The History of An Obsession

The Power of Gold: The History of an Obsession by Peter Bernstein is not a book about why you should or should not invest in gold. Rather, it is an amazing story that takes the reader through the world’s monetary history.  With that said, I am pulling out some interesting nuggets (pun intended) where he did talk about its performance. Again, just to hammer home the point that this is not a “why you should or should not buy gold” book, the following passages are from the last 15 pages (the final 4%).

When gold booms, it really booms:

That fantastic bull market in gold from $35 in 1968 to $850 in the climax of January 1980 is an extraordinary episode in financial history. It represented a gain of 30 percent a year over a twelve year period, far in excess of the inflation rate of 7.5 percent from 1968 to 1980. Even the greatest bull markets in stock market history pale by comparison. The highest total annual return (including income) in the stock market over a twelve-year period was 19 percent, from the middle of 1949 to the middle of 1961. In 1959, the amount invested in gold was about one-fifth of the market value of all U.S. common stocks; in 1980, the $1.6 trillion invested in gold exceeded the market value of $1.4 trillion in U.S. stocks.

But gold doesn’t always keep up with inflation:

The cost of living doubled from 1980 to 1999- an annual inflation rate of about 3.5 percent- but the price of gold fell by some 60 percent. In January 1980, one ounce of gold could buy a basket of goods and services worth $850. In 1999, the same basket would cost five ounces of gold.

The stock market offers an even more striking comparison. By some remarkable coincidence, the Dow Jones Industrial Average of stock prices was at just about 850 when gold touched its $850 peak. Thus, an ounce of gold would have bought one share of the Average at that moment. When gold was down to the $300 area in the autumn of 1999, however, the Dow Jones was around 10,000. Now more than thirty ounces of gold would be needed to buy one share of the average.

Bernstein waxing philosophically:

Those who believe that gold was a hedge against the uncertainties of life failed to understand that the pursuit of eternity is not to be satisfied by gold, or by anything else we choose to replace gold- dollars euros, whatever. Gold as an end in itself is meaningless. Hoarding does not create wealth. Gold and its surrogates make sense only as a means to an end: to beautify, to adorn, to exchange for what we need and really want.

What I really learned from this book- more than just the monetary history of the world- is what an absolute treasure Peter Bernstein was. He was 81 years old when he published this book! When he was 87, because why not, he wrote a book about the Erie Canal. And not to mention,  Against the Gods and Capital Ideas are some of the best investment books ever written. Peter Bernstein was truly a renaissance man, I urge you to read his work.


The Power of Gold