Right on about the voice menus. It just gets' me worked up even thinking about it : - )....................
Gold descends to realm of the ordinary
Gold has been in the news of late, with a few remaining 'gold bugs' predicting a price renaissance. But the reality, says Kenneth Gooding, is that gold has fallen from grace and is now a mere metal - and a bad investment
GOLD has always been more than a precious metal - men have even lost their lives for it. But no longer. Gold, frankincense and myrrh. The three wise men deemed these gifts suitable for the King of Kings two millenniums ago. It says something about gold's staying power that today it is still a suitable gift for a sovereign, though a more thoughtful wise man may swap the precious metal for US Treasury bonds.
Mankind's fascination with gold goes back much further than 2000 years. For primitive man, the attraction was aesthetic. Gold glinted at him from streams and river beds. He found it so malleable that, even cold, it could be hammered into crude ornaments and artefacts. Beauty and scarcity gave gold mystical appeal, and it became the stuff of temples, icons, idols, and offerings to the gods.
Ancient Egypt and Rome drew much power from gold, mined by slaves in conditions of unbelievable misery. "There is absolutely no consideration nor relaxation for sick or maimed, for aged man or weak woman," wrote the historian Diodorus in the 2nd century BC.
Similar conditions existed in Siberian gold mines up to the 1960s and miners still descend the deep shafts in SA knowing that, even if they obey the safety rules, there is no guarantee they will come out alive.
For the rich, and for the poor who sought it, gold was a tangible, long-term store of wealth, acceptable anywhere, a safe haven at times of disaster.
But gold is not what it once was. The image has been tarnished - apart from a couple of blips, its price has been drifting downwards for more than a decade. In 1997, the price was the lowest for 18 years. The 1987 stock market crash, the Gulf war and a meltdown of Asia's financial markets did not cause the expected rush for gold.
So, has gold had its day, at least as an investment? Has the glister gone? Is it only the sentimental and the gold obsessed, the "bugs", who still seek it out and, as Virgil put it, have the "cursed craving for gold"?
Ted Arnold has no craving. He is a gold bear and metals specialist at the Merrill Lynch financial services group: "The reality is that gold is now a commodity like any other. Many miners still think gold is something special or magical and not subject to the usual laws of supply and demand like copper or zinc or nickel. But it is."
But will everyone everywhere eventually stop viewing gold as an investment? Is the end of the affair an inevitable outcome of modernisation, when money transfers are automatic and unseen, and there is talk that cash itself will disappear?
When it became clear that people needed a medium of exchange, gold was the medium of choice. Croesus, King of Lydia, is credited with ordering the first gold coins to be struck in 550 BC.
Gold's great appeal was its indestructability. It does not tarnish like silver and is generally not corroded by acid. Gold coins have been recovered from sunken treasure ships looking as bright as new. And the metal still has its modern moments. There was a rush to gold savings accounts in Japan after television newcasts of the 1995 Kobe earthquake showed an old woman tearing at the rubble of her house and triumphantly pulling out an unscathed, glittering gold bar.
There are estimates, not uncontested, that until 1850 only 10000 tons of gold had ever been mined. The 1848-49 Californian gold rush changed all that, followed by the discovery of huge gold fields in SA in the 1890s. There was another belated rush in 1980 after the price jumped to $850 - almost three times its present price.
Miners have been using new techniques and modern technology to locate and remove the gold. Gold Fields Mineral Services estimates that in 1998 a record 2529 tons was dug from the world's mines.
A turning point occurred when gold became a standard measure of wealth, personal and national. Formal "gold standards" were introduced by trading nations after the Californian rush ensured there was enough metal available. Britain's began in 1816 and the rest of Europe followed in the 1870s. The US did not finally divorce itself from a silver-gold standard until 1900, about the same time as India.
The gold standard was meant to discipline an economy. The price was fixed and the currency was redeemable in gold. The UK gave up this system in 1919 but it persisted in the US until 1933.
Between the 1930s and 1972 there was an "international gold exchange standard" which involved central banks supplementing their gold reserves with certain key currencies that, in theory, could be redeemed for gold.
All this led to central banks building substantial stocks of gold and caused one Yale professor, Robert Triffin, famously to remark: "Nobody could ever have conceived of a more absurd waste of human resources than to dig gold in distant corners of the earth for the sole purpose of transporting it and reburying it immediately afterwards in other deep holes, especially excavated to receive it and heavily guarded to protect it."
Today, most gold goes to make jewellery rather than into central bank vaults.Gold Fields Mineral Services estimates that 3194 tons of gold was used by jewellery makers in 1998.
