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Satyajit Das: Return of the Age of Gold


In economic chaos, war, or collapse, gold reappears, reasserting it grip on humanity.

The world's existing stock of gold is equivalent to about two Olympic standard swimming pools. The value of this amount of gold is over US$6 trillion, roughly 10% of everything that the world produces in a single year and a tiny fraction of global wealth and assets.

Limited central bank holdings of gold constrain a return to the gold standard. The US, German, and French central banks have gold stockpiles valued at 250% to 300% of their reserves of foreign currencies. China, India, Russia, Brazil, and South Korea hold between 0.5% and 10% of their foreign reserves held in gold.

If the central banks of China, India, Russia, Brazil, and South Korea sought to increase their gold holdings to a mere 15% of foreign reserves, these countries would need to purchase more than 10,000 tons of gold. The US, the world's largest gold holder, holds a little over 8,000 tons.

Max Weber, the father of social science, defined the state as the agency that successfully monopolizes the legitimate use of force. The state, through its monopoly over the printing presses, has almost total control of money and the economy. Money is now a matter of pure trust. American dollars still bears the words: "In God We Trust." But God is not directly responsible for control of money, it is governments and central banks. Politicians and policy makers are unlikely to willingly cede the power that a paper money system provides.

Golden Deaths

In 1998, gold skeptic Warren Buffett pointed to the absurdity of the precious metal as an investment: "Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again, and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

But gold's mythological power has fuelled the imagination of mankind for much of its history. As Peter Bernstein, the financial historian and author of The Power of Gold wrote: "Gold has …this kind of magic. But it's never been clear if we have gold -- or gold has us."

As the metal's price rose, a Tuscan spa offered wealthy clients a treatment which entails the entire body being covered in 24-carat gold. Costing Euro 420, the treatment, proponents claim, provides unverified benefits such as delaying the visible effects of age, skin hydration, and skin elasticity.

Having switched from traditional financial investments to gold to preserve their wealth, investors will be hoping for the health benefits of the gold treatment rather than another possible ending. In the film Goldfinger, the character Jill Masterson, played by Jill Eaton, is murdered by being painted head-to-toe in gold paint -- one of movie history's iconic scenes.
No positions in stocks mentioned.

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