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Title: Return of the Gold Standard as world order unravels
Source:
The Telegraph (UK)
URL Source: http://www.telegraph.co.uk/finance/ ... d-as-world-order-unravels.html
Published: Jul 15, 2011
Author: Ambrose Evans-Pritchard
Post Date: 2011-07-15 00:32:50 by Hondo68
Keywords: A new Gold Standard, a variant of the Bancor, a basket of 30 commodities
Views: 4145
Comments: 4
On one side of the Atlantic, the eurozone debt crisis has spread to the countries that may be too big to save - Spain and Italy - though RBS thinks a €3.5 trillion rescue fund would ensure survival of Europe's currency union. On the other side, the recovery has sputtered out and the printing presses are being oiled again. Brinkmanship between the Congress and the White House over the US debt ceiling has compelled Moody's to warn of a "very small but rising risk" that the world's paramount power may default within two weeks. "The unthinkable is now thinkable," said Ross Norman, director of thebulliondesk.com. Fed chair Ben Bernanke confessed to Congress that growth has failed to gain traction. "Deflationary risks might re-emerge, implying a need for additional policy support," he said. The bar to QE3 - yet more bond purchases - is even lower than markets had thought. The new intake of hard-money men on the voting committee has not shifted Fed thinking, despite global anger at dollar debasement under QE2. Fuelling the blaze, the emerging powers of Asia are almost all running uber-loose monetary policies. Most have negative real interest rates that push citizens out of bank accounts and into gold, or property. China is an arch-inflater. Prices are rising at 6.4pc, yet the one-year deposit rate is just 3.5pc. India's central bank is far behind the curve. "It is very scary: the flight to gold is accelerating at a faster and faster speed," said Peter Hambro, chairman of Britain's biggest pure gold listing Petropavlovsk. "One of the big US banks texted me today to say that if QE3 actually happens, we could see gold at $5,000 and silver at $1,000. I feel terribly sorry for anybody on fixed incomes tied to a fiat currency because they are not going to be able to buy things with that paper money." China, Russia, Brazil, India, the Mid-East petro-powers have diversified their $7 trillion reserves into euros over the last decade to limit dollar exposure. As Europe's monetary union itself faces an existential crisis, there is no other safe-haven currency able to absorb the flows. The Swiss franc, Canada's loonie, the Aussie, and Korea's won are too small. "There is no depth of market in these other currencies, so gold is the obvious play," said Neil Mellor from BNY Mellon. Western central banks (though not the US, Germany, or Italy) sold much of their gold at the depths of the bear market a decade ago. The Bank of England wins the booby prize for selling into the bottom at €254 an ounce on Gordon Brown's orders in 1999. But Russia, China, India, the Gulf states, the Philippines, and Kazakhstan have been buying. China is coy, revealing purchases with a long delay. It has admitted to doubling its gold reserves to 1,054 tonnes or $54bn. This is just a tiny sliver of its $3.2 trillion reserves. China's Chamber of Commerce said this should be raised eightfold to 8,000 tonnes. Xia Bin, an adviser to China's central bank, said in June that the country's reserve strategy needs an "urgent" overhaul. Instead of buying paper IOU's from a prostrate West, China should invest in strategic assets and accumulate gold by "buying the dips". Step by step, the world is edging towards a revived Gold Standard as it becomes clearer that Japan and the West have reached debt saturation. World Bank chief Robert Zoellick said it was time to "consider employing gold as an international reference point." The Swiss parliament is to hold hearings on a parallel "Gold Franc". Utah has recognised gold as legal tender for tax payments. A new Gold Standard would probably be based on a variant of the 'Bancor' proposed by Keynes in the late 1940s. This was a basket of 30 commodities intended to be less deflationary than pure gold, which had compounded in the Great Depression. The idea was revived by China's central bank chief Zhou Xiaochuan two years ago as a way of curbing the "credit-based" excess. Mr Bernanke himself was grilled by Congress this week on the role of gold. Why do people buy gold? "As protection against of what we call tail risks: really, really bad outcomes," he replied. Indeed.
As the twin pillars of international monetary system threaten to come tumbling down in unison, gold has reclaimed its ancient status as the anchor of stability. The spot price surged to an all-time high of $1,594 an ounce in London, lifting silver to $39 in its train.
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#1. To: hondo68 (#0)
Good article, but banks don't text. The quoted goldbug is full of BS, imho. However, FedBen says Gold isn't Money...Buy Gold, imho.
Yep, it's more evidence that the evil 20th century, with it's all encompassing state mentality is finally coming to an end. I agree that in the next 5 years, we're going to see a new international monetary order that is based on gold. We can't trust politicians to not manipulate their fiat currencies to buy votes and stay in power. With a gold-based standard, countries that try to do so will be punished by capital markets very quickly.
Let's take bets now. First of all gold will come off the commodities markets and which will piss lots of investors off. Then governments will have to decide how much it's worth otherwise they will never be able to create another budget.
Complete bullshit. It won't be deflation, with every central bank inflating... It's gonna' go to high inflation, perhaps hyper-inflation. The fiat-money system is collapsing. The only option left for fiat- money bankers, is to PRINT. And so they will. Exactly. When Greece finally defaults, they'll pull the rest of the EU down the tubes with them. If any of the other PIIGS group defaults, it'll be the same. We'll have maybe 1-2 weeks, before the interconnections cause the euro to collapse, and then the dollar (thanks, AIG!). The different governments will NOT go to a gold standard. If they did, they'd have to revalue their currencies against actual gold supplies. As of 2008, there was ~$60T of M3 cash, globally, and 5.32B ounces of gold, thus, $11278.20/ounce. They'll NEVER do it...
It used to be the leftists that had bumper-stickers that said things like "Question Authority.' Today they follow Orwells' mottos: War is peace. Freedom is slavery. Ignorance is strength. They blindly LOVE Big Brother. They believe competition, pride & profiting from ones labor, are evil things to be banished. Stephen King once observed, "The beauty of religion mania is that it has the power to explain everything... [and] …logic can be happily tossed out the window. This describes socialists. They will ignore logic and "common sense." They will ignore REALITY. Because THEY are religious zealots... Their God... is the STATE.
"One of the big US banks texted me today to say that if QE3 actually happens, we could see gold at $5,000 and silver at $1,000....
#2. To: hondo68 (#0)
Return of the Gold Standard as world order unravels
Any fourth grade history student knows socialism has failed in every country, at every time in history -- Vladimir Putin
#3. To: jwpegler (#2)
I agree that in the next 5 years, we're going to see a new international monetary order that is based on gold.
#4. To: hondo68 (#0)
Fed chair Ben Bernanke confessed to Congress that growth has failed to gain traction. "Deflationary risks might re-emerge..."
On the other side, the recovery has sputtered out and the printing presses are being oiled again.
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