National Geographic: do “we have gold—or gold has us”?

Originally posted on Thursday, May 16, 2013

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The January 2009 issue of the National Geographic provided a vivid cover story on Gold:  The True Cost of a Global Obsession.

Humankind’s feverish attachment to gold shouldn’t have survived the modern world. Few cultures still believe that gold can give eternal life, and every country in the world—the United States was last, in 1971—has done away with the gold standard, which John Maynard Keynes famously derided as “a barbarous relic.” But gold’s luster not only endures; fueled by global uncertainty, it grows stronger. The price of gold, which stood at $271 an ounce on September 10, 2001, hit $1,023 in March 2008, and it may surpass that threshold again. Aside from extravagance, gold is also reprising its role as a safe haven in perilous times. Gold’s recent surge, sparked in part by the terrorist attack on 9/11, has been amplified by the slide of the U.S. dollar and jitters over a looming global recession. In 2007 demand outstripped mine production by 59 percent. “Gold has always had this kind of magic,” says Peter L. Bernstein, author of The Power of Gold. “But it’s never been clear if we have gold—or gold has us.”

(A 1910 issue of The National Geographic Magazine)

The author states:

The article outlines the profound environmental and humanitarian costs of gold extraction.  It does not make the distinction between gold as a monetary metal and as a commodity, however, and thereby overlooks the possibility that a restoration of the classical gold standard might reduce, rather than intensify, demand for (and denominated price of) the yellow metal.  Gold, under the classical gold standard, operated as a regulator of the supply of currency, more than as a medium of exchange.  Redemptions of currency for specie signaled the banks of issue when they were issuing too much, or, if specie was being exchanged for currency, too little, based on direct market signals.

In a classical gold standard, gold coins rarely circulate.  They are unwieldy.  But the legal right to exchange currency for gold serves as a reliable signal to the issuers of currency as to the liquidity needs in the marketplace itself.

Thus, the pressure to extract more gold from the Earth is more likely to subside rather than intensify under the gold standard, thanks to the dishoarding effect created by restoring integrity to the currency.

And evidence from history strongly indicates that under the true gold standard… “we have gold” rather than gold having us.