Market News: 7/22/2019Submitted by Executive Wealth Management on July 23rd, 2019
Could space gold bring about the collapse of the U.S. economy? Over the last few weeks, several articles from Fox News to Bloomberg.com to various British tabloids have broached the subject of the dangers extraterrestrial precious metals could pose to global commerce. The genesis for such concerns was news that NASA was planning a mission to the 16 Psyche asteroid situated between the orbits of Mars and Jupiter. This 140-mile wide, potato-shaped space rock is believed to contain an enormous quantity of various valuable metals including gold. At current prices, the contents of the asteroid have been valued at several hundred quintillion dollars ( 1 quintillion = 1,000,000,000,000,000,000). With one ultimate goal of NASA’s mission being to determine the feasibility of extracting and returning the contents of such mineral-rich asteroids back to Earth, one writer worried that “... If we carried it back to Earth, it would destroy commodity prices and cause the world’s economy—worth $75.5 trillion—to collapse.”
Now If NASA were able to bring the contents of Psyche 16 back to Earth at a reasonable cost (and that is a big if) the payload wouldn’t be worth a quintillion dollars—the enormous increase in supply would shift market prices downward in hurry. And while it is true that recessions bring about falling commodity prices, it does not follow that falling commodity prices bring about an economic downturn. But is dirt-cheap gold of any value to the economy? Well, one could look at what happened to aluminum in the 19th-century for guidance. In the mid-1800’s, aluminum was more valuable than gold. The French emperor Napoleon III was said to reserve his aluminum cutlery for only his most distinguished dinner guests, leaving his silverware and gold utensils for lesser luminaries. Although aluminum is the most abundant metal on earth, in nature, it is almost always trapped in the mineral bauxite and, for most of human history, was exceedingly difficult to purify. But thanks to the work of chemists Paul Héroult and Charles Martin Hall, a process to purify the metal through electrolysis was developed by the 1880’s, leading to an enormous new supply of the metal. The price per ounce of aluminum plummeted, yet the world economy didn’t collapse. In fact, the newly affordable commodity found almost limitless uses in industrial production from automobiles to soda pop cans. This greatly increased overall wealth. Similarly, low-cost gold with its several desirable chemical properties like malleability and electrical conductivity would have tremendous potential to enhance economic growth not destroy it.