Is a new gold standard a realistic option?

Representing as it does less than 1% of global financial assets, gold is very clearly limited without a massive upward revision in its price from $1,650/ounce to about $45,000/ounce. There are also fundamental problems in fixing exchange rates between currencies that we had under Bretton Woods — it is not unlike the artificial and flawed arrangement that underpins the Eurozone. The short answer as to whether or not gold can fulfill this role is in the detail and what sort of system you want. For a review of some recent proposals see 'The Gold Standard: An Analysis of Some Recent Proposals' at http://www.cato.org/pubs/pas/pa016.html.

Economists broadly do not favor a return to a gold standard. The University of Chicago conducted a poll of 40 leading economists, none of whom supported the move. But it is also clear that something needs to change. So long as policy makers make over-extended promises on the one hand (to ensure re-election) and the printing presses on the other, then we will continue to see inflation and currency declines as those shown below. Since 1971 the US dollar has lost over 85% of its value by official (CPI) measures. Truly the thief in the night and that's just not right. To use the words of President Hoover in 1933 — "We have gold because we cannot trust governments".

Norman is the owner and chief executive officer of the London-based gold broker Sharps Pixley Ltd.

www.SharpsPixley.com

About the Author
Ross Norman

Ross Norman is owner and chief executive officer of the London-based gold broker Sharps Pixley Ltd.

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