a piece today on the recent headline making noise out of the GOP about a
return to the gold standard.
Gold Standard Idea Isn't Likely to Shine
"The gold standard, it is argued,
would foster economic stability and prosperity, primarily by creating price
stability, fixed exchange rates and placing limits government deficit spending
as well as trade imbalances. It would also limit credit-driven boom/bust
cycles through constraints on the supply of money."
"Opponents argue that the gold
standard would limit the flexibility of governments and central banks in
managing economies, restricting the ability to adjust money supply,
government budgets and exchange rates. Opponents also point to the
inflexibility of the gold standard, which may have contributed to the
severity and length of the Great Depression."
In other words, a gold standard would limit monetary authorities' ability to
"manage" economies by manipulating money supplies. As a knock on
effect, it would also limit their ability to provide welfare to favored
constituents like the first users and abusers of newly created money, e.g.
the big investment banks.
The article then goes on to make several points about why a return to the
gold standard is unlikely (I agree that it is unlikely any time soon). Here
is the most telling reason, however:
"Money is now a matter of pure
trust. American dollars still [bear] the words: “In God We
Trust”. But God is not directly responsible for control of money;
governments and central banks are. Politicians and policy makers are unlikely
to willingly cede the power that a paper money system provides"
The article goes on to some silly stuff about a Tuscan spa, wealthy clients
and the covering of these clients in 24k gold. So, we'll leave the article
now except to note that it also has a link to the ever clear headed Mark Hulbert
and his Bullishness rising faster than
gold. Read it. Gold is not the risk/reward proposition
it was a few weeks ago as it has raced to over bought
levels in quick time. But that's how the barbarous relic rolls when it breaks
out. From Hulbert:
"Unfortunately, there’s some
bad news to accompany the good: Gold timers have reacted to bullion’s
recent strength by eagerly and enthusiastically jumping on the bullish
We anticipated this in the newsletter, gave parameters for over bought upside and for a potential reaction to
correct the over eagerness. A downside reaction, if indeed it comes about
could be an ideal spot for traders of the metal to initiate new positions.
Holders of the metal should have taken long term positions long ago and
should calmly sleep through any near term turbulence.
Back on theme, while there is talk about the gold standard by the
Republicans, they are just blowing hot air and taking advantage of a hot
button issue and relevant topic. Don't hold your breath on a gold standard
even if Romney/Ryan gain the White House. You and I,
as lowly market participants and economic survivalists need to read between
the lines in a functional way.
Gold is fine, as a standard or not. As long as it remains an asset class as
opposed to official money, it will be subject to market forces and the macro
manipulations of current power holders. These manipulations can constrain the
metal as Operation Twist has played a roll in doing
for a year now. They can also launch the metal to higher levels, when the
manipulation is toward increased money supply.
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