Friday, February 6, 2009 - Vol. 11, No. 37
The Most “Boring” Investment Gold
And its Incredibly Exciting Origins & value for us today
Also in this Issue:
Yes, A Strong Currency can Kill An Economy
Buyer Beware, Valuations Alone Don’t End Bear Markets
Dear A-Letter Reader,
Imagine a star that’s a third of the size Rhode Island but with the same mass as our Sun.
Just a teaspoon of the mass from such a star would weigh hundreds of billions of tons.
These tiny giants are known to astronomers as neutron stars, and they’re increasingly rare in the universe today.
But shortly after the Big Bang – while the universe was still in its infancy – these juggernauts were much more common, and they cut an erratic path through open space.
Now try to imagine two of these neutron stars colliding – kicking off the most powerful explosion the universe has ever seen.
In this cosmic moment, gold was born.
When two of these tiny powerhouses smashed together, it resulted in an explosion that’s beyond imagination or description.
Never before or since has the universe seen so much mass and compression exerted in a single event. And it’s estimated that just one in a million of the resulting particles turned out to be gold.
This was the only time in history during which gold was formed.
That’s right. Gold was a one-in-a-million creation that came from a one-in-a-million type of event during a very limited time in the universe’s history. And that’s it.
The resulting gold particles were spread throughout the universe. And they can be found in relatively miniscule quantities throughout the universe…making gold a very scarce resource
Case in point; the entire world’s supply of gold would fit inside a 50’ by 50’ cube that would itself fit neatly under the Eiffel tower. The average amount of gold mined annually by the entire world would only fill the average family’s living room.
Add to this the fact that gold is highly valued across almost all of the world’s civilizations, and you’ve found an incredibly stable store of value and medium for exchange.
The gold supply cannot really be manipulated, nor can it be subjected to rapid or micromanaged inflation (to do so would suggest an intimate control over the whole world’s mining facilities). Gold cannot be duplicated, it cannot be pulled out of thin air, and it cannot be conjured up by the witchcraft of fractional reserve banking.
“I Will Maintain…”
Truth be told, we were simply fascinated by the origin story of gold…the most “boring” investment out there…and one that’s started to regain popularity in the last year.
As the global financial system started to come tumbling down and most of the world’s “experts” were exposed for who they really are, the world’s wealthy – and not-so-wealthy – are flocking to the reliable, tangible value of gold.
Because the value of gold isn’t about governments, promises or trust. Instead of the classic “In God we Trust,” prayer you see on most money, some gold coins were actually minted with “I Will Maintain Purchasing Power…”
But why is gold so boring?
Because – at the very least – it’s maintained its value for thousands of years.
Except – of course – during crisis. When gold is giving to spiking in value…sometimes even doubling overnight.
As Bill Bonner puts it, “Gold buys [at least] as much bread in 2009 as it did in AD 9.” To quote Ernst, one of our Austrian banking contacts, “In ancient Rome, an ounce of gold would buy a man a tunic. Today, an ounce of gold buys you a nice suit. See, not so much has changed.”
So, gold tends to be “boring” (as in stable) at least for most of the time.
But you’re wondering about those “crises” mentioned above. Well, instead of going into that here, our Investment Director, Eric Roseman, has been hard at work preparing a special supplement to the A-Letter.
Over the next week he’ll be sharing his findings on everything from gold vs. fiat money to gold’s history with the government and how it’s performed during those crises mentioned above and the 'crises' we face today
