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Anti-gold fever (The price of Gold is sending us a message we should not ignore)
Financial Post ^ | 11/11/2010 | Terence Corcoran

Posted on 11/11/2010 5:34:05 PM PST by WebFocus

Nothing matches monetary theory and currency issues as a source of delirium among economists. As the G20 gets underway today in South Korea, name-calling has taken the place of diplomacy. The German Finance Minister called the U.S. Federal Reserve’s US$600-billion money-printing operation “clueless,” while Bank of Canada governor Mark Carney says he has “absolute confidence” in the program.

Somebody mentioned gold, and the swords are drawn again. Not a chance, said Mr. Carney. A good idea, said Robert Skidelsky, a leading Keynesian who says it’s a golden opportunity to reform the world monetary system. Meanwhile, the man who started the gold rush, the World Bank’s Robert Zoellick, says he didn’t propose a full return to a gold standard. His objective, he said, was to point out that the gold price is sending a message that the policy fundamentals within the G20 are rotten. And that’s a message — with gold at US$1,400 an ounce — that can’t be ignored.

All of which is a sure sign that world leaders, under the auspices of the G20, are assembling for another round of confidence-building meetings, at the end of which the return of confidence will seem even more remote than it is today. Surprise agreements on trade and bank regulation, or even climate-change policy, are possible, but expectations are not high.

Certainly there will be no clear outcome on currency reform and global trade imbalances, the main lightning rod for conflict at the G20. However, the sudden appearance of gold as an issue, unwelcome by central bankers, has in some ways helped to galvanize and renew an important ideological battle. Unfortunately, it is not a battle that is likely to clear the air. There will certainly be no reference to gold in any final communiqué. But as the price of gold soars, it draws attention to the failures and weaknesses of the world’s paper-money system and its inherent inflationary risks.

Outside of the global investment community, which has pushed gold to record nominal values, official policy circles would prefer to talk about rebalancing world trade and finding ways to manipulate currencies or new techniques for printing money by the trillions of units. Then along came Mr. Zoellick, former U.S. trade rep and now head of the World Bank, who dropped the gold bomb in an op-ed in the Financial Times.

In a general overview of the state of the world economy and the role of the G20 in failing to be a model of international co-operation, Mr. Zoellick suggested that the world needs more than just currency reform and trade rebalancing. Currency reform is fine, he said, but it’s a long-term project that must be accompanied by specific policies aimed at trade liberalization, privatization and fiscal reform.

On currencies, he suggested a new “co-operative monetary system” that would replace the U.S. dollar as the main reserve currency in a new regime that involved the dollar, the euro, the yen, the pound and the yuan, after China moves toward internationalization and an open capital account. Then he said: “The system should also consider employing gold as an international reference point of market expectations about inflation.”

In an interview yesterday on CNBC, Mr. Zoellick clarified his position. The objective, he said, is to instill private-sector confidence in the global currency and trade system.

* The point on gold, and this is the golden elephant in the room, whether people recognize it or not, it is being used as an alternative monetary asset. So I’m not saying return to the gold standard as a control of money stock. But what I’m saying is the price of gold has been telling people is that there is a lack of confidence in some of the fundamental growth policies. So gold in that sense is a reference point, it’s an indicator. Now people might wish it wasn’t so. But I’m describing the facts as they see it and saying to policymakers: “You have to recognize what this says about the fundamentals of the policy you are pursuing.” [You can’t achieve confidence with] exchange rates and rebalancing alone…. You want to get the private sector back engaged. The time of government fiscal expansion and programs has run its course.

Current-account rebalancing and currency reform won’t work alone. They might even be secondary. “These currency rebalancings and adjustments will be a lot easier if everybody’s growing. That goes back to growth fundamentals. And it will certainly be a lot easier if people are opening markets as opposed to threatening to close them.”

All very sensible, although the ideas behind monetary policy and global currency systems are a snake pit of conflict and ideology. The mere mention of gold as part of any system drives most Keynsian economists to distraction, reflecting John Maynard Keynes’ claim that gold is a “barbarous relic” and his diligent efforts to keep it out of the world monetary system. Keynes, however, had a contradictory opinion on everything, a point made obvious by Mr. Skidelsky, a Keynes biographer, who wrote yesterday in the Financial Times that Keynes would likely have approved of Mr. Zoellick’s use of gold.

