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The Return of Gold

In the London Telegraph, a fascinating column by Ambrose Evans-Pritchard. Excerpts:

The world is moving step by step towards a de facto Gold Standard, without any meetings of G20 leaders to announce the idea or bless the project.

Some readers will already have seen the GFMS Gold Survey for 2012 which reported that central banks around the world bought more bullion last year in terms of tonnage than at any time in almost half a century.

They added a net 536 tonnes in 2012 as they diversified fresh reserves away from the four fiat suspects: dollar, euro, sterling, and yen….

Neither the euro nor the dollar can inspire full confidence, although for different reasons. EMU is a dysfunctional construct, covering two incompatible economies, prone to lurching from crisis to crisis, without a unified treasury to back it up. The dollar stands on a pyramid of debt. We all know that this debt will be inflated away over time – for better or worse. The only real disagreement is over the speed….

We may not be experiencing inflation yet, but central bankers in Russia, China, and elsewhere are reducing their holdings of dollars in favor of gold.

Thank you very much, Ben Bernanke.

  1. Keith Preston

    …and his comments the other day were incredibly stupid.

  2. JimGoneWild

    The price of oil against gold has hardly changed in the last 40 years. The world loves gold, the politicians hate it.

  3. EJHill

    There’s nothing like the touch of gold…

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  4. Paul A. Rahe
    C

    I have been puzzling where a man in his mid-60s ought to put his money. Gold seems to me increasingly risky. The inflation is already priced in. Methinks real estate might be a good bet. What else?

  5. Roberto

    The return of a Gold Standard is not something to hold one’s breath for I would say, even if only a de facto one. Still there is some rather interesting movement in this area:

    Germany’s central bank said it would repatriate some of its gold reserves from France and the U.S., bowing to pressure both from Berlin and from a remarkable grass-roots campaign by the populist press…

    Starting this year, the Bundesbank will remove 300 metric tons of gold from the New York Fed, representing 8% of the total it keeps there. The Bundesbank will also repatriate all of the 374 tons of gold it has kept on deposit at the French central bank. The gold transported has a current market value of €27 billion ($36 billion), the German central bank said.

    Interesting.

    I do find this particular observation by Ambrose Evans-Pritchard to be significant:

    The fact that this popular pressure exists – and is well-organised – reflects a breakdown in trust between the major democracies and economic powers

  6. Chris Campion
    Paul A. Rahe: I have been puzzling where a man in his mid-60s ought to put his money. Gold seems to me increasingly risky. The inflation is already priced in. Methinks real estate might be a good bet. What else? · 12 hours ago

    This one’s easy:  In the lap of a Vegas showgirl, of course.

    The real, less hilarious answer depends on what you want to do with the money, and when.

  7. The Mugwump
    Paul A. Rahe: I have been puzzling where a man in his mid-60s ought to put his money. Gold seems to me increasingly risky. The inflation is already priced in. Methinks real estate might be a good bet. What else? · 29 minutes ago

    Commodities like metals, timber, oil, and natural gas usually rise with inflation.  At least that’s the theory.    

  8. Nick Stuart
    Paul A. Rahe: I have been puzzling where a man in his mid-60s ought to put his money. Gold seems to me increasingly risky. The inflation is already priced in. Methinks real estate might be a good bet. What else? · 44 minutes ago

    Ammunition, coffee, tobacco, aspirin, and so forth; and bunker to keep them in.

  9. Joseph Eagar

    There isn’t enough gold in the world to meet the world’s demands for foreign exchange reserves.  The price of gold is itself unstable. Besides, a true gold standard would take a great deal of government intervention in the economy; at one point in the 60s, Keynesian interventionists favored gold for that reason.  Fixed exchange rates actually make Keynesian fiscal policies more effective (even necessary).

  10. Robert Promm
    Paul A. Rahe: I have been puzzling where a man in his mid-60s ought to put his money. Gold seems to me increasingly risky. The inflation is already priced in. Methinks real estate might be a good bet. What else? · 47 minutes ago

    Unit price of gold is high — even at 1/10th ounce coins.  Suggest that you look at silver.  “Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves.”

