Senator Menendez had gold bars hidden in his house. Should I?
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A reader asks: New Jersey Senator Robert Menendez had gold bars hidden in his house. Should I?
Archer replies: In Lawrence Kasden’s 1981 neo-noir thriller, Body Heat, William Hurt is hanging around a low rent bar in a shabby beach town somewhere in south Florida when he spots the sultry Cathleen Turner, looking very much out of place. He sidles over, offers up a lame bit of persiflage.
“You’re not very smart, are you?” she replies. “I like that in a man.”
That plot point will resurface later. In real life we have Mrs. Robert Menendez exclaiming over her good fortune to have just come into possession of the keys to a Mercedes-Benz convertible thanks to a $15,000 down payment allegedly provided by one of her husband’s trucking industry friends during a meeting in a New Jersey parking lot. And that’s not all. There’s another $480,000 lying around the Menendez house. And there’s a couple of one kilo gold bars.
What to make of all this? Cash is good. After all, what Cuban ex-pat doesn’t have a few hundred thousand dollars stuffed in a suit jacket pocket in case the Castros come calling again? Cars are fun, especially convertibles. But gold? What? Has no one ever heard of bitcoin?
Of course there have always been gold bugs. Turmoil and now, inflation, tends to bring them out of the woodwork. But a bet on gold is generally a bet on future misfortune so it’s temperamentally not for everyone. Most of us, even if we suspect the world is going all to hell, would prefer that it didn’t. And gold’s value per unit of weight is low compared to bitcoin, or even large denomination bills.
Warren Buffett, for one, famously has no use for gold because “it doesn’t earn or produce anything” but then again, he doesn’t have the senator’s family history of dispossession.
There’s an old rule of thumb – an ounce of gold should be worth about the same as a good men’s suit. By that measure, it has not been keeping pace of late (though I suppose that depends on how you define “good”). A nice Brioni goes for about $6,000; at Brooks Brothers you can get something serviceable for about $1,000. Meanwhile, gold has traded for anywhere from around $1,200/ounce to about $2,000/ounce over the past five years.
Interestingly, the prosecution cites a Google search for “How much is a kilo of gold worth?” as evidence of Menendez’s guilt. Of course you want to make sure you’re getting market value for your services, and the price of gold can be volatile. As a senator, he could maybe have just rung up the Comex and asked for the spot price. But still.
Whatever the price, the true gold bug is not to be gainsaid. There’s one more nuance to all this and it has to do with how you “own” the gold. With most ETFs, you have a security; DTCC keeps track of it for you. Some gold funds take physical delivery of the gold; you own it, they store it in a warehouse somewhere and post guards at the door. And, you can always just go to Costco, pick up a few bars, dig a hole in the garden, and drop them in. Costco, in fact, appears to offer not just gold but an interesting arbitrage opportunity, selling one-ounce bars of 24-karat gold from Rand Refinery for $1,949.99 and one-ounce bars from PAMP Suisse for $1,979.99. The catch: they can’t be refunded or returned.
Investors should keep in mind, however, that for the S&P 500 fully 32% of the historical returns have come from dividends and reinvesting. The dividends to be had with gold are mostly psychological.
For his part, Senator Menendez has gamely protested his innocence and vowed that he “will not be distracted” from his work in the Senate.
Will that work? It did before.
Woof.