A DECADE ago, on May 7, 1999, Chancellor Gordon Brown announced plans to sell off a large part of Britain’s gold reserves. This was heralded as forward-thinking economics, breaking with an old-fashioned practice of central banks having substantial holdings of gold bullion.
At the time, gold was selling on the open market at $282 for a troy ounce. Gold was exchanged for foreign currencies, other governments’ bonds and so-called securities, on which interest was paid.
This year, the gold price has been hovering between $900 and $1,000. It is estimated that the Bank of England is $5bn (£3.8bn) poorer as a result of present Prime Minister Brown’s decision, guided by his brand of ‘new’ Labour, Thatcherite economics.
Brown blazed a trail for other governments and bourgeois economists, who trumpeted that gold was history. In 1999, France, Spain, the Netherlands and Portugal followed Britain’s lead. European central banks have sold 3,800 tonnes of gold over the past 10 years, so they are $40bn (£26.4bn) poorer.
Over the past two years, the magical powers of securitisation of debt have proved an illusion. These ‘assets’ have changed their name to ‘toxic debts’. Their owners are receiving no interest and banks that held them have gone bust.
Alongside this, the exchange rates of major currencies, like the dollar, have dropped. These currencies are essentially credit money, IOUs issued by central banks, and have no inherent value. They depend on the creditworthiness of capitalist states, which have huge debts as a result of bailing out the banks.
One European central bank said in its last annual report: ‘The surge in gold prices and the concomitant depreciation of the US dollar over the past few years have shown clearly how important gold is as an instrument for portfolio diversification for a central bank.’
A decade ago, the message about gold was ‘sell, sell, sell!’. Today, after the banking collapse since 2007, it is ‘buy, buy, buy!’
China, which is the world’s largest gold producer, is adding to its gold reserves every month and doubled its reserves of the metal between 2003 and 2008. Russia, the Philippines, Mexico and Venezuela are also buying gold.
Financial journalists, supporters of capitalism, can present the facts about the gold price, but the role of gold in the world capitalist system is still mystified. They personify the quip of Oscar Wilde: ‘They know the price of everything and the value of nothing.’
The drive by central banks to buy gold is a manifestation of the fact that gold is value in a world where the slump is gathering momentum, banks are broke, and government insolvencies and currency collapses are a real possibility.
The present drive to acquire gold is a powerful confirmation of Marx’s analysis in Capital of the role of gold as ‘world money’.
He wrote: ‘It is only in the markets of the world that money acquires to the full extent the character of the commodity whose bodily function is also the immediate social incarnation of human labour in the abstract. . . .
‘In the markets of the world a double measure of value holds sway, gold and silver.’ (Gold displaced silver later in the 19th century.)
The value of gold is the socially-necessary labour time required for its production and embodied in it.
The acquisition of gold, that is value, is driven by the fact that surplus value is no longer produced through the exploitation of the working class in industries, to a large extent as a result of the slump, and banks are not secure.
The glut of government bonds on the markets means that they may soon be regarded as ‘junk bonds’. Currencies like the US dollar, the euro and the pound are suspect as a result.
The rise in the gold price and the increased demand for gold on the part of central banks are important manifestations of the fact that capitalism is in its death-throes, awaiting its dispatch by the working class through a socialist revolution.
Today it is necessary to build parties of the Fourth International to organise the working class in the struggle to complete the World Socialist Revolution.