Helmke Sartorius von Bach | Jul 1, 2020 | 0
Gold is a useless value store
Imagine winning a wheelbarrow full of coins at one of the local casinos. This image is prominently advertised on billboards across Windhoek to entice unsuspecting gamblers to part, once again, with the family’s paycheck that should have gone to buying milk and bread.
But the ethics aside, let’s look at the wheelbarrow full of money.
I doubt any gambler has ever given the notion of a wheelbarrow full of metal any serious thought. A wheelbarrow full of coins is very heavy. Indeed it is so heavy that the average man cannot pick it up let alone push it from the casino to the bank, or to the taxi.
This means the lucky sucker will have to hire another person, possibly even two, to help him cart the coins around. Since his only source of wealth is the money in the wheelbarrow, it implies he needs to reduce the value of his winnings just to make it mobile.
Then there is the matter of security. Everybody wants to grab a handful of coins, and despite his best efforts there are just too many urchins to cover all angles. So, the loot gets pilfered at the hotel entrance, and all the way to the taxi or bank. The one or two pushers he hired, also have their eyes on the coins, so the investment in mobility is not an investment in security.
Now, in desperation he quickly hollers to one of the security guards at the boom to come and help. The payroll has just become slightly longer.
Eventually this motley cavalcade reaches either the taxi or the bank. The process continues and he now hires a family member to guard the guard and the perambulators. The payroll grows a little again.
At the bank, the biggest surprise awaits him. He is charged a 2% cash deposit fee. Suddenly a concept the gambler has never heard of enters his life – commissions. But at last, he has some of his nest egg in a safe account. He now realises a wheelbarrow filled with coins (or what is left) is not worth all that much but at least he has an accurate value. He has to deal with a concept faced by many investment bankers and investors alike – mark to market. For the first time since winning the jackpot he has a way of measuring his new-found wealth against other forms of value.
At some point he thinks of chucking the bank and going directly to the shebeen but the owner of the august establishment just laughs. He does not want the coins because he has much more savvy than the gambler and he knows how it will be siphoned on its way to become something of real value.
In the meantime, another disgruntled family member who was not accommodated on the payroll as the pile of coins slowly shrunk, blabs to the Receiver, and another unknown concept enters Slim Jannie’s life – taxes.
Then words start spreading he is now a “rich” man and a concept with which he is only too familiar but always practised it in his own favour, becomes part of the equation – ubuntu. Everybody who calls himself a bradda, a cousin, a nephew, a niece, a father, a father’s brother or even the brothers of his mother, and their siblings, all fall into the queue to claim what they believe is rightfully theirs by tradition.
OK, so this image is ridiculous, but it is a perfect analogy for another form of value which is equally ridiculous – gold.
You see gold has absolutely no value other than the fact that people want it. And people do not want gold because they like it, they just want it because they fear that other stores of value are worth even less than gold. You cannot eat gold, you cannot buy with it, in most countries you cannot trade it. You can not build a shelter with it, you cannot protect yourself against the elements with it. You can only exchange it for money, and if that is the case, why bother in the first place to get the gold. Why yearn after it if its intrinsic value is zero.
Gold has to be handled (pushing the wheelbarrow) and this costs money. Gold has to be guarded (security guard) and this too costs money. Gold has to be acquired through an agent or dealer and he takes his cut (commission). If your gold is stored at the bank, they charge you for taking custody (cash deposit fee), and if your gold appreciates in value, you even have to pay the Receiver capital gains tax.
Gold is a useless investment. Gold internationally is in a bubble of its own and all the investors who punt it, do so on the assumption that it will go even higher. It may do this, but long-term it will revert to its mean value, and that value is determined by central banks and by the jewellery industry. In the meantime, the rise in the gold price is symptomatic of the loss in confidence, nothing else.
I am realistic about the role of gold. Women like it when it is crafted and preferably inlaid with many smaller sparkling stones, diamond thieves like it as thick chains around their [red]necks, and central banks need to have some of it purely, in my mind, as a hedge to help maintain the value of other more liquid foreign assets. But for you and me, and every other ordinary man in the street it is a completely useless substance, worth less than a wheelbarrow full of coins.