Gold: It’s pretty standard

A commodity on a wild ride.
Gold: It’s pretty standard

Going for gold

As a commodity, gold has had what one analyst this summer called “a manic roller coaster ride.” It soared to an all-time high in the summer of 2020 as covid cases worldwide surged, breaching $2,000 per ounce. Since then it has slumped sharply, though prices recently spiked again to above $1,700 amid turmoil in the crypto world and a slide in the dollar.

The precious metal has traditionally been seen as a haven in times of volatility, uncertainty, and distress—and the world has certainly imbibed a head-spinning cocktail of all three in the past two years between the ongoing pandemic, Russia’s invasion of Ukraine, and the subsequent global energy crisis.

But the US Federal Reserve’s aggressive rate hikes, as it battles inflation, have fueled a relentless rise in the dollar, which in turn has taken some wind out of gold’s sails. In part, that’s because yields on US 10-year Treasury bonds—which compete with gold as a safe haven investment—are at their highest since 2008.

“All these trillions of dollars that we’ve printed over the last couple years… I think that money does come back to haunt us,” said Michael Townsend, a director at Infinity Stone Ventures, a Canadian firm that mines critical metals including gold. “I think inflation is here to stay…so gold is here to stay.”

Let’s keep panning.

Charted

Golden roller coaster

Image for article titled Gold: It’s pretty standard
Graphic: Mary Hui

By the digits

6 grams: Weight of pure gold in an Olympic gold medal

31.103 grams: The equivalent of one troy ounce (ozt) of gold, a measurement used for precious metals

20.37%: Share of global gold reserves in Australia as of 2021, more than any other country

8%: Rally in gold prices after the UK’s 2016 Brexit vote

18: Karats in a solid gold toilet that the Guggenheim Museum offered to loan to the Trump White House

$35 per ounce: Value of gold under the Bretton Woods system, in force from 1958 to 1971


Brief history

The birth, death, and reincarnation of the gold standard?

In July 1944, 44 countries met in Bretton Woods, New Hampshire, to hash out a blueprint for the future of the post-World War II international monetary system. That plan finally took effect more than a dozen years later, in 1958. Under the Bretton Woods system, countries pegged their currencies to the dollar, which in turn was fixed to gold at $35 per ounce.

“In effect, the entire Western financial system was pegged to gold, via the dollar,” as Bloomberg’s John Authers describes it. And with the US holding about three-quarters of global gold reserves, the system seemed secure.

But a gold-dollar crisis was brewing. Gold was flowing out of the US, a result of America’s declining share of world output as European and Japanese exports became more competitive, but also due to US military spending and foreign aid. Then, in 1965, came the Great Inflation in the US, threatening a run on US gold reserves. To stave off that risk, then-president Richard Nixon scrapped the convertibility of dollars to gold in 1971.

Could the gold standard make a comeback? That question has periodically resurfaced in public policy discourse, though most economists dismiss that possibility as a fool’s errand.

More recently, however, the global energy and food price crisis caused by Russia’s invasion of Ukraine has rekindled interest in—and fierce debate over—a new kind of Bretton Woods system, with commodity- or commodities-backed currencies. Think metals and grains and energy.


Quotable

“It turns out our sewage contains a crap load of gold (pun intended).”

Georgia Hepburn, The University of Melbourne

According to research, sewage waste can contain numerous precious metals, including gold, collected from various sources including the dental industry, vehicle exhaust, and abrasion of jewelry.


Bonus chart

Image for article titled Gold: It’s pretty standard
Graphic: Mary Hui

Central banks worldwide are snapping up gold at a pace that hasn’t been seen since 1967, when the dollar was still backed by the precious metal. An inflation-fueled flight to safe assets has driven much of the increased demand.

Turkey was the biggest buyer of gold in the third quarter, followed by Uzbekistan (26.13 tons) and India (17.46 tons), according to the World Gold Council, though not all countries report their purchases regularly.


Gold medallist Therese Johaug, wearing a blue jacket with a red stripe and black gloves, holds her gold medal with one hand, has her other fist in the air, and is cheering victoriously at the Women's 30km Mass Start medal ceremony during the Beijing 2022 Winter Olympics Closing Ceremony on Day 16 of the Beijing 2022 Winter Olympics.
Photo: Lintao Zhang (Getty Images)

Pop quiz

What is the chemical symbol for the element gold?

  1. Au
  2. Gd
  3. Ru
  4. 🥇

Find the answer at the bottom!

Take me down this 🐰 hole!

Would you prefer to have a golden parachute, golden handshake, or a pair of golden handcuffs?

Brian Klaas, a professor of global politics at University College London, argues that golden handcuffs—the offer of a cushy life in exile—can be a solution for coaxing autocrats out of power (though, he caveats, this option shouldn’t be made available for the worst of the worst, including Vladimir Putin).

Several dictators have readily accepted the offer of golden handcuffs, according to Klaas.

In 1994, US officials reportedly offered Raoul Cédras, the military dictator of Haiti, an exit package of a million dollars in return for leaving power without a fight.

And in 2016, a bloc of west African countries told the Gambian dictator Yahya Jammeh, who refused to concede an electoral loss, that he could either face invasion or leave for exile. Jammeh chose the latter, fleeing the country—but not before allegedly plundering millions of dollars from state coffers.

Klaas further explains why such golden handcuffs could be a realistic option for reducing the number of autocrats worldwide:

“Some might argue that the golden-handcuffs option would create moral hazard, encouraging dictators to believe that they will never face justice for their crimes,” Klaas writes. “But most dictators escape justice anyway, dying of old age, or at the hand of a rival or an angry mob. A policy of safe passage would more likely increase transitions of dictators who otherwise would have fought to the bitter end to stay in power, rather than decrease the amount of justice served.”


A pair of handcuffs.
Photo: Johannes Eisele (Getty Images)

Poll 

Should dictators and autocrats be offered golden handcuffs?

  • Yes, that’s a realistic option
  • No, that’s a minefield of moral hazards
  • Yes, but actual handcuffs made of gold

We command you to participate!


💬 Let’s talk!

In last week’s poll about Adam Smith’s invisible hand, about 51% of you wish that an invisible hand could help clean your house, 34% of you are dubious about an invisible hand in this economy, and 15% of you are hopefully recovered from your visible headaches.

Only a few of you correctly identified the event shown in the chart. The marker was on the day that, following the stock market crash, US Congress initially voted against a financial bailout bill, due in part to Republican opposition to intervening in the market. In other words, the visible hand of the government could have really helped!

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🤔 What did you think of today’s email?

💡 What should we obsess over next?


Today’s email was written by Mary Hui (still looking in chocolate bars for her golden ticket), and edited by Susan Howson (prefers ABBA Gold) and Samanth Subramanian (and his gilty conscience).


The correct answer to the quiz is A. Au, but surely the periodic table is going to switch to emoji within our lifetimes.