Bernanke Nixes Gold Standard Talk

Posted: Mar 22, 2012 12:01 AM

Gold appears to have finally found some footing around $1,650 as prices have stabilized on low volume. 

Prices for gold were down  early yesterday $1.29 to $1,648.51 while silver was up a penny to $32.03.  That raises the  silver/gold ratio to 51.4. 

Federal Reserve Chairman Ben Bernanke put an end once for all about any speculation around the U.S. returning to the gold standard in part one of a four part series he’s doing on the history of the Fed. 

You can read the presentation notes here and I’m probably going to disappoint some of you by suggesting he’s right.  The U.S. going back to the gold standard for currency unilaterally would be an economic disaster that would put us at a competitive disadvantage in global markets. 

But that doesn’t mean it wouldn’t be a good idea for someone to do it, just not us and definitely not now.  The best case for a new gold standard would be some kind of encrypted digital token conveniently convertible to physical gold at a fixed markup percentage.  Ideally the country running it would be one not overly dependent on outside trade.  The world needs something like that and all the pieces are there and yet those pieces aren’t coming together.  A few government mints have similar programs but all miss the mark. 

In the meantime holding physical gold and silver is the next best thing, even though the logistics of converting it to cash are a bit more complicated.  While buying gold is relatively straightforward, selling it back is where it can get tricky. 

You may have noticed the people walking around on the street with We Buy Gold signs, but there’s no standard for bid/ask in gold that’s respected by everyone in the industry, and what those transient retail operations will pay for gold can vary widely.  That would make an interesting idea for a hidden camera story.  The other alternative is to ship your gold to a reputable online vendor, but even that involves some upfront negotiations and takes time. 

As imperfect as retail gold markets are, they’re still a better investment deal than you’re getting from Wall Street these days or the housing market. 

While shopping around for the best price when selling your gold introduces an element of uncertainty into precious metals investing, keeping your wealth in cash these days is a guaranteed loser. 

Chris Poindexter, Senior Writer, National Gold Group, Inc