If you poke around on the internet, you’ll find a lot of people who have criticized me for being a “gold hater.” Here are two different pieces that took me just a few seconds to find. There are plenty of tweets out there saying the same thing.
These people have been basically right. Over the years, I’ve said a lot of bad stuff about gold — how it’s a lousy currency, how it’s just a rock that shouldn’t have any value, how love of it is primitive and irrational, how it has no justifiable basis in the economy.
But I’m changing my mind, and it’s all due to Donald Trump.
The other day, Timothy O’Brien published a brilliant photo gallery on Bloomberg View showing Trump’s love of all things gold. Trump’s stage at the convention was gold-colored. Trump events often feature pretend miniature gold bars. The logo on Trump Tower is gold-hued. And Trump has lots of gold-plated furniture.
What does all this say about Trump?
O’Brien’s post got me thinking about “The Power of Gold: The History of an Obsession” by Peter L. Bernstein. In his book, Bernstein lays out the history of kings, empires and the pursuit of gold. A key point is that accumulating gold is very hard. For example, it’s difficult to get gold out of the ground (you don’t see gold gushers like you do with oil). There’s no one part of the world with a concentration of gold (like a Texas or a Saudi Arabia). It’s scattered across the globe in tiny amounts. Gold is heavy and expensive to transport. And it takes up a lot of storage space (unlike, say, diamonds). Once in storage, it requires protection (see: Fort Knox). So to get and hold gold, kings and empires had to build complex global supply chains and wield military might.
In other words, gold is a physical and visual manifestation of raw power. To have gold was to have power. It follows, then, that gold would make for a good basis for currency. If you knew that a kingdom had the ability to produce vast quantities of gold coins, then you could assume that it was a powerful and stable kingdom that had military might and wide influence. Could you name another commodity that instantly conveys so much information about its backer? What does this all have to do with Trump? Well, if there’s one thing that Trump clearly understands, it’s power. He loathes people who lack energy (ask Jeb Bush). He sees himself as being powerful enough to get Mexico to pay for his wall. He’s promised to ”bomb the hell out of ISIS.” The projection of unbridled power is essential to his message.
And so Trump’s connection with gold makes complete sense. Trump doesn’t use gold to signal his wealth. He uses it to signal power. Maybe he doesn’t think about it that way. And maybe voters don’t get that, either. But that’s what it symbolizes.
So I’ve changed my mind about gold. I still don’t think it’s logical as the basis of a modern currency. And I certainly don’t know whether it’s going to go up or down (my specialty is hindsight, not foresight). But I understand as never before how gold ownership can be a proxy for power and how, since power is a key ingredient in giving currency value, it makes sense that gold has played such a significant role in the financial system. It’s not just the fact that it’s shiny. There’s a popular line out there about the golden rule: “He who has the gold makes the rules.” Perhaps a clearer version would be, “He who has the ability to acquire gold and mint coins out of it makes the rules.”
Over the years I’ve gotten into lots of arguments with gold fans. Some of them make arguments about the Fed. Others say stuff about inflation and currency debasement and all that. None of those arguments are very compelling or interesting. It took Donald Trump to come along for me to finally appreciate what gold is all about.