Gold -- That "Barbarous Relic"

Nouriel Roubini recalls Keynes' wonderful description of gold as a barbarous relic.

There are many reasons why the bubble has burst, and why gold prices are likely to move much lower, toward $1,000 by 2015. 

• First, gold prices tend to spike when there are serious economic, financial, and geopolitical risks in the global economy....
• Second, gold performs best when there is a risk of high inflation, as its popularity as a store of value increases.... 
• Third, unlike other assets, gold does not provide any income.... 
• Fourth, gold prices rose sharply when real (inflation-adjusted) interest rates became increasingly negative after successive rounds of quantitative easing.... 
• Fifth, some argued that highly indebted sovereigns would push investors into gold as government bonds became more risky. But the opposite is happening now.... 
• Sixth, some extreme political conservatives, especially in the United States, hyped gold in ways that ended up being counterproductive. For this far-right fringe, gold is the only hedge against the risk posed by the government’s conspiracy to expropriate private wealth. These fanatics also believe that a return to the gold standard is inevitable as hyperinflation ensues from central banks’ “debasement” of paper money. But, given the absence of any conspiracy, falling inflation, and the inability to use gold as a currency, such arguments cannot be sustained.

A currency serves three functions, providing a means of payment, a unit of account, and a store of value. Gold may be a store of value for wealth, but it is not a means of payment; you cannot pay for your groceries with it. Nor is it a unit of account; prices of goods and services, and of financial assets, are not denominated in gold terms.