Jim Grant: Gold Isn’t a Hedge Against Monetary Disorder

Jim Grant, founder of Grant’s Interest Rate Observer has long been a proponent of gold, and equally a critic of central planners. He sat down recently for an interview at John Mauldin’s strategic economic conference to discuss his views on gold, and how he struggles to understand those who view gold as an irrelevant curiosity.

Grant is always worth a read and/or listen.

On his current view regarding gold, Grant’s humor was on display as he described to what degree he was bullish on gold, and that he wouldn’t categorize gold as a hedge against monetary disorder but rather a bet on it.

“This is not going to be any news, Jim Grant is bullish on gold. The degree I would characterize as ‘very’.I would characterize gold not so much as a hedge against monetary disorder, but as an investment in it.People will say well that’s a hedge against armageddon, no, armageddon doesnt’ happen mostly, but what we are in the midst of is monetary shenanigans, and I see no real chance of being fewer of them, and a great chance there will be more of them.“

Regarding Western central banks having different ideas on whether or not to even own gold, for example the Canada, who recently sold all of its gold reserves, Grant pokes a bit of fun at the monetarist view of the world, and cautions that when Western central banks start to sell gold it’s time to pay attention because that’s a signal of significant distress in the world.

“Western central banks to the extent that they are run by people who follow the educational path of Janet Yellen, and Ben Bernanke, and Mervyn King and MIT people I think they have one view which is that gold is a curiosity, it’s like a monetary tonsil. It’s this thing of ancient standing of no immediate relevance so they can’t explain it they don’t know what to do with it.“

“Gold however has its fans in the East and gold is moving from West to the East. When Western central banks do sell as the Bank of England did in the late 90’s, as little Venezuela did in the first quarter and is probably doing now, typically those are moments to pay attention because they’re moments of distress in the world“

“People who hold the view that the stewards of our paper and digital currencies have the answers, that this monetary improv conducted for the past seven or eight years by the world’s Western central banks and certainly Japan, that this is the way forward. I try to understand what they’re saying but I can’t make head nor tail out of it. It seems to me the opposite is so obvious that sometimes I wonder if I’m seeing things.”

On what investors can do to protect themselves from what is coming (other than gold), Grant recommends holding cash (just as Grant Williams said as well).

“Cash is invariably a nice thing to have, even though it yields nothing it’s an option, it gives you the flexibility to move and to buy things.”

“Years ago a friend of mine had this conversation with a very wealthy client, and the client said ‘there’s one thing I never want to have to say, that I used to be rich’. So what cash does for an investor who has some of it, cash allows you to retain wealth with an eye to being opportunistic at that moment that no one wants the things that are now so popular.”

“If you were to have partaken in opportunities presented in the first quarter of 2009, or the final few months of 2008 those desperate times, you saw the most ordinary businesses who saw their stocks go up 8, 9, and 10 fold. Now that’s not going to happen every ten years but it does happen, and is especially likely to happen it seems to me when central banks are manipulating asset values to the upside. One of the great sense of armor for investing is to be very mindful of margin of safety. Having a margin of safety with regard to the price, make sure that what you’re getting is cheap so you can afford to have those mistakes you invariably make.The trouble with buying things when they’re up apart from the fact that there’s so little arithmetic value is that you have to be right.“

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Full Interview

Reprinted with permission from Zero Hedge.

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