If Bill Gates’ recent comments to CNBC on gold investment tell us anything, it’s that his head may be stuck in the cloud he helped create. Gold bugs are forever being derided as prophets of Armageddon, yet the bears are often no less fantastical as the foretellers of Utopia.
Bill was, of course, only giving his personal opinion, presumably without pretension of being an investment guru. Without question he is an extraordinary master of marketing. But by virtue of his phenomenal success, Gates’ words carry a lot of weight with hard working people who dare to dream big. His casual remarks do them a great disservice.
It is not hard to imagine, for example, millions of minds latching onto the utterance “digital mining,” a vision forming before them of some great new technology far beyond their ken. “Really, Bill, we had no idea!”
Bill Gates built an empire beating the competition to the market with technology that few of us grasp even today. That ‘digital’ and ‘mining’ make no sense to us in the same sentence means only that we lack his vision. Perhaps we are on the brink of a new era in which gold will be as plentiful as the greenbacks in Bill’s accounts.
The only problem is that all of the gold that there will ever be was created when our planet formed. We ran out of readily accessible gold long ago. Each year we must dig deeper, and each year the yield declines. The law of diminishing returns has not halted the search for new gold only because the price keeps rising along with the cost of extracting it from the Earth.
Advancing technology plays a very important role in keeping gold mining viable, but there is a real-world limit on what technology can do. As powerful and indispensible as digital technology has become, you simply cannot zap the Earth with a stream of ones and zeros and produce an abundance of gold.
Bill Gates was correct, in a matter of speaking, that the price of gold is psychological. That has been built into our psyche since the earliest days of mankind. To conclude that there is “no floor” to the gold price, however, is off the mark. If anything, it means there is no ceiling as the supply of new gold within our reach diminishes.
It is fruitless to quantify the value of gold in terms of markets that have existed for but a fraction of the human experience. We need only acknowledge that it has transcended every social experiment, every government attempt to replace it, and every effort to discount it – from alchemy to digital mining – that has ever been conceived.
The gold market was, is, and ever shall be nothing more than a direct reflection of our confidence in the prevailing monetary system.