What If We'd Been on the Gold Standard?

If the U.S. had decided to go back on the gold standard in 2006, where would we be today? That's a question my friend Randy Parker recently asked me. Here's how we both would answer.

Many things might have been different had the U.S. decided to promise to exchange dollars for gold at the 2006 price of $600 per ounce of gold. But let's start with some of the things that wouldn't have changed. I contend that we'd be no less worried today about geopolitical events in places like Nigeria, Iraq and Iran. The phenomenal growth of the Asian economies would presumably have continued. The bad mortgage loans made prior to that time would still be on the books and still be problematic, with attendant worries about the financial soundness of many institutions. All of this would have meant an increase in the demand for gold. Equilibrium would then require an increase in the relative price of gold compared to what it had been in 2006. That is, the number of umbrellas, or cars, or chairs that people would be willing to surrender in order to obtain an ounce of gold would have gone up relative to what it had been in 2006.

Now, if the number of dollars you have to surrender to obtain an ounce of gold is fixed by the government's commitment to a gold standard, and the number of umbrellas, or cars, or chairs you'd be willing to surrender for an ounce of gold has gone up, the only way that can be is if the dollar price of umbrellas, cars, and chairs have all fallen. Maintaining a gold standard while the relative price of gold increases requires deflation in the dollar prices of all other goods.

The only way the Fed could engender that deflation is with a monetary tightening. Suppose the Fed had been dutifully implementing that procedure in August 2007, when there was a sudden increase in doubts about the soundness of key financial players. A savvy speculator would then reason as follows.

The U.S. has promised that it will continue to convert dollars to gold at $600 per ounce. But that will require them to raise interest rates at a time of potential financial panic, and I don't believe they have the stomach for that. I'm going to ask for my dollars in gold right now, in the guess that they'll abandon this policy shortly. When they give up the standard, my gold will have appreciated, and I'll have a handsome profit.

And how could the U.S. respond to such a speculative attack? We'd have two choices. One would be to say to the speculators, you're right, this idea of driving interest rates up at a time of financial crisis was a dumb one. Dollars are no longer convertible to gold at the old fixed rate.

Or the other option would be to say, no, we really mean it this time, honest, we're serious about this whole gold standard thing. So, we drive interest rates higher and watch the deflation mount. Outstanding debt that is denominated in dollars becomes more and more costly for people to repay, and we'd see a really impressive level of bankruptcies and business failures. The cycle would continue until the politicians who promised to stay on the gold standard are driven out of office and the deflation spiral could finally be ended by the new leaders choosing option 1 after all.

Now, I know that the gold-standard bugs are howling at this point, "but that's not how a gold standard would actually work, because..." But what I just described was not a hypothetical scenario. Instead, in my opinion it's a pretty accurate description of what happened in the United States during the Great Depression of 1929-33.

In 1929, the U.S. was on a gold standard, with the exchange rate fixed at $20.67 per ounce of gold. Geopolitical insecurity and financial worries warranted an increase in the relative price of gold, which, with the dollar price of gold fixed, required a decline in the dollar price of most everything else. Speculators bet (correctly) that Britain would abandon the standard in 1931, but the U.S. fought against the speculation, with the Federal Reserve Bank of New York raising its discount rate from 1.5% to 3.5% in October 1931. This sharp increase in interest rates at a time of great financial turmoil succeeded in defending the parity with gold, but produced an economic disaster. (Click chart to enlarge.)

A 1991 research paper by Ben Bernanke and Harold James noted the very strong correlation between when a country abandoned the gold standard and when it began to recover from the Great Depression. The top panel above shows their calculations of the average annual growth of industrial production for the 14 countries that decided to abandon their currencies' gold parity in 1931-- they experienced positive growth in every year from 1932 on. Countries that stayed on gold, by contrast, experienced an average output decline of 15% in 1932. The U.S. abandoned gold in 1933, after which its dramatic recovery immediately began. The same happened after Italy dropped the gold standard in 1934, and for Belgium when it went off in 1935. On the other hand, the three countries that stuck with gold through 1936 (France, Netherlands, and Poland) saw a 6% drop in industrial production in 1935, while the rest of the world was experiencing solid growth.

