who has been interested in gold for the last forty years, I have
always been interested in the definitions which can be applied to
gold. Is gold money? It often has been, but it is not at present.
I suspect it may become money again. Is gold a commodity? I think
the answer to that question is “yes”. Gold used in chemical
reactions, or in jewellery, is plainly a commodity which can sometimes
be replaced by another commodity.
question I find most interesting is whether gold is a real asset.
One of the problems of investment is that there are two variables,
reality and liquidity. Land or property are relatively illiquid,
but are also real, in that they have a use which does not depend
on their value in exchange. Gold is highly liquid, indeed it is
more liquid than paper money. In extreme circumstances, paper money
can lose all its value, when gold is still acceptable as payment.
In 1940, when the French Army was defeated, many French people took
to their automobiles to escape the advancing Germans. They found
that petrol stations would not accept paper francs, but would sell
their petrol in exchange for gold coins.
Gold also remains
an acceptable currency in periods of high inflation, when paper
money can lose all its value.
What does “reality”
mean, when applied to an investment? Obviously we talk about “real
estate” to describe the legal possession of property. I think
that means property with a permanent character and at least a potential
use. In the same way, the traditional theorists of the gold standard
would say that gold was a real currency, because it has permanence
and a potential non-monetary use.
I accept that
reality in an asset is a relative factor. In an ideal world, we
would all like to hold our financial needs in a currency with a
high degree of permanence, strong alternative uses and high liquidity.
We have to make do with currencies which fall short of perfect “reality”,
and fall short of perfect liquidity as well. We make do with imperfect
currencies because we have no choice.
one think about these issues, but it makes one even more uneasy
about electronic money. In book publishing, I am well aware of the
library demand for archival books which can reasonably be expected
to last for centuries, like the printed works of earlier centuries.
We need also to have permanent money, which can be relied upon to
survive, even though its value may decline over time. The historic
value of gold has been astonishingly stable over centuries.
In an extreme
example, one could be worried about the issue of money and about
its preservation. Mr. Madoff has shown that fraud can reach the
unbelievable level of $50 billion. Might there not be still larger
frauds, so large as to achieve what the wartime German operation
attempted, a complete takeover of a targeted currency?
is already operating on a huge scale. Suppose that Al Qaeda, instead
of attacking the twin towers, had attacked the electronic systems
which record all the monetary holdings of New York. No lives might
have been lost, but an electronic pulse might have erased one of
the central counting houses of world finance. The world might have
Is there not
some element of this cybercatastrophe in the present world crisis?
Reality may be a variable concept, with nothing 100 per cent real
and hardly anything zero per cent. When I was born, in 1928, gold
was money, and gold was over 90 per cent real. In 1970, when I was
in my forties, money was paper, and even the convertibility into
gold of the Bretton Woods Agreement was breaking up. Now money is
a largely unidentifiable electronic pulse, itself vulnerable to
attack by electronic means. Virtual money has very low reality,
much lower than paper.
is a system which could be blown away because there is nothing in
it to gain confidence. Even a return to paper money would raise
the level of reality attached to world currencies. There is a problem
of raising the reality level of all currencies – a problem
which nineteenth century economists solved by convertibility to
Rees-Mogg is former editor-in-chief for The Times and a member
of the House of Lords. He has been credited with accurately forecasting
glasnost and the fall of the Berlin Wall — as well as the 1987 crash.
His political commentary appears in The Times every Monday.
His financial insights can only be found in the Fleet Street
Letter, the UK’s longest-running investment newsletter.