Another Big Week for Gold

Posted: Aug 27, 2012 12:01 AM

There were big numbers for gold last week, the kind of upside numbers we haven’t seen in a long time. 

Gold ended the week at $1,669.90 and silver traded up to $30.78, for a silver/gold ratio of 54.2, one of the lowest readings since January. 

In the media this week we found speculation about a plan to return the nation to the gold standard.  My position on a return to the gold standard is that would be a really bad idea for the U.S. to make that move unilaterally.  We would be handicapping ourselves in global markets and countries with script currency would magnify themselves at our expense, exactly like they did when we were previously on the gold standard.

While it’s a bad idea for the U.S. to peg our currency to gold, the world desperately needs some kind of a reference currency; that currency would be a global master exchange standard that keeps everyone honest when it comes to managing their own currency. 

Sometimes I can’t shake the feeling that commerce as we know it today borders on mass insanity.  I’m going to come to you to buy some tangible asset, in exchange I’m going to offer some numbers in a computer somewhere.  I don’t even own the computer where they reside, but I want to trade some of those blips for your sea kayak. 

The only reason it makes sense is because you’re then able to turn around and use those blips to buy something else.  Yet there is nothing at all underlying any of these transactions except our collective mass insanity that we’re all going to accept computer blips as payment. 

And it’s not just you and I;  the whole world is trading on nothing but numbers in computers.  The world lacks a standard unit of exchange that is based on a tangible hard asset.  What we really need is something like bitcoin backed by gold, a digital reference currency that can be exchanged for a specific amount of gold. 

While it’s a nice dream, the world would come to blows before letting that happen.  Having a reference currency would expose habitual currency manipulators, like China, and force them to play fair because they have to settle accounts with a benchmark currency.  Countries best at gaming the current system would have the most to lose. 

A currency reference will happen, someday; the world needs it.  In the meantime, the best retail investors can do is keep a fixed percentage of their wealth in a hard assets like gold and silver and don’t put too much faith in the computer blips.  It all really is quite crazy. 

Chris Poindexter, Senior Writer, National Gold Group, Inc