Is gold the mortal enemy of central bankers? Lawrence Parks, executive director of the Foundation for the Advancement of Monetary Education (FAME), believes so. What’s more, he says the world’s bankers have “gone all out to denigrate and destroy gold and the gold producers.” Why? Because the powerful pin-stripers want to protect “fiat-funny money” — paper money they create out of thin air — from its strongest competition, gold-as-money.
Parks’ theories have struck a chord with gold bugs who buy the notion that some dark force is undermining the yellow metal’s traditional role as a storehouse of wealth. Even investors who don’t fancy conspiracy theories are beginning to think that something must be at the root of gold’s fall from grace. And what a fall it has been. A century ago, gold was lauded as the “standard of every great civilization,” whereas recently it was described as “the spent fuel of an obsolete monetary system.”
Even a few years ago, shares of gold mining companies were viewed as solid investments by retail and institutional investors alike. Today, even when the superstars of the industry are assembled, gold conferences rarely attract more than a few money-managers. Parks joined one in New York City three months ago. He found 22 people in a room that could have held six times that number. Eight were presenters, while 12 worked for the brokerage firm sponsoring the event. If the conference were about the Internet, he adds, the firm would have had to rent the grand ballroom.
A skeptic might say: ‘Wait a minute, investors go where the returns are, and, with few exceptions, good returns are not found in the gold sector. Why settle for less than 10% when technology ventures and mutual funds offer so much more? As for physical gold, if the stuff is no longer needed to back currencies, why not lease it out or sell it? Isn’t that a better option than letting it collect dust in the bank basement?’
Score one for the skeptic.
A gold bug (and who better to know?) might reply that high rewards always come with high risk. A portfolio comprising speculative stocks and complicated financial instruments is hardly prudent, particularly for aging baby-boomers who will soon be drawing against their savings. Currencies invariably weaken, and banks sometimes fail. Remember the market crash of 1929 and the savings-and-loan fiasco of the late 1980s? Gold, on the other hand, has held its value over thousands of years. Currencies come and go, but gold endures.
Score one for the gold bug.
Parks takes a broader view than the skeptic or the gold bug and even concedes that there is no “value added” possible in owning gold. An investment in the yellow metal made 20 years ago is down 99% relative to the S&P, he points out, which has knocked gold off virtually everyone’s radar screen as a true investment.
Gold’s real value, Parks emphasizes, is as a bet against currencies. And it’s needed now more than ever, he argues, because there is no longer any link between paper money and gold. Parks believes that because central banks own some gold, they are able to hold the fantasy that their paper-fiat-money has some substance behind it. “What do you suppose would be the reaction of the public if folks were made to understand how money is created — in reality out of thin air by banks — and that central bank gold ownership is nothing more than a smokescreen?”
One obvious reaction might be fear. Unlike bankers, plain folks can’t create money out of thin air. Their nest eggs represent years of hard work and sacrifice, and their worst nightmare is to end up with a pile of worthless paper. It’s happened many times throughout history; hence the time-honoured practice of holding gold as a hedge against financial uncertainty.
It’s hard to imagine, then, that anyone would dispute gold’s value as a bet against currency, particularly in countries where economic mismanagement is rife. Gold has real value in such places, yet, as Parks points out, many countries have legal tender laws and other regulations inhibiting the free use of gold.
Parks also takes aim at the International Monetary Fund (IMF) for undermining gold. In its Articles of Agreement, the IMF has placed a restriction that prohibits member countries from linking their currencies to gold — even in jurisdictions where currencies are barely worth the paper on which they’re printed.
Parks believes that the reason for these prohibitions is the American fear of gold as a competitor to the dollar. He even cites banking experts who share his view. All we can say is, if such a conspiracy exists, it seems to be working. The U.S. dollar has replaced gold-as-money the world over. For example, it’s common practice in such places as China and Peru for citizens to convert the savings portion of their paycheques into U.S. dollars. Gold, on the other hand, is poised to become just another commodity or a relic of bygone times.
Are gold’s glory days gone forever? Parks says no. Next week: his strategy to resurrect the gold mining industry.
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