As I pointed out in an article published in 1988, gold-standard advocates think in terms of an institution whose continued operation, once adopted, would never again be doubted. But the problem is, if you can go on a gold standard, then you can go off a gold standard. And uncertainty about if and when the latter will occur can make the system itself a very destabilizing force.

Comments

[LOL]

what a dumb analysis...not to mention strawman argument of picking 2006 instead of say...1971...or 81. oh, and oil would be 5 dollars a barrel.

[ChandlerLutz]

Professor Hamilton,

Interesting article. I think most people would agree with you that the gold standard would exacerbate a recession as it eliminates the monetary system's ability to create new money, but what about during inflationary times? How does the gold standard affect our economy then? During the the 1970s, a decade plagued by high inflation, the stock market went sideways and output stagnated. How would have the gold standard affected our economy then, especially if economic agents expected the government to hold true to the standard. I am no an advocate of the gold standard, but it's an interesting thing to think about...

More importantly, when is the next edition of Time Series coming out??...

[Adam Smith]

Correct me if I'm wrong, but the premise of your argument seems to be that growth is the key criteria without regards to purchasing power. Countries can always accelerate growth if they allow an aggressive expansion of credit (money) which they are free to do given no ties to the value of gold. What good is growth if the purchasing power declines a the same pace? Credit expansion and contraction leads to booms that lead to over investment and busts that lead to bankruptcy and destruction of value.

[SleepyLagoon]

Let Bernake have his fiat currency, I don't care. Just please explain why he is so terrified of gold that he has to interfere in its "free market" price. Apparently, gold is a "problem" whether the dollar is convertible into it or not!

[Florin]

The graph published in the paper by Bernanke and Jame shows NOMINAL growth of countries leaving the gold standard.
If you would adjust the NOMINAL growth by the inflation resulting from the departure of the gold standard, you would end up with REAL growth CONTRACTION.

[DragonMaster]

This is idiot title and answer. This is the reason in this country no light at the end of turnnel.

If Fed/US ensure 1 oz of its gold for 600 USD, the first thing happens is all of US gold in the vault will be gone overnight. The other countries will ask anythings for USD except USD. There is 4-6 trillion worthless USD paper outside floating for real assets.

Deflation? dream on.

[vnewspaper]

I'm glad we don't have a gold standard. I've been buying gold and I hope they keep flooding the system with dollars. Every time the fed pumps money into the system it just devalues the dollar and raises the value of my gold position. I hope they put more gold out there too. Every time they try to put more gold on the market to reduce it's value all that happens is that the Chinese and Indians convert their ever worthless US Dollars into a hard asset like gold. That's the thing about "economic theory", it never accounts for the emotional side of things. The international community does not treat the dollar as the universal currency anymore. Even the Taj Mahal won't accept the dollar. Gold is going to $2,000 at a minimum.

[ScroogeMcDuck]

This smells of sophistry. The guy makes one important assumption without even qualifying it... that being that if we went back to the gold standard, the fed would still exist. Given that the vast majority of people who support the gold standard are also opposed to the federal bank, he's arguing a non-issue. Yes, I'm sure that if the gold standard were implemented and if there were still an organization that had the legal power of the Federal reserve, then this guy's scenario would play out. The point of going to a gold standard is not to just say that the US will exchange an ounce of gold for a set amount of dollars. The point is to both say that the US will exchange an ounce of gold for a set amount of dollars AND to make sure that there exists enough gold in the government's vaults to back up the exchange of every existing dollar in the world. In other words, the gov't would have exactly the same amount of gold that every dollar in the world combined is worth.

[User 191538]

now gold is rise or down

[bearfund]

You're exactly right: gold requires discipline. Demands it, really. Deflation in a gold standard regime is nothing but a measure of the improvement in our standard of living. Gold eliminates all the noise in the CPI and all the doubts about methodology; if prices went up, it's because less is being produced - that's bad. If prices went down, more is being produced - that's good. The key to gold is that one must limit his borrowing of it to activities that will increase productivity. Thus, borrowing is risky - you know that in all likelihood you'll have to repay in money that's worth as much or more as what you borrowed. Most individuals have no business borrowing at all; they do not put the proceeds to productive use. Corporations can and do put borrowed money to good use, but gold makes equity a much more attractive way of raising funds, and provides much greater rewards to those who dare to invest. In the fiat system, borrowing is not risky. You know you'll be repaying in money that's worth much less than what you borrowed, and furthermore - especially if you're a bank - you know that the money you owe will be devalued much more rapidly if you yourself are finding it difficult to repay. The end result is that demand for borrowing in a rigid gold regime is very low; as a corollary, savings must be high in order to drive investment (if you can't invest money you don't have, you have to invest the money you do have, which means if you want to invest you have to save first). This makes nominal interest rates very low and essentially makes banking irrelevant; no bank can afford to pay interest on gold, in gold, and few banks would have enough customers willing to take the risk and borrow even at low nominal rates. Few would miss them.

