Reviewing The New Case for Gold
One of the people I genuinely enjoy listening to at investment conferences is James Rickards, bestselling author of The Death of Money and Currency Wars. Well, he’s out with a new book to be released in another three weeks titled, The New Case for Gold.
I’ve read his first two books and by and large I agree with his conclusions. He believes that gold will be a major part of a new international replacement for the Bretton Woods agreement. On that we agree. But he believes a gold linked version of the SDR, the Special Drawing Rights will be the future foundation of money.
I think he’s wrong, what we need is for all countries to accept a gram based gold currency unit instead of gold being tied to anything. The financial problems of the world today are caused by fake money and the solution is not another fiat currency that no one understands but real money that you can touch and feel and hold. Gold fills the bill, SDRs do not.
The currency markets worldwide show a daily turnover of about $5.3 trillion. On a day similar to that of last Thursday when Mario Draghi crapped in his own lunch bucket, the value of the dollar/Euro swap moved over 2.5%. Somebody or several somebodies lost over $100 billion on the day. Economies, hedge funds and major banks can’t keep losing $100 billion a day without blowing the system sky high.
Years ago, Quinton Hennigh of Novo Resources and I worked up some ideas on the upcoming financial system based on a dual silver/gold monetary system. The coins shown above represent what we came up with. You can see the relative size of the coins using the scale.
In most of the books talking about a gold standard, the issue of conversion rates between gold and the local currency come up. It is generally accepted that Britain mispriced gold in British Pounds after World War I and that caused a depression in England.
While it’s true that bond markets and stock markets provide valuable liquidity and benefits to economics by allowing companies to raise money through either the issue of shares or floating bonds to borrow money, the same is not true of currency markets. Currency markets add friction and costs to doing business without providing an equivalent benefit.
Countries believe they need to figure out what exchange rates should be to reflect the true value of their currency but actually the market itself should do any valuation. In 1925 the UK mispriced gold in terms of the Pound and lost as a result. Instead of governments pricing their currency in gold, why not have every country issuing their own coins and bills but in terms of grams of gold or grams of silver? That way if you needed to exchange one gram of British currency for one gram of French currency, the transaction cost would be tiny because for all practical purposes, the two are identical in value and use.
The New Case for Gold isn’t a new case for gold. It’s a story told many times before. But James Rickards does an excellent job of explaining how gold really already is a part of the financial system and those countries holding quantities of gold will speak with a louder voice when the crash that we all know is coming actually occurs. There will be an international gathering of experts. The USA, Germany, Russia and China will be the countries holding the reins since they are the ones holding the gold. In this case for certain, the Golden Rule applies. Those with the gold get to make the rules.
Rickards doesn’t go overboard with his recommendation, he doesn’t start slobbering and howling at the moon with a cry of “manipulation.” He just makes a case that gold is going to be part of the financial system, it probably will be a lot higher and you should have 10% or so of your assets in gold.
I cannot disagree. I read the book, I liked the book and so will you.
If you want to order it in advance, go here.