Green & Gold Issues
This is a gathering of thinkers from academia, politics, business and the voluntary sector, focused on finding ways to collaborate to create a better future for Australia and Australians. It is about politics, but it is not political and therefore likely to produce concrete initiatives that will produce positive change.
As I sit here, I am pondering the likelihood of a gold bubble.
As people move out of shares and property – and the US dollar – it seems that enormous amounts of money are being turned into gold, in various forms…and the price of gold is soaring to ever higher levels. This is disturbing, for two reasons.
First, as I have observed before, money that is invested in gold is dead money, it is non-productive money. Every dollar invested in gold is a dollar that could be used to generate value in the economy, but is now frozen in time and space, in the form of gold bars, coins or gold futures.
Second, it is becoming apparent that the same excess in exuberance that drove bubbles in shares and real estate is now manifesting itself in the seemingly global pursuit for gold, as a safe haven. Unfortunately, a bubble in gold is like any other bubble and sooner or later it will burst or will be burst and the apparent safe haven will turn out to be a trap.
Let me spell this out: in a globalised, interconnected economy, there are no safe havens. The very nature of the system makes it impossible for any object of investment to remain isolated and immune from the cycles and forces that drive the system.
Cash is a relatively safe haven, as are government bonds, but even these forms of wealth can suffer in hard times. Remember hyperinflation in Argentina and the many occasions when governments have defaulted on their debt during the last three decades?
It is worth remembering that there is no profit without risk – that truism remains true even in the twenty-first century. So if you have invested in gold, I suggest you (quietly) start to shift it elsewhere – before everyone else does.
Now let us turn to the environment, which remains a hot topic, made hotter by Marius Kloppers seeming conversion to the green cause, evidenced by his call for Australia to go it alone with a carbon tax regime.
I never liked Labor’s carbon pollution reduction scheme (or ETS), because I thought it was overly complicated and because it largely left polluters free to pollute, with the broader community picking up the cost.
A carbon tax is a much simpler and fairer approach, taxing a bad behaviour to cause people to behave differently, as we have done successfully with smoking during the last twenty years. Let us hope that this is the way we go.
Perhaps as you move out of gold you may want to consider investing in green!
Patrick Callioni is a former senior public servant, with the Queensland and Australian Governments, and is now the Managing Director of consulting company, Enterprise Intelligence Pty Ltd, which specialises in helping business to do business with government and vice-versa. www.enterpriseintelligence.net.au His books Compliance Regulation and Financial Services & Waves of Change: Managing Global Trends in the Financial Services Industry are available at Amazon
quagga
September 23, 2010 at 6:42 am
You claim that buying gold
You claim that buying gold locks away the money used to buy it. I fail to see how this is.
Buying gold doesn’t lock away the money. The *exact* same amount of money still exists after the transaction as before it, all that has happened it that someone else now owns it. Furthermore it needn’t affect the rest of the economy in any major way.
Take the following simple example scenarios of a three person economy:
First scenario: Ingo has a kilo of gold invested (stored) away and doesn’t want to sell it. Bob has $50,000 and would like to buy some art work, Sally the artist would like do a painting and sell it for $50,000. Bob and Sally make a transaction. Everybody is happy 🙂
Second scenario: Irene has $50,000 she’d like to invest in a kilo of gold. Belinda has a kilo of gold stored away but wants to sell it to buy some artwork. Sally wants to paint and sell her artwork. So Irene buys the gold off Belinda and then Belinda buys the painting off Sally. Everyone is happy 🙂
Note that in this second scenario the *exact* same amount of gold exists and in economy, the *exact* same amount of money exists and the *exact* same artwork is produced as in the first scenario, even though there has been one extra transaction involving the exchange of ownership of the gold. In fact, Bob and Sally could even sell the gold back and forth a thousand times before Bob buys the artwork and the exact same amount of gold, money and production would exist. The extra gold transactions do not lock away the money– the money is still free to flow!
(Indeed, in the real world– people/businesses/governments are constantly playing this silly game of repeatedly buying and selling the same pieces of gold back and forth among each other without it really affecting the rest of the economy in any major way)
The main way that people investing in gold and thus raising the gold price really affects the rest of the economy is in the fact that it makes it more attractive for people to become minors and dig more of it up instead of the creating the other goods they used to produce and it also requires more labour to be diverted to the financial/legal system to manage the extra transactions. However, on the whole the total number of people rushing to become gold miners and the amount of extra new capital amount being invested in current/new mines (including the goods and capital required to produce the goods/services to support the mining/processing/sellings) is really quite small compared to the total of all labour/capital available. I can still buy today every good/service I used to buy at the shops before the recent gold increases and the prices are pretty much the same also, eg: Mario my local barber hasn’t laid down his scissors to take up gold mining and he still changes $25 a cut- the same price as 2 years ago.
There are only two ways that money can be "locked up"-
firstly- is by removing it completely from the economy which means by having people/organisations pay off their debts– since money is really just debt.
secondly- by people participating less in the economy, ie. by not trading which means they are effectively stashing their money under the mattress.
Jordyn B
November 12, 2010 at 8:22 am
There are lot sof things to
There are lot sof things to discuess regarding economy. For instance, there is a definite connection between currency values and the price of precious metals, and if today’s movement on gold futures is any indication, the world is experiencing a major shift. According to Marketwatch, Gold for December delivery went up $ 7.20 per ounce to an all-time excessive of $ 1,405 early Monday on the Comex of the New York Mercantile Exchange. Gold reached a peak of $ 1,407.20 in Monday trading.