There's nothing at all bad about any of that. The consistent recurring theme is that in a fiat system, consumption occurs before production. In a gold system, consumption occurs after production. In other words, the fiat system can work only in an everlasting boom. If growth falters, debt (and with it savings) must be destroyed by inflation. That's the real point of rate cuts - it's not to stimulate growth, it's to destroy existing debt. The only way in which it stimulates growth is the knock-on effect that, with some of your debt destroyed, you happen to have some room left to borrow more and, maybe, you'll invest the money you borrow. The gold system is much safer and more reliable - if growth falters, prices rise because fewer products are available even though the money supply is unchanged. This in turn stimulates investment. No manipulation of interest rates is needed (or wanted) in this system - if you have money, you will have an incentive to invest it. If you don't, you have a problem - you should have saved. As long as everyone understands this going in, gold works very well, delivering price stability unimaginable to children of the fiat era. You can know, within a few percent, exactly how much money will be required to buy a particular good even years in the future. And, unlike in the fiat regime, price surprises in the gold regime are almost always to the downside - meaning they're pleasant surprises driven by gains in productivity or advances in technology. That certainty has real value and enables planning that is effectively impossible today. More importantly, gold's advantages over the fiat system are even more pronounced in a Malthusian world, one in which everything from population to productivity levels off from a period of exponential growth. That's exactly what the period we're entering now looks like. If ever there were a compelling case to be made for gold, it's right now. The ability of fiat bankers to endlessly inflate their way to growth is at an end, and was largely illusory in any case. Challenging times demand real discipline, and gold is the rod that enforces it. It rewards the prudent and the productive and punishes the foolish and the slothful. Abandoning fiat money for gold removes the perverse incentives present today and ends the bubble cycle for good.

The reason people dislike the gold standard today is the same as the reason they disliked it in the 1930s - they have become accustomed to spending money they don't have and have lost the memory of what it feels like to be sitting on a huge pile of savings in a deflationary environment. They have, in short, forgotten how it feels to be wealthy because they've been too busy pretending to be.

[bearfund]

Scrooge, why bother with that? Just make virtually all dollars out of gold and have done with it. One-ounce coins are valuable enough to make carrying serious wealth quite easy, while smaller and less pure coins are more useful for day to day transactions. A 1 karat gold balance copper coin the size of a dime is worth about three dollars in today's fiat money. The only need for reserves is against very small-value coins with no gold content. Alternately, one could open the mint to silver as the US and many other countries have done in the past. Ideally, no reserves whatsoever should be required because all money should be its own store of value.

[Simple Simon]

Thanks for that reality check. I was thinking perhaps a precious metal standard would help-but I see that it would not.
I wonder now if you would comment on the 'mob mentality' that prevails in these matters...the herd chasing the latest 'craze', vis 'get rich quick' scheme ( I can think of Tulips in Holland about the time of Rembrandt ) and , of course, the 'dotcom', and lately the REIT craze...and now the barrel of oil craze. It seems to me that in order to distract from who is actually causing inflation to double, we can 'fan the flames of disdain for oil companies and their "greed" ', while we functional retards chase the get rich quick commodity bubble, and thus not be "blamed ourselves" for causing all the above boom and bust cycles? What can you offer us here?

[ericinNE]

SimpleSimon, your nic befits you perfectly. Please exlpain how a finite, valuable, dwindling, high demand resource is, in any way, correlatable to tulips, or the hypothetical, purely conceptual value of a dot.com. Clearly, the concept of peak oil (now or later) is lost on you. Oil is every bit as valuable as gold, and the disconnect between the two's corelatable value has been, and continues to be, the manipulation of those markets by the cartels that control each. Gold will lose it's value when a mass substitute for oil is found, or when we finally figure out how to convert energy to matter, and not just the other way around.

