Gold. a Capitalist delusion.

As Spandau Ballet had it, ‘Gold, you’re indestructible.’ It’s reported that the price of gold has reached an all-time high, moving above $2,400 per ounce.

‘Spot gold prices rose 2.4% to a record high of $2,431.52 per ounce before pairing some gains. Prices were up 4% for the week and 16% so far this year, exceeding the 13% advance registered for all of 2023.

“The positive factors for gold outweigh the negative. The heightened tensions in the Middle East are the main driver for gold’s recent surge,” Chris Gaffney, president of world markets at EverBank, was quoted as saying by Reuters.

Investors traditionally turn to gold in times of market uncertainty to hedge risks and as a store of value. For thousands of years, bullion has been seen as a safe haven during periods of economic instability, stock market crises, military conflicts, and pandemics.’

Other precious metals were also on the rise, with silver going up 4% to $29.60 per ounce, its highest price since early 2021. Palladium went up 2.7% to $1,075 and platinum rose above the key psychological level of $1,000 per ounce to its highest in nearly four months.’

From the The Socialist Standard, May 2007, an exposition on when gold was the money-commodity and some interesting suggestions aas to the use of gold in a socialist society:

“Gold prices could pass $850 record” read a headline in the Financial Times(5 April), reporting a forecast by a metals consultancy of what might happen over the next 12 months. As gold is currently selling at around $670-80 an ounce, this would be a huge increase. If something like this had happened a hundred years ago, it would have brought about financial and economic chaos by causing a huge fall in the general price level.

This was because at that time gold was still the money-commodity, as the product of labour having its own value in which the values of all other commodities were expressed. Prices were expressed in units of currency, but these were defined as a given weight of gold. A pound, for instance, was defined as about ¼ oz of gold. This meant that anything taking the same amount of socially necessary labour time to produce as an ounce of gold would have a price of £4.

If the amount of socially necessary labour needed to produce an ounce of gold fell, a rise in the general price level would result since other commodities, containing more value, would exchange for more gold. If, on the other hand, the labour-time cost of producing gold increased, the result was the opposite: a fall in the general price level. Which is why an increase of the order of from $680 to $850 an ounce would have caused chaos a hundred years ago.

The reason it won’t do so today is that gold is no longer the money-commodity. Up to WW1 gold was used to settle international payments. Also, there were gold coins in circulation, along with paper notes that were convertible into gold at a fixed rate. This system collapsed with the outbreak of war in 1914 and, despite attempts to revive it between the wars, never really worked again. Nearly all currencies became “inconvertible”, i.e. no longer exchangeable on demand into a given amount of gold, which has remained the case ever since.

At the end of WW2 a new system for settling international payments was established based on the dollar. The exchange rate between other currencies and the dollar (and so between the other currencies) was fixed, but, since the dollar was defined as 1/35 oz of gold, gold still played an indirect role as the money-commodity as a standard of price.

This system, with its repeated devaluations of the different currencies, came to an end in 1971 when the US government abandoned its commitment to pay $35 for an ounce of gold. After that, all currencies floated and, though central banks still retained gold reserves for a while, gold became an ordinary commodity, another precious metal alongside silver and platinum, whose price fluctuations have no effect, either way, on the general price level.

The price of gold is still expressed in dollars but, nowadays, rather than a change in the price of gold leading to a change in the value of the dollar, it’s the other way round. One of the reasons for the expected rise in the price of gold is the current weakness of the dollar. Another is perceived future economic insecurity in that gold, as a product of labour, is still a store of value which, if the fears are realised, is better to be left holding than a mere piece of paper.

When socialism, where of course money will be redundant, has been established, there will be a long-standing proposal as to what to do with gold waiting to be considered. In his book Utopia in 1516 Thomas More proposed it be used for making chamber pots. Some 400 years later Lenin moved an amendment to replace the words “chamber pots” by “urinals”. In the end, we’ll probably just use it for jewellery and other ornaments.'

’https://socialiststandardmyspace.blogspot.com/2020/05/just-yellow-metal-2007.html