Crank Monkey

The End of Gold, Part Two

Gold has served as a kind of reserve currency as recently as the last century. The advantage it provides is that there is some limit on how much the currency base can be increased. Central banks are not limited in their ability to issue new currency. This does not pose an issue so long as people have confidence in the central bank. If the world went back to a gold standard, then the price per ounce would increase. Deflation serves to cool monetary velocity, and this works against efforts by the Fed to increase the monetary base. The problem for investors is that they could lose capital as a result of either deflation or inflation, and it's hard to predict the severity and duration of these conditions.