Soap is more valuable than gold

Unfortunately, I can't remember the name of the book or the author, but years ago I read a great commentary on the value of investing in gold. The author was a marine stationed in Japan immediately following World War 2. While there, he needed to raise some money, so he took a gold watch to a Japanese gold dealer. He found the man depressed and uninterested. The dealer points to all the gold watches, jewelry and so on in his store. "Everybody wants to sell gold," he said. "Nobody is buying."

But a buddy of his shows him how to make extra cash. They were given allottments from their PX for chocolate, soap, stockings and cigarettes. The buddy takes his allottment to a Japanese black market dealer who happily pays top yen for these items.

Faced with rebuilding from the enormous wartime destruction, the Japanese people tried to raise cash by selling the gold items they owned, but none of them could afford to buy gold. But consumer items such as chocolate and cigarettes, and soap (Japanese highly value cleanliness) -- they still wanted those.

So when you get the direct mail packages from newsletters telling you about how gold is soon going to go through the roof, because of the demand in China and India, and the Malaysian gold-backed currency, and so on . . . it's probably true.

I don't doubt that the price is gold is going to rise in coming years. But how much income does gold provide? It's a metal. It's a useful metal. It's a valued metal. But it doesn't pay you any money. People who have money will certainly pay for gold jewelry.

If you buy gold directly in the form of bullion or coins, you definitely have something that you cannot profit from unless you sell it -- and pick the right time. You can also buy gold mining stocks, but how many of them pay dividends? And how many will continue to pay dividends for 20 or more years? The income return from gold makes fixed income investments such as bonds look good.

Buying gold is hoping for or preparing for hard economic times. They may well come. But if they do come, people will still want consumer staples.




fixed income investing
fixed income investing