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"Market forces are driving a de facto return to the gold standard," argues Lew Spellman. In a...

"Market forces are driving a de facto return to the gold standard," argues Lew Spellman. In a world where good collateral is scarce, and what does exist yields close to zero, "gold is stepping up to the plate." All that's left is for regulatory recognition, which may be coming in the form of a Basel proposal to make gold a bank capital Tier 1 asset.
Comments (15)
  • bbro
    , contributor
    Comments (9319) | Send Message
     
    No way...I sold Lew Spellman a rental property in 1979...he has an agenda....
    23 Apr 2012, 09:23 AM Reply Like
  • htmortimer
    , contributor
    Comments (96) | Send Message
     
    I don't know who Lew Spellman is, but his comment is fair. The fact is that fiat money hasn't worked that well because it does not impose the monetary discipline that a gold standard does - and that is why politicians hate it.
    Contrary to what seems to be the popular view, inflation has not been dormant. As a result, if you look at the world in real (inflation adjusted) terms, the picture that you will see is quite different from the one generally put forth. As an example, in real terms the stock market (S&P 500) peaked in the first quarter of 2000 and would have to increase a further 30% from where it is now to have the same purchasing power as it did in 2000. Not much of an investment for the past 12 years. Gold, on the other hand, has increased just under 300% over the same period.
    That is because money (the dollar) is no longer a good store of value and as cash money starts losing value (inflation) people will turn to gold (and other assets that can be expected to retain their value in real terms).
    23 Apr 2012, 10:40 AM Reply Like
  • Tao Jaxx
    , contributor
    Comments (1273) | Send Message
     
    Hilarious headline!
    I don't know who Lew Spellman is but he deserves a prize for the kinkiest suggestion: gold as Tier one capital.
    Picking the financial asset with the highest volatility and make it the core of commercial banks lending base.
    I have a better idea: How about we used wheat, soybeans or pork bellies? At least we can eat those.
    Entertaining!
    23 Apr 2012, 10:57 AM Reply Like
  • Econdoc
    , contributor
    Comments (2944) | Send Message
     
    I agree with him.

     

    kauri shells and cattle should also be included as tier 1 capital

     

    not sure about balls of string but I am willing to consider it.

     

    E
    23 Apr 2012, 09:27 PM Reply Like
  • Solon
    , contributor
    Comments (98) | Send Message
     
    As well as being a store of value, gold is the numeraire to maintain the orderly rise up Ricardo's moving staircase. The present credit based system allows Ben, GS, et al, to set the order of relative value, possibly in a more subjective way. Too simple eh?
    23 Apr 2012, 10:59 AM Reply Like
  • Jaysan
    , contributor
    Comments (112) | Send Message
     
    As the fraud of our fiat money fractional reserve banking system becomes more widely recognized by the public, some sort of gold or commodity based store of value system becomes an inevitable replacement.
    23 Apr 2012, 11:19 AM Reply Like
  • Denny_Chasteen
    , contributor
    Comments (700) | Send Message
     
    Oh taojax, like "The Dollar" has shown price stability? Gold is tracking and reacting to the "dollar index." People have not yet realized that the "dollar index" is not the same as the "dollar value." It is only the value of the dollar relative to and indexed against other currencies.

     

    All currencies are sinking in value, with the worst yet to come for the dollar.

     

    However, it would be impractical to return to the "gold standard." Gold price would have to be $25,000 per ounce or more. Right?
    23 Apr 2012, 12:03 PM Reply Like
  • Tao Jaxx
    , contributor
    Comments (1273) | Send Message
     
    Any literate person knows what the dollar index is. It is not "indexed to other currencies".
    It is the value of the $ against a basket of euro, Japanese yen, Canadian dollar, British pound, Swedish krona and Swiss franc with a value of 100 in 1973.
    Before you start riling against the greenback having lost value since then (the index trades around 79), this index vastly understates the effective US $ strength as China, a major trading partner who keeps its currency artificially low, is not included in it.
    As to the value of the "paper currencies" you despise so much, it is the present value of the income stream derived from holding them, as they produce a yield: the interest rate.
    The value of your beloved shiny rock is whatever someone else may -or may not- be ready to pay for it, period, as it produces nothing.
    For that reason, that value fluctuates wildly with market sentiment, as it is deprived of any other observable anchor.
    What the gold crowd touts as a paradigm of stability is in fact a commodity with indeterminate value as soon as it trades above its marginal cost of production (about $800 as of now).
    23 Apr 2012, 08:53 PM Reply Like
  • Denny_Chasteen
    , contributor
    Comments (700) | Send Message
     
    It absolutely is an index. It only measures the value of the dollar as an index against the other currencies as they are traded against each other. It has nothing to do with the real value of the currency. It's just and "instantaneous value" relative to other currencies.

     

    China has high inflation. There is growing inflation in all the currencies. You can't change history. Gold and silver have been the most steadfast measure of value and store of wealth since the beginning of time.

     

    Go ahead and put your money in greenbacks. China will be discretely dumping a lot of them very soon. So if you think greenbacks are so valuable, then use this as an opportunity to "buy on the dip." Knock yourself out, but over the long run you will basically become the victim of the old "pigeon drop" scam.

     

    As for me, I will take short term volitility over long term steady decline any day.
    24 Apr 2012, 09:07 AM Reply Like
  • Tao Jaxx
    , contributor
    Comments (1273) | Send Message
     
    Absolutely! The Chinese who have constructed all their economy around an undervalued currency are about to dump all accumulated dollars and hence have their currency skyrocket because that suits the gold crowd.
    You spared us the second part of the argument that says they're buying gold to back the yuan so it gets to be the new center of the universe and the pivot of the system. Again, only gold bugs know it but the Chinese just changed their mind and are embarking on a gold backed strong currency strategy, so the greenback is doomed.
    24 Apr 2012, 09:55 AM Reply Like
  • Gene Chan, CFA
    , contributor
    Comments (210) | Send Message
     
    What is the interest rate on gold?

     

    Oh, wait...
    23 Apr 2012, 12:40 PM Reply Like
  • htmortimer
    , contributor
    Comments (96) | Send Message
     
    You imply that something that pays zero interest has no value. If you think about it that is plain silly. The Zimbabwe dollar used to pay interest; would that have been a better investment than gold? In the '20s the interest rate in Germany approached 50% a day; would that have been a good investment?
    I think that you should start with the premise that the value of anything is never more or less than what someone will pay for it and proceed from there.
    24 Apr 2012, 10:32 AM Reply Like
  • Gene Chan, CFA
    , contributor
    Comments (210) | Send Message
     
    I didn't imply anything. The original post did.
    24 Apr 2012, 10:33 AM Reply Like
  • phdinsuntanning
    , contributor
    Comments (1200) | Send Message
     
    probably refined copper can play a better role as collateral, is already highly leveraged in China and gold is so small supply that makes it hard to use for a global economy. i like gold but his scarcity is too extreme for the scale of the global trade
    23 Apr 2012, 04:42 PM Reply Like
  • larry214001
    , contributor
    Comments (68) | Send Message
     
    What is 6% interest rate multiplied by zero. Oh wait, zero times anything is.....
    23 Apr 2012, 11:58 PM Reply Like
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