Gold slips in early trading, giving back some of its recent gains
London-based analyst sees gold as a kind of bond with some very alluring characteristics

(USAGOLD – 11/12/2021) – Gold slipped in early trading, giving back some of the strong gains of the past several days. It is down $6 at $1857.50. Silver is down 19¢ at $25.11. Investors appear to be coming around to the notion that inflation might be a bigger problem than advertised, and the precious metals have been among the beneficiaries. Gold has gained 4.2% over the past seven trading sessions. Silver is up 5% during the period. It is with gold’s constancy in mind (Please see our Chart of the Day) that London-based analyst Charlie Morris says we should view gold as a kind of bond.

“In asking what kind of bond it is,” he says in the November edition of Atlas Plus, “I came up with five answers: It is a zero-coupon because it pays no interest. It has a long duration because it lasts forever. It is inflation-linked, as historic purchasing power has demonstrated. It has zero credit risk, assuming it is held in physical form. It was issued by God. That means gold is simply a zero-coupon, long-duration inflation-linked bond. It compensates you against past debasement and is impacted by the expectation of how rates and inflation will change in the future. It works.”

To explain gold’s recent restraint in the face of sharply rising inflation, Morris turns to investment analyst Russell Napier, who he calls the guru of gurus. “I’m very bullish on gold,” says Napier. “The problem for gold in the last year was that interest rates have gone up, because people still believe there will be a link between inflation and interest rates. If people believe there will be inflation at 4%, they will say interest rates will ultimately be at 5 or 6%, hence they don’t want to own gold. It’s only when they begin to realize that that link is broken, that the gold price will lift off.”

Chart of the Day

Annotated chart showing the price of gold during the gold standard and fiat money eras
Click to enlarge

Chart note: This chart is central to understanding why gold continues to make sense as a long-term portfolio holding. When the United States abandoned the gold standard in 1971 and freed currencies to float against the dollar, the fiat money era began. We are still in that era today. This chart shows gold’s performance from the early 1900s to 1971 when gold backed the dollar and the era from 1971 to present when it did not. Of course, gold has had its ups and downs since 1971, but clearly, over the long run, in the absence of an official gold standard, individual investors have been well-served by putting themselves on a private gold standard.

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