Chronicle of March 2024
Money is Gold, and Nothing Else
Many assets made new highs in March, including stocks, particularly tech companies, the NVDA 0.00%↑, bitcoin, crude oil, and raw resources such as copper, palm oil, cattle, lumber, tin, coal, cocoa, and many more. While raw material prices are erratic, gold has quietly continued to attain new highs since last year.
This is a notable move because gold is perceived as a defensive asset, while other risky assets (stocks and cryptos) are also breaking record highs. Furthermore, gold has been perceived to be losing ground in recent years versus its digital counterpart, Bitcoin.
For some, the rise of gold may be a warning that something bad will happen that may impair all other risky assets. Especially when gold starts outperforming stock markets.
But why bother with gold? Isn’t bitcoin the new gold?
During his testimony in front of Congress in 1912, John Pierpont Morgan said ‘Money is gold, and nothing else’. Here is the conversation between him and Samuel Untermeyer, who, as chief counsel of the Pujo Sub-Committee of the House Committee on Banking and Currency, spearheaded investigations into the influence of Wall Street bankers and financiers on the country's money and credit:
Mr. Untermyer:
I want to ask you a few questions bearing on the subject that you have touched upon this morning, as to the control of money. The control of credit involves a control of money, does it not?Mr. Morgan:
A control of credit? No.Mr. Untermyer:
But the basis of banking is credit, is it not?Mr. Morgan:
Not always. That [credit] is an evidence of banking, but it [credit] is not the money itself. Money is gold, and nothing else.
Mr. Morgan is trying to explain that money comes from the market process and nothing else. Through his quote, Mr. Morgan differentiated between money and credit, where credit comes from banking activities. Years later, governments widely adopted the idea of issuing credits and forced people to accept them as money.
At least, in Mr. Morgan's mind, gold miners are working hard to produce useful goods (gold) and thus create money. While governments and central banks hold the power to enforce anything, they simply issue papers (which in the future may be called CBDC, or Central Bank Digital Currency) and call them money.
But the allure of gold is not lost yet. Some people have been accumulating gold frantically in the last couple of years. One of them is the People’s Bank of China, which became the largest single gold buyer at 225 tons in 2023. The second largest buyer was the National Bank of Poland, which bought 130 tons of gold. The third was the Monetary Authority of Singapore, which bought 77 tons of gold.
It’s not just sovereigns that are accumulating gold. In mid March, the Idaho Senate passed a bill that would start a process for the state of Idaho to hold a portion of its reserves in gold or silver. The bill now goes to the governor's office for consideration. If it passed, the Idaho treasurer could hold up to 7.5% of the state’s idle money in physical gold or silver.
The Idaho Senate believes that holding gold or silver ‘helps secure state assets against the risks of inflation and financial turmoil and/or to achieve capital gains as measured in Federal Reserve Notes’.
Idaho (ID) has not yet acknowledged gold and silver as legal tender. But this bill may be a prelude to the legalization of gold and silver in Idaho.
Nonetheless, only time will tell if gold will be relevant in the future. If you only want to ride the gold bull, you can do so in a variety of ways, including purchasing actual gold, physical gold ETFs, gold futures, or gold mining stocks.
As the gold bull market continues, silver may also provide an opportunity for exposure. In ancient times, individuals stored their riches in gold and used silver for smaller, daily transactions. Silver could be a good option for those looking to be more aggressive.
Got gold?