Permalink to The Return of Gold

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.

Like this post? Want to comment? Join Ricochet’s growing community of conservatives and be part of the conversation. Get your first month free.

Members have made 53 comments.

  1. 1
  2. 2
  1. Profile photo of Keith Preston Member

    …and his comments the other day were incredibly stupid.

    • #1
    • January 18, 2013 at 3:51 am
  2. Profile photo of JimGoneWild Member

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

    • #2
    • January 18, 2013 at 4:15 am
  3. Profile photo of EJHill Member

    There’s nothing like the touch of gold…

    Gold-Standard.jpg

    • #3
    • January 18, 2013 at 4:24 am
  4. Profile photo of Paul A. Rahe Contributor

    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?

    • #4
    • January 18, 2013 at 4:44 am
  5. Profile photo of Roberto Inactive

    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

    • #5
    • January 18, 2013 at 4:55 am
  6. Profile photo of Chris Campion Thatcher
    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.

    • #6
    • January 18, 2013 at 5:16 am
  7. Profile photo of The Mugwump Inactive
    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.

    • #7
    • January 18, 2013 at 5:22 am
  8. Profile photo of Nick Stuart Thatcher
    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.

    • #8
    • January 18, 2013 at 5:30 am
  9. Profile photo of Joseph Eagar Member

    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).

    • #9
    • January 18, 2013 at 5:33 am
  10. Profile photo of Robert Promm Inactive
    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.”

    • #10
    • January 18, 2013 at 5:39 am
  11. Profile photo of Larry L Inactive

    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.

    • #11
    • January 18, 2013 at 6:25 am
  12. Profile photo of Nathan Harden Contributor

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

    mrtintro.jpg

    • #12
    • January 18, 2013 at 6:27 am
  13. Profile photo of Southern Pessimist Member
    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.

    • #13
    • January 18, 2013 at 6:32 am
  14. Profile photo of Fred Cole Member
    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.

    • #14
    • January 18, 2013 at 6:57 am
  15. Profile photo of jetstream Inactive
    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. 

    • #15
    • January 18, 2013 at 7:03 am
  16. Profile photo of Cunctator Inactive

    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)

    • #16
    • January 18, 2013 at 7:08 am
  17. Profile photo of BrentB67 Inactive
    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
    • January 18, 2013 at 7:28 am
  18. Profile photo of James Of England Moderator
    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
    • January 18, 2013 at 7:35 am
  19. Profile photo of Jim Ixtian Inactive
    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.

    • #20
    • January 18, 2013 at 7:47 am
  20. Profile photo of Fred Cole Member
    James Of England

    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. 

    James knows this, I’m sure, but I’ll point out to those of you who don’t know, 1972 is significant because Nixon dumped the gold standard in Aug 1971, and wars aside, the price of gold is pretty much a flat line until 1972, then its a roller coaster

    But also, if you want to put money into something where you knew that if the whole world went to [expletive] and the economy crashed, until about 10 years ago, gold was a safe bet because it never goes down to zero.

    • #21
    • January 18, 2013 at 7:58 am
  21. Profile photo of Joseph Eagar Member
    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. · 20 minutes ago

    Looking at the article, it looks like the problem isn’t that the gold isn’t there, it’s that no one knows for sure who owns it, or there might be multiple ownership claims.

    • #22
    • January 18, 2013 at 8:10 am
  22. Profile photo of Inactive
    Anonymous

    We are going the real estate route, but will offer this personal story. My dad bought bulk silver coins in the 90’s. Although given to us, my mom is in assisted living now and almost ready for medicaid (savings/investments/property to sell almost gone). These coins will keep her going for quite awhile now even after taxes. We talked to a trader and he laughed and said people come in with their parents ‘buried’ (literally) silver all of the time these days. It’s true that the price needs to be right when you’re ready to cash in however it wasn’t entirely stupid, was it? Maybe hiding some money under a mattress only seems conspiratorial until it’s needed no matter how long ago the last instance was.

    • #23
    • January 18, 2013 at 8:25 am
  23. Profile photo of James Of England Moderator
    Fred Cole
    James Of England
    ….But also, if you want to put money into something where you knew that if the whole world went to [expletive] and the economy crashed, until about 10 years ago, gold was a safe bet because it never goes down to zero. ·

    a: That’s setting a very low bar for “safe”. If you were concerned that Reagan was going to bring the whole world to [expletive] and crash the economy, you’d have lost a third of your savings in his first year. That’s not losing everything, but it’s nowhere near as safe as, eg., government bonds.

    b: The last time that the US economy properly crashed, FDR seized gold at a little over half price, making retention of the stuff a felony. Again, not a zero return, but less safe than bonds. Even investing in shares was less of a disaster, assuming a ten year holding period that didn’t see you buying in 1929, right at the peak. Even if you purchased at the worst point in history, you weren’t much worse off than if you invested in gold. Can you trust Obama to be less bad than FDR?