[oldfogey]

Hmm, lest we forget, the price of gold is unchanging, only the value of the currency traded for gold changes. Gold as a storehouse of value is exchanged the world over.

The standard example of Ceaser's gold coin buying a toga, sandals, sash, and head wreath; still is valid i.e. a suit, belt, shoes, and hat for an ounce of gold.

[jfreeb]

The basic assumption of this article is flawed. Everyone who erects a strawman about the "gold standard" is obsessed with ensuring that ONLY gold is the standard. The purpose of any monetary standard is to ensure stability of currency within the economy as a whole. Not to simply favor one commodity while producing deflation everywhere else. Using the 1920/1930's as evidence against a gold standard is fatuous and disingenuous deceit.

The bimetallism debates of the 1870's - 1890's - where gold would be used to settle intl trade accounts (only because everyone else in the world was on gold) and silver would be used domestically - is the appropriate era to judge how a "backed" currency would work. And today with commodity exchanges, many commodities could serve as a currency backing.

Had we gone on a full commodity-backed money in 2006, then ALL margin/leveraged speculation in commodities would have ceased. The paper-commodity trade only exists in a world where paper serves as legal tender to settle commodity contracts. And because that commodity-backed money is unleveraged, it provides the ONLY way to deleverage ourselves post-bubble without monetizing debt (current hyperinflation) or forcing the economy to its knees to save those who made the biggest bets on the bubble.

Fractional-reserve banks are inherently risky and the more leverage in the system, the riskier they are. Basing a government-endorsed money monopoly on their leveraged business model is what creates bubbles, credit crises, etc and those in turn hugely exacerbate any cycles in the economy. Not a single economic function of money is served by forcibly linking it to bank issues.

FAR far far worse is what goes on behind the scenes. The obscene corruption of government and Wall St in bed with each other and both intent on socializing risks, transferring public debts to the next generation, and "growing" by creating inflation for everyone else to suffer. This will end in bloodshed. Most likely within our lifetime.

[David Lentz]

A nice piece, and aside from the inevitable large fraction of commenters who cannot get around their own preconceptions to consider the merits of his arguments, some good comments as well.

One thing that was pointed out (but not hammered in sufficiently to my liking) was that in a gold standard economy, "if prices went up, it's because less is being produced - that's bad. If prices went down, more is being produced - that's good" (kudos to bearfund for this concise phrasing). However, if we think about this for just a moment, -- if in a recession prices would rise, would not that tend to exacerbate the recessionary conditions, leading to still less output and still higher prices, and ultimately a collapse of the economic system? And the same would hold true for boom times, with lower prices goosing the economy to higher and higher levels, until things would be unsustainable and ultimately crash back to earth?

And in fact, if we look back in economic history, at least in the USofA, do we not see a history full of panics and bubbles? I'm talking about times prior to the creation of today's Federal Reserve system, when the nation was unquestionably on a gold standard. Bank failures were almost commonplace. Certainly being on a gold standard did not prevent this.

It would appear from the historical record that a gold standard (or any policy of zero monetary growth) would tend to destabilize the economy, and produce a larger number of panics and crashes than a policy of slow inflation.

Of course, the risks inherent in a slow monetary growth policy are that idiots are elected to office and decide to mortgage their problems into future administrations and open the monetary spigots wide. In a perfect world, this would result in an informed electorate raising a stink and throwing the bums out of office -- but we are clearly not in that perfect world, having an uneducated electorate that repeatedly falls for campaign promises and rarely holds elected officials responsible. So we get persistent bouts of irresponsible fiscal and monetary policy, leading to inflation and the destruction of the currency. But it's a lot easier to recovery from those problems than a persistent deflation, with its attendant social punishment.

OTOH, I do appreciate having tools like the streetTRACKS GLD ETF, that I can use to escape some of the damaging effects of periods of federal lunacy where the government is determined to drive the dollar through the floor and spending is seemingly without limit (like we have had since 2000).

As we do not seem to be able to avoid electing lunatics to federal office (House, Senate, Presidency -- take your pick), having free markets and the ability to put my "money" where my confidence is makes this system a pretty good place to be.

I dunno what the gold bugs are whining about, they can buy gold and put their money where their mouths are, and should be happy with that. If they think that by mandating a gold standard, they could somehow mandate sanity in government, they are deluding themselves.

