Wealth Insurance: The Case for Owning Gold

An interview with John Hathaway
Gold is a unique asset: monetary but lacking counterparty risk, with its liquidity much more easily available than that in other high-value physical assets. John Hathaway, an elder statesman in the metals investment field, thinks that exposure to gold should be a part of everyone’s portfolio, not because he predicts a coming monetary apocalypse, but for far more present reasons. In this interview, he explains his short- and long-term outlooks as well as the structural forces arguing for gold ownership.

Octavian Report: What’s your the- sis on gold generally and what are your short- and long-term outlooks?

John Hathaway: The thesis is that throughout history gold has outper- formed paper currency. You can go back thousands of years and prove that. Paper currency is just an instrument of public policy and is basically backed by political promises, which tend to be such that they’re in excess of what can be supported by the value of the currency in any given moment, and so there’s going to be debasement in some (usually sneaky) form over time.

So one should always have some exposure to gold. It’s the only monetary asset or quasi-monetary asset that doesn’t have counterparty risk, and it has liquidity that you can’t get with Picassos and Rembrandts. If you wanted to dispose of any of these collectible, one-of-a-kind pieces of art or exotic cars and all that kind of thing it would be a huge bid-ask. And you can’t mobilize the wealth that that represents in a short space of time. Gold is the one asset that’s outside of the banking system that’s a form of wealth that can be liquefied immediately, within 24 hours — no exceptions to that, for whatever reason.

If you have some percentage of your wealth in effect insured by a position in physical metal, you really shouldn’t care about the day-to-day price fluctuations measured by one currency or another. What you know is you have a secure asset so that when some opportunity comes along — let’s say the S&Ps are trading at three times earnings, for whatever reason — and you want to back up the truck, gold would be a way to do that, and there’s probably nothing else that you can say that about. That’s the real reason to own gold.

Too many investors think of it as a way to make money. I’m not saying that that’s completely wrong, but it really isn’t the fundamental reason for owning gold. The fundamental reason for owning gold is insuring financial wealth and having buying power for the kinds of events that we saw in 2008, events we may well see again once or twice within our lifetimes.

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