What would it take to break the gold price out of the $1,600 to $1,700 an ounce range in which it has been trading for the past year? Another massive blast of quantitative easing from the Federal Reserve? A final breakdown of the euro? A war between Israel and Iran? They are all possibilities, of course. But the most likely candidate is a serious debate about a return to some form of the gold standard.
First, let’s get this straight: The U.S. Federal Reserve’s Open Market Committee is composed of some very smart, sensible people. But...for all the unreasonable accusations that are sometimes leveled at Chairman Ben Bernanke and his colleagues, there is one good reason to complain about the FOMC’s detachment from the world. It stems from the fact that the Fed’s mandate extends no further than U.S. borders. The committee members are under no legal obligation to consider the impact of their actions on foreign countries.
Oh, sure, don't get me wrong, there may still be a Euro a year from now. And there’ll certainly be some investors left.
Earlier this year, the Utah state legislature passed a law making gold and silver coins legal tender. Now, a Salt Lake City-area numismatist hopes to set up a system that will allow Utahans to use those precious metals to pay for anything they want.
It provides a common currency throughout Europe; its only problem is the incompetence of the European Central Bank.
Imagine a country that spends and prints trillions to patch up any problem. Now imagine another country where there is no central Treasury, meaning that bail-outs are less easy, and which has a central bank that has mopped up liquidity over the past year, rather than engage in quantitative easing.
Hedge funds increased their bets against the dollar to a massive $28.6bn (£17.1bn) in advance of Ben Bernanke's historic first press conference as chairman of the Federal Reserve last week.
Gold was money long before currencies came into the fray but a look at how the world moved from a gold standard to the current situation provides some useful food for thought.
By P Radomski
Based on the April 8th, 2011 Premium Update. Visit our archives for more gold & silver analysis.
Before moving on to the timing-related part of this essay (in fact a continuation of our previous essay Breakouts in Gold and Silver Prices), let's take a few moments to focus on the big picture. Namely, we would like to draw your attention to some interesting facts about the main point of our interest - gold.
[[wysiwyg_imageupload:2112:]]By Axel Merk
Today, the European Central Bank (ECB) raised its main refinancing rate by 0.25% to 1.25%.
ECB President Trichet has long argued that its monetary policy is independent of the "extraordinary measures" put in place to support the financial system. However, it was only earlier this year that the market took Trichet's suggestions that he may raise rates seriously, even as the sovereign debt crisis remains unresolved.