Unreconstructed gold bulls emphasise that this was far more than the 2529 tons that came out of mines during the year. Demand for gold has in recent times been at record levels - Indians, for example, bought more in the first nine months of 1997 than in the whole of 1996 - yet the dollar price of gold has slumped by 20%. The price has fallen because of increasing fears that central banks will steadily sell off gold - they still have about 37000 tons tucked away in vaults, equivalent to more than 12 years' supply.
The new breed of central banker is not dazzled by gold and sees little point in having an asset that just takes up storage space. Some have been getting a return by lending gold to bullion banks, earning 1% or 2% and adding to market liquidity.
That did not satisfy performance-oriented bankers, economic rationalists who were not charmed by the romance of gold. For them, as for the 14th century Scottish poet Andrew of Wyntoun, "Oure gold wes changyd into lede". So the central bankers started selling.
The Netherlands said in January 1997 that it had sold 300 tons, the fourth disposal since 1989; since then it has cut gold reserves by 20%. In July of 1997, Australia shook the market by announcing that it had reduced its gold reserves by two-thirds - even a leading gold producer seemed to have lost the faith.
Also in 1997, Argentina revealed it had sold its entire gold reserves in the first half of the year, all 124 tons, and invested the proceeds, $1,46bn, in US Treasury bonds.
Echoing the views of other central banks that complain gold is an unproductive asset, Argentina's bank pointed out the bonds would yield an average of 5% and were expected to bring in $81m a year.
The biggest shock of all - and one that triggered the biggest one-day fall in the gold price for four years - came in October 1997 when a panel of Swiss experts suggested their country should sell more than half its reserves. Switzerland, which has a law forbidding such sales, had fervently supported the idea that prudent countries should have a reasonable stock of gold and had refused to sell an ounce.
More recently, the panic over central bank gold sales has abated. The first weekly financial statement from the newly formed European Central Bank carried the implication that no gold would be sold from European central banks, for at least this year (1999) and very probably not thereafter either. Once this becomes widely accepted, the all-pervading fears over renewed European sales should evaporate and sentiment should improve, stockbroker T Hoare & Co wrote in a recent report.
But it seems highly unlikely that gold will ever again reach the heights it once scaled.
There have been big profits made from gold's fall from grace. Some big US commercial banks have made a killing in recent years or so by selling gold short - selling gold they do not own in the expectation they can buy it at a lower price before they have to deliver.
The gold market is now very much in the hands of these banks and New York investment funds, according to Timothy Green, who has been tracking the gold business for 30 years. He suggests that the trade has changed more in that time than in the preceding 4000 years. In his book World of Gold, Green argues that the ending of a fixed price for gold by international governments in 1968 and the transformation in communications have combined to change the gold market. "For many new players in the market, volatility, not stability, was the chief attraction; to them it did not matter whether the price went up or down, as long as it moved. The communications network brought everyone together, round the world, round the clock and made the gold price a moveable feast."
Nevertheless, there are still many millions of people who retain a deep faith in gold. There are large parts of Asia where only a social revolution could change the gold habit. In India, a farmer buys gold when the monsoons bring good harvests and he sells it when the rains do not come.
Gold rings and necklaces are lavished on newborn Indian children and an Indian bride is weighed down with gold jewellery. For an Indian woman, prevented by Hindu law from having any proprietary rights over her father's or husband's property, personal gold ornaments and jewellery offer financial security.
Gold has retained symbolic value in the straightforward transactions of rural India, but it has been diminished by the modern trading techniques in exchanges in the US and Europe. The money flowing into physical gold is overwhelmed by amounts ploughed into securities that are derived from gold.
In London during one month in 1997, for example, gold worth $13,6bn a day was traded. Using exotic cocktails of options, futures and warrants, the banks and funds are "relieved of the acute embarrassment of having to take delivery of a single ounce", according to Timothy Green.
But how long will gold's reserve of appeal last in developing countries? "Gold," says Rob Weinberg, analyst at Deutsche Morgan Grenfell, "fills many different roles simultaneously. It can be an adornment and an industrial metal; a means of displaying wealth and an anonymous form of saving; an insurance policy and a gambling chip; it is an international reserve asset, yet officially it is not money."
In the western world more people are buying gold to wear, as jewellery or watches, because it makes them feel good and they can pretend to themselves that these objects will hold their value. They conveniently ignore the fact that the cost of design, production, profit and taxes usually far outstrips the value of the gold content.
But when it comes to bullion as an investment, and as a measure of national wealth, gold is a goner. The reverse alchemy is almost complete. Eddie George, governor of the Bank of England, like Fort Knox, one of the great citadels of gold, recently told a European parliamentary committee: "Whereas gold used to be seen as a good asset, it is now seen as the bottom of the pile." - Financial Times.
Additional reporting by David McKay.
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