When governments print money, buy gold. Por Jeff Randall.
The price of gold tells us a lot about ourselves. It holds up a mirror to the way we are governed, our economy and its prospects. It reflects not only the physical dangers of floods, famine, terrorism and war, but also the financial perils of systemic addiction to debt and budgetary incontinence.
“The modern mind dislikes gold,” said Joseph Schumpeter, “because it blurts out unpleasant truths.” With gold trading at about $900 an ounce – more than 200 per cent higher than it was at the turn of the millennium – today’s message from the bullion market is not comforting.
In the eight years since the arrival of the 21st century, the FTSE-100, the London stockmarket’s main index, has lost about 15 per cent in value. The shares in companies that comprise “Footsie” usually pay dividends, sometimes more than five per cent a year. Gold pays none: never has, never will.
So why have investors been abandoning conventional assets, such as government bonds and stakes in blue-chip businesses, in favour of a metal that appears to offer no reward for holding it? The answer, I’m afraid, is crumbling faith in the world’s central banks, and in particular the US Federal Reserve, where the presses have been working overtime.
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Currencies come and go, but gold has been a store of value for more than 5,000 years. Gold is rare, but, thanks to Gutenberg, paper money is not. Presented with an opportunity to churn out extra cash at little expense, it takes a special kind of government to resist. Few seem able to do so.
According to former Fed chairman Alan Greenspan: “There is no inherent anchor in a fiat-money regime [a currency not underpinned by gold]. What constitutes its ‘normal’ inflation rate is a function solely of a country’s culture and history.” For many, that flexibility has proven ruinous.
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Ask Gordon Brown. He achieved what most expert dealers can only dream of. In 1999, he spotted the bottom of the gold market, a 20-year low. The trouble was, Brown’s order was “sell”. As Chancellor, he told the Bank of England to dump nearly 400 tonnes of British gold reserves, since when the price has shot up. That decision cost the Treasury billions.
Control-freak politicians abhor gold because it ignores them; it won’t do what it’s told. It defies economists and laughs at central bankers.
Sophisticates claim that, in a world of electronic money, gold is a barbarous relic. But as the sub-prime horror ravages the international banking system, millions of ordinary savers know better. While ministers debate the merits of flooding the global system with liquidity to ease the credit crunch, Delhi taxi drivers are buying gold, accelerating the shift of wealth from west to east.
“Practically all governments of history,” said Friedrich von Hayek, “have used their exclusive power to issue money to defraud and plunder the people.” Gold stands in the way of this process; it is a protector of property rights.
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