no meaning, not that they ever did. The Indian Central Bank's purchase of 200 tons of IMF gold at the high price of $1045 has permanently disapproved this hypothesis.

We did wonder aloud why it is that folks, especially Americans, believe that Gold has no value or that it is not a substitute for paper money. Their lack of faith in gold is certainly not shared by citizens of other nations. If an American were to visit India or China, they would be puzzled by how prolific gold ownership is in those societies. Rich or poor, everyone owns gold in some form (jewelry/coins) and everyone understands that it is highly valuable. In India especially, the tradition of buying gold goes back centuries. Generations of Indians (even the most financially illiterate) have viewed it as an important asset class to be passed down the family tree.
So why is there such ambivalence and even disdain towards gold in America? The answer seems to be that cultivating gold ownership has been systematically erased from the American psyche over the last few generations.
For, it was not that long ago that America was on the Gold Standard. In 1834 Congress passed the Gold Standard Act and the price of Gold was fixed at $20.67/dollar, where it remained until 1933, when FDR confiscated citizens gold and devalued the dollar. Even so, it was only in 1971 that Nixon fully delinked the dollar from gold.
What followed after that was a systematic campaign to defile the world’s perception about gold and replace it with the dollar as the world’s reserve currency. Whereas our forefathers valued gold so much that it was the official backing of the U.S. dollar, we have now hit the other extreme where we value the paper dollar more than gold. Unlike Indians, who have had gold passed down generations as a valuable asset, the American people have unfortunately lost their “generational” wisdom on gold.
It is time to follow in the footsteps of our forefathers and reeducate ourselves; it is not too late.


Anonymous said...

is the price of gold not too high for individual investors now?


Anonymous said...

it is approximately expected to peak at 1600USD per theres still appreciation opportunity.
Of course the price point can take anywhere from 6mths to yr or even 2 yrs to reach and exceed.