Gyroscopic Investing

The February 16, 1981 Barron's had an ad for this book:

The Gold Clause: What It Is And How To Use It Profitably Hardcover – March 1, 1980
by Henry Mark Holzer (Author), Henry Hazlitt (Author)

https://www.amazon.com/dp/0916728269/re ... tries%2A=0

Through the ages gold clauses have served as protection from inflation. Americans, however, were forbidden by law to own gold from 1934 to 1974. As gold ownership is once again legal, it is now possible to use the gold clause to protect ourselves from the destruction of paper money.This book explains exactly what gold clauses are, giving their background and how they have been used in the past. It documents how they were abrogated in 1934 and presents the legal cases stirred up over them. Most importantly THE GOLD CLAUSE thoroughly documents the current revival of their use, explains, why they are again valid, and details how to structure them avoiding the critical pitfalls such as state usury laws.The only complete presentation of all the legal foundations for gold clauses , this book is an invaluable sourcebook for all who would use them, from laymen to legal professionals.


Part of the ad states:

"But when these are based on paper dollars, business relations are destroyed as inflation becomes hyperinflation. Structuring agreements so that you are paid in gold rather than paper solve this problem. Even debt capital can be raised by offering a gold clause."

The book was presumably written in 1980. As you can see from the below 1980 was the peak of inflation. After then it fairly much declined nearly every year from then to 1986. NOTE: First amounts are the monthly amounts while amount on far right is the year's average.

Some of us here lived through all of this. Compare what was happening then to now.

Pre 1931 UK (Pound) could be converted to/from gold at a fixed/constant rate. Gold Clauses as such were pretty much just a declaration of payments being either in ounces of gold or Pound currency..

In the present era where the two are not pegged but free-floating then a for instance is in India where it is quite common for individuals to deposit their gold with someone in exchange for currency and upon repayment of that currency plus some interest their gold is returned to them. As a means to protect themselves the lender of the currency will typically only loan up to 75% of the gold price value, and count that gold on their books at the full value, so selling some of their own physical gold to that amount, and then repurchase gold once the borrower pays off the loan and had their gold returned to them. If they default then the lender has physical gold on their books in effect acquired at a 25% discount rate, or if the loan is repaid then they have the benefit of the interest. For the borrowers its like gold was a savings account, that could be liquidated into cash quickly/easily, the cash utilized to perhaps generate a return on that capital and their original gold plus some new gold added to their 'savings' (gold).

In the free-floating gold context whilst gold clauses might be employed I suspect they'd be very subjective in reflection of the gold price volatility. Much the same as Futures/Options.