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The Tortoise and the Hare
NOVAGOLD’s director, Dr. Marc Faber, publishes The Gloom, Boom & Doom Report, a monthly investment
newsletter that highlights unusual investment opportunities around the world. Based on economic, social, and historical trends, the report aims to
warn investors when investment themes have become widely accepted – and are therefore highly priced and risky – while continuously searching for opportunities in unloved and depressed markets. The January 2016 issue features the following article by NOVAGOLD chairman Dr. Thomas Kaplan, who, in providing an in-depth overview of the gold market, details why he’s so confident on the renewal of gold’s long-term uptrend, and why NOVAGOLD is his vehicle of choice for exposure to gold.
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The most common association of John Maynard Keynes with gold is his use of the expression “barbarous relic” to describe
the metal, an oft-quoted quip adored by gold’s detractors. Apparently, however, Keynes’ relationship with gold was more nuanced than this remark would suggest. Richard Hurowitz, in an illuminating piece in the Wall Street Journal this past September 15th entitled “What Keynes Would Think of ‘Neo-Keynesians,’” revealed that the famous economist had been misunderstood and that, “unlike his acolytes, he understood the value of gold and the dangers of currency debasement.” To those who
would claim this to be revisionism, think again. When Keynes described his optimal postwar monetary system in December 1941, he recognized that gold had been valued as money for thousands of years. As a consequence of its universal appeal, he acknowledged that it was necessary that gold be part of any new global monetary system. “We do not take any action injurious to
the position of gold,” he said in 1943. Relating the ideas that would bear fruit at the Bretton Woods conference in 1944 he observed, “The world being what it is, it is likely the confidence gold gives can still play a useful part.”
“The world being what it is... .” These are words too seldom spoken. Those who have a firm grounding in the past are
not fazed by the sentiment that history at its core is human psychology played out on a broad canvas. And, if history doesn’t quite repeat itself, it certainly rhymes. In today’s zeitgeist, however, where universal notions are viewed as indiscriminate, old- fashioned, deterministic or, even worse, politically incorrect, one
takes a risk expressing the pragmatism of “the world being what it is.” It implies that experience may yet trump our generation’s enormous solipsism. Too few college presidents today would exhibit such a didactic approach in prefacing a concept lest it offend somebody somewhere. As a consequence, we continue to find that, the world being what it is, “le sens commun est fort rare,” or as Voltaire’s maxim is most commonly translated, “common sense is not so common.”
That’s not to say that it no longer exists. It was only recently that Bridgewater’s Ray Dalio, a man who possesses more than
a passing acquaintance with financial history, remarked at the Council on Foreign Relations: “Gold is a currency. We have dollars, we have euros, we have yen and we have gold. If you don’t have [10% of your assets in] gold, there is no sensible reason other than that
you don’t know history or you don’t know the economics of it. As a hedge ... as a diversifier ... there should be a piece of that in gold.” There you have it from a man widely considered to be eminently rational ... if not actually hyper-rational. With no fuss or muss, and without an atavistic appeal to Druid rituals or the End of Times, Ray Dalio observed simply that gold is an under-owned currency that enjoys a well-earned place in global finance. I would personally add, to the vast majority who can’t bear the idea of gold still being reckoned to be anything approaching an asset class: as Keynes implied, just get over it.
Ray Dalio’s comment about gold being a hedge or diversifier seems reasonable enough. In an economic landscape bubbling with all sorts of distortions, even the central banks’ most ardent advocates should find it comforting to know that there is a financial asset that doesn’t represent someone else’s obligation. To repeat: “The world being what it is, it is likely the confidence gold gives can still play a useful part.” Considering that gold multiplied in value as much as 50-fold since it was allowed to trade freely, Keynes seems to have been right at the time. Yet, it’s hard to argue that his comment should not resonate as much in today’s environment as it did with Keynes’ contemporaries.
While one could perhaps see gold sell off to $900 before
it vaults beyond $1900, the outlook for gold is a much higher price. What makes me so confident on the eventual outcome besides the fact that it has the whiff of inevitability about it? It is a variation on the answer that I give to the question that I am most frequently asked: “What will be the trigger for gold’s revival?” My response is usually found to be disappointing: “It will just happen one day and that will be that.” A “that’s it?” stare invariably meets my rejoinder. But, in truth, most successful traders will tell you that the move that occurs on no news is often the strongest.