Gregor Macdonald has some excellent thoughts on the topic du jour: gold, the dollar, and China.
Somewhere in 18th century Scotland, a writer is making the rationalist case against gold and silver. I’ll conjecture such a counterpoint rebuttal to precious metal coinage (and convertibility of notes) has appeared on occasion during the entire 5000 year history of gold’s employment as money, if not longer. Indeed, a modern version of the argument can be found today. You know the bullet points: gold has no earnings, no yield, cannot be valued by any reasonable metric, and is nothing more than a hunk of inanimate metal. More to the point of the rationalists is that gold has little value in use, and may actually be a religious object. Thus, gold trades in the medium of signs and symbols, and once discovered as such, will come in for a brutal puncturing. The problem I have with this argument is as follows: it’s irrational.
It would be one kind of argument to state that mud cannot be used in engineering to build skyscrapers. But it’s another kind of argument to claim that gold and silver have faulty internal structures too, that contain the seeds of their own collapse. Physics is physics. Money is psychology. Thus, the rational argument against gold and silver, because it presumes rationality in human beings, is irrational.
As for the China-dollar conundrum, and rumours that the country has decided to ban the export of gold, here his flare for the dramatic really pays off:
It appears that China has decided to leverage the sheer scale of its own population, to effectively download the world’s gold and silver into a billion different hands. The ability to buy precious metals at one’s local bank, in small bar denominations, is the distribution channel. Some have suggested this policy may double as a way to dampen currency based inflation internally. If that’s the case, then the question remains whether the state will use Yuan, Dollars, or both Yuan and Dollars to carry the new inflows of metal, into the country. We await that particular answer.