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Return of the Gold Standard as world order unravels
stevek
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Return of the Gold Standard as world order unravels
By Ambrose Evans-Pritchard
9:28PM BST 14 Jul 2011
As the twin pillars of international monetary system threaten to come tumbling down in unison, gold has reclaimed its ancient status as the anchor of stability. The spot price surged to an all-time high of $1,594 an ounce in London, lifting silver to $39 in its train.
On one side of the Atlantic, the eurozone debt crisis has spread to the countries that may be too big to save - Spain and Italy - though RBS thinks a €3.5 trillion rescue fund would ensure survival of Europe's currency union.
On the other side, the recovery has sputtered out and the printing presses are being oiled again. Brinkmanship between the Congress and the White House over the US debt ceiling has compelled Moody's to warn of a "very small but rising risk" that the world's paramount power may default within two weeks. "The unthinkable is now thinkable," said Ross Norman, director of thebulliondesk.com.
Fed chair Ben Bernanke confessed to Congress that growth has failed to gain traction. "Deflationary risks might re-emerge, implying a need for additional policy support," he said.
The bar to QE3 - yet more bond purchases - is even lower than markets had thought. The new intake of hard-money men on the voting committee has not shifted Fed thinking, despite global anger at dollar debasement under QE2.
Fuelling the blaze, the emerging powers of Asia are almost all running uber-loose monetary policies. Most have negative real interest rates that push citizens out of bank accounts and into gold, or property. China is an arch-inflater. Prices are rising at 6.4pc, yet the one-year deposit rate is just 3.5pc. India's central bank is far behind the curve.
"It is very scary: the flight to gold is accelerating at a faster and faster speed," said Peter Hambro, chairman of Britain's biggest pure gold listing Petropavlovsk.
"One of the big US banks texted me today to say that if QE3 actually happens, we could see gold at $5,000 and silver at $1,000. I feel terribly sorry for anybody on fixed incomes tied to a fiat currency because they are not going to be able to buy things with that paper money."
China, Russia, Brazil, India, the Mid-East petro-powers have diversified their $7 trillion reserves into euros over the last decade to limit dollar exposure. As Europe's monetary union itself faces an existential crisis, there is no other safe-haven currency able to absorb the flows. The Swiss franc, Canada's loonie, the Aussie, and Korea's won are too small.
"There is no depth of market in these other currencies, so gold is the obvious play," said Neil Mellor from BNY Mellon. Western central banks (though not the US, Germany, or Italy) sold much of their gold at the depths of the bear market a decade ago. The Bank of England wins the booby prize for selling into the bottom at €254 an ounce on Gordon Brown's orders in 1999. But Russia, China, India, the Gulf states, the Philippines, and Kazakhstan have been buying.
China is coy, revealing purchases with a long delay. It has admitted to doubling its gold reserves to 1,054 tonnes or $54bn. This is just a tiny sliver of its $3.2 trillion reserves. China's Chamber of Commerce said this should be raised eightfold to 8,000 tonnes.
Xia Bin, an adviser to China's central bank, said in June that the country's reserve strategy needs an "urgent" overhaul. Instead of buying paper IOU's from a prostrate West, China should invest in strategic assets and accumulate gold by "buying the dips".
Step by step, the world is edging towards a revived Gold Standard as it becomes clearer that Japan and the West have reached debt saturation. World Bank chief Robert Zoellick said it was time to "consider employing gold as an international reference point." The Swiss parliament is to hold hearings on a parallel "Gold Franc". Utah has recognised gold as legal tender for tax payments.
A new Gold Standard would probably be based on a variant of the 'Bancor' proposed by Keynes in the late 1940s. This was a basket of 30 commodities intended to be less deflationary than pure gold, which had compounded in the Great Depression. The idea was revived by China's central bank chief Zhou Xiaochuan two years ago as a way of curbing the "credit-based" excess.
Mr Bernanke himself was grilled by Congress this week on the role of gold. Why do people by gold? "As protection against of what we call tail risks: really, really bad outcomes," he replied.
Indeed.
By Ambrose Evans-Pritchard
9:28PM BST 14 Jul 2011
As the twin pillars of international monetary system threaten to come tumbling down in unison, gold has reclaimed its ancient status as the anchor of stability. The spot price surged to an all-time high of $1,594 an ounce in London, lifting silver to $39 in its train.
On one side of the Atlantic, the eurozone debt crisis has spread to the countries that may be too big to save - Spain and Italy - though RBS thinks a €3.5 trillion rescue fund would ensure survival of Europe's currency union.
On the other side, the recovery has sputtered out and the printing presses are being oiled again. Brinkmanship between the Congress and the White House over the US debt ceiling has compelled Moody's to warn of a "very small but rising risk" that the world's paramount power may default within two weeks. "The unthinkable is now thinkable," said Ross Norman, director of thebulliondesk.com.