As Mr. Skidelsky interprets the idea, the result of Mr. Zoellick’s proposal would be a new global currency system built around a “super sovereign reserve currency” with some kind of reference to gold as an anchor. This would fit with Keynes’ idea that “gold would be useful as a constitutional monarch, but disastrous as a despot.”

All in all, the sudden attention paid to a new gold standard is likely to fade. The prospect for some new gold standard is zero. As a result, the future of the world monetary system — even under some new super sovereign reserve — seems destined to ease quantitatively toward a new structure where inflationary paper continues to trump gold.


TOPICS: Business/Economy; Culture/Society; News/Current Events
KEYWORDS: gold; message; price

1 posted on 11/11/2010 5:34:17 PM PST by WebFocus
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To: WebFocus

Reads like someone is trying to effect the price of Gold.


2 posted on 11/11/2010 5:39:43 PM PST by Marty62 (Marty 60)
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To: WebFocus

I can’t wait to take my ounce of Gold to MacDonalds for a Big Mac with Fries....


3 posted on 11/11/2010 5:42:02 PM PST by tubebender
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To: WebFocus

This is a Golden opportunity to do a reverse split on the dollar,,an item that cost 10 bucks before would cost 1 new dollar if the reverse split were 1 for ten. And we better be the first to do this and let other nations follow suit as it suits them. Copper would then be 30 cents a lb. and the penny would be worth something.


4 posted on 11/11/2010 5:46:58 PM PST by Waco (From Seward to Sarah)
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To: tubebender

“I can’t wait to take my ounce of Gold to MacDonalds for a Big Mac with Fries....”

Your ounce of gold should be good for a family dinner with all the trimmings at the very best restaurant in town. And it always will, since gold holds it’s purchasing power over time.

For your McDonald’s meal a silver dime or two should be enough.


5 posted on 11/11/2010 5:50:08 PM PST by devere
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To: tubebender
I can’t wait to take my ounce of Gold to MacDonalds for a Big Mac with Fries....

If Bernacke has his way, it might take two of 'em. ;-)

6 posted on 11/11/2010 5:51:25 PM PST by Oatka ("A society of sheep must in time beget a government of wolves." –Bertrand de Jouvenel)
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To: tubebender
[ I can’t wait to take my ounce of Gold to MacDonalds for a Big Mac with Fries....]

Take your Krugerrands to the bank.. and they would dearly love to give you fiat paper..
-OR- take beaucoup amounts of paper(raising daily) plus fees for another Krugerrand..

7 posted on 11/11/2010 5:58:22 PM PST by hosepipe (This propaganda has been edited to include some fully orbed hyperbole....)
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To: tubebender

Will you take five dollars for that ounce today?


8 posted on 11/11/2010 5:59:47 PM PST by Misterioso
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To: tubebender

Your ounce of gold is worth more then 1400.00 a troy ounce..that would be pretty silly to put it into a burger.


9 posted on 11/11/2010 6:00:37 PM PST by celtic gal
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To: Oatka

“if Bernacke has his way, it might take two of ‘em. ;-)”

If Bernacke has his way you might be able to buy the entire MacD restaurant with your oz.


10 posted on 11/11/2010 6:07:50 PM PST by Phillipian (Post Tenebras Lux)
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To: tubebender

“I can’t wait to take my ounce of Gold to MacDonalds for a Big Mac with Fries.”

The franchise owner will become your new best friend.


11 posted on 11/11/2010 6:17:44 PM PST by ScottfromNJ
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To: devere; WebFocus
"Your ounce of gold should be good for a family dinner with all the trimmings..."

I think you are missing his point. It is one I agree with, to some extent, too.

I mean, what exactly do you DO with gold? Can you go to McDonalds and get that happy meal with it? No. In fact, there isn't anything you can do with gold itself without breaking it down into some sort of local currency. And once you've done that, now you have that worthless currency and NOT the gold.

Quite a dilemma.

12 posted on 11/11/2010 6:18:50 PM PST by Mobile Vulgus
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To: WebFocus

I agree with the German Finance Minister.


