Recommended Gold Readings

Everything You Ever Wanted to Know About Gold

A Taipan Publishing Group Investment Research Report
by Justice Litle, Editor, Taipan's Safe Haven Investor

Gold has been having a tough time of it ever since the $1,000 price peak in February. In the weeks following that fresh milestone, gold headed lower as the broad market lifted. Factors like scrap gold sales, a proposed IMF sale of 403 tons, and positive news for financial stocks all combined to depress the yellow metal.

But there is no question that gold’s time to shine will come round once again, and perhaps soon. The trillions of dollars in paper-money stimulus being poured out around the world attest to that. It’s no surprise that “all roads lead to inflation” when the last-ditch response of every government in the world is printing paper money to head off a crisis. As the crisis deepens, the powers that be print more. Even if it takes some time for all that stimulating and reflating to take hold, the piper always eventually gets paid.

The Goldwatcher

Given the above, I recently picked up a copy of The Goldwatcher: Demystifying Gold Investing by John Katz and Frank Holmes. It’s a big, heavy slab of a book, with lots of data points and charts and tables. In short, Goldwatcher is a great reference guide. This book could serve up nearly everything you want to know (and maybe a good chunk of stuff you don’t want to know) about gold.

The fact that The Goldwatcher makes a great reference guide is both a blessing and a curse. One normally does not read a reference guide straight through, and that applies to this book in spades. Some sections are heavy enough going to be useful as a late-night cure for insomnia. In my opinion the second half of the book is actually better than the first. The first half, “Demystifying the Gold Price,” is authored by John Katz. The second half, “Gold Investing Strategies,” is authored by Frank Holmes.

Frank Holmes is the CEO and Chief Investment Officer for U.S. Global Investors, a San Antonio, Texas-based family of mutual funds. I met Holmes when we were both presenting at a New Orleans investment conference in 2006. He is very sharp, and it shows in his half of the book.

Holmes starts by going through the details of exactly how his firm gets an edge investing in gold stocks. Early on he gives the opinion that “bullion is for value investors and gold stocks are for growth investors,” clearly placing his firm in the growth camp. In the chapter “Investing in Gold Equities,” Holmes lays out the difference between “majors,” “intermediates” and “juniors,” and lays out the details for investing in each. In the following chapter, “Gold Mining Opportunities and Threats,” Holmes digs into the five “key trends” for the gold mining industry: geography, current and future production, exploration spending, industry consolidation, and cost pressures.

Holmes also covers a range of important topics like seasonality, precious metals volatility, and gold stock funds (besides his own, of course).

The Power of Gold

The first part of the book, written by John Katz, offers a much more wide-ranging, top-down type view of the factors driving gold. Katz begins by asking “Why Gold?” and goes on to discuss the yellow metal’s role as “stateless money” and a store of value in time of crisis.

Katz also covers topic supply and demand, the present state of the gold mining industry, the rise and fall of the gold standard, the economic consequences of 9/11 and George W. Bush, and more.

Some of the numbers in the book felt a little off for a book published in 2008. To the best of my knowledge they are all correct, though, except for one glaring typo: I nearly fell out of my chair upon reading on page 10 that the Dow “closed above 23,000” at the end of 2007. (No doubt he meant 13,000, a slight difference.)

Katz also makes references to another excellent book: The Power of Gold: The History of an Obsession by Peter Bernstein. The Power of Gold is much more of a grand, sweeping historical tale — a wonderful walk through the pages of precious metals history, all the way back to the Lydian kings of old.

While Holmes and Katz are clearly not writers by trade, Bernstein most definitely is, which makes his book less useful as a reference but far more pleasurable to read. Take the following Bernstein passage for example:

The international gold standard shimmers from the past like the memory of a lost paradise, embodying all the nostalgia of the Victorian and Edwardian eras— stability, harmony, respectability. The glow attached to this nostalgia is not based in myth but stems from vivid reality. From the end of the American Civil War to the outbreak of World War I—a brief period of only fifty years—the international gold standard acquired a mystique that radiated far beyond the simple discipline that it imposed on its members. The control of gold over the affairs of human beings has never been so absolute, nor the worship of gold by hard-headed financiers and statesmen so humble.

Another difference between the two books is that, while Katz and Holmes are clearly big fans of gold, Peter Bernstein is not — or at least he wasn’t at the time The Power of Gold was published back in 2001. At the end of the book, spanning all the ages in which gold and silver have functioned as money, Bernstein finishes by noting “the most striking feature of this long history is that gold led most of the protagonists of the drama into the ditch.”

But “Bernstein changed tack,” Katz reports, after the events of September 11, 2001, and in 2005 Bernstein went on record in support of gold as a hedge against hyperinflation.

So, really, there are two great books to consider here. If you want a detailed reference guide with all the possible angles one could think of on investing in gold and gold stocks, complete with hundreds of charts and data points, then The Goldwatcher could be a great buy.

If, on the other hand, you’re more interested in the fascinating tale of gold as money, stretched out over the great arc of history from ancient times to the turn of the millennium, then The Power of Gold might be for you.

Originally published June 23, 2009.

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