Those gold bugs are everywhere

From the Financial Times in Canada, a paper you may as well make yours. As I have mentioned, people in Canada still read and, hence, there are people who have to write. Oh, another article says look carefully and you will see silver is the place to be.

The piece  give an account of the recent European happening where one of the events was a discussion of a return to something like the gold standard, which discussion was taken seriously: 

...Hence the chatter about a gold standard. Indeed, as the debate bubbles up, some financiers are now even emailing each other an extraordinary little essay that Alan Greenspan himself wrote in support of a gold standard back in the 1960s, called “Gold and Economic Freedom”*.

In the years since he penned this essay, Greenspan has partly backed away from those ideas (and he blatantly ignored their implications when he was at the Fed.) But now they look prescient.

“Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets . . . [but] in the absence of the gold standard . . . there is no safe store of value,” Greenspan wrote back then, pointing out that without a gold standard in place, there is little to prevent governments indulging in wild credit creation.

“Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”

Of course, for the moment all this muttering about gold is simply wild speculation. Even if western leaders suddenly were to decide they wished to turn back the clock, the logistics of embracing a new gold standard would be mind-boggling. UBS, for example, calculates that the US reserve of gold are so small, relative to its monetary base, that a price above $6,000 an ounce would be needed to reintroduce a gold standard. To implement that standard in Japan, China and the US, the price would be more than $9,000. Moreover, right now few western governments have any motive to even entertain the debate, given that inflation may soon seem the least bad way to tackle the current overhang of debt.

But what this debate does show is just how much cognitive dissonance – and utter uncertainty – continues to stalk the markets. It might seem almost unthinkable to propose a return to a gold standard, in other words. However, the key point is that the last 18 months have already produced a stream of once unimaginable events.

Given that, shell-shocked investors are increasingly reluctant to rule anything out, as they stare at such uncharted waters. So while I would not bet today on a gold standard returning any time soon, I would also not bet that the debate dies away. Nor would I bet that the gold price crashes too far from its current rate of $900, while so much fear continues to stalk the world.