“Gold is a relic!” Maynard Keynes, the famous British economist of the twentieth century wrote.
Yes. Gold is a strange relic – one that continues alive in the minds of billions of people. In normal times, millions of poor people – mostly Asian, some very poor, resort to gold as a storage of value. An example: there are dozens of thousands of poor Indian widows applying their meagre savings in gold.
But besides the poor people, there are also the so-called investors (including hedge funds and other similar agents); and other mysterious and little-known characters, companies and secrets.
Consider for instance Switzerland’s main import and export. Do you guess which is it?
Pharmaceuticals? Watches? Any product traded by Nestle, Novartis or other well-known Swiss company?
No. The main Swiss export and import is an old relic: gold; and it represents about one fourth of the nation’s trade balance (2019).
Quite strange, right? Swiss isn’t a gold producer. So… how to explain it?
That would be an interesting point to talk about, but the issue I want to raise here is different: it’s about the strange role of gold in our societies, and how it affects and relates to things like our fight with the Coronavirus pandemic or climate change.
So, let’s return to Keynes.
When he wrote that gold was a relic, he was referring to its role in the monetary system at the first half of the past century. Gold, at the time, was sustaining the existing money supply. And since its amounts didn’t correspond to the fluxes of capital, services and goods, gold was a cause of deflationary problems, price swings and several economic depressions. In other words: it was a tragedy, striking many millions of human beings. The demonetarization of gold was a blessing to humanity.
People didn’t need gold. And we still don’t need it (except in the manufacture of electronics).
But that is not the understanding of a large part of humanity – including the so-called investors, some politicians and of course the Indian widows and other millions of small players, led by traditions and by the Law of the Abbot.
Hmmm. You haven’t heard of the Law the Abbot, right? I have created it myself, and if you allow me, I would like to explain it.
In Medieval times (around the year AD 1000, say) the largest monasteries, and their abbots, were competing to get bones of saints. People were extremely religious and there was a genuine cult of bones and other relics.
Having relics of famous saints – bones, teeth, hair, clothing, objects associated to the them – was a source of prestige for the monasteries, and a way of attracting pilgrims and donations from rich and less rich people.
That’ why the abbots resorted to the most various means to get them, including theft and purchasing from specialized international traders.
Strange and a bit foolish, right?
Yes. I too agree.
But what would you do if you were an abbot at an important monastery, living in the year 1000? Would you reject and denounce this issue?
You would fall in disgrace. So… better to accept the social rules and beliefs!
That explains a lot of what continues to happen with gold around us. Its value comes from collective belief systems and the strength of human wishes. Gold is like the bones of saints.
Source: Wikipedia Commons
Millions of people – including investors and companies winning billions – are playing a social game.
To gold investors it doesn’t matter if gold is a cause of lung disease in miners, or mercury poisoning; or if it is a relic in its deepest sense.
To investors, the coronavirus pandemic and climate change can be a good reason to invest in gold. Prices will certainly rise, and the profits will rise alongside. That’s all that matters to them.
Their investments are driven by self-interest and profit. They are obeying to the Law of the Abbot: they are following a reality that is built by millions of people; they are following other people and other investors, traditions and social beliefs.
Gold investors are not interested in investing in green stocks and bonds, or financial products that could help humanity to solve pandemics or the climate crisis.
There are more pressing priorities. Gold is great.