Journey into Gilt's Gulch

With El Niño weather making Vancouver unseasonably mild, last week I packed my skis into the car and headed into the mountains in search of powder snow.  Driving just beyond Hope, a few light flurries began.  Within minutes, flurries had progressed into an outright blizzard and I struggled to keep on the road.  Following the tail lights of an old Volkswagen bus, I continued on for miles, though the highway had become curiously narrow and winding. 

 

Eventually, I came upon a small town announced by a simple painted sign, “Welcome to Gilt’s Gulch, established 1971."  I pulled into a gas station and waited while the attendant – John by his name badge – filled my tank and then refilled my wiper fluid without even being asked.

 

Mark Depp (of Marketdepth):  Thank you, John.  What’s that going to cost me?

 

John:  Oh, not much, just two ounces?

 

MD:  Ounces?  Ounces of what?

  Figure 1:  Following the Tail Lights of an Old Volkswagen Bus... 

 

John:  Ounces of silver, of course…but we also take payment in gold.

 

MD:  Payment in gold? What kind of nutjob town have I landed in?!  I thought I was on the road to Kelowna!  Isn’t there somebody here who will take payment in Canadian dollars?

 

John:  In Kelowna they will, but you aren’t in Canada any more.  Gilt’s Gulch lies on a spot of borderland that was accidentally left off the map many years ago.  When President Nixon abandoned the gold standard in 1971, a number of people from around the world came here to participate in an economy based on real money.

 

MD:  Why is a gold coin any more real than my paper money?   Don’t they both have a picture of a queen on them?

 

John: The difference, sir, is that cash can be made for nothing.  Its supply is only limited by the discipline of government officials – people who serve the whims of a mob.  A gold coin, on the other hand, is different.  It is minted from a scarce, sought-after metal which men have used to store value for thousands of years.  Gold can’t be undone by a coup d’etat, can never be assassinated, and doesn’t need to run for re-election.

 

MD:  True enough, John, but I am still not convinced.  Haven’t you guys missed the boat by working for gold and silver in this one isolated valley while the rest of us have gone on to share in the global wealth boom over the last four decades?

 

John:  Funny you should mention that.  I was just preparing this comparison for the Gilt’s Gulch 40^th anniversary.  It seems we haven’t really missed out on much.

 

 Figure 2:  Gilt’s Gulch – Selected Comparisons 

Date	Gold in $ per ounce	Dow Jones Index (US$ base)	Dow Jones Index (in gold ounces)	Cdn Avg Family income (C$)	Cdn Avg Family income (in gold ounces)
08/1971	$35	880	25.1	$8,900	254
01/2010	$1081	10,067	9.3	$62,000	57

*Note: President Nixon abolishes gold convertibility of the US dollar Aug 15, 1971; Cdn income figures from Statcan

 

MD:  OK, gold has held its purchasing power, but you are forgetting about yield!  What kind of income can you earn from a bar of metal that just sits there?  Bonds generate income, too.

 

John:  Of course they do.  There was a time here in the Gulch in the 1980’s and 1990’s when some of us used to hold a few stocks and bonds.  But why would I own a bond that yields 3% when its value is being diluted by growth in cash supply of 10%?  If I really need income, I would rather just sell off a little gold, knowing that the rest of my capital is safe from dilution.

 

MD:  Hmm, I never really thought of it that way.  You know, this place is starting to grow on me, but I need to get skiing. 

 

John:  Make haste then, good man.  But know that once you have been to the Gulch, you never truly leave.

 

The sky had now cleared and the sunshine glistened upon the fresh snow.  With a new perspective on the value of money, I turned my car around and drove in the direction of Hope…

 

 

 

Comments

[Al]

Funny post, Geoff, but you make a good point, too. By the way, that was me driving the VW!

[TB]

For all the complicated chatter about capital allocation, it doesn't seem difficult. Just move into Gilt's Gulch. Love the name. I'm sure the reference to Atlas Shrugged isn't lost on you.