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Lots of gold action this week.
Robert Zoellick, the head of the World Bank, kicked it off on Monday. In an op-ed in the FT he called for changes to the the global currency system. Among other things, he wrote:
The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.
"World Bank chief calls for new gold standard," said the headlines.
Not quite, Zoellick said.
In a speech today, he explained:
...gold is now being used, being viewed, as an alternative monetary asset. This is not the same as a gold standard. Gold has become a reference point because holders of money see weak or uncertain growth prospects in all currencies other than the renminbi, and the renminbi is not free for exchange. So in relative terms, gold is appealing to people who ask: "where should I put my money".
In other words, people don't trust the dollar, the euro or the yen. So they're trading their dollars, euros and yen for gold, because it feels safer.
Despite this clarification, Zoellick's FT piece has prompted renewed discussion of the gold standard — the idea of fixing the value of a currency relative to gold. (For example, for much of the 20th century, foreign governments could exchange dollars for gold at a guaranteed rate of $35 an ounce.)
Most economists are deeply skeptical of returning to the gold standard, arguing that it would leave the world prone to deflation and depression. Yesterday, Slate explained the problems with the gold standard. And earlier this month, the FT's Martin Wolf published this detailed discussion of the gold standard and its discontents.
Meanwhile, the price hit of gold hit another all-time high this week — more than $1,400 an ounce (though in real, inflation-adjusted terms, the price is still far lower than it was in 1980).
Planet by the way, bought 1/4 ounce of gold last month for our latest investment-journalism project. The price is way up since we bought. But we sort of got killed on the transaction costs, so the price will have to rise a lot more for us to break even.
We'll have more on the gold standard in a podcast later this year.