Home > GOLD > Gold Price Nears $1,550, Time for a Gold Standard?

Gold Price Nears $1,550, Time for a Gold Standard?

June 6, 2011


GOLD PRICE NEWS – The gold price, at $1,542.50 per ounce, traded near unchanged Monday morning despite modest strength in the U.S. dollar.  While gold prices were flat, silver advanced higher by 1.5% to $36.79 per ounce.  Global equity prices have been under pressure over the past month with the S&P 500 falling for five consecutive weeks.  Weak data points in housing, manufacturing, and labor have all combined to heighten worries over the prospect of a double-dip recession.  Precious metals, notably gold, have benefited from their safe haven qualities as investors seek to lower their risk profiles.

The strong performance of the gold price in recent years has led to a growing collection of calls for the United States to return to a gold standard. Steve Forbes, the billionaire CEO of Forbes Inc., wrote a piece in Forbes Magazine urging candidates for the 2012 U.S. presidential election to consider returning to some form of gold standard to support the value of the U.S. dollar.

Forbes began the article by stating that “Monetary policy is one of those rare subjects that truly intimidate most people, which is why the Federal Reserve has less formal oversight–even though it can destroy our economy–than do our intelligence agencies. Politicos are loath to go beyond bromides when it comes to treating the dollar with respect.  Among the current crop of contenders only Representative Ron Paul (R–Tex.) unhesitatingly brings up the dire necessity of relinking the dollar to gold.”

“The economic profession and most bankers still labor under the Keynesian superstition that gold somehow caused the Great Depression and is a straitjacket that will inflict unemployment and misery,” Forbes continued. “The opposite is true. After the catastrophic inflation of the Revolutionary War our first Treasury chief, Alexander Hamilton, made it a point to fix the dollar to the yellow metal (as well as to silver). He figured that a sound dollar would encourage productive investment and attract capital from overseas. He was right. The U.S. boomed.”

Fast forwarding to today, Forbes compared the ascent of the gold price to a “gyroscope that has been spinning like crazy.” Currently, the U.S. is “in a 1970s-like malaise. The weak dollar is fueling speculation in commodities, currencies and farmland and is chasing off capital to Asia. Cheap money also undermines the value of capital, which is why we have subpar levels of business investment.”

Those considering opposing Barack Obama in 2012 “should fortify themselves with the knowledge that the disastrous housing bubble could never have occurred had the Fed not printed so much money,” Forbes asserted. “They should also dust off John Kennedy’s famous quote that the dollar should be as good as gold.”

Since the onset of the financial crisis, gold has slowly emerged as a currency alternative.  Central bankers willingness to sacrifice the U.S. dollar to spark economic growth has bolstered demand for gold and other precious metals.  While calls for austerity permeate in Washington D.C., there has been no concrete action taken.  The political will to sacrifice in the short-term for the benefit of the long-term is non-existent.  Gold is an anti-system bet, a wager that politicians and central bankers will continue to pursue the path of least resistance and give the masses anything and everything that they desire.  The current correction may not have run its course, but gold’s trend of higher lows and higher highs remains firmly intact.

Investment demand for gold remains strong.  The SPDR Gold Trust (GLD) is currently the second largest exchange-traded fund in the world and currently holds 39 million ounces of gold.  As long as policy makers downplay the importance of a stable currency, the higher the gold price will ultimately go.

Forbes contends that “The debate should be focused on what the best gold system is, not on whether we need to go back on one. A good sound bite for candidates: Which would you trust to protect the integrity of your money–a gold standard or Washington politicians?

  1. September 6, 2011 at 4:17 am

    A return to the gold standard is the only logical solution. However, logic seems to be a long way from the Fed’s decision making. A gold standard would prevent Bernanke from continuing to manipulate the dollar in an attempt to deflate away its debts.

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