Being here, in Vancouver during the Olympics, it was perhaps inevitable that this column would be about gold. We are honoured and excited to be here making cheque presentations to Canadian Athletes Now Fund, a not-for-profit charity that helps directly support elite Canadian athletes in their pursuit of excellence. We have pledged $100,000 for each Canadian gold medal won during these games, which will support future athletes, and have handed out a few cheques already (info can be found at
www.sprottgoldpledge.com).Like our athletes, investors have certainly been in pursuit of gold over the past decade. In fact, as an investment, gold has been a clear Olympian compared with other assets. In the first decade since the turn of the century, gold has returned 14.8% annually, while U.S. stocks showed a negative return over the same period (S&P down 0.7%). In 2010, after a shaky start, gold has again started to outperform world indexes.
Thus gold has certainly been popular for the last little while, and not just amongst athletes. But gold has been popular for more than the last decade. Back almost to the dawn of recorded human history, gold has been sought after. The Romans, the Incans, the Spanish, the Mayans, many empires made it a priority to acquire gold. Wars have been fought, lives have been lost, fortunes made (and broken), and scams have been perpetuated, all in the pursuit of the precious metal.
Personally, the power of gold was truly brought home to me when I hiked the Chilkoot Trail seven years ago. In the late 1890s, literally tens of thousands risked their lives (in winter, no less, because it was "easier" then) to traverse the Chilkoot carrying a ton of gear, in order to search for gold in the Klondike, after gold nuggets were discovered there.
One night on the trail my small group and I camped in an area that, during the gold rush, housed about 40,000 people. The city is completely gone now, having been dismantled and burned for heat as the gold rush died down.
Lying in my tent in the middle of nowhere somewhere between Alaska and B.C., it occurred to me: The city is gone, the 40,000 prospectors are gone, but ... the gold discovered then is still around.
Another revelation was that the gold rush in the Yukon occurred during a depression and time of extreme unemployment and social unrest.
There were no social assistance programs, government bailouts or TARP programs back them. So, when the world is crumbling around you, and you are perhaps starving and concerned for civilization in general, what do you do?
Well, for many, the answer was to sell everything, buy supplies, head to Alaska in the middle of winter, risk life and limb on a 53-kilometre hike over the mountains, build a boat, and look for gold. Kind of makes today's gold bugs look tame by comparison.
What is it about gold that provides allure to so many? Well, I am no gold expert, but I am surrounded at work by people who know a few things about the topic. They have written extensively on the topic, and I wouldn't try to compete with them. However, there are a few simple reasons investors like gold which are hard for the gold bears to counter.
First, gold is a fairly simple store of value. Whether you like gold or not, you can't argue with the fact that it would be much easier to walk around with US$400,000 worth of gold (one bar) than it would be to walk around with the equivalent amount of almost any other currency.
Second, gold is recognized anywhere worldwide as currency. Its portability and acceptance means it is immune to political changes, country disintegrations and general social upheaval.
Third, gold is clearly recognized as something that is hard to obtain, physically. Global mining production has been declining for 10 years now, and the cost to extract an ounce of gold seems to continually rise.
In addition, gold mining requires huge capital expenditures up front, causes environmental issues, sucks up a huge amount of energy, and is increasingly done in harsh and dangerous environments.
Even the staunchest of gold bears would have to concede that gold is difficult to physically obtain (certainly our athletes would agree with this statement!).
Fourth and most important for investors concerned about currency debasement and inflation is that governments, despite their power, cannot simply create gold. It cannot be printed, created, moved around via bits and bytes on a computer, or otherwise conjured out of thin air. Every other currency can be, and increasing is, simply created out of nothing.
Because gold cannot be printed, many view it as the ultimate currency. Certainly residents of Iceland know this fact, as they watch their country and currency careen towards bankruptcy over the past two years. Greece residents are certainly more aware of this fact these days also.
These points simply cannot be countered by the bears. Gold has a place in the world. Of course its value can fluctuate. But whether you are an athlete or an investor, gold has some attractive properties, and is worth striving for.
- Peter Hodson is chairman and a senior portfolio manager at Sprott Asset Management