Nanda Menon is a London-based private investment banker and his professional task is to make wealthy clients wealthier. Perhaps this explains why, despite the pithy, catchy title and cover, this well-researched book, replete with cogently argued and graphically-illustrated reasoning, is embellished with a long sub-title: Why Gold Will Always Remain the Eternal and Enduring Investment.
Wealth preservation with growth is indeed tricky territory. As Menon pointedly asks: where can one find a safe, secure haven for investment that will reliably preserve and grow one’s purchasing power through the turmoil of the modern world, which has left the economies of several countries teetering on the brink of a precipice? Here, Menon convincingly answers: “In Gold.”
Why? How? We might well ask. In the Indian context, Menon provides a hard hitting, eye popping prediction. Extrapolating currency movements over the last 40 years, he says an Indian starting work today will see a 5000 per cent erosion in the value of rupee earnings at the end of her working lifetime. At that point, she will need `1.5 lakhs simply to fill a tank of petrol in a Maruti Suzuki Swift!
With razor sharp clarity, Menon states that paper currencies have no substance or form whatsoever and their only value “comes from legislative coercion”. The lesson from global economic history is that governments simply cannot resist the surrogate privilege of switching a button to print currency that creates “an illusion of wealth” because a printed note is merely a governmental IOU not backed by assets. A `1000 note is a promissory note carrying somebody’s printed signature promising “to pay the bearer the sum of one thousand rupees.”
Nanda asks melodramatically: “What is this one thousand rupees I am entitled to? What does it look like? What is it made of? Does it glisten? Is it light? Is it heavy? By now I’m really curious about what I’ll receive in exchange for this promissory note!” The earliest Indian paper notes issued by the Bank of Bengal were convertible into exactly one gold mohur weighing 10.95 gms in today’s scales.
The modern coin is hopelessly barren. Today, the rupee suffers the ignominy of being cast in just 8.5 gms of stainless steel. The sicca rupee of yesteryear was precisely worth its weight in silver while higher denominations were minted from gold. Transferred from each generation to the next, India’s wealth endured in the value of gold. Menon says despite India’s tumultuous political history dominated by changing empires and borders, its intrinsic store of wealth based on
permanence of gold did not devalue with time; it only grew. Thanks to gold, the country survived the depredations of impoverishment.
Menon walks us through the fascinating story of how the worldwide gold standard collapsed after World War II. A country’s wealth was reckoned by its gold reserves. The important point to note is that gold stands out as a metal of extreme rarity because every gold mine on the planet has already been exploited so much that the remaining ore yields only 2 per cent of gold, making gold mining prohibitively expensive.
World physical production of gold was 2,770 tonnes in 2013. It is increasing at just 0.64 per cent per annum on a compounded basis. Very little supply, voracious demand galloping from Vietnam to Turkey to Europe to USA — such is the world gold marketplace reality. Menon argues it’s “blindingly obvious” that gold prices will climb. He, therefore, strongly recommends long term investment in gold, if one can afford it.
To obviate the high cost of storing and guarding gold, Menon advocates the use of Gold ETFs (Exchange Traded Funds) the newest form of non-physical investment in gold comprising funds owning underlying assets in the form of gold bars stored in heavily guarded London-based vaults.
Investor or not, this extraordinarily multifaceted story of gold is strongly recommended.
Sujoy Gupta is a business historian and corporate biographer
Going for Gold
Rs.499; PP 214