13 posted on 11/11/2010 6:21:41 PM PST by july4thfreedomfoundation (2010 was the start of the house cleaning......on to 2012 for further victories!)
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To: ScottfromNJ

and the change the owner gives me will be worth what by the time I get home. I am buying non-perishables in quantity which will be far more valuable then your fools gold but I do have a few pounds of silver coins...


14 posted on 11/11/2010 6:36:42 PM PST by tubebender
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To: tubebender

Obviously, you lack the basic understanding of how gold works.

Last i checked, you cannot receive sustenance from the dollar bill... Yet, people gather these to get food. How?

They exchange the increasingly worthless paper for the perceived value... A number of burgers.

Gold introduces another layer to that equation, abstracting your buying power into a commodity that transcends any one currency. In so doing, it holds the buying power of the money you bought the gold with.

As an example, you can buy a loaf of bread for about $3 right now. Same with a gallon of gas. With gold @ $1400/oz, that money has a buying power which enables you to purchase about 466 loaves of bread or gallons of gas. If gold shot to just $2800/oz... Bread would be around $6/loaf. Selling your gold and receiving the $2800 would allow you to still buy 466 loaves. If you kept your $1400 in cash in your mattress, you’d only get about 233 loaves, showing a reduction in buying power and the devaluing of the dollar (investigate the price of gold & bread in Jan 2008... Then compare to today)

There are plenty of similar explanations available, doing your homework before spouting off would help reduce the likelihood of appearing uneducated

Additionally, swapping between gold and silver, trading on the ratio lag, can result in a tidy advance of your buying power


15 posted on 11/11/2010 6:43:24 PM PST by sten
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To: Mobile Vulgus

Seriously? This has you flummoxed?

If you bought before 0dumbo won the election, it would have cost you about $700/oz... silver about $9/oz. As the gold to silver ratio was about 78:1 ... I’d buy silver.

Today, the ratio is about 52:1 and your 78 pieces of silver would be worth $2106. If you felt this was it, you could buy 1 ounce of gold for $1400, and hang onto the remaining $706 (your original investment) in cash if you liked... Though I wouldn’t recommend it.

Instead, buy the gold with 52 pieces of silver, sell one for $27 to buy lunch... And hang onto the remaining 25 pieces.

Personally, once the ratio hits 45:1, I’d convert to gold and wait for the ratio to go back up before jumping back to silver.


16 posted on 11/11/2010 7:02:57 PM PST by sten
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To: Marty62
Reads like someone is trying to effect the price of Gold.

Good luck with that, unless your spouse sits on the commodities desk at Goldman Sachs.


Frowning takes 68 muscles.
Smiling takes 6.
Pulling this trigger takes 2.
I'm lazy.

17 posted on 11/11/2010 7:13:28 PM PST by The Comedian (Time and tide wait for no man. But who needs a bad magazine and cheap soap?)
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To: sten

“Seriously? This has you flummoxed?”

And WHO exactly is set up to take your gold and silver?

If you went to McDonalds and handed them hunks of gold or silver and asked for change, what do you think they’d do?

I’ll tell you what they’d do. They’d say “Get out. We can’t take this stuff.”

Hence the problem.

Eventually you’d STILL have to trade your gold or silver in for local cash. And then you would no longer have that great gold and/or silver.


18 posted on 11/11/2010 7:14:08 PM PST by Mobile Vulgus
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To: Mobile Vulgus

The whole point of keeping gold or silver is to increase in value as the dollar tanks. As it takes more and more dollars to buy that loaf of bread, if you have gold you can cash it in for dollars and get enough to buy the groceries. If you keep the cash you won’t have enough to one slice of bread.


19 posted on 11/11/2010 7:18:20 PM PST by Terry Mross
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To: Mobile Vulgus
I mean, what exactly do you DO with gold?

I swapped a one oz. coin for a goodly quantity of ammunition.

20 posted on 11/11/2010 8:05:48 PM PST by Lion Den Dan
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To: Lion Den Dan

Now THAT is a good trade. But you would not have been able to do that at WalMart or McDonalds which was my point.


21 posted on 11/11/2010 8:14:06 PM PST by Mobile Vulgus
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To: Mobile Vulgus

Your question certainly deserves serious answers, and some have given you these. I will add to them, if I may.

