39197167_goldBy Ralph Benko

The Wall Street Journal on May 7th, wrote a profile of the silver market precipitated by its sharp sell-off. Gregory Zuckerman and Carolyn Cui observe:

Long-time fans of precious metals often are mavericks who can be suspicious of mainstream securities firms, wary of financial catastrophe and reluctant to keep their money in the bank. They often rely on the advice of newsletter writers, obscure websites and coin-shop proprietors or their own research.

Once considered a haven for those with bleak economic outlooks or dystopian views of society, gold and silver began to rise early in the last decade, as investors searched for ways to protect against the falling dollar.

This encapsulates a peculiar but persistent attitude toward gold: “a haven for those with bleak economic outlooks or dystopian views of society.” There is much to this — in reference to an earlier class of investors.

This attitude is exemplified by a recent New York Times Magazine piece, “Gold Mania in the Yukon“ which observes:

Gold holds its value when national currencies collapse and is easily imported and universally traded. It feels like the perfect investment for the apocalypse. A few weeks ago, gold passed $1,500 an ounce, an astonishing level. George Soros warned of a bubble back when gold was barely over $1,000. Glenn Beck cried that the run was just beginning: just wait until the United States is bankrupt and the real trouble starts. Gold bulls talk of $2,000 gold, $5,000 gold, even $10,000 gold.

But precious metals now have drawn a far more sophisticated class of investor. Zuckerman and Cui describe how the big investors have “ formed two sides of an intellectual debate, pitting those who fear severe economic disruption against those who think the Federal Reserve can steer the economy to calmer territory.” He describes how George Soros’s fund, after buying and holding gold for two years in anticipation of deflation would cause the price of gold to soar, recently closed out their position. Why? Their belief that the Fed has dodged the deflationary bullet and will avert inflation through signals of intention to raise interest rates. John Paulson remains bullish on gold, believing that the Fed will lose its grip on inflation.

Latecomers to the gold standard story, like the Wall Street Journal and the New York Times, still have a lot of catching up to do with the media leaders Forbes.com (where this writer regularly publishes) and RealClearMarkets.com. These latter publications, edited by the sophisticated John Tamny, together with APIA’s Gold Standard 2012 and the Lehrman Institute’s online venue, with both of which this writer is professionally affiliated, set the pace worldwide for commentary on monetary policy and, especially, the reemergence of the gold standard as a mainstream policy option.

The paper dollar inherently is unstable. Traders as brilliant as Soros’s Keith Anderson and Paulson take opposite positions on how that instability is likely to manifest — inflation or deflation — and what impact either will have on the price of gold as a demonetized commodity.

There is a critical distinction to be made between gold as a commodity and gold as a policy option. Without the golden gyroscope, the dollar is prone to wild fluctuations and its inherent instability produces a severe drag on economic growth, job creation, and the ability of regular people to save and invest for their families and their future.

The gold standard removes the “casino” element injected into the world by the paper dollar standard. Wild fluctuations ultimately privilege the sophisticated. The gold standard is (small r) republican money. It restores security and prosperity to regular citizens.

The gold standard prefers Main Street to Wall Street.

Ralph Benko is senior advisor, economics, to American Principles in Action’s Gold Standard 2012 Initiative, a lead participant in the Iowa Tea Party’s upcoming Bus Tour. He co-led the gold standard breakout session at the Tea Party Patriots’ American Summit and is the editor of the Lehrman Institute’s The Gold Standard Now

4 comments
  1. “The gold standard removes the “casino” element injected into the world by the paper dollar standard. Wild fluctuations ultimately privilege the sophisticated.”

    All too true. Back when the world was on the gold standard, “investment” meant buying a stock for the dividend. Capital gains were considered bonuses; anyone who bought a stock for a capital gain was considered a speculator.

  2. Gold Bubble! LOL!

    The price of Gold has increased directly proportionate to the increase in Federal Reserve funds in circulation. $600B in 1999 when Gold was under $300 to $3.1T and gold is now over $1500. Simple math. It has been a leading indicator for many reasons, of the inflation about to come our way. While I don’t believe the $US will collapse (only because there is even less faith to put in Euros, Yuan, Yen, or Rubles), it will devalue and the Federal Reserve remains on a terminal path that will force loose monetary policy AND low interest rates until such time as a very very painful change in course is made, which I think will be too painful to face by any of the relevant parties (namely the financiers), so it will ultimately be headlong over a cliff and a new beginning.Of course, you might say now I’m entertaining dystopian views, but I call them observations, not what I think is going to happen as a harbinger of doom, but as a spectator of bad actors that long ago disabled the mechanisms to do what is right and necessary. So, take it from me or John Paulson, but I wouldn’t give much ear right now to Bernanke or Geitner because they’re now on a bi-weekly retraction cycle.

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