Daily Times

“Money is gold and nothing else” — J.P. Morgan (1912)

This is a blatant attempt to increase ratings, if there is such a mechanism for columns; because if writing about gold won’t work, than nothing will. But trying to get ratings up should not in any manner tamper with sanity, hence the limitation of liability clause first: this article does not in any manner purport to advise anyone to invest or not to invest in gold. Accordingly, the author of this column and those associated with this newspaper accept no liability and take no responsibility whatsoever for any losses incurred vis-à-vis sale and purchase of gold pursuant to whatever is penned hereunder. That said gold is gold!

Gold has been the most sought-out element since ancient history, mostly for ostentatious display of wealth and, arguably, continues to be the ultimate store of wealth. Considering that industrial, or any other practical usage of gold is next to nothing, mankind’s obsession with this shiny metal is rather unique and irrational. When and why gold became money around 4,000 years ago is perhaps due to its purity, uniformity, scarcity and malleability, and while the discontinuance of the gold standard in 1971 might have dislodged gold as official money, unofficially, gold, rephrasing Mr. Morgan above, is still money.

Irrespective of numerous conspiracy theories about the revival of the gold standard, some of which are downright fascinating and imaginative, the pundits continue to put down all such notions about gold primacy in the foreseeable future, primarily arguing that there is not enough gold to meet the world’s requirement. Which in itself a roundabout argument; perhaps the solution is not more gold at its current trading price, but increasing the price of existing gold to meet the reserve requirements. Take a wild guess on what would be the price of gold if that were to happen. Notwithstanding, the anomaly, however, in relation to the position taken by western economic gurus, is that while the western central banks may have over the last decade reduced their gold holdings a bit, most of them continue to hold significant reserves in gold with America leading the world with a holding of 8,133 tons of gold in 2015. For the record, all details of gold holdings in this article are sourced from World Gold Council. If Americans actually felt that going forward gold was useless, why would they continue to hold a significant amount, actually the majority, of their total foreign reserves in a shiny yellow metal?

Breaking News: Pakistan held 65.3 tons of gold in 2005, and in 2015 holds 64.5 tons of gold. Who sold the 0.8 tons of gold and at what price? Unless there is a much deeper or sinister reasoning for this reduction in gold, it would actually be interesting to know who has the eventual authority to approve the sale of gold held by Pakistan government and what the compulsion to sell was.

Compared to Pakistan, during this same period Bangladesh increased its gold from 3.5 tons to 13.8 tons and, this is rather remarkable. India increased its holding in 2005 of 357.7 tons to 557.7 tons in 2015. Considering the not-so-friendly relationship with the latter, and even with the former for that matter, which relationship further deteriorated after the recent defeat in the World Cup T20, a simplistic reasoning for both of them purchasing gold can be the ‘ignorance of those dimwits’. On the flip side, digressing a bit as usual, and this really hurts, they apparently know more about cricket; and frankly, more to the point, somebody needs to take the game seriously in this country before the International Cricket Council revokes our test playing status.

Getting back to dimwits buying gold, here is the kicker. China, Pakistan’s great friend, the second largest economy in the world, increased their gold from 600 tons in 2005 to 1778.5 tons in 2015. Rumour has it that the Chinese have purchased a lot more gold but strategically don’t disclose it, as it could impact the global price of gold. During the same period, Saudi Arabia, another great friend, increased its holding from 143 tons in 2005 to 322.9 tons in 2015. Finally, another country with which our relationship is getting friendlier day by day — Turkey — bought 399.4 tons during the same period. Friends and foes, both are buying gold.

Beyond our good friends and bad foes, other nations who have had an interest in buying gold includes Russia that increased its holding from a meagre 386.9 tons in 2005 to a whooping 1,437 tons of gold in 2015. Korea bought around 100 tons in the same period, Thailand 70 tons and Philippines around 40 tons. Why then are these nations, and a few others, buying gold if it is not money and is a useless investment? And why don’t America, Germany, Italy and France — the top four countries holding the most gold — all sell their gold and make some money?

To clarify, the total estimated amount of gold in the world is around 165,000 tons, and to give a perspective of how dense gold is, as someone on the net calculated, all of this gold would fit in 3.42 Olympic sized swimming pools. Out of this gold, around 32,813 were held by central banks of world nations, International Monetary Fund and a couple of ETFs in 2015. The rest of the gold is in all likelihood used as either jewellery, storage of private wealth in gold bars and, in some rare cases, as bathroom ware. To make an educated guess, since India consumes almost a third of annual production of gold in recent times, with China a close second, they definitely have a lot more gold than the official quantity. For the record, Pakistan is not in the top 15-list of gold consuming nations.

Anyway, it is not as if a country can walk into the gold souk in Dubai and buy a few tons; and even if it could, it would be a huge problem transporting tons of gold to government coffers. This actually brings to light an interesting fact; America and Britain have been the gold bankers for a lot of nations of the world but in recent times these nations have initiated steps to start bringing all their gold home; in spite of the fact that, and as mentioned earlier, transporting such large quantities of gold is a nightmare for these national governments. Logically, circumstances have changed sufficiently enough and emerging risks pervasive enough for every country to want to bring its gold home.

Dear readers, in all honesty, the intent was to finish the topic in one article without realising that the mysteries of gold are much and it’s pricing mechanism perhaps more opaque than oil; and as rightly said by someone, predicting oil price is a bit of a mug’s game. So all being well I hope to conclude next week, and hey, who knows Gold II may even improve ratings further!

Golden Rule: “He who has the gold makes the rules”.

The writer is a chartered accountant based in Islamabad, and can be reachedat syed.bakhtiyarkazmi@gmail.com