There is a palpable glee among some that is evident whenever the price of gold falls.¹ It manifests itself in the media, academia, pundits, and certain segments of the investment world. Paul Krugman becomes orgasmic. A fall in the price of gold justifies their belief that gold is indeed a barbarous relic. (Keynes was referring to the gold standard as barbarous, but the modern-day interpretation has extended to the commodity gold.) If gold is a barbarous relic, then it should have no discernible value and certainly no influence on monetary policy. The proof of its useless value becomes evident by a drop in its price. Academia widely holds the belief that gold has no significance to the monetary realm beyond any other commodity—despite the fact that those countries that linked their currency to gold over a near 300 year span, experienced neither inflation or deflation and registered steady growth. There is no difference in their view between gold, pork bellies, wheat, orange juice, or a loaf of bread. (Warren Buffett famously dismissed gold as a commodity of no utility whose value is an enigma. ”Anyone watching from Mars would be scratching their head.”) If gold is just another commodity, then any commodity can be a standard, or better yet, monetary policy requires no standard. Academic Ph.D’s can create dollars at whim and justify the creation based upon whatever excuse, data, or theory they desire. This is what Jim Grant refers to as the Ph.D standard in reference to current Fed management.
The purveyors of elite monetary control have to dismiss gold’s monetary properties to justify their fiat manipulation. If they can disassociate the price of gold from the results of fiat policy, then gold truly is a barbarous relic. Fiat manipulators then have intellectual backing to create dollars at will based on any desired justification.
Unfortunately for the Fed, fiat advocates, and fellow sycophants, they will never realize their golden Schadenfreude. Gold’s value, despite some wobble, has remained stable for millennia. There is no other monetary standard or hindsight economic data upon which to compare gold. Gold is the monetary Polaris. The Fed controls the dollar’s value through its monetary management. Gold’s stability acts as a signal of Fed error. Changes in the price of gold do not reflect changes in gold’s value. Rather, they reflect the instability of fiat currency that orbits about gold. The unique, monetary properties of gold have relegated gold’s value stable since its first use with the onset of organized economies. History has proven its stability, and mankind has accepted it. Central banks hoard gold not because of Bernanke’s “tradition” but for the same reason as everyone else. Gold’s value remains stable.
The world will work itself back to a gold standard. It has no choice. The current global financial stress is a direct result of central bank manipulation of currency. The vast productive class will always demand stable, honest money over elitist controlled fiat money that benefits the crony, connected, and powerful. Gold is democratic because currency managers cannot manipulate its value. It represents everyone’s economic interests at optimum monetary efficiency. The average life span of a fiat currency is 40 years. We are at the 45 year point. The fiat dollar’s age is showing.
1. The opposite reaction occurs among those who believe that gold is the only true money. A rise in the price of gold validates their belief that the real price of gold should equate to total base dollars divided by ounces of gold held by Treasury and the Fed. This equates to a current gold price of $17,300 per ounce.