Gold: Nobody’s Liability

It is often said that gold is the only asset that isn’t simultaneously somebody else’s liability. This is a very important concept to grasp. But once you understand it, not much is needed to understand why you should include gold in your portfolio. When you own a money market, annuity, a bond or a certified deposit, you have given monetary loans to an individual or an institution. To verify a return on that money you loaned, you rely upon someone or something’s performance. As a compensation for that risk, you get paid an interest for that money loan. Naturally, stock values, as we have tellingly have come to resize over the last few years, depend on institutional or individual performance too. If there’s some kind of problem, the investor is taking the risk of losing part if not all of the investment – like those who held such important securities as Tyco, Worldcom and Enron discovered when the 1990s stock market bubble succumbed to a meltdown.

On the other hand, gold doesn’t pay any interest. It has no relying on individual or institutional performance. It doesn’t depend on anything besides what it is, itself, as a means of value. If it did have a dependance, the people who own gold would be risking a default.

The people who criticize gold because it doesn’t give a return don’t really understand gold’s position as a sure way of keeping asset values around which all other asset values rotate. Gold is an asset which stands alone. It doesn’t rely on any person or institution for value. Gold investors prefer it to be like this. In the final sense, this is what money is and what money should always be. You can always rely on it if you have it saved or held as an emergency case reserve asset.

If necessary, gold will do the same thing it did for the Vietnamese man and his wife mentioned in the beginning of this part, and for the Mexicans, the East Asians, and the Argentineans who were wise enough to accumulate it before the many currency disasters destroyed those various economies. It will do for us what it has done for so many others all throughout history. Whatever happens to the American dollar, with the overarching debt problem the United States is facing, with the banker system, or with the stock and bond markets, the person who owns gold will always find a friend in that precious metal – something you can depend upon when the chips are down. Investors find a way to protect their wealth in gold. Gold is the bedrock.