The other dog that has not barked: Gold.
http://www.wsj.com/articles/no-gold-rus ... 1436427839
SYDNEY—Market mayhem is normally a buy signal for one asset: gold. But this time around the precious metal is the dog that hasn’t barked.
The commodity surged to a record high in 2011 amid rising anxiety over the eurozone’s unfolding debt crisis, as mass protests against austerity policies hit the streets of Athens. This year, faced with more turmoil from a deteriorating situation in Greece, investors haven’t yet rushed to gold.
Nor have concerns about China’s economy and its plunging stock market yet caused the sort of panic gold-buying seen in past years.
2000 years ago salt had the same status as gold. Wages were paid in salt, transactions were done in exchange for salt, and it was considered a good store of value.
Gold has three potential source of value:
- industrial use value,
- other consumer use value (jewelry, art)
- store of value.
However, global markets and economic are sufficiently sophisticated that the utility of gold as store of value is diminishing. The only thing that keep's gold value is perceived rarity of it. But recall that perceived rarity of salt is what made salt a medium of transactions and store of value 2000 years ago.
I am not saying that science is going to start manufacturing gold, but there are other rarer elements out there as well.
Central Banks collect and store gold only as a measure to protect their currency in times of turmoil. But there is no reason why countries could not collect and store other commodities. More useful commodities to collect would be:
- radioactive materials,
- fossil fuels, like oil,
- resources (food, machinery, vehicles, equipment, etc).
I think the global economy is much more resilient, and less prone to disasters, so gold is not what it used to be.
During times of crises, you need a plan to keep the economy running and producing. Gold is less helpful for doing so. Having resources is much more important: keeping the transportation network running, keeping the energy infrastructure running, delivering goods from source to destination, etc. Having a good emergency management plan is far more important than gold. Think Hurricane Katrina. Water in that stadium during the early days in the aftermath of the hurricane was probably more valuable than gold.
Another important thing is to protect your resources and infrastructure from very severe enemy attack. Currently there are two things that I can think of: (1) large scale nuclear attack by one country against another: e.g., Russia sends 1-2 nukes to every large metro area in the US plus 10-50 strategic other destinations, and (2) large scale cyber attack, that cripples multiple networks, e.g., electric grid, aviation grid, transportation grid, and internet grid.
I don't see gold being that helpful in either scenario. Sure, the price of gold might go up, but as a country under attack, having gold in the reserves will not be that helpful. Furthermore, resources too (cars, oil, food) would also go up in price, and I bet those will go up in price a lot more than gold.
Another issue is the printing press of the government. If there were large inflation, the central bank would simply suck up currency and destroy it. This is 1850. This is 2015, and such operations can be done in no time.