I believe that Milton Friedman would agree with me that in this case, being "free to choose" makes all the difference in the world. If we were talking about banning gold holdings, or having the government determine what one can and cannot buy with our crappy dollars, that would be one thing -- but we are not, and we remain free to buy gold, euros or oil, whatever suits the individual. Even dollars.

[pockyclips2020]

Having a gold standard and NOT having the FED would force us to live within our means, instead of sticking it to our grandkids. All the "managing" the FED has done since the '87 crash is like putting a bandaid on a compound fracture. We have never completely recovered because mommy Greenspan/Bernanke kissed the booboo and made us feel better.

Our parents are labeled "the greatest generation". I'm afraid us boomers will be labeled something less flattering, like "the myopic
generation".

[User 30121]

Bearfund....you are one eloquent so-and-so! Write on, please!!!!!!! I'll pay to read your commentary!!!!

[Ops did itagain]

Totally agree with the article why having gold as the reserve standard when everyone knows it is Oil now a days. Please go back to your time series and try to find out why americans will no longer be able to make a decent living even with two income earners because of the run away inflation that your ideas bring.

[David Lentz]

pockyclips --

Do you think that with a gold standard and no Fed that the Congress and the White House would not still be able to borrow money? While I agree that things have not been well-managed since the '87 crash, I'm not at all sure that the Fed can take all the blame. Perhaps a balanced budget amendment should be thrown in there somewhere -- but what would you do about times when genuine national emergencies (e.g., WWII) dictate borrowing to finance an extreme national effort?

Certainly the Fed has not held the tight controls that one would have liked, especially the Greenspan Fed, which dove heavily into economic management when there was no obvious need to do so (and admittedly the Bernanke Fed seems to be following in its footsteps, with there being some room for a difference of opinion about the need for the Fed to intervene, given the collapse of the debt financing system), but a significant part of out troubles are due to the addiction to debt on the part of Uncle Sam. In fact, most of the Fed's sins in this century have been in a failure to uphold its regulatory duties, to police the lending institutions to make sure that they were not endangering the nation with crazy risk management. At least I think that comes under the charter of the Fed, as I read it. Wikipedia lists the purposes and functions of the Fed as:
1. To address banking panics
2. To serve as the central bank for the United States
3. To strike a balance between private interests of banks and the centralized responsibility of government
* supervising and regulating banking institutions
* protect the credit rights of consumers
4. To manage the nation's money supply through monetary policy
* maximum employment
* stable prices
* moderate long-term interest rates
5. Maintain the stability of the financial system and containing systemic risk in financial markets
6. Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system
* facilitate the exchange of payments among regions
* to be responsive to local liquidity needs
7. Strengthen U.S. standing in the world economy

While we can quibble about what it is (if anything) that the Fed SHOULD be intended to do, those are the things that it is actually supposed to do as it is currently chartered. And for sure it ain't doing some of them very well.

Of course, the only thing they can realistically to to promote "stable prices" is to not try and use the money supply to fine tune prices. And anything that the Fed tries to do, the Congress and White House can make a shambles of, and constantly do.

Eliminating the fed will only get rid of part of the problem. We need to put fiscal handcuffs on the President and the Congress as well.

[TERN]

Best comments I have read for a long time here.

A bit US-centric.

More universal was the observation that getting ON the gold standard also gives the opportunity to get OFF it. And vice-versa.

Knowing the switch in advance, by being politically able to make it happen, is of untold value.
For a country that now has all the backing to make the switch to a gold/commodity standard, and one where such decisions can be made by a small circle,
it would be a tempting proposition.

An Islamic gold dinar, a Golden Yuan or a Palladium Ruble anyone?

[blah-blah]

Great stuff - well written and explained

Thanks to the author

[nevket240]

Hamilton, you clown. Since Nixon left the Gold standard to print more paper rubbish the value of the paper rubbish has deteriorated exponentionally.
It was the costs of war and the debts from that that lead to the 1930 economic turmoil. That and the theft of the US banking system by JPMorgan & Co. You are nothing more than a spinner for the FED and its owners.

regards.

