Gold Nanoparticle in Cupriavidus metallidurans.
Photo Credit: Reith et al, PNAS 5-9 October 2009
One Bloomberg headline got the attention of traders and investors this past week. Here it is as it came across terminals:
Science Daily reported on bacteria (Cupriavidus metallidurans) that can grow in solutions of gold chloride (which the article calls “liquid gold”), a compound found in nature.
Michigan State University researchers Adam Brown and Kazem Kashefi set up the art installation they call "The Great Work of the Metal Lover." In the exhibit, the bacteria were exposed to large amounts of gold chloride, seeking to mimic the process believed to happen in nature. In about a week, the bacteria transformed the toxic chlorine leaving behind a gold nugget.
The art stemmed from University of Adelaide research that discovered the bacteria on gold from two sites in Australia. Frank Reith, leader of the research and working at the University, explained: “When we found the same organism on grains from both sites we thought we were onto something. It made us wonder why these organisms live in this particular environment. The results of this study point to their involvement in the active detoxification of Au [gold] complexes...”
While obvious that the bacteria can not “make gold,” as the input is gold chloride, Reith concluded that, with funding, “we can produce a functioning biosensor within three to five years” that could help gold miners find new deposits.
This may mean finding the next big gold deposit will become that much easier in the future. This may mean a designed return to normal, stable, real growth (as opposed to credit binge) is possible, as gold stages its return to the monetary throne. As the manager of the world’s largest bond fund, PIMCO, recently explained:
Deutsche Bank considered the growth rate (PIMCO says 1.7%) of the supply of gold in the context of whether or not a gold standard is possible. Based on population growth and GDP, its “expectation would be that the US would need to grow its monetary base by only about 2.2% or so.” The difference between 2.2% and the 1.7% rate of growth in the gold supply “could still be a source of concern for those looking at gold as a viable currency alternative.”
After essentially laughing at economists who feel that the current supply of gold is inadequate to support a gold standard monetary system, calling the argument “spurious,” the Deutsche Bank statement goes on to say, “The volume of gold is not important; instead it is the value that is ascribed to this gold that is important. A zero can easily be added to a paper bill to change its value; similarly it can be added to the value of an ounce of gold.” Meaning government could devalue the dollar dramatically overnight, as it did in 1934 (see Inflation - Currency Dilution and Devaluation in the Modern Day) spiking gold prices to new highs on a whole new level.
Deutsche Bank adds one possibility to bridge the present-day disconnect between their assumed appropriate rate of growth in the currency supply and the gold supply. “Gold is infinitely divisible,” Deutsche Bank writes, "For that reason, the exact value [of gold money] is still determinable by government--in fact periodic valuation adjustments for gold could conceivably be an ongoing option. Thus a low growth rate in gold volumes could be offset by a small revaluation of the metal itself [a small devaluation of the dollar itself], thereby preventing deflationary price pressure in an economy.
“This is something that market purists would rather not see, but may make a transition to gold more palatable for those accustomed to the flexibility that a fiat currency affords.”
Oh, the horror! Deflation in prices. We at WealthCycles love falling prices, as most citizens do. For a better understanding of economics and money, we suggest Deflation Demon May Be Economic Angel In Disguise. Of course, Deutsche Bank acknowledges the real hazard:
The free-market alternative has already been selected through natural spontaneous order. Whenever humans have enjoyed periods of monetary freedom, a bi-metal standard emerged.
Those who assert gold’s superiority over silver as money (see FOFOA) nevertheless understand as well as anybody that “good money” such as real silver dollars, is saved, while paper and digital dollars are spent. In the same way, the unimpeded market sussed out a bi-metal standard wherein silver generally acts as the money of primary trade, and gold acts as the preferred medium for longer-termed savings and to conduct transactions of a higher value.
We asserted in Free Competition in Currency Act Gives Americans Freedom of Choice that Americans should simply have the freedom to choose whatever monies they prefer. If consenting individuals prefer to exchange or save in particular mediums, there should be no coercive force used to subjugate freedom. Silver was chosen collectively time and time again as money, just as its rarer counterpart, gold, was. In fact, as the late economist Milton Friedman reminds us, “The major monetary metal in history is silver, not gold.”
Perhaps this sterling fact, and not systemic or periodic government devaluation of currencies linked to sound money, is the bridge between 2.2% growth and 1.7% growth in gold supply. Or perhaps the bridge is bacterium-based biosensors boosting gold supply. Or perhaps both.