Wednesday, October 26, 2011

Gold Price and the Rerun of the Gold Standard Debate

There are a rising number of articles that debate the possibility of returning
to the gold standard. I think this scenario has little chance of coming true as
it will take away many of the powers the central banks have and wont necessarily
reduce the speculation in the currency markets (a whole subject for a different
article). According to one article, the money manager that was interviewed
calculated the new gold price benchmark under a theoretical gold standard and
came up with $10,000; he made this calculation by dividing the U.S. Monetary
Base to the gold reserves of the Federal Reserve. Lets call this figure the gold
price standard. The talks of returning to the gold standard are partly due to
the increase in the currency risk in the past few years. But I suspect that the
sharp increase in gold price in the past three years is also one of the factors
that helped push the gold standard agenda to center stage. So the question here
is whether the sharp increase in gold price is a sign that we are closer today
than say three years ago from returning to gold standard. Does the gold price is
far away

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