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Wednesday, 26 June 2013

Nouriel Roubini Blog: Gold: Keynes’s ‘Barbarous Relic’

Nouriel Roubini Blog: Gold: Keynes’s ‘Barbarous Relic’:Gold remains John Maynard Keynes’s ‘barbarous relic,’ with no intrinsic value and used mainly as a hedge against mostly irrational fear and...

Rarely, do we ever agree whole-heartily with leading economists, except when it comes to Gold! There is a common ground existing amoung them, including Keynes, Roubini, Kinesa, Krugman and others, who ALL see no sense in its perceived value nor in its ongoing extraction from the ground - just to store most of it underground again. Does this sound insane? It certainly is.
Some would argue that gold has commercial value that partly legitimizes its mining. Well, our analysis indicates that enough gold is already mined and stored to satisfy commercial needs for the next 400 years. Considering that oil reserves will most likely be depleted within 50 years, thereby changing forever our way of life - this argument mathematically and clearly backfires on its supporters. For is it not utterly foolish to continue mining a mineral and wasting valuable non-renewables for a element with little practical value? Can we not see how analogous this is to cutting down the last tree on Easter Island only to erect one final statue? While answers to these questions are obvious - not much has changed nor been learnt since that famous last tree was cut so many years ago.

It is also said that an ancient Apache warrior once warned that the white eye would waste all the land and water. How right he may be!

Gold Bugs, however positively assert - this is an element with "intrinsic value". This phrase is a clever and ambiguous linguistic device, but what creates this abstract intrinsic and invisible value? A simple neurological answer is our imagination. Cognition's formed by the mass and energy particles of the mind that further triggers an arbitrary feel of a good sensation somewhere in the primal inner cortex. Without this electro-chemical reaction and resultant sensations, this element thus has virtually no value or benefits related to the short, near or long-term survival needs of our species. For some reason that old saying comparing Gold's utility to the anatomical parts on a Bull is meaningful here.

So in the end we hypothesize that as scarce non-resources move towards their inevitable exhaustion, Gold will lose its comparative purchasing power. And, moreover, there is ample evidence to verify this assertion. For instance, in 1979, when Gold peaked at around $1000 ounce it would acquire over 50 barrels of oil. Today, with oil prices hovering near $100 a barrel, an ounce of gold barely acquires 14 barrels. If that surprises you, try this calculation with cost of a hamburger or cup of coffee.
So down the road as arable land, water and other non-renewables are exhausted, gold's value should gravitate to zero. Assuming, of course; that we return to sanity and realize that cutting down the last tree goes beyond absurd. If not, the Apache warrior's prediction is not just going to be right - he will be right!

First Financial Insights
June 26, 2013

Golden whispers sing, touching the land and wind...

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