The Green is Still Gold

Many years after I first heard it read, it’s still one of my favorite poems, Robert Frost’s “Nothing Gold Can Stay”.

 

                        Nature’s first green is gold,

                        Her hardest hue to hold.

                        Her early leaf’s a flower;

                        But only so an hour.

                        Then leaf subsides to leaf.

                        So Eden sank to grief,

                        So dawn goes down to day.

                        Nothing gold can stay.

 

And with just eight lines, forty words, he captured the sad, fleeting pleasure of what is perfect and beautiful.

 

In his lifetime Frost won four Pulitzer prizes.  But I would nominate this poem for a Nobel prize in economics for its succinct explanation of why you should not invest in gold: it has no staying power.

 

Yes, I admit, that’s a bit of a stretch; but stick with me here.

 

I’m sure you’ve seen ads touting the advantages of investing in gold, perhaps featuring stacks of gold bars and bags of gold coins.  Gold has an age-old allure for humans.  Its gleam, its reputation for high value, its association with the rich and powerful and famous—it has a certain appeal to our emotional side.  On a more rational level, I’ve heard three reasons offered for investing in gold.  First, it helps diversify an investment portfolio (i.e. it gives its owner another kind of investment that might go up in value when others go down).  But more than that, it supposedly grows in value and is a protection against inflation; and finally, it will always be treasured and might be the only currency worth anything in a national or international emergency.

 

I suppose gold can give an investment portfolio more diversity, though I wouldn’t sink much (any?) of my own retirement money into it.  Portfolio diversity can be achieved in other ways.

 

How does gold perform as an investment?  The Motley Fool, a multimedia financial services company, cited a comparison of investments done by finance professor Jeremy Siegel and published in his book, Stocks for the Long Run.  According to Siegel’s study, a dollar invested in gold in 1802 would have grown to $4.52 (adjusted for inflation) by 2012; but a dollar invested in stocks in 1802 would have been worth $704,997 by 2012.  Siegel is definitely bullish on stocks; but his analysis is in line with what others have said about gold, including the most famous investor of our era, Warren Buffett.  It is not where they put their money.

 

Gold does not pay dividends.  Its growth in value must come from what people are willing to pay for it; and demand can be fickle.  Moreover, gold has to be stored and maybe insured, costs that eat away at value.

 

But will all the people who’ve hoarded gold in anticipation of a worldwide economic collapse have the last laugh?  We actually have some small scale models of what an economic collapse looks like, how people behave, how goods are bought and sold.

 

Frederick Taylor, in his book The Downfall of Money, chronicles the hyperinflation in Germany between the world wars.  People were pushing wheelbarrows of paper money to the grocery store to purchase a single loaf of bread—and even then they were not guaranteed it was enough because just in the time it took to walk to the store the currency lost value.  That would have been an opportune time for the gold to come out of the vaults and prove its worth as an inflation hedge.  But no, gold did not become the currency of choice.  As Taylor reports, “Throughout the country, barter had become the habitual mode of trade for millions of ordinary Germans who had no access to foreign currency.” (page 289) It was a barter economy.  And even some local currencies (not gold) sprouted into use.

 

Unless most everyone has a stash of gold, it is almost useless in extreme economic situations.  Who can give change for a gold bar?  A grocery merchant in Germany in the early 1920’s would have spurned payment in gold in favor of having his customer come to his house to effect some needed repair that he himself was incapable of performing.  Tangible skills and home-grown produce and meat become extremely valuable in dire national emergencies.

 

I don’t mean to criticize anyone’s choice to invest in gold.  It might have some sentimental value to its buyer or some other non-economic worth.  But as an investment vehicle or financial salvation during an apocalypse, forget it.  I still like the green in my wallet.

 

Happy St. Patrick’s Day.  Until next time,

 

Roger

 

“How the gold has lost its luster, the fine gold become dull!  The sacred gems are scattered at every street corner.”  Lamentations 4:1 NIV®*

 

*Scripture quotations taken from the Holy Bible, New International Version® NIV®

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