Fed chair Ben Bernanke confessed to Congress that growth has failed to gain traction. "Deflationary risks might re-emerge, implying a need for additional policy support," he said.
The bar to QE3 - yet more bond purchases - is even lower than markets had thought. The new intake of hard-money men on the voting committee has not shifted Fed thinking, despite global anger at dollar debasement under QE2.
Fuelling the blaze, the emerging powers of Asia are almost all running uber-loose monetary policies. Most have negative real interest rates that push citizens out of bank accounts and into gold, or property. China is an arch-inflater. Prices are rising at 6.4pc, yet the one-year deposit rate is just 3.5pc. India's central bank is far behind the curve.
"It is very scary: the flight to gold is accelerating at a faster and faster speed," said Peter Hambro, chairman of Britain's biggest pure gold listing Petropavlovsk.
"One of the big US banks texted me today to say that if QE3 actually happens, we could see gold at $5,000 and silver at $1,000. I feel terribly sorry for anybody on fixed incomes tied to a fiat currency because they are not going to be able to buy things with that paper money."
China, Russia, Brazil, India, the Mid-East petro-powers have diversified their $7 trillion reserves into euros over the last decade to limit dollar exposure. As Europe's monetary union itself faces an existential crisis, there is no other safe-haven currency able to absorb the flows. The Swiss franc, Canada's loonie, the Aussie, and Korea's won are too small.
"There is no depth of market in these other currencies, so gold is the obvious play," said Neil Mellor from BNY Mellon. Western central banks (though not the US, Germany, or Italy) sold much of their gold at the depths of the bear market a decade ago. The Bank of England wins the booby prize for selling into the bottom at €254 an ounce on Gordon Brown's orders in 1999. But Russia, China, India, the Gulf states, the Philippines, and Kazakhstan have been buying.
China is coy, revealing purchases with a long delay. It has admitted to doubling its gold reserves to 1,054 tonnes or $54bn. This is just a tiny sliver of its $3.2 trillion reserves. China's Chamber of Commerce said this should be raised eightfold to 8,000 tonnes.
Xia Bin, an adviser to China's central bank, said in June that the country's reserve strategy needs an "urgent" overhaul. Instead of buying paper IOU's from a prostrate West, China should invest in strategic assets and accumulate gold by "buying the dips".
Step by step, the world is edging towards a revived Gold Standard as it becomes clearer that Japan and the West have reached debt saturation. World Bank chief Robert Zoellick said it was time to "consider employing gold as an international reference point." The Swiss parliament is to hold hearings on a parallel "Gold Franc". Utah has recognised gold as legal tender for tax payments.
A new Gold Standard would probably be based on a variant of the 'Bancor' proposed by Keynes in the late 1940s. This was a basket of 30 commodities intended to be less deflationary than pure gold, which had compounded in the Great Depression. The idea was revived by China's central bank chief Zhou Xiaochuan two years ago as a way of curbing the "credit-based" excess.
Mr Bernanke himself was grilled by Congress this week on the role of gold. Why do people by gold? "As protection against of what we call tail risks: really, really bad outcomes," he replied.
Indeed.
0
Comments
I was unaware of this, gold is money?
Ben said it wasn't, only paper is real money, right?
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
Gold Standard Return
<< <i>No link? >>
It was on Drudge this morning - still there.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8638644/Return-of-the-Gold-Standard-as-world-order-unravels.html
"“Those who sacrifice liberty for security/safety deserve neither.“(Benjamin Franklin)
"I only golf on days that end in 'Y'" (DE59)
END OF THE WORLD CRISIS TODAY!!
"world order unravels" indeed, with such hyperbole it's obvious THE MEDIA has no idea what real chaos looks like if they think world order is unraveling today or next week.
Any piece of matter, energy, work, or data can be "money". The idea that gold is the only money is ludicrous, though to quote the trite line is natural, here on this forum, where we all love our piles of precious, gollum gollum
Liberty: Parent of Science & Industry
a 5:1 gold silver ratio????????????? reads more like a silver standard coming, musta been a typo
i agree with Baley about gold not being the "only" money. everything money is fungible.
https://www.pcgs.com/setregistry/gold/liberty-head-2-1-gold-major-sets/liberty-head-2-1-gold-basic-set-circulation-strikes-1840-1907-cac/alltimeset/268163
MJ
Fellas, leave the tight pants to the ladies. If I can count the coins in your pockets you better use them to call a tailor. Stay thirsty my friends......
However, gold and silver are the most frequently referred to because they have a great advantage over everything else. Portable, easily divisible (or available in various sizes), stable - will not spoil, and scarcity (by that I mean it takes much work to find and process), attractive in many forms, and easily recognized.
