The new Spielberg/Favreau movie, Cowboys and Aliens, tells a story about a town named "Absolution ... about to experience fear it can scarcely comprehend as the desolate city is attacked by marauders from the sky. Screaming down with breathtaking velocity and blinding lights to abduct the helpless one by one, these monsters challenge everything the residents have ever known." Arguably, it is a political allegory about Republicans (cowboys) vs Progressives (aliens) much as James Cameron's blockbuster Avatar was an allegory of environmentalism.
But its interest, here, has nothing to do with its politics. The movie is predicated on the aliens' motivation to get gold: "Aliens, in this film, come to earth for a specific purpose rather than invading the whole of humanity. We are told that these aliens want ‘gold’, so they steal anything which is made out of gold – coins, shields and they even resort to extracting gold directly from earth deep in the mountains."
Gold holds such an enduring fascination for the human imagination that finds its way even into the predicate of a science fiction movie. Conversely, the 1951 science fiction classic Foundation, by Isaac Asimov, posits a planet on which the currency is forged not of precious metals but of stainless steel. From pages 48-49 of the Doubleday edition:
"Let's get back to business," urged Hardin. "How would you take these so-called taxes, your eminence? Would you take them in kind: wheat, potatoes, vegetables, cattle?" The sub-prefect stared. "What the devil? What do we need with those? We've got hefty surpluses. Gold, of course. Chromium or vanadium would be even better, incidentally, if you have it in quantity." Hardin laughed. "Quantity! We haven't even got iron in quantity. Gold! Here, take a look at our currency." He tossed a coin to the envoy. Haut Rodric bounced it and stared. "What is it? Steel?" "That's right."" "I don't understand."
In 1951, an iconic novel by one of the three most famous science fiction writers of the era considered that the oddest and most alien concept for currency would be to forge it from base metal.
Odd how science fiction so often anticipates reality. And how reality often repeats itself. As the prophet Isaiah wrote, around 700 BC, complaining of Israel's debased standards, "thy silver is become dross." That is, its coinage was adulterated with base metal:
Thy silver is become dross, thy wine mixed with water:
Thy princes are rebellious, and companions of thieves: every one loveth gifts, and followeth after rewards: they judge not the fatherless, neither doth the cause of the widow come unto them.
In every era, past, present or most distantly imagined future, gold connotes value and integrity.
One of Robert Frost's greatest poems begins:
Nature's first green is gold,
One is reminded of this in reading Greening the Gold Standard, a long, thoughtful, article published by National Geographic Daily News by Professor Saleem H. Ali, a professor of environmental studies at the University of Vermont, is a National Geographic Emerging Explorer for 2010 and author of Treasures of the Earth: Need, Greed and a Sustainable Future (Yale University Press).
His biography describes him as follows:
Saleem Ali thinks like an environmentalist, a diplomat, a wealthy industrialist, an impoverished villager, a government regulator, a product innovator, and a father. To him, environmental conservation can succeed only if vying factions communicate and collaborate.
Ali facilitates that process as a professional mediator for governments, companies, and indigenous communities; an advisor to the United Nations on environmental conflicts and strategies; a university professor; researcher; and author.
Prof. Ali's observation is well worth taking to heart:
The gold standard unwittingly acknowledged the connection between monetary power and natural resource reserves, which constitute the core of many contemporary environmental ideologies. While the earlier proponents of the standard did not envisage this connection, the “discipline” they sought was the result of the natural limits of gold extraction and the underlying finite gold reserves.
One question I've heard more lately: Now that the gold price is over $1,500 an ounce, shouldn't the U.S. sell its gold reserves—which were mostly acquired from U.S. citizens in 1933 at $20.67 or bought at $35 an ounce under the post-World War II Bretton Woods monetary system?
In 2009 I wrote an article (http://www.kitco.com/ind/Potter/nov042009.html) about the significance of the Bank of India's purchase of 200 tons of gold from the IMF. After decades of being net sellers, it seemed that collectively, central banks were on the verge of becoming net buyers of gold. Despite long dated conventional wisdom to the contrary, central banks did indeed buy more gold than they sold the following year (2010).
According to the World Gold Council's 2011 First Quarter report, "The latest data reported by the IMF suggests that central banks remained net buyers of gold through February of 2011 as a major shift in behavior among central banks continues to unfold." The report goes on to state that European central banks have simply lost their "appetite" for exchanging valuable gold reserves for paper money and emerging market central banks are buying gold to diversify their growing US dollar reserves (the result of excess, newly created dollars flowing abroad). The most striking example of this is the recently reported purchase by the Central Bank of Mexico (http://www.ft.com/cms/s/0/cbc02e10-7637-11e0-b4f7-00144feabdc0.html#axzz1LanAPUvl). Mexico just bought 100 tons of gold, increasing their reported gold reserves by over 1300%.
There are several implications of this shift in behavior. First, the sheer size of excess foreign reserves (newly created paper money) is literally scaring central bankers into an informal gold standard – they are not implementing gold convertibility but they are certainly choosing gold, rather than paper to back their liabilities. Second, the manufacturers of our money, our Central bankers, are questioning the value of their product. While we are unlikely to hear a central banker argue for a modern day gold standard anytime soon, it sure seems that they understand the need for one.
"Mexico's Central Bank Buys 100 Tons of Gold," ran the headlines last week. Isn't that interesting. For years in the United States, the go-to term for a currency that's next to worthless has been "peso." Now here are the masters of that very currency passing on the dollar and accumulating its most formidable substitute, gold. Touché.
Back in the 1980s, one of the Mexican presidents kept saying he would defend the peso "like a dog." When that didn't work out, as Robert L. Bartley of Wall Street Journal fame liked to point out, people started calling the outcropping of villas the man retired to "Dog Hill."
Why on earth Mexico has never fixed to the dollar – up to now – is anyone's guess. Canada has pursued the same policy too, of a floating currency, rather unsuccessfully until the last few years. But now it looks like the game is up. Forget about NAFTA: any advantage to the decline of trade barriers among North America’s finest nations will be cancelled by currency fluctuations. The chance that either Mexico’s or Canada’s currency tries to mimic Ben Bernanke's dollar has trended to zip.
The world is a funny place when the US abjures currency leadership. People do things like trade in big for fairly non-fungible assets like gold. The last time this happened in a major way, the 1930s, the next step was for lots of places to make a bid for complete national economic self-sufficiency. Germany and Japan weren't quite satisfied with their own natural resource endowments, however, and you know what happened.
Not only is it a justified insult of the US for Mexico to procure the gold, in tonnage no less, it is a sign that other countries are finally despairing that there will be a stable major currency in the world. This portends autarky and probably poverty – at best. Mexico on its own! The way to arrest the process: make the dollar freely convertible to gold at $2000 an ounce. Bernanke will calm down with the QE larks, everyone's investments in gold will be fully justified, and people globally will once again get down to the business of prosperity on the basis of a reliable means of exchange.