Wednesday, December 5, 2012

UPDATED: Satyajit Das: L'Age d'Or ~ Part 1 AND 2 (Naked Capitalism)


Satyajit Das: L’Age d’Or, Part 1 – “A Barbarous Relic”

By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk (2011)
In Germany, gold is now available from vending machines in airports and railway stations – Gold to Go. Shoppers can buy a 1 gram wafer of gold or a larger 10g bar. Seeking safety for their savings, individuals have purchased 150 tonnes of gold, mainly in the form of coins. Investors poured money into special funds (known as exchange traded funds (“ETFs”)) which pool investor monies to buy over 1,000 tones of gold.
Having earlier sold off their holding, some central banks are now re-building their gold reserves.
Refiners are unable to keep up with demand for gold bars and coins. New gold vaults are being built to accommodate demands for secure storage.
As the Global Financial Crisis continues and the cure of easy money proves as dangerous as the disease, the gold price has increased from around $250 per troy ounce in 2001 to a peak of around $1,900 in 2011. It now trades at around $1,750 per ounce.
As poet John Milton wrote: “Time will run back and fetch the age of gold.”
Gold’s Hold …
Gold, chemical symbol Au and atomic number 79, is a dense and malleable lustrous metal. It is highly ductile and does not rust in air or water making it useful in dentistry and electronics.
Gold is edible. It can be beaten into super thin often translucent sheets – a single gram can be beaten into a sheet of one square meter, or an ounce into 300 square feet. Gold beaten into super thin paper covers certain Indian sweets. But unless you are in need of a lot of dental work or require a golden Pharonic sarcophagus for your trip to the next life, the actual use of gold is limited.
Gold has qualities desirable in money – it is rare, durable, divisible, fungible, easy to identify, easily transported and possesses a high value to weight ratio. Gold and other precious metals, particularly silver, formed the basis of all money for substantially all of recent human economic history. Only since the early 1970s has pure paper money been the monetary lingua franca of the world. For some, gold coinage remains the only real money, universally recognised and acceptable as money and exchangeable for goods or services and a true store of value.

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Satyajit Das: L’Age d’Or, Part 2 – Golden Memories

By Satyajit Das, former banker and the author of Extreme Money: The Masters of the Universe and the Cult of Risk (2011)
The Return of Gold…
Since the replacement of the gold standard with the dollar standard, the gold price has fluctuated widely. In January 1980, the gold price reached a high of $850/ ounce reflecting high rates of inflation and economic uncertainty. Subsequently, the recovery of the global economy saw the gold price fall for nearly 20 year, reaching a low of $253/oz ($8,131/kg) in June, 1999.
From 2001, the gold price began to rise due to a number of factors. One was increased demand, especially from emerging nations such as India and China. In 2007/ 2008, gold received an additional boost from the onset of the global financial crisis. Concern about a banking system collapse drove gold prices higher with gold prices finally passing the 1980 high reaching $865/ ounce in January 2008.
In late 2009, gold price renewed its upwards momentum upwards passing $1,200 in December 2009 on its way to over $1,913/ ounce in August 2011. The 500% increase in the gold price since April 2001 prompted gold bugs to speculate about a new age of gold.
In reality, the rise was driven by fear. The depth of the financial crisis, concern about the security of other assets including once risk-free governments bonds and a fragile banking system prompted a flight to gold as a safe haven. The monetary policies of governments and central banks, emphasising low interest rates and printing money to restart the global economy, also underpinned the gold price.

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