So Baley, while I certainly understand the point you are making, I have to say I do not totally agree with it. Although I actually hope it DOES turn out the way you hint.... that we will grow old expecting the world as we know it will be ending... but it never happens. That would be great as far as I am concerned. But.... history shows otherwise. Nations fail, money fails, regimes come to an end, chaos DOES reign at times. Will it happen here in the good old US of A? Well, when I look at history, it seems to happen everywhere eventually. Will it happen in my lifetime? Beats me; I hope not, but I do believe it to be wise to sometimes hedge your bets.
So, place your bets, invest your money as each sees fit, or ignore everything and put your faith in the current regime if that suits ones fancy. I do know one thing for sure at this point. If many of us on this forum had listened to the 'experts' for the last 10 years, that gold is a barbarous relic, precious metals are a fools bet, the price of the metals will take a precipitous dive, etc... well, I think many individuals bank accounts and net worth will speak to that. Many have profited from the metals.
<< <i>Lost all mine in a boating accident. >>
I'm in a similar situation. I just sold all of it to buy property and build a house. So I'm all out.
"Ask, and it shall be given you; seek, and ye shall find; knock, and it shall be opened unto you." -Luke 11:9
"Hear, O Israel: The LORD our God is one LORD: And thou shalt love the LORD thy God with all thine heart, and with all thy soul, and with all thy might." -Deut. 6:4-5
"For the LORD is our judge, the LORD is our lawgiver, the LORD is our king; He will save us." -Isaiah 33:22
If gold has no value.... then I want the U.S. Mint to sell me 1oz gold coins for face value.
In God We Trust.... all others pay in Gold and Silver!
To be money it must also be a store of value in itself.
Groucho Marx
<< <i>OnlyGoldisMoney leaves no doubt to how he feels on the subject. I was hoping he would show up
MJ >>
Hi MJ, this definitely is my kind of thread.
It should be interesting at the local coin shop this weekend.
https://www.pcgs.com/setregistry/gold/liberty-head-2-1-gold-major-sets/liberty-head-2-1-gold-basic-set-circulation-strikes-1840-1907-cac/alltimeset/268163
<< <i>To be money it must also be a store of value in itself. >>
Like the dollar bill is?
Give Me Liberty or Give Me Debt
Going back to a gold standard doesn't stop banks from cheating on it. The rules need to be changed once again. Private banks shouldn't be allowed to use a fractional reserve ratio. That's a scam right from the get go. There's been plenty of precedent for a currency to work as long as it doesn't automatically put us in debt to issue it. The debt is never retired, so it grows to an unfathomable level as we see today....to the point where paying the interest on it is almost beyond our reach. If we go on a gold standard and put private banks in charge of it again, they will expand and contract just as they have with fiat, whenever it benefits them. Most of the problems with 19th century banking come down to either central banks or private banks cheating on the standard. A return to a gold standard is of no help if all these other areas aren't cleaned up. And even with a gold standard there is still going to be some form of paper transactions (ie paper/plastic/digi-currency or real bills) to cover short term transactions. The lack of a real bills doctrine killed the gold standard from 1920-1933. In essence we left the gold standard behind for good in 1914, first by ignoring it during WW1 to pay for everything, then after the war by not restoring all facets of a fully workable gold standard. Central banks got it just the way they wanted.
Whatever we do about the current situation, eliminating debt-based monetary systems in the important thing. Those benefit the central bankers, govts, big money, and no one else.
roadrunner
I support:
No debt.. the government can't make debt.
The government must balance the budget every year.
No more fractional reserve system. Banks have to loan from real cash reserves.
No more private Federal Reserve Banks.
Money must be backed with basket of PM and Commodities. (A basket of items so large that no one can "corner the market" and control liquidity.)
In God We Trust.... all others pay in Gold and Silver!
comes a measure of trust, with verification of some but not all parts. No real way to verify everything.....unless you put me in charge right after I finish my audit of Fort Knox for
a cool $Million....
roadrunner
I know gold isn't money, it's tradition, Ben made that clear, but ahhh... someone thought it was a good idea
to confiscate tradition. Of course this order has to be modified, there are no gold
certificates. Coming to a PO near you, hopefully not.
When FDR issued that order in 1933 it wasn't technically legal. When the govt prosecuted a large bullion holder later than year the judge determined that the order was illegal since it was required to be signed by the Treasury Secretary. That was soon rectified. Note that the order in the previous post is signed by then Treasury Secretary William H. Woodin, also noted for being an avid numismatist and co-author of a treatise on US Patterns. Credit is given to Woodin for putting in the exception for "collector gold coins" into the executive order.
Woodin resigned due to ill-health at the end of 1933 after less than a year in office. He died the following year. Possibly the outcome of the confiscation of the 1933 Saints might have proceeded a bit differently had he lived longer.
roadrunner
Very interesting RR, I was not aware he collected coins.
How was the determination made what was collectable and what was not?
I have a few pre-33 gold coins, they're all collectable to me.