I’m a contrarian so it is not surprising I like gold. There are lots of reasons to like gold but the key one is the distrust of inflation or rather the belief inflation will become rampant again.
This distrust is on many levels, one obvious one is the disconnect between perceived inflation every time one buy the essentials of life and the official figures. There is meant to be no inflation, but that’s not what ones wallet tells us.
Then the is the issue of QE and massive developed world deficits and debt piles pushes the investor into worrying about the eventual outcomes of that massive long term liquidity environment.
Then you can think about the fact that gold is around its cost of production.
The gold bug story is long. It sounded good when the price rose from $250 to near $2000 an ounce and it now sounds stale as gold dibbles around below $1300.
There are negatives too. The new fashionable one is, there is a lot of it in vaults around the world, forget production. Where was that argument when prices rose so far?
For me the big one is physical Gold is hard to own and hold.
Who wants a safe deposit box or a secret stashing place for coins and bars. Alternatively does anyone really trust banks to give you a piece of paper saying you own 10kg of Gold and then honour the deal when the balloon goes up? If you hold gold for defense again crisis there is not much liquidity in a gold coin worth say $2000, you can buy gas with an Eagle and who wants a ton of silver coins in their basement?
You can buy gold shares of course, but mining companies make banks look like a monastery of saints by comparison to the chicanery that goes on in resource stocks.
Gold is simply an awkward investment.
Gold’s lustre is dimmed by the simple difficulty of holding it, it costs money to hold gold.
Gold is inherently insecure to own.
Hold 5% of your net wealth in gold and you will have a significant problem.
So how can you hold gold? Is there something as good as gold that is friendlier to have ownership of?
I came to this answer back to front.
Switzerland has a problem. All the hot money in the world would rather like to be parked in Swiss Franc, so during the rolling crisis we’ve all enjoyed/endured, hot money has been banging of Switzerland’s door to come in and hide from danger. The Swiss franc has consequentially rocketed.
This is bad news for Swiss industry. Even luxury goods have a price limit the market will bear. Anyone foreigner buying a big mac in Geneva (and that can be done) or any basic product will whistle at the price in comparison to their version in their currency. Apparently it’s a $12 big mac currently.
What is the point of having a strong currency if it kills your economy?
The solution was to pin the Swiss franc to the Euro at 1.20.
In effect the Swiss have rigged their currency to not rise in value any further, at least in Euro terms.
This thing is, that’s like rigging the price of gold, because the Swiss Franc is as near as a currency can be to a gold standard. The Swiss franc is a proxy for gold.
While I was looking at the Swiss France as artificially low, it suddenly dawned on me that the Swiss Franc is a much more convenient way of holding a gold-like asset than holding gold itself.
Whereas a bank can only offer you a safe deposit box for bullion, you can simply open a Swiss franc denominated account with a bank and fill it with as much or as little as you can or wish too.
You get all the anti-dollar, anti-inflation protection of Gold and all the mobility of a fiat currency plus the dull trustworthiness of the Swiss in one package.
What’s not to love?
So I think I’m going to start transferring my affections away from the barbaric relic towards Helvetica, not because I don’t love owning gold but because the Swiss Franc is so much more convenient.
Then in the back of my mind I’m thinking that the Euro must fall and at some point the Swiss Franc has to come unstuck from its peg and rise, so just like gold, if the spectre of inflation does finally turn into a reality, the consequent decoupling from the euro will create a big rise in the value of the Swiss Franc against all deficit countries. It’s a nice kicker for anyone believing the dollar and Euro is going to be toast.
For those that believe that the laws of economics will one day bite the hands that binds it the Swiss Franc seems like a good place to put some wealth.