First you get to the perfumes, cosmetics and toiletries. Then the chocolates. Then the shisha pipes and fancy lighters. After that it gets a bit more boring – no hand cream testers here. Just magazines, snacks and refrigerated drinks. Maybe some vacuum packed dried fruit, cheap flip flops and falafel wraps. And of course the dealers in bars of gold.
This was the scene as I walked through Oman International Airport last summer, and one that wouldn’t be much different from the many airport departure lounges scattered across the Middle East. Gold could be bought in the country of origin at internationally stated prices, transported elsewhere and sold in the local currency- thus circumventing any potential cronyism from an unknown currency exchange officer in another country, and preventing the chances of stacks of cash disappearing abroad. In an uncertain world, this seems pretty common sense. It wasn’t long ago that our own Bank of England was pegging the pound sterling to the price of gold. Still having the gold rich Americas to exploit and an unlimited supply of forced labour, until our conscience got the better of us and gold supply became more precarious the system worked alright.
But even now, the use of gold as an international medium of exchange has in no way disappeared. One of the big selling points of the airport gold dealers is that they’re duty-free. This doesn’t make much difference if the gold is staying in the country; sales tax is usually low to non-existent in most Middle Eastern countries (being sceptical, let’s remind ourselves or the reason most international businesses are there in the first place…) But undoubtedly, not all the gold is staying within its national borders. Whilst transfers of financial assets abroad would usually be taxed and recorded, gold can more easily be hidden. In effect, it’s the black market currency of the high flyers and the dubious.
Because gold is priced in dollars on international markets the price of gold is still intimately, inversely related to the dollar. This translated to a 200% increase in the price of gold between January 2008 and August 2013 over the course of the economic downturn. With the international economy seemingly on the mend, prices have since fallen 20%. So put simply, the better the US economy is doing the greater the demand for US dollars; the worse its doing, the greater the demand for gold. When interests rates remain low, at least the hope of selling on gold at inflated future prices keeps speculators on their feet.
But how long can the inverse boom and bust of gold keep going on for? As increasing emphasis is placed on ethical investing, surely the gold market will be scorned on as an archaic backwater- after all, it has few selling points; it’s an inert metal that in itself cannot accumulate in value, and one’s personal ownership of it has no collateral benefits. Buying gold doesn’t educate people, it doesn’t improve their infrastructure or healthcare, and it certainly doesn’t promote peace.
To an onlooker, the whole idea seems a bit crazy. We go to a country plagued by the ironic misfortune of being materially rich. We the already elite to exploit the labour of the already poor (invariably one of Michael Collins’ The Bottom Billion), circumvent local taxes – some of which, possibly, may have gone into the public purse, then dig another whole and pay someone else to guard it. And when the economy’s looking good we give it all up as quickly as possible (and, in america’s case, pretend we earnt it in real estate).
As the world attempts to respond to the pressures of increasing population, climate change and economic inequality we can only hope that the bubble of gold-mania will burst, and burst for good. We can’t continue to mine, process and distribute gold as is being done at the moment whilst neglecting the evermore pertinent issues we are facing. The storage of financial assets in times of uncertainty is of course understandable and sensible, but it’s high time that more equitable and environmentally friendly depositories are investigated. The expansion of government bonds are a clear suggestion. According to old- fashioned Keynesian teaching if more money is made available to a government to borrow it will become cheaper for them to do so. An increase in government spending will therefore soften the blow of economic downturn and hopefully get the economy back on the straight and narrow without such huge debts as may be accrued when borrowing from an international lender. With both genuine public investment of this kind being directed into emerging Asian and Latin American economies and the EU’s fiscal deal with Greece harbouring at least temporary financial security within Europe, let’s hope a trend is kicking off.
But this will require a sense of trust, and it probably be unwise to be too hopeful. As economic analyst Adam Forrest recently commented, ‘Gold is a mirror. It reflects our deepest fears that the people running the world don’t really know what they’re doing.’ When we loose confidence- in our governments, neighbours or investments, we turn to gold. And as long as we turn to gold, we turn away from truly lateral development.