What you do with your gold or silver depends on the developing civil situation.

If we have inflation, but the basic economy is still functional with government currency, then you have the foresight to keep your precious metals stash in small enough denominations that you can turn them into currency little by little through precious metals dealers. (Remember, this is the scenario where organized trade and other civil infrastructures are still operating.)

On the other hand, if things go from bad to worse, you will find people going off the near-or-completely worthless government fiat currency. A market in barter will develop in no time, guaranteed. And some of that ‘barter’ will actually be goods and services for acceptable media of exchange—namely, precious metals; and this is not really barter, it’s trading with actual money.

Once again, it will be advantageous to have small denominations of gold, or silver in reasonably small coins, because it will indeed be difficult to get change for a 1 oz gold coin at the McDonald’s. Money changers will be available to break the larger denomination (i.e., weight) coins into smaller.

Those with this real kind of money will also possess a prudent amount of lead and brass to protect it.


22 posted on 11/12/2010 12:24:09 AM PST by Erasmus (Personal goal: Have a bigger carbon footprint than Tony Robbins.)
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To: Mobile Vulgus

My father in law, buys tenth ounce gold coins rather than the ounce variety. They are small enough to use as “local currency”. I like the idea, except that now is not gold buying time IMHO. His 30 or so tenth ounce coins are worth about 140 dollars each, instead of the normal 35 dollars, and will always be worth something even when paper is worth nothing.


23 posted on 11/12/2010 3:43:55 AM PST by wita
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To: WebFocus

If folks start pulling money “out of gold”, then where will they put it?
The stock market? not.
Real estate? not.
Manufacturing? not.
Where?


24 posted on 11/12/2010 3:51:52 AM PST by Repeal The 17th
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To: Mobile Vulgus
I think you are missing his point. It is one I agree with, to some extent, too. I mean, what exactly do you DO with gold? Can you go to McDonalds and get that happy meal with it? No. In fact, there isn't anything you can do with gold itself without breaking it down into some sort of local currency. And once you've done that, now you have that worthless currency and NOT the gold.

I'm missing your point. I can't take a share of IBM, a CD, my 401K to McDonalds either but have to turn it into worthless cash.

25 posted on 11/12/2010 4:02:31 AM PST by bkepley
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To: sten

Good post but freepers poor education about real money, gold and silver, is merely a reflection of the larger society. The number of Americans owning gold/silver via an ETF or a mining stock or via physical possession isn’t more than 1%. Americans have been brainwashed by a flood of paper money and plastic money. By mythical money in banks that exists only on a computer hard drive

Life has been good here and has softened peoples brains to the point they prefer paper money over gold and silver. This mentality does not exist in other countries where they have a much healthier skepticism about Gov’t issued paper money

What will cause gold/silver to explode upwards to the moon is when the derivatives overhang comes crashing down. The Feds cannot inflate our way out of that mess. Jim Sinclair said that


26 posted on 11/12/2010 4:28:37 AM PST by dennisw (- - - -He who does not economize will have to agonize - - - - - Confucius.)
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To: WebFocus

Gold has inserted its self as the standard by simply being.

No formal action was required by governments, the market for gold asserted its self and poof...gold again became the standard of floating currency value.

It should be remembered, governments do not act, the react. The G20 will react when the problems get really bad


27 posted on 11/12/2010 4:37:33 AM PST by bert (K.E. N.P. N.C. +12 ..... History is a process, not an event)
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To: Mobile Vulgus
But you would not have been able to do that at WalMart or McDonalds which was my point.

Not a problem as neither has anything that I want/need. When financial situation gets bad enough, alternative currencies will abound and float.

28 posted on 11/12/2010 6:20:41 AM PST by Lion Den Dan
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To: Mobile Vulgus
And WHO exactly is set up to take your gold and silver?

have you ever, even ONCE traveled to another country? what did you do with your dollars? most shops do their transactions in the local currency and are not 'set up' to receive dollars

oh, don't get me wrong... the local shop owners would be more then happy to take your dollars for you... as they are most likely not nearly as ignorant as you on currency exchanges.

29 posted on 11/12/2010 8:06:34 AM PST by sten
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