Consider employing gold as an international reference point

Weekly Wanderings 10 November 2010

This week, the main points in the precious metals news have been the continued rises in the prices of the metals, the adoption of QE2 by the Fed, and the statement by the Head of the World Bank, Robert Zoellick, concerning gold’s role as part of the international monetary system.

1. Robert Zoellick speaks out
2. Fed adopts QE2 measure
3. Precious metals continue their rise

Robert Zoellick speaks out

The fact that someone is suggesting that gold should play a part in the international financial monetary system is not news in itself – many people in the precious metals community have been arguing this case over many years.

What is special here is that Zoellick is a pillar of the financial Establishment – he has a distinguished career in finance so he speaks with particular authority; his comments have to be taken seriously by others at high levels. In fact, as pointed out by Jim Rickards, he is only calling for a study of the part that gold might play in the overall system – Rickards points out that the project to launch the Euro took 10 years in development, and that a similar time scale is required realistically to return to any kind of gold standard. As part of his statement, Zoellick pointed out, perfectly accurately, that “although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today. ”

The timing was also interesting – just ahead of the G20 meeting.

[Editors note:  Since this was written Zoellick has made some further comment as reported in this reuters story below:

W.Bank chief says no gold standard, but its role key

* Says global policymakers need to acknowledge role of gold

* Does not believe world can return to fixed FX system (Adds details)

By Kevin Lim and Nopporn Wong-Anan

SINGAPORE, Nov 10 (Reuters) – World Bank President Robert Zoellick said on Wednesday he was not advocating a return to a gold standard for exchange rates, but described the metal as “the elephant in the room” that policymakers needed to acknowledge.

Zoellick, who was attending an infrastructure conference organised by the World Bank and the Singapore government, said it was important for nations to look beyond exchange rates and focus on economic fundamentals.

“I don’t believe you can return to a fixed exchange rate system and that is the gold standard,” he later told the Foreign Correspondents Association.”

“Markets are already using gold as an alternative monetary asset because confidence is low…it is saying we have a problem that needs to be fixed.”

Gold prices have soared to record levels in recent weeks and are currently around $1,400 per ounce.

“There is an elephant in the room and that is what I want people to recognise,” Zoellick said.

Zoellick earlier this week surprised financial markets by suggesting the world’s largest nations consider gold as an indicator to help set foreign exchange rates, amid concerns governments and central banks may try to kickstart their economies by devaluing their currencies.

He said on Wednesday: “I’m not advocating a return to the 19th century when money supply was linked to gold.”

With gold and silver rising following his initial comments maybe he was pressured to clarify his comments?  Regardless it still shows that more and more people are waking up to the sick and dying state of the current fiat monetary system.  It is totally unsurprising that he would state “I don’t believe you can return to a fixed exchange rate system and that is the gold standard.”  He is a banker after all and a true gold standard would be a complete handbrake on the banking elite’s money printing  abilities.  However if the ongoing breakdown eventually forces this upon them, they will want to ensure they still have a hand in monetary control and a basket of currencies with gold involved would merely slow their money creation abilities not remove them altogether. 

A theory on the “end game” may be that they (the money masters) will allow precious metals to steadily rise and rise to the point where there is some type of balance  in terms of the gold price and the fiat currency in existance.  Then at this point they would buy up all the paper money bonds incredibily cheaply and then immdiately reinstigate a gold backing of the paper currencies – thereby creating huge wealth for themselves virtually overnight as all the paper money they bought so cheaply is now backed by bullion.  Just a theory to mull over anyway…]

Fed adopts QE2 measure

Well, after all the speculation, Bernanke does what he said he would do – QE2 to the tune of $600 billion dollars over the next few months. We would do better to call it by its real name of money printing – creating dollars out of thin air. It works like this: The Fed buys bonds and/or toxic assets from the banks – paying them with newly created cash. The theory is that at some later date, the bonds can be sold again, restoring the status quo. To understand the dangers inherent in this policy, take a look at this piece over at King World News by Jim Rickards again

Jim Rickards – Fed may go bankrupt

Eric King has lots of interviews relating to this topic – I particularly recommend Bill Fleckenstein’s contribution…

Bill Fleckenstein interview on King World News

Precious metals continue their rise

From Peter Spina of GoldSeek.com and SilverSeek.com we have the following:

Where to next for gold?

As trust diminishes and the supply of paper money increases, the monetary metals (gold, silver..) are set to see additional huge capital inflows. Gold’s recognition as money is returning and growing globally. With this comes a surge in physical gold demand, which is causing gold supply constraints in the global bullion markets. As the inventory supply grows thinner, the gold and silver prices will reflect this by continuing to move upward as physical gold’s scarcity is truly recognized.

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