  11. Larry L

    Unfortunately, I would imagine that a return of inflation ala the 1970s or worse, would bring about the situation we had back then – people chasing ROI as fast as possible as loan rates skyrocketed.  My first paralegal job back then was for a NY sole practitioner and I remember assisting in a closing on a co-op – the purchasers signed on the dotted line for a mortgage at 21%, and they felt relieved to have gotten in for that rate!  For a glorified apartment!   Lord, I really would not like to go back to those days, but I’m afraid we’re fast chasing that scenario.

  12. Nathan Harden
    C

    So what you’re saying is, Mr. T will soon be the richest man in the world?

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  13. Southern Pessimist
    Paul A. Rahe: I have been puzzling where a man in his mid-60s ought to put his money. Gold seems to me increasingly risky. The inflation is already priced in. Methinks real estate might be a good bet. What else? · 1 hour ago

    On the NRO cruise, Alan Reynolds said (I believe) that for the first time in his life he is investing in gold and Florida real restate. That worked out pretty well for Henry Flagler a very long time ago and will probably work out well again.

  14. Fred Cole
    Paul A. Rahe: I have been puzzling where a man in his mid-60s ought to put his money. Gold seems to me increasingly risky. The inflation is already priced in. Methinks real estate might be a good bet. What else? · 13 hours ago

    Traditionally the price of gold is stable.  Yeah, inflation is already built in.  Also, there’s lot of scams.  If you were to put your money in gold, you’d want to be in physical possession of it.

    Gold at this point isn’t a good investment if you want return on your investment.  It’s better if you’re anticipating societal collapse.

  15. jetstream
    Paul A. Rahe: I have been puzzling where a man in his mid-60s ought to put his money. Gold seems to me increasingly risky. The inflation is already priced in. Methinks real estate might be a good bet. What else? · 1 hour ago

    Paul, don’t use the late 70s as the predictive model for our current economic quagmire.  Neither the boundary conditions nor the dynamics are in anyway the same or even remotely similar.  Even thought the Fed has added well over 2 trillion dollars to it’s balance sheet and mortgage rates are 3.2%, most people and businesses would rather hold their assets in dollars than invest in physical assets like real estate … that’s the definition of deflation …

    Ricochet should consider setting up a permanent mechanism for this exact discussion. 

  16. Cunctator

    What hasn’t been mentioned so far here is that Germany is asking for all of its gold back from the USAZerohedge mentions that its gonna take SEVEN years for that to happenhttp://www.zerohedge.com/news/2013-01-16/it-will-take-fed-seven-years-deliver-300-tons-german-goldI always thought Ron Paul was kinda weird asking for that audit on the gold at Fort Knox.(Sorry for no embedded hyperlink, posting from an iPad)

  17. BrentB67
    Paul A. Rahe: I have been puzzling where a man in his mid-60s ought to put his money. Gold seems to me increasingly risky. The inflation is already priced in. Methinks real estate might be a good bet. What else? · 14 hours ago

    I think land is a good place. Gold’s inverse relationship to the $Dollar is going to make for a volatile ride.

  18. James Of England
    Fred Cole

    Paul A. Rahe: I have been puzzling where a man in his mid-60s ought to put his money. Gold seems to me increasingly risky. The inflation is already priced in. Methinks real estate might be a good bet. What else? · 13 hours ago

    Traditionally the price of gold is stable.  Yeah, inflation is already built in.  Also, there’s lot of scams.  If you were to put your money in gold, you’d want to be in physical possession of it.

    Gold at this point isn’t a good investment if you want return on your investment.  It’s better if you’re anticipating societal collapse.

    Traditionally in the sense of “for hundreds of years, a few moments of Spanish excitement aside until 1972″, yes, but you can’t possibly look at the prices since 1972 and see stability. “Don’t invest too much in things that sometimes lose 20% or 1/3 of their value in a year” is not all you need to know for retirement planning, but it is one thing that you ought to know. True, Gold has also been known to gain 72%, but that’s not what “stable” means, either.

  19. Jim  Ixtian
    Erik Larsen: What hasn’t been mentioned so far here is that Germany is asking for all of its gold back from the USA. Zerohedge mentions that its gonna take SEVEN years for that to happen. I always thought Ron Paul was kinda weird asking for that audit on the gold at Fort Knox.

    Here’s the link.

    I never used to buy into Ron Paul & GATA’s claim that the gold in various depositories like Ft. Knox had IOU’s of some form in their place. However, if that article about Germany’s 7 year gold repatriation plan is accurate, Paul & GATA might be on to something. 

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