Merryn's Blog

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?"

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

"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."

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

Advertisement - Article continues below

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.




Don’t panic about Iran – but don’t sell your gold either

Markets have reacted calmly to the tension between the US and Iran. But don’t get too complacent. It’s still a good idea to hold on to some gold as in…
9 Jan 2020

Here’s how gold could rise above $7,000 an ounce

That the gold price could hit $7,000 an ounce is a logical and plausible possibility, says Charlie Morris. Here, he explains how it could get there.
30 Dec 2019

Gold is in a bull market – and it could have much further to go

Many investors forget that gold is still the best-performing asset of this century, says Charlie Morris. It could also have much further to go.
27 Dec 2019

All the gold in China: money and power goes east

China has far more gold than official figures suggest – as much as America, in fact. He who owns the gold makes the rules, says Dominic Frisby.
15 Nov 2019

Most Popular


Here’s why the Federal Reserve might print more money before 2020 is out

The Federal Reserve wants to allow US inflation to run “hot” for a while. But that’s just an excuse to keep interest rates low – and possibly print mo…
10 Feb 2020
Investment strategy

The secret to avoiding being panicked out of your portfolio

With the coronavirus continuing to occupy headlines, investors still aren’t sure how to react. But the one thing you mustn’t do is panic. Tim Price ex…
11 Feb 2020
Investment strategy

Just five assets matter for investors. Here's what they are

Every investor’s needs are different – but most can be met by the right combination of five investments
11 Feb 2020

The rare earth metal that won't be a secret for long

SPONSORED CONTENT – You can’t keep a good thing hidden forever; now is the time to consider Pensana Rare Earths and the rare earth metals NdPr.
31 Jan 2020