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Who Would Invest in a Gold Bond?

Commentaries & Views

Berkshire Hathaway CEO Warren Buffet famously dismissed gold.

“Gold has two significant shortcomings, being neither of much use nor procreative.”

I have recently written about how a government with gold mining tax revenues can use gold. The benefits of issuing gold bonds include reducing risk, and getting out of debt at a discount. Pretty useful, eh?

As to his second point, one should never confuse suppressed with impossible. By President Roosevelt’s edict in 1933, the government made it illegal for Americans to possess the metal—as in a go-to-prison criminal act. The government busted every gold bond. Of course, under such conditions, gold could not be useful or procreative. If they wanted to keep their gold, people kept it well hidden.

In 1974, President Ford signed a bill legalizing gold once again. But after four decades, the damage had long been done. The world had become accustomed to the regime of irredeemable paper, which was made absolute by Nixon’s order three years prior, banishing gold from the monetary system entirely. Gold was decreed to be a mere commodity. It was now considered useless by all correct-thinking persons, some of whom predicted that its price would drop well below $35.

Heck, they listed gold on the futures exchange. In a free market, futures contracts are used for commodities, especially agricultural commodities that have seasonal production and constant consumption, as well as unpredictable production due to the weather.

Gold should trade in an interest rate market. A contract for future gold delivery is normally a bond, and the interest rate market is the bond market. But thanks to decades of government intervention, gold was relegated to futures. At least that’s better than remaining illegal.

Buffet, observing this sad state of affairs, does not see anything to be sad about. He observes not the government’s interventions, but leaps to a hasty generalization: that this uselessness is intrinsic to gold. Thus he does not condemn government for its illicit actions, but gold itself. He is condemning gold, for not doing what the government did not allow it to do.

Anyways, let’s discuss how gold can once again be procreative.

Nevada now has legislation pending, to enable the state to issue gold bonds. Not gold backed bonds, which are a way to sink deeper into debt, to borrow more dollars using gold as collateral. True gold bonds, which are denominated in gold, pay interest in gold, and return investors’ principal in gold.

Interest. That is what Warren Buffet declared that gold has not got. And now an AA-rated state government is close to paying interest on gold. That is an interesting development (permit me my little pun). But there is a challenge.

Although there is no downside, and no special interest groups are harmed, the bill might not pass. The Democrat majority who controls the state legislature could perceive the gold bond as a Republican partisan measure. I can say that this assumption is totally wrong. Most mainstream Republicans are not especially fond of gold. For example, it took Arizona five years to pass its gold legislation, with three vetoes by two Republican governors.

Unfortunately, politics has become hyper-partisan. If Nevada Democrats perceive this as a Republican bill, they will vote it down. Since they are in the majority, they will kill the bill. That must not happen! The decay in our monetary system is at an advanced stage. No one can predict how much time remains, but I can say one thing with absolute certainty. We need to begin developing an alternative. We need to begin remonetizing gold, and that means gold bonds.

So I am going to ask for something, which I have never done before. If you would consider buying a gold bond, if you want to see Nevada issue a gold bond, please sign my petition. Please click here for the petition at Monetary Metals, especially if you would consider buying it. If you’d like to sign, but prefer to keep your email address private, please click here for the petition at Change.org.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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