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Why have you bought gold?

|Includes: SPDR Gold Trust ETF (GLD), SLV

Consider this excerpt from the history of American Express interesting:

During the summer of 1914, approximately 150,000 American tourists were stranded when war engulfed Europe, many without access to funds. Banks had ceased to pay against foreign letters of credit or any other form of foreign paper. Panic-stricken travelers lined up inside and outside the offices of American Express in whatever city they happened to be visiting. American Express was able to cash all travelers cheques and money orders in full, enabling quick passage home for thousands. Many of those remaining were able to book passage home soon after a decision by American Express and a consortium of nine U.S. banks to ship $10 million in gold to Europe so that local banks could once again honor foreign drafts.

During 1938 and 1939, as the prospect of another world war loomed over Europe, there was still a sizable group of longtime American Express managers and employees who had worked for the company 25 years before, during World War I. Their past experiences – and their advance planning, in this instance – helped the company survive World War II. Even before the official declaration of war, American Express had mounted extensive preparations to protect its financial and real estate assets, including its principal offices in Berlin, London, Paris, Rome and Rotterdam.

 

The history is interesting not for the reminder that in war fiat is worth nothing, but that AMEX had an organisational memory of WW1 that enabled them to prepare for WW2. The two events were close enough that those who had experienced the first were still employed and had not retired.

I think that what is necessary for an organisation (which is really just a collection of individuals) to see the need for "advance planning" is not experience of a crisis, but experience of the period prior to a crisis. Only then can one see similarities between the period that preceded a crisis and one's current situation and thereby identify the potential for a future crisis.

I also think that what is important is direct experience. One has to have personally experienced the pre-crisis environment - it makes for a strong imprint on the mind. Indirect experience is not the same. Reading the history of a period that draws parallels to now does not have as powerful a call to action. Words on a page can also be rationalised away.

For example, do you think giving Paul Mylchreast's 4th May Thunder Road Report history of the US and Sterling crises during the Johnson and Nixon administrations in the 1960s and 70s (pages 24 to 35) to someone in their 30s raising a young family will result in them buying gold? It is too distant and academic.

I would also argue that the minimum age for direct experience of economic/financial events to really register would be no younger than say 20 years old. This means that the youngest person to have experienced the 1970s and punishing inflation and a real gold bull market is now 60 years old. Anyone younger than that would probably not really "get it", at a visceral, emotional level that only direct experience can give.

My only "economic awareness" memory of the 70s would be my father suggesting I invest the $200 worth of Christmas and birthday money I had squirreled away up to my then 10th birthday into State Rail Authority of New South Wales bonds at 15% (my father was a train driver and they were offered to staff first). Getting a $30 cheque each year for 5 years seemed like a good deal. I remember being disappointed that I didn't hold out longer, because subsequent bond series peaked at 18%, if my memory is correct.

That is the extent of my experience of inflation, as a 40 year old. It makes me reflect on where I would be now if I had not made that fateful decision in 1994 to take a job with the Perth Mint. It is likely that my economic literacy would be negligible, my awareness of the potential for inflation and the role of gold as a wealth preserver in an investment portfolio, zero.

I am interested in what is your story. Is your interest in gold because of direct experience of the last gold boom, because someone close to you passed on their experiences, or because you are simply an inquiring mind? Please leave a comment.

Disclosure: Long gold via ASX:ZAUWBA