An article in the Swiss newspaper Bilan published last week states that the weight of gold in the global economy amounts to $172 billion. This is a relatively modest number, slightly lower than Apple’s annual turnaround, for example. Is that all that gold weighs?
This number comes from the World Gold Council, and it is based on the mining sector activities. However, this represents a very partial point of view: it doesn’t take into account gold sales as such, either for jewellery or for investment. But above all, the thinking here is in terms of flux, whereas it should be in terms of stockpile, because one doesn’t buy gold to consume and make disappear, one rather buys gold to accumulate. Only one sector in the economy actually consumes gold in the classic sense and makes it disappear in the manufacturing processes like any other commodity, and that is the computer industry. But it only represents 10% of the annual consumption of the precious metal (and this gold is being recycled more and more).
When one buys gold, one wants to keep it dearly, this is what’s important. What does this represent? Given that gold is virtually indestructible (it resists water and most chemical products and doesn’t wear out in time), most of the gold that has been extracted still exists today. GFMS (a branch of Thomson Reuters specialised in precious metals), estimates there are around 166,000 tonnes of gold in the world in the form of jewellery, bars or coins, and these numbers are confirmed by other sources. Considering a 1kg gold bar is currently worth around $38,000, this amount of gold represents $6.308 trillion... This would be the real weight of gold in the global economy; it bears no resemblance to the number mentioned above.
But, of course, if we take this revised number and compare it to the other large investment assets in the world, it becomes modest again: the American public debt is getting close to $18 trillion, or three times the value of all the gold in the world! So here comes a choice: do we keep trusting the public debt that keeps rising in the United States, Europe and Japan, in a context of weak or non-existent growth, or...? The answer seems obvious.
The real weight of gold, literally, is its weight in kilograms. Its price, whether in dollars or euros, varies with time and circumstances, but this is secondary. Moreover, gold isn’t an investment like any other: gold is the ultimate investment, the one resisting best to all shocks, giving protection against monetary manipulation and becoming a life raft in a monetary crisis. Looking beyond its fluctuating price, gold has been, since the dawn of civilisation, adored or feared, rarely despised, like some sort of Cassandra, in full control, which value has never ceased to amaze humankind... and this makes gold much more valuable than its price in dollars.
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Philippe Herlin Finance Researcher / Doctor in Economics
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.