Gold is bunk

One of the lasting effects of the 2008 financial crisis was the belief that the distribution of economic power had radically shifted. China rising, West fading, yadda, yadda, yadda. A minor key in this argument has been the notion that a new and important measure of economic power is the size of a country’s official reserves. This has led to the occasional panicked article that "China is buying gold!!" or "Russia is hoarding gold!!" or "Germany is moving gold!!" as a first step towards pushing the dollar out as the world’s reserve currency.

Which is just so much horses**t.

Here are three facts to remember whenever you read any story about a BRIC economy hoarding gold:

1) Buying gold would have been extremely savvy in 2008. Now it’s just silly. The price of gold peaked at over $1900 in September 2011 — and despite massive amounts of quantitative easing and numerous reports about central bank hoarding, it’s fallen by $300 since and trending downward.

2) The BRIC economies did not have a lot of gold to begin with. As Bloomberg notes, "Russia’s total cache of about 958 tons is only the eighth largest [in the world]."

3) So who does have the largest reserves of gold? Real Clear World posts the latest World Gold Council report. The biggest holders of gold are:

1. The United States (8,134 tons) 2. Germany (3,391 tons) 3. The International Monetary Fund (2,814 tons) 4. Italy (2,451 tons) 5. France (2,435 tons)

So, to sum up: To believe that gold holdings really matter in the global political economy, you have to be willing to assert that Italy is a great power in global finance. I, for one, am not going there.