MarketWatch has a piece today on the recent headline making noise out of the GOP about a return to the gold standard.
"The gold standard, it is argued, would foster economic stability and
prosperity, primarily by creating price stability, fixed exchange rates
and placing limits government deficit spending as well as trade
imbalances. It would also limit credit-driven boom/bust cycles through
constraints on the supply of money."
"Opponents argue that the gold standard would limit the flexibility of
governments and central banks in managing economies, restricting the
ability to adjust money supply, government budgets and exchange rates.
Opponents also point to the inflexibility of the gold standard, which
may have contributed to the severity and length of the Great Depression."
In other words, a gold standard would limit monetary authorities'
ability to "manage" economies by manipulating money supplies. As a
knock on effect, it would also limit their ability to provide welfare to
favored constituents like the first users and abusers of newly created
money, e.g. the big investment banks.
The article then goes on to make several points about why a return to
the gold standard is unlikely (I agree that it is unlikely any time
soon). Here is the most telling reason, however:
"Money is now a matter of pure trust. American dollars still [bear] the
words: “In God We Trust”. But God is not directly responsible for
control of money; governments and central banks are. Politicians and
policy makers are unlikely to willingly cede the power that a paper
money system provides"
The article goes on to some silly stuff about a Tuscan spa, wealthy
clients and the covering of these clients in 24k gold. So, we'll leave
the article now except to note that it also has a link to the ever
clear headed Mark Hulbert and his Bullishness rising faster than gold.
Read it. Gold is not the risk/reward proposition it was a few weeks
ago as it has raced to over bought levels in quick time. But that's how
the barbarous relic rolls when it breaks out. From Hulbert:
"Unfortunately, there’s some bad news to accompany the good: Gold timers
have reacted to bullion’s recent strength by eagerly and
enthusiastically jumping on the bullish bandwagon."
We anticipated this in the newsletter,
gave parameters for over bought upside and for a potential reaction to
correct the over eagerness. A downside reaction, if indeed it comes
about could be an ideal spot for traders of the metal to initiate new
positions. Holders of the metal should have taken long term positions
long ago and should calmly sleep through any near term turbulence.
Back on theme, while there is talk about the gold standard by the
Republicans, they are just blowing hot air and taking advantage of a hot
button issue and relevant topic. Don't hold your breath on a gold
standard even if Romney/Ryan gain the White House. You and I, as lowly
market participants and economic survivalists need to read between the
lines in a functional way.
Gold is fine, as a standard or not. As long as it remains an asset
class as opposed to official money, it will be subject to market forces
and the macro manipulations of current power holders. These
manipulations can constrain the metal as Operation Twist has played a
roll in doing for a year now. They can also launch the metal to higher
levels, when the manipulation is toward increased money supply.