Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The End of the World History Stock Market Chart : Big Pattern = Big Move - 26th Jan 21
Stock Market Recent Sector Triggers Suggest Stocks May Enter Rally Phase - 26th Jan 21
3 Top-Performing Tech Stocks for 2021 - 26th Jan 21
5 Tips to Manage Your Debt - 26th Jan 21
Stock Market Intermediate Trend Intact - 25th Jan 21
Precious Metals Could Decline Before their Next Attempt to Rally - 25th Jan 21
Great Ways of Choosing Good CMMS Software for a Business - 25th Jan 21
The Dark Forces behind American Insurrectionists - 25th Jan 21
Economic Stimulus Doesn’t Always Stimulate – Pushing On A String - 25th Jan 21
Can Karcher K7 Pressure Washer Clean a Weed Infested Driveway? Extreme Power Test - 25th Jan 21
Lockdown Sea Shanty Craze - "Drunken Sailor" on the Pirate Falls Crazy Boat Ride - 25th Jan 21
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

The Utah Gold Standard Part II

Commodities / Gold and Silver 2011 Apr 08, 2011 - 12:05 PM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleNo, not gold as money. The gold standard never kept a lid on inflation that way...

SO THIS is 2011 – a world of pleaders and moaners.


"There are huge commercials all day long: 'Cash for gold, cash for gold'. Ever since gold went up...at least three times a day, we have customers asking about melting pieces. We try to save them from the melting pot."

So says Tobina Kahn, vice-president of US heirloom-jewelry business House of Kahn. "There's so much good antique jewellery being lost," agrees Claude Morady, a boutique owner in Beverly Hills, also complaining to the Financial Times. "Lots of nice things are being melted down."

Melted down for what? Why, for gold investment, of course. The pace of physical monetization – the rate at which scrap and newly mined gold is turned into bar and coin – hasn't been this frantic since 1980. Back then, jewelers and auctioneers also pleaded with the public to stop scrapping fine art at the smelters. Back then, higher prices led to a surge in thefts of silverware too, just as the UK's Ministry of Defence has recently suffered. And back then, the root cause was the very same as well.

"[Raising rates is] the wrong policy, for the wrong reason, at the wrong time"
 - Gerard Lyons, chief economist at Standard Chartered

"Although I acknowledge that the ultimate destination will be considerably higher double-digit inflation 5-10 years from now...I side with the belief that virtually all of the components of rapidly rising inflation are outside [central] banks' control."
 - Albert Edwards, strategist at Societe Generale

"Low real rates – let alone the negative real rates that sometimes occur – are extremely unpopular with millions of people, not merely top-hatted financiers...[but raising UK rates now] would risk a businessmen's riot in Downing Street..."
 - Samuel Brittan, FT columnist since 1966

Yes indeed! Real US interest rates now stand at minus 2.0%, even on the official measure of inflation. ShadowStats' application of '70s-style mathematics would put the number nearer 9.5% below zero. Here in the UK, real interest rates now stand at minus 5.0% per year, the worst since 1977, when double-digit inflation made the destruction of money all too livid (and gold prices rose very much faster). Even in the "austere" and ever "vigilant" Eurozone, this week's rate hike – so disparaged by the experts above – took nominal rates to just 1.25% remember. That's less than half the 17-nation currency zone's inflation rate for March.

Any wonder that gold and silver prices have jumped? The last time the world imposed such deleterious rates of interest on that risk-averse class of mugs called "cash savers" was the late 1970s. Back then, the idea of a return to some form of Gold Standard (or gold-and-silver standard) also gained currency. It even made it into Congress, which ordered a Gold Commission to consider the matter, which then reported in 1982. Scarcely a decade after formally abandoning the system, however, the Commission found no need for the US to revive its Gold Standard. Mostly because, by then, the inflation driving people to buy gold and silver – and so in turn driving economic policy-makers to consider the matter – was already subsiding, and subsiding thanks to the very thing which a Gold Standard would have brought about.

No, not gold as money. The Gold Standard never meant that. What defended the value of money – and thus savings – was higher interest rates...


You can see Great Britain fumbling towards its "classical" Gold Standard – and then fighting to regain it, before quitting gold for good (or worse) – quite clearly on our chart. It maps the real rate of interest, after accounting for domestic UK price inflation, between 1750 and today.

Holding cash was generally a winning position, net-net, provided the country wasn't at war (and so hadn't suspended the government's promise to buy and sell bullion at the fixed price of £3 17s 10½d per ounce). Prior to quitting the Gold Standard in 1931, in fact, the average real return paid to bank savings was more than 3.6%. During the height of the global Gold Standard, interest rates averaged 4.0% above changes in the cost of living – which itself, and not by accident, in fact averaged zero.

"[It] was a remarkable period in world economic history. It was characterized by rapid economic growth, the free flow of labor and capital across political borders, virtually free trade and, in general, world peace."

No, not a description of the Great Moderation so beloved of current Fed chairman Ben Bernanke, even though – minus the strong real returns to cash –n it fits pretty well. The period was "from 1880 to 1914, known as the heyday of the Gold Standard," and the description comes from Michael Bordo, now professor of economics at Rutgers University, then writing for the St.Louis Fed in 1981.
Was the Gold Standard to thank for such felicitous economic conditions? British prime minister Benjamin Disraeli thought not. "Our Gold Standard is not the cause but the consequence of our commercial prosperity..." he told a gathering of Glasgow industrialists in the mid 1870s. Promising to buy and sell gold at that fixed price of £3 17s 10½d per ounce wasn't the cause of strong real returns to cash, either – but the result of it.

"Whenever Great Britain faced a balance-of-payments deficit [i.e. trade deficit] and the Bank of England saw its gold reserves declining [as the Pound fell in value and so cash-owners swapped paper for metal], it raised 'bank rate'," explains Bordo. "[This] led to a reduction in overall domestic spending an a fall in the [consumer] price level. At the same time, the rise in bank rate would stem any short-term capital outflow and attract short-term funds [i.e. gold bullion] frm abroad."

Which is the very simplest reason why there isn't a prayer for any kind of "Gold Standard" any time soon. Because backing money with gold isn't the problem for the legion of policy-makers and economists running the official monetary system. Raising interest rates is.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules