Gold – A Barbarous Relic?

gold-moneyMarket Watch“Roubini says gold remains a ‘barbarous relic,’ with no intrinsic value, used as a hedge against ‘irrational fear and panic.’ But investors can get their hedge against extreme tail risks — which have come way down — elsewhere.” There is no consensus as to what value gold holds. Is it just a barbarious relic? To the Indians and Chinese, the yellow metal is cherished. Perhaps people are just comfortable owning it. Some feel exhilarated just holding it, or making it into jewelry and flaunting it.

Value is a strange and nebulous concept. What is value? Nothing has value unless it can be used for a purpose that satisfies a need or desire. Some, like food have intrinsic values. Others only have derived values. On their own, they have no value. Money, or fiat currency to be more precise, has no intrinsic value. Its value exists only when people have confidence that it can be exchanged for something with intrinsic value. When confidence in currency fails, its value sinks to zero. This is true throughout the history of man.

During wars, exodus of people flee, carrying with them only tangible items that provide for food, shelter and transport. Gold, silver, jewelry and weapons are next in the packing list. Unlike currency, gold and silver are recognised universally as a currency that can be exchanged for goods. During the fall of Vietnam in 1979, refugees left with nothing but gold bars and only what they could carry. There was an exodus of “boat people” then. These were the lucky ones who were able to procure a boat ride into the unknown. The wealthier ones fled with gold, not currency. The Vietnamese currency has no value to them.

When a regime falls, so will the currency. Wars are perfect catalysts to force a monetary reset. Initiating a war provides the perfect alibi for declaring bankruptcy without being liable for debt. During wars, currencies are dumped and no longer honoured. The victor proclaims a new currency as legal tender in his new regime. Money denominated in the pre-war currency is reduced to the ranks of toilet paper. Without fail, the cycle of war and money repeats itself.

In 2011, Congressman Ron Paul questioned Fed Chair Ben Bernanke in the U.S. House Financial Services Committee meeting, “Is gold money?” The quick response was “no”, but Bernanke quickly qualified that it is an asset. When asked why Central banks hold gold and not diamonds, Bernanke responded that it is “just tradition”. Whichever view one may have on gold, the irrefutable fact is that in recent times, as the financial chaos entered uncharted waters, sovereign nations are beginning to asked for repatriation of gold held largely in New York and London.

Expensive relic

$274 million relic

Venezuela, which holds 211 tons of its 365 tons of gold reserves in U.S., European, Canadian and Swiss banks was quick to the repatriation game. Venezuala got her gold back into the country’s safety. Then Germany followed, but was unsuccessful. Finland joined the repatriation movement. Netherlands just got 122 tonnes back. France gets edgy too and is trying to do the same. The Swiss will hold a referendum on 30 November 2014 to mandate the Swiss National Bank to keep at least 20% of total assets in the form of gold and must be kept in Switzerland.

Regardless of whether gold is money or just a barbarous relic, the momentum for keeping gold as sovereign asset is exploding while the laissez-faire market place for gold never fizzles in the Middle East and Asia.It is intriguing to watch Indian migrant workers trade their hard-earned dirham for a wafer-thin gold leaf that cost $50.

According to Wikipedia, the most expensive painting “The Card Players” by artist Paul Cézanne was sold for $274 million. It is just another relic, nonetheless, but an expensive one.

So, is gold money? Who cares! But if you can’t touch and hold it, it is not yours. Remember that simple Indian migrant worker still holds his wafer-thin gold leaf in his pocket. The sophisticated man of the west may boast of his millions recorded digitally in a computer somewhere on earth. It is just a number in a machine.

Ecclesiastes 1:9
The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun.


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