Nov. 14, 2010
-- Once again, the concept of a return to the gold standard rises like a gilded phoenix from the ashes of the post-QE2 US dollar. The last time the word “gold” was uttered in the same sentence as the phrase “new world reserve currency” was after the head of the People’s Bank of China (PBOC) proposed the creation of a new international reserve currency in March 2009 following the Federal Reserve’s initial foray into its $1.2trn quantitative easing experiment.
18 months, another $600bn in counterfeit cash promised to speculators and the real possibility of an escalation in the currency war and gold’s once-revered ability to impose limits on the extent to which a given central bank can expand its money supply is being discussed by none other than the head of the World Bank, Robert Zoellick.
“Although the gold market has become a little more mainstream, when someone like Mr. Zoellick speaks, investors listen. His comments represent a potential booster rocket under the price of gold”, a “Continental-
Trade” strategist said, alluding to comments Mr. Zoellick made in a Financial Times column, the most profound of which read:
“The [new monetary] system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”
Trade” strategist said that gold’s inclusion in any new monetary system would ensure that demand from the investment community would continue for decades and that investors holding physical gold would inevitably see the value of their gold rise.
“It should also be noted that the PBOC recently decided to open up its gold market to imports and exports of the metal which many, including “Continental-
Trade”, regard as an extremely bullish development because it allows the central bank to increase its gold reserves without disrupting the delicate balance of the international market as, for example, India’s central bank did when it purchased 200 tons of gold from the International Monetary Fund a year ago”, said the strategist.
Trade” said that whilst it does not expect a quick transition towards a new gold standard – a development that could take a decade to materialize given the snail-like pace of the process of achieving international political consensus on any issue besides war – Mr. Zoellick does draw investors’ attention to the fact that gold remains an important monetary asset despite being described by many a Keynesian economist’s text book as a “barbarous relic”.