[diggheist]

So many what ifs…

What if our economy was not based on debt bubbles?
What if gas goes to $5 or $10 or $50 a gallon?
What if people start hoarding food because prices are rising so fast?
What if we could invest in the stock market based on the fundamentals and not have to worry that it is secretly being manipulated by the Fed.
What if we could trust financial reporting and ratings?
What if the Federal Reserve didn’t naked short gold?
What if we had not invaded Iraq?
What if banks had not been deregulated during the Clinton administration?
What if savings and loans had not been deregulated during the Carter administration?
What if LBJ had not started the march toward the socialism?
What if FDR had not confiscated gold in 1933?
What if the Federal Reserve had not lowered interest rates during the 1920s?
What if there were no Federal Reserve, no IRS, and no fractional reserve banking?

[zb]

I agree with Hamilton - the gold standard is a hard master. That said, I do own gold as it's a good investment right now.
BTW, gold's worth outside human perception, a few industrial uses and jewelry doesn't merit its magical reputation. It's a shiny metal, people. What's "real" about that? If you want to go down that road, land and farming is the only real wealth.

[MountainFist]

This article is almost criminal in its idiocy. Saying that the gold standard created the Great Depression shows an utter ignorance of historical fact. Every run on banks since the inception of the Fed and the Great Depression itself were panics that were engineered and created by the Fed. Either this guy Hamilton is in cahoots with the Federal Reserve or he is just another pseudo-expert who really doesn't get reality. On a positive note, thanks to people like bearfund & nevket240 who really do get it. One little bit of historical fact for you, Hamilton. Every empire in history who has gone from a gold standard to fiat currency has managed to destroy itself from within. The damage the Federal Reserve has done to this country and the rest of the world is one of the worst mass crimes perpetrated in the last century. This article disgusts me.

[RobertSczech]

A gold standard can not work long term for reasons not discussed by any of the contributions above. The main function of money is compensation (payment) for work. The idea is that the value of the money received should somewhat reflect the value of the work provided. If we receive gold as payment for our work, that gold retains its value forever. Unfortunately, that is not true for the goods and services produced as the result of our work. These goods and services (even if not used at all) become obsolete in time. If you build a house, that house will fall apart in 50 years due to exposure the weather unless it is constantly maintained. Similarly, if you make an invention, its value drops in time to zero simply because of technological progress. If you are a farmer and produce lots of corn, that corn has a finite shelf time after which it becomes useless. Even gasoline, once it leaves the refinery, has a finite life time after which it becomes unusable. In short, the value of any work expires in time. The question is, why should the value of the monetary compensation received for producing a temporary good not expire in time? In my opinion, in order for the monetary system to be sustainable long term, the value of money should also expire in time. This requirement disqualifies gold as a foundation of a monetary system.

Our present fiat system with its built in inflation may in fact be the best possible monetary system. It slowly destroys the value of wages over time as it should. In a finite world, there can not be an infinite amount of savings. If the value of money does not erode due to non-existing inflation, then over centuries, we would build astronomical savings - impossible in a finite world. Inflation takes care of that by reducing the value of savings over time.

I seriously think that the present system is the best possible one. It allows us to buy gold with our fiat earnings. At the same time it allows the banking system to inflate the money supply in order to keep everybody busy and well fed. It seems to me that everybody should be happy. The gold bugs as well as the professors of economics.

[Senmut]

The Fed was ostensibly created to ameliorate the repeating cycles of boom-and-bust. Yet, once it was in place, we ended up with the biggest bust in our economic history. Sounds like the cure was worse than the disease.
And if gold is a bad idea for a currency, why does the Fed continue to hold onto the single biggest store of gold in the world?

[Senmut]

Oh come on, sczech. "Astronomical savings" over centuries? That is ridiculous. What do you think people are going to do with their savings? Let it just sit? Eat it? Hell no, they'll use it. Human habits have scarce changed. And if savings build, banks have more to loan, interest rates drop, and those savings get used.
All in all, a good thing.

[AmesTiedeman]

If we stayed on the Gold Standard then the DOW would still be under 1,000 and the average home would be $45,000.00, and America would be much, much poorer.
There would be no capital to finance anything. We went off the Gold Standard when we ran out of Gold. There was not enough Gold to back the number of dollars the economy could absorb to raise the living standard and to economically grow.

[AmesTiedeman]

Oil is not a reserve standard. This is simply not true. You do not see central banks buying up billion of gallons of oil!