This gold mania could finally end in tears

Gold is surging again on the global markets, driving prices in India too above Rs20,000 for 10gm and sending bullion bulls into a state of auric ecstasy.

A variety of compelling reasons underlie this runaway rise in its price, and since it seems unlikely that those circumstances are likely to change soon, there’s still more headroom for gold to go in the short term.

For instance, developed economies in the US and Europe are in the throes of economic crisis, with anaemic growth rates and monstrous piles of public debt.

With unemployment rates in the US and in some Euro-zone countries still intolerably high, policy-makers seem under pressure to do yet more to stimulate their economies.

And the first stirrings of a ‘currency war’ have seen governments compete with one another to debase their currencies for a shot at exporting their way to growth. Faith in currencies is diminishing, which in turn is driving a stampede into the warm embrace of gold, a timeless instinct that reflects an enduring obsession with the yellow metal. Gold, it’s increasingly being said, is behaving like a currency, not a commodity.

But in equal measure, the gold mania reflects widespread — and more than a little exaggerated — fears that a global financial Armageddon, a wholesale meltdown of economies and currencies, is near at hand. The economic fundamentals do inspire a deep sense of disquiet, but at least some of that hysterical fear-mongering can be traced to the political discourse in the US, which is on the verge of a ‘class war’ of mythical proportions.

Right-wing television commentators, who were shaking their pom-poms during eight years of Bush-era profligacy, have suddenly become deficit vigilantes, talking down the Obama administration’s spending, talking down the dollar and, yes, talking up gold. Rabble-rousing radio commentator Glenn Beck even controversially promotes a gold dealer, who in turn advertises on his show.

In India, the world’s biggest bullion market, however, gold is coveted as a commodity, not as a currency. It’s used for bodily adornment, and is itself an object of adoration. Even our Goddesses are described as being Hiranya varnam or golden-hued.

Yet, down the ages and across civilisations, excessive ‘gold mania’ of the sorts that we’re beginning to witness has always ended in tears. In the Judeo-Christian value system, it even acquires something of a ‘morality play’ theme: descending from Mount Sinai with the Ten Commandments, Moses is incensed to see Israelites worship the Golden Calf, which he then destroys. In Greek mythology, King Midas receives the gift of the Golden Touch, but it becomes a curse that transforms even his daughter into gold. And Argonauts’ leader Jason’s quest for the Golden Fleece only ends in tragedy.

In his book The Power of Gold, Peter Bernstein recalls a story narrated by John Ruskin about a man who boarded a ship carrying his entire wealth in a large bag of gold coins. A storm came up, and an alarm went off to abandon ship. Strapping the bag around his waist, the man jumped overboard, and promptly sank to his death. Ruskin then asks: “As he was sinking, had he the gold? Or had the gold him?”

Likewise, in today’s uncertain world, gold prices will certainly go up in the short term. But civilisational history tells us that gold is no insurance against apocalyptic scenarios; an excessive obsession with it will only end in tears.