By Jon Forrest Little
As gold continues to hold its own this week in the midst of the Fed's so-called “hawkish pause,” it's a good time to reflect on the things the naysayers have been saying for years…and how they have tended to be wrong.
It's often a clash of worldviews.
Back in 2011, Ron Paul, a Republican U.S. Representative from Texas, questioned Ben Bernanke, then chairman of the Federal Reserve, about gold during a U.S. House Committee on Financial Services hearing.
Their exchange serves as compelling content for gold enthusiasts. Ron Paul starts with a ten-second opening statement with a visual showing that the price of gold had increased 53.7% in three years (2009-2011).
Then Paul, adopting a prosecutorial tone, tells Ben Bernanke and members at the hearing "that the dollar during these same three years was devalued almost 50%."
The exchange between Paul and Bernanke highlights fundamentally different views on the role of gold in the modern economy.
Paul argued that gold is an indispensable store of value and a hedge against inflation and default. Paul also pointed out that gold has been money for 6,000 years.
Bernanke, on the other hand, argued that gold is not money. When pressed, he stated that central banks merely hold gold (instead of diamonds, for example) because of “tradition.”
After a subtly smirking Bernanke denied that gold was money, Paul knew there was no need to continue the questioning. Ron Paul closed just like he began. He was confident, concise, and victorious, whereas Bernanke used double-speak and deflection.
Bernanke could be called a gold basher or a "paper bug". But he is not alone.
So many gold villains walk undetected. They don't sport black capes, hats, or cartoon masks. Nor do they threaten to poison the public like the Joker in Batman (though I'd argue that debasing our currency is a form of poisoning the economy).
The media and the financial establishment have been churning out their anti-gold propaganda for years, as so adroitly explained by Guy Christopher, the late Money Metals columnist.
Another notable gold basher is radio personality Dave Ramsey. This financial “guru” rears his head to bash gold from his TV and radio show platform a handful of times each year.
Ramsey's talking points against gold are based on false assumptions, and he tends to bully and ridicule his callers asking about gold.
The more false his claims happen to be, the more he proclaims them with fervor and bombast as if they are universally held laws of sound finance.
For example, he constantly falls back on similar themes he believes will play well with uneducated investors. (The same type of folks who recently sued Ramsey for $150 million after he steered them to a "timeshare exit" company that shut down after it was accused of fraud.)
Ramsey says that gold is:
- Too volatile. To the upside? Remember, gold was $35 per ounce when Nixon closed the gold window in 1971.
- Does not produce income. Putting aside that income on gold is possible, explosive capital gains beat earning interest in depreciating currency.
- Is not useful. Tell that to central banks that have recently been stocking up at record rates. Gold became recognized as money precisely because of its utility. It's fungible, divisible, a store of value, and a medium of exchange.
- Is not liquid. Ha! Gold is traded in huge volumes all day and night.
Another inglorious gold basher is Harry Dent. Like Ramsey, he makes many preposterous and unsubstantiated statements.
Dent's misinformation is regularly trotted out there under headlines like "Gold is going to $500 per ounce."
Barrick recently reported that its cost of production for gold has reached $1,700 per ounce. That puts something of a floor under the price of gold.
Where is gold today? Nearly $2,000 per ounce.
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Jon Forrest Little graduated from the University of New Mexico and attended Georgetown University's Institute for Comparative Political and Economic Systems. Jon began his career in mining industry and now publishes "The PickAxe" which covers topics surrounding precious metals, energy, history, and politics.