Gold: the ultimate insurance against stupidity

Societe Generale's Dylan Grice this week described buying gold as a bet against "mankind's ability to absorb wisdom". Merryn Somerset Webb explains why she agrees.

It is always nice when someone who probably shouldn't be a gold bug turns out to be one. So I was pleased to see a note from SocGen's Dylan Grice this week on the subject.

Dylan doesn't approve of long-term investments in commodities: he considers betting on commodity prices to be a bet against human ingenuity. "Why should commodities provide investors with a real risk premium? Shouldn't prices actually decline in real terms over time?"

"A bushel of wheat, a lump of iron-ore or an ingot of silver today is identical to a bushel of wheat, lump of iron-ore or ingot of silver produced one thousand years ago. The only difference is that they're generally cheaper to produce because over time, human innovation has lowered the cost of production."

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So buy commodities for the long term and you are putting yourself up against "the relentless march of human progress."

However, while we have proven ourselves to be pretty brilliant at passing down knowledge in the physical sciences and improving it as we go, the same cannot be said for our "social decision making" where "each generation is condemned to relearn the mistakes of generations past."

The same goes for financial history. We don't learn. We keep having bubbles and crashes. We keep creating credit crunches "Tacitus refers to what may be the first in 33AD." And we keep making our own inflation crises thanks to the fact that, while we know how they happen and how to prevent them, we still constantly find ourselves with their two preconditions "financially pressured governments and the politicized issuance of money."

Buying most commodities is to bet against human ingenuity. That doesn't make sense. But to buy gold is to bet against "mankind's ability to absorb wisdom" says Grice. It sounds harsh but we're with Grice on this one. The main reason we like to buy gold at MoneyWeek is because we think it gives us some insurance against long-term human idiocy.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.