Gold Still Pays the Rent

Every once in a while a story is released that reinforces not only the long history that gold has played as a monetary asset but additionally supports the idea that this history is not just a thing of the past. Today we present such a story from a court in Ohio where Federal judge George Smith has ruled in support of an issue relating to what is known as a “gold-clause” in a commercial property lease over the Commerce Building in downtown Columbus which dates back almost a century.

The gold-clause was a common inclusion in property lease documentation at the start of the 20^th century and allowed owners to link rental rates to the price of gold at lease renewal in an attempt to combat inflation’s destructive impact on income in a similar manner to CPI indexing today. An ambiguity arose after gold-clause usage was prohibited in accordance with the ban on private gold ownership from the mid-1930s to the mid-1970s. In 1977, gold clause usage was again established as legal and drew debate over contracts that had been entered into prior to the prohibition.

In a stark reminder of fiat currency’s inept wealth preservation properties, the consequence of this ruling could see yearly rent for the commercial building in question jump from $6,000 to over $300,000 in accordance with the fact that gold at the time the 1919 contract was signed was just under $21 per ounce. With gold as the yard-stick, it is easy to see the destructive force of inflation over a relatively short period of time.

In recent decades there have been similar rulings within the U.S. in favour of upholding gold-clause components of property lease agreements. These include a 1990 appeals court case in Washington State, a 1999 case in Indiana where a company was ordered to pay around 8,000 ounces of gold in back-rent for land occupied by its commercial building and a 2008 case where an Ohio appeals court upheld a 1912 contract clause covering a building that was being rented for $35,000 at the time. In the latter case, upholding the gold indexing clause had the potential impact of applying an effective rent of $1.5M. History has seen that it does not always require a court to see such behaviour. In a broader observation, 2011 saw Donald Trump accept $200,000 worth of gold bullion in payment of a 10 year commercial lease deposit at 40 Wall Street in New York illustrating that gold still literally pays the rent.