An article in today's FT "Gold's role in pension funds under scrutiny" (March 14 2011) quotes Alasdair McDonald, head of investment strategy at Towers Watson, stating "over the very long term the value of gold relative to goods and services or paper money has remained constant...gold offers a negative long term rate of return so I struggle to see a role for gold in strategic allocation."
Wrong. Yes, over the long term gold has remained constant in terms of goods and services. But this is not true of paper money versus goods and services. The value of paper money has gone DOWN whilst the purchasing power of gold has remained constant. Gold buys the same amount of oil today as it did in the 1960s. Whereas in paper money a barrel of oil cost $2 in 1968 but now costs $115. A gold sovereign (£1) would have bought dinner at the Savoy in 1913. And (now worth £240) will still buy you the same dinner today. Whereas £1 in paper money is not enough for the cloakroom.
All if which proves Mr Macdonald is a total cretin. And that pension consultants are totally redundant. I am going to be amused watching them explain away the total obliteration of government bonds.
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