Gold is a 'Veblen' good
Posted: Mon Jul 25, 2022 9:48 pm
The arguments for holding gold are several and worth rehearsing. On the downside, gold pays no income and carries a cost of storage, plus the risk of theft. Therefore, it only makes sense to hold gold at certain times. We believe now is such a time.
Firstly, because debasement of the currency is the only politically palatable option for governments profligate in their spending habits, and gold is immune to this devaluation.
Secondly,Gold offers, because of its limited supply and ability to survive through millennia, an indestructible store of wealth. It is the ultimate wealth protection. In occupied Europe during World War II for example, gold was arguably the best asset in which to hide wealth, preserve purchasing power, and maintain liquidity. To quote Barton Biggs, the world’s top global investment strategist from 1996 to 2003 (as ranked by Institutional Investor magazine), it was a fine place to have wealth from 1945 to 1950, as inflation soared.
Thirdly, gold is a Veblen good, an item for which, contradictory to the laws of economics, demand increases with price.
Firstly, because debasement of the currency is the only politically palatable option for governments profligate in their spending habits, and gold is immune to this devaluation.
Secondly,Gold offers, because of its limited supply and ability to survive through millennia, an indestructible store of wealth. It is the ultimate wealth protection. In occupied Europe during World War II for example, gold was arguably the best asset in which to hide wealth, preserve purchasing power, and maintain liquidity. To quote Barton Biggs, the world’s top global investment strategist from 1996 to 2003 (as ranked by Institutional Investor magazine), it was a fine place to have wealth from 1945 to 1950, as inflation soared.
Thirdly, gold is a Veblen good, an item for which, contradictory to the laws of economics, demand increases with price.