|Uses for gold?|
You wouldn’t bother would you? And you would probably be surprised if anyone else did. But that is exactly what gold is, and crazily people do hollow out mountains for it. Demand is so high that people are now apparently willing to pay $1315 for an ounce of it.
Why? Certainly gold has some genuine uses - it doesn’t corrode and it is quite pretty. For fashioning high-fidelity cables or jewellery, it’s not bad. But the main reason why most people would buy gold has little to do with cables or jewellery. The only reason why most people are willing to pay such crazy prices for gold is because there isn’t very much of it, and because they think that a lot of other people want it.
Essentially, lots of investors are piling into gold because they are worried about inflation. The idea is that “gold keeps its value”, whilst “fiat currencies” – what the rest of us just call “money” – don’t. Perhaps it’s just because I’ve been working at a libertarian think tank, but this sort of thinking seems particularly common at the moment.
The argument goes much like this; the government can, theoretically, create unlimited money, so there is no reason to trust in its long term value. There isn’t very much gold out there though, so it has to stay valuable. Conclusion; ditch money, buy gold.
Some people out there aren’t just saying that for individuals. They reckon that governments generally should ditch money and switch to gold. Every pound in your bank account, or in your wallet, should be matched by a defined amount of gold in a vault somewhere and not necessarily in a central bank. More simply, money should be privatized and governments should only use gold.
It all sounds quite nice, but actually money already is privatized. With the internet, you can bank in pretty much anything you like, including gold – it’s just that most people choose not to. Sure we should probably make it easier to bank in the currency of your choice, but even if we did, the fact is that most of us rather like our fiat currencies. And when you look at the history of gold, it’s easy to see why.
Because whilst you would probably be better off holding a gold bar now than a bundle of 10th century Chinese “jiaozi”, who honestly has a 1000 year investment plan? Gold is only a solid bet over a lifespan. Over a decade or so, it is as unreliable as any currency. As a case in point, you would have done better burying a lot of dollars under a tree than buying gold in 1980, the last time investors got this absurd yellow fever.
But perhaps the stupidest thing from the point of view of those investors is that an awful lot of the world’s gold is actually owned by governments. Sure they can debase currencies by printing lots of money, but they could also sell their gold. As with anything, if you suddenly expand the supply then the price will tumble. Probably like a drunk pushed down a mountain. So much for gold being an escape from government…
If governments had any sense (or in the case of ours, any gold left to sell) they would start selling now. Sensible people already are – witness the proliferation of “Cash for Gold” shops and postal services. Really the only good reason to hold gold is if you think the global revolution is around the corner. And honestly, if you think that, instead of surrounding yourself with ingots, probably go for a fallout bunker and a lot of tinned food. Starving people don’t need bling.