Lately support for gold investment has been cropping up from the most unexpected sources. When the source is The Economist, one is well advised to sit up and take notice.
The ultra-mainstream magazine’s New York bureau chief Matthew Bishop has not only spoken up for gold, he has written a book about it: In Gold We Trust? The Future of Money in an Age of Uncertainty.
A recent interview with the Wall Street Journal about the book opened with a question regarding the mainstream conception that gold investment is an antiquated notion. “I think the reason that [gold] has come back into fashion over the last 10 years,” Bishop said, “is that people have lost faith in … government backed fiat money.”
Bishop sees gold as a practical and necessary means to defend wealth against currency devaluation. “Governments are in a position where they are going to debase in a big way the current paper dollar and paper euro,” he explained. Fiat currencies “generally all have the same problem, which is they are subject to government breaking its promises. Gold doesn’t have that problem. There is no counter party with gold.”
What’s unique about this work is the author has no axe to grind. Company policy prohibits him from making any investments. His intent was to raise awareness that the current economic crisis is a structural problem, not a short-term nuisance that can be corrected by simply fiddling with interest rates.
“This is a deleveraging type downturn,” Bishop says, “and what we know about that from history is that it’s a long a long period of time. It takes 7 or 8 years before we’re going to really see growth pick up …”
In similar situations in the past, investors were well advised to convert a considerable portion of their securities to cash. However, the risk of holding currency today is too great, says Bishop. Instead it would be far wiser to invest in gold.
Despite The Economist’s extreme aversion to forecasts, at the end of the interview Bishop was pressed for his opinions. Gold at the end of this year, higher or lower than now? “Higher,” Bishop said. In five years? “My bet is still five year’s time it will be higher.”