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Weekend reading: Why hold gold?

This week’s best post, then some other good reads from the Web.

There is never a time when the inflation question doesn’t hang in the air like a speech bubble above the head of Charlie Brown.

But you’d have to go back to the 1980s to find a time when it was such a consistent theme in economic and business discussion, and to the 1970s to find it being talked about so regularly around the dinner table1 [1].

With deflation run out of town via quantitative easing [2], fears of inflation hold the floor. And this particular combination – inflation plus indebted governments spending money they don’t have – has been the perfect backdrop for the latest 18-month run in the decade-long gold rally.

As the post of the week, from Simple Living in Suffolk [3], explains:

That’s one of the beauties of gold – it has value because of what it is, not what it represents or who issued it. Time and bad government policy gnaw at the value of that twenty pound note over time, but like the Fallen, time does not age gold, nor does it turn to rust.

It is one of the last atavistic race-memories of a time when the value of currency was inherent, not symbolic, a throwback to barbarous times, of swapping animals and goods and even human beings.

The author, ermine, thinks he’s got his gold allocation wrong, and since he wants to someday barter it for ethanol, dog food, and a few feral goats come the meltdown, I’m inclined to agree.

No dusty barter-town trading post is going to swap your gold ETF for a slave girl and half a dozen kumquats in the post-ATM era. It will be shiny metal teeth and wedding rings all the way.

Of course, while I love ermine’s historical and personal perspectives, I’m not half so gloomy about the outlook myself. Provided I see some daylight in any 48 hour period, I see gold for the bauble it is.

I also happen to believe that – contrary to what the gold bugs believe – it’s the pointlessness of gold that has allowed it to become so valuable, not its incredible virtues.

When gold really was important, the US government banned private ownership of it. Now Tesco will trade your gold [4]. Every little helps (the gold price).

Then again, I’m only human and maybe a little barbarous at heart, so I can’t help wishing I owned a Krugerrand or two. I also note that the Chinese and the Indians are still mad for the stuff.

There’s more of them than us, which is the best reason to buy gold of all.

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  1. Not least because families don’t eat around the dinner table anymore [29]! [ [30]]