148 THE BiG DROP
banker, and gold broker to the Bank of England. He said, “I
only know of two men who really understand the true value of
gold — an obscure clerk in the basement vault of the Banque
de Paris and one of the directors of the Bank of England.
Unfortunately, they disagree.”
Another favorite quote, even more succinct, is from
J. Pierpont Morgan who said in 1912: “Money is gold, and
nothing else.”
We also have a modern take on the meaning and value of
gold from none other than Ben Bernanke, former Chairman
of the Federal Reserve. On July 18, 2013, Bernanke said,
“Nobody really understands gold prices, and I don’t pretend to
understand them either.”
These quotes illustrate the perennial challenge that investors
face in deciding what role gold should play in their portfolios.
Few understand how to value gold, and even fewer understand
that gold is not really an investment — it is money. Of course,
if you want a portfolio that preserves wealth, money is a good
place to start.
Saying gold is not an investment may seem strange, espe-
cially since I recommend some gold in an investor’s portfolio.
To illustrate this point, you can reach into your purse or wallet
and pull out a dollar bill. You think of the dollar as “money”
but you do not think of it as an investment. An investment has
some element of risk, and typically has some yield in the form
of interest, dividends or rent. Money can be turned into an
investment by using it to buy stocks, bonds or real estate. But
as a dollar bill, it is just money; it has no yield and will still be
a dollar tomorrow or next year.
Gold is the same. It has no yield. An ounce of gold today
will be an ounce of gold next year and the year after that. It
will not mysteriously turn into two ounces. It will not rust or
change shape or color. It is just gold. Yet, it is money.
It’s true that the value of gold may change when measured