“The New Case for Gold” by James Rickards, was just published in April 2016 and is a Wall Street Journal Business Best Seller.
James Rickards is one of today’s thought leaders on Global Currencies and the Global Financial System, and he is a strong advocate for a return to the Gold Standard. “The New Case for Gold” builds on foundation established by Rickards previous books “Currency Wars” (published 2011, see my blog post dated March 2015) and “The Death of Money” (published 2014, see my blog post dated June 2016).
Rickards has done a masterful job of packing a great deal of historical and technical information into a relatively short book of only 192 pages. Rickards writing is clear, concise, well researched, and well reasoned. He makes a very strong case for returning to a Gold Standard, which has been the prevailing global currency standard for most of the past 5,000 years.
“The New Case for Gold” debunks many commonly held misconceptions about Gold, especially why Gold is no longer suitable for use as a Global Currency. One of the most common criticisms of gold is that “there’s not enough gold”. Rickards explains that what this really means is that there isn’t enough gold at its current valuation. Rickards analyses the valuation of Gold based on several potential valuation scenarios, and theorizes a current valuation, consistent with historical models, of $10,000 per ounce. This valuation model gives strong insight into how badly debased the US dollar has become since it became a fiat currency.
Much of the current monetary economic theory is based on the work of John Maynard Keynes. Central bankers have been using and abusing Keynes’ economic theories for decades. However, Rickards notes that “Keynes was an advocate for gold early in his career, an astute adviser on gold in mid-career, and an advocate for gold again late in his career.” Rickards notes the famous Keynes quote “In truth, the gold standard is already a barbarous relic” which many observers use as evidence against a return to the Gold Standard. However, Rickards explains that Keynes was not advocating against Gold backed currencies, but rather complaining about the “Gold Exchange Standard” that was in place between 1922 and 1939. The Gold Exchange Standard was notoriously flawed and Rickards agrees that “it should have been abandoned long before it died with the outbreak of the Second World War.”
Some of the most tantalizing sections of “The New Case for Gold” involve Rickards research into current gold reserves held by various nations, and the ongoing stealth purchase of gold by China and Russia. Today there are approximately 35,000 tons of gold owned by central banks, finance ministries, and sovereign wealth funds. Rickards observes that “China, like Russia, is acquiring gold so that it will have a comparable ratio to the United States and Europe. The gold-to-GDP ratio will be critical when the monetary system collapses because it will form the basis for any monetary reset and the new ‘rules of the game.'”
Rickards also explains that China is buying gold to hedge its position in US Treasuries. If Inflation gets out of control and China doesn’t have its portfolio of US Treasuries hedged, “China will be left in the dust.” However, if China can reach its target of eight thousand tons of gold, China will have its US Treasuries holdings adequately hedged.
Rickards advocates for prudent investors to hold 10% of their portfolio in physical gold, and gives prudent justification for his recommendations. He discusses best practices for acquiring and holding gold, and also discusses serious pitfalls especially concerning various forms of “paper gold.”
I enthusiastically recommend “The New Case for Gold” to anyone keenly interested in the Global Financial System, is skeptical about the safety and security of Fiat Currencies, or has an interest in prudently diversified investments.