Gold is bad for the economy and bad for the environment
I can't tell you whether it will give you a healthy return on investment, but I can tell you that it shouldn't
I don’t know about you, but I really hate bitcoin. It feels like such a waste to use so many resources to make something so pointless. These cryptocurrencies1 are valuable not because people want to use them, rather their value is based on the speculative notion that some greater fool will come along and pay more than they did.
While arguing the point about it’s speculative value, crypto-heads often say “What about gold? It’s the same thing”. And I actually think they’re right, but only because gold is also bad.
All that glitters needs coal
While unlike bitcoin, gold is actually useful for some things,2 the industrial use only accounts for 10% of total consumption, per Wikipedia. A whopping 40% goes to investments, with the remainder going to jewellery. That means that roughly 1,200 tonnes of gold is mined each year to be smelted down into gold bars or coins to sit there, collecting dust in some well guarded vault3. Just like bitcoin, we dig up and process all this gold for the sole purpose of having some greater fool come and pay more for it in the future.
This wastage comes with a significant environmental impact. To help quantify this, the World Gold Council helpfully estimates that the sector emitted 32,689 tonnes of CO2 equivalent for each tonne of gold produced. By crudely multiplying the 40% estimate we can estimate that 39.2 million tonnes of CO2 equivalent was emitted to create gold bars and coins for investment purposes, just slightly more than the emissions of the entire country of Ireland. For comparison, bitcoin created 57 million tonnes of additional emissions in 2021. So while gold investment causes less emissions than bitcoin, they’re clearly both bad.
If we collectively decided one day that gold was not a valuable investment, the existing supply held as private investment and as reserve could supply the current demand for gold in industry and jewellery for the next 42 years. This means we could theoretically cease all gold mining until 2064, by which point we’ll probably be able to pull it out of asteroids anyway.
Fool’s gold
“Aha!” I hear you say, “if all the investment gold was sold off, the price of gold would plummet, so industry would use more and our reserves would actually last less than 42 years”. But, dear reader, your point completes the picture: if we didn’t have speculatively priced gold, we'd be able to use more gold for practical ends.
It's then clear that the impact of speculative pricing manifests itself in the following two ways:
When the price of a commodity rises due to speculation, too much economic activity is directed to producing that commodity. This means people and machines are working to produce more of something whose value is largely (or entirely) speculative instead of something that people could actually use.
In the case of gold, a commodity kept as an investment is not deployed usefully throughout the economy. This means the gold sitting idle in vaults could be powering your TV, your smartphone, or solar panels to help prevent climate change.
Every additional dollar we pump into mining new gold is a dollar wasted, and every ounce gold sitting in a vault is an ounce wasted. We should be making the most of the finite resources we have, but because some investors choose to speculate we end up wasting a large amount of it at great societal cost.
Something something society
I started out writing this as a bit of a gotcha piece for crypto-heads who point to gold as a justification for bitcoin’s existence and environmental toll. While I hope it still does that, what I would really like to do is convince you that these types of useless speculative investments are not just dumb (which they are) but also that they do great harm to both the environment and the economy.
I, the humble blogger, would not be so bold as to start a campaign to change how society sees investing in gold. But I think someone should. As a society, our lives would be a little richer and our air a little cleaner if we could agree to give up on this pointless folly.4
I don’t have any data to support this, I reckon the term ‘cryptocurrency’ is a misnomer. Most people don’t get into crypto because they actually want to use it as currency (unless they’re planning to buy drugs online, of course). As such, in this piece I won’t be engaging with the argument that “it has value as a currency”.
Primarily for electronics, where it is used as a oxidation-resistant conductor.
This means that about 1,500 tonnes is used in jewellery. I also think this is a waste, but that’s reflecting my personal taste for jewellery - at least people (who aren’t me) actually use it.
I was so close to closing out this blog with “give up chasing this fool’s gold” but I decided to spare you all from that.
Good points.
Small correction/nuance: The case for investing in gold isn't predicated on the Greater Fool theory. It's based on the fact that it holds value while the fiat currency used to buy it is debased.