    • #24
    • January 18, 2013 at 8:32 am
  24. Profile photo of Fred Cole Member
    James Of England

    [snipped for word limit only]

    b: Can you trust Obama to be less bad than FDR?

    a: Yes, if you bought gold when it was high under Carter or Reagan, you would take a bath on it later. So, Dr. Rahe, don’t buy it now. Buy it later, when the price drops back to Earth.

    And govt bonds only work if you trust the government.

    b: Yes. FDR was a master politician. Obama ain’t. He’s thumb fingered, inexperienced (even now) and unimaginative. FDR did things. Obama just wants to look like he’s done things.

    • #25
    • January 18, 2013 at 8:43 am
  25. Profile photo of Robert Promm Inactive
    BlueAnt: By the way, it’s not just a reversion to gold, silver is coming back too. The US Mint has run out of silver coins:

    As we noted earlier this month, the demand for both gold and silver “physical” coins has been record-breaking as 2013 began. So much so, that now after selling over 6 million silver coins in 2013 so far, the US Mint has run out of silver eagles and has suspended sales.

    There’s probably some speculation going on, but it’s hard to interpret the move towards physical precious metals (by both the public and central banks) as anything less than a loss of confidence in modern currency. · 8 hours ago

    Buy Canadian Maple Leaf silver coins they are .9999 while Eagles are only .999 and the Canadian coins are cheaper!

    • #26
    • January 18, 2013 at 8:49 am
  26. Profile photo of James Of England Moderator
    Fred Cole
    James Of England

    [snipped for word limit only]

    b: Can you trust Obama to be less bad than FDR?

    a: Yes, if you bought gold when it was high under Carter or Reagan, you would take a bath on it later. So, Dr. Rahe, don’t buy it now. Buy it later, when the price drops back to Earth.

    And govt bonds only work if you trust the government.

    b: Yes. FDR was a master politician. Obama ain’t. He’s thumb fingered, inexperienced (even now) and unimaginative. FDR did things. Obama just wants to look like he’s done things. ·

    a: Nothing works without trust in the government. If you inherited money as a young man in Iraq in 1958 at the height of its wealth, there is not a single domestic thing you could have invested in that would have assured you a comfortable retirement. Nothing. You could have invested abroad, sure, but that involves trusting a foreign government.

    b: Even really dumb politicians can pillage the wealth of the “rich”, particularly if there is an exciting crisis (2007-2010 was not a sufficiently exciting crisis). Plus, gold buggery leans Republican. Remember the auto dealerships.

    • #27
    • January 18, 2013 at 9:08 am
  27. Profile photo of Xennady Member
    Paul A. Rahe: The inflation is already priced in.

    Is it?

    I still recall a post at zerohedge by Gonzola Lira who made a case that the run up in the price of gold in the 1970s was an incipient hyperinflation averted only by Paul Volker’s brutally high interest rates.

    A similar policy today would wreck the US government as a rise in interest rates would create an unsustainable financial situation for the US government.

    So I’m not sure I’d say inflation is already priced in our present situation.

    • #28
    • January 18, 2013 at 9:13 am
  28. Profile photo of Fred Cole Member
    James Of England

    a: Lots of things work without trust in the government. The whole point of gold is that unlike money, unlike stocks, unlike bonds, its value can never be zero. If the government of the United States were to collapse tomorrow, gold will still have value, everything else is toilet paper.

    And government cannot make the value of gold zero. It can confiscate it, or try to, but that’s it.

    b: Even dumb politicians can pillage. But manipulating the Federal government to be able to do so like FDR did takes more skills than Obama has.

    Our saving grace as a nation is that Obama lacks skill or imagination and that the Constitution makes it slightly harder for tyrants to do everything they want to do.

    c: “Gold buggery” leans Republican because the small percentage of people who are gold bugs are so because they don’t trust the government. And in an extremely rough way, that correlates slightly to Republicans. You don’t get Democratic gold bugs because Democrats trust government to be sweetness and light.

    • #29
    • January 18, 2013 at 9:21 am
  29. Profile photo of Robert Promm Inactive
    Fred Cole
    James Of England

    a: Lots of things work without trust in the government. The whole point of gold is that unlike money, unlike stocks, unlike bonds, its value can never be zero. If the government of the United States were to collapse tomorrow, gold will still have value, everything else is toilet paper.

    The value of toilet paper is never zero either. I couldn’t resist. 🙂

    • #30
    • January 18, 2013 at 9:29 am
  1. 1
  2. 2