Satyajit Das: Return of the Age of Gold
In economic chaos, war, or collapse, gold reappears, reasserting it grip on humanity.
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.
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.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter