Bloomberg’s Trish Regan and Adam Johnson interviewed TCW Group’s Komal Sri-Kumar and Bank of New York Mellon’s Michael Woolfolk about the risks from currency wars on Bloomberg Television’s “Street Smart.” Trish Regan asks whether there is a danger that “we have massive inflation worldwide for years to come?”
The answer is yes and both agree that inflation is a real risk as is a loss of credibility by central banks. Komal Sri-Kumar is asked what the solution is and is asked about his Op-Ed in The Financial Times in which he calls for a return to a gold standard.
He replies that a gold standard today would be no different to “how good it was from 1945 to 1971.” “It worked, the world was in prosperity, there was economic growth and there was clearly certainty in terms of what exchange rates were.” He warns that “even in the short term there is nothing to be gained by devaluing. We have tried that in the United States. We have been devaluing through QE1, QE2 and QE Infinity, the most recent one … we don’t have sustained economic growth.”
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From Goldcore:
Today’s AM fix was USD 1,641.75, EUR 1,225.28 and GBP 1,053.15 per ounce.
Yesterday’s AM fix was USD 1,663.50, EUR 1,242.16 and GBP 1,057.94 per ounce.
Silver is trading at $30.94/oz, €23.13/oz and £19.92/oz. Platinum is trading at $1,719.25/oz, palladium at $764.00/oz and rhodium at $1,200/oz.
Cross Currency and Precious Metals Table – (Bloomberg)
Gold fell $18.90 or 1.13% yesterday on closing at $1,649.70/oz. Silver slipped to a low of $30.81 and finished with a loss of 1.53%.
Gold in USD, 1 Year – (Bloomberg)
Gold has dropped to its lowest level in over a month on low volumes due to Asia’s Lunar New Year holiday which has markets closed in Hong Kong, China, Malaysia and Taiwan today.
Prices remained low despite the announcement that North Korea had detonated an atomic warhead in its 3rd underground nuclear test. Geopolitical risk remains and should the situation on the Korean peninsula deteriorate then gold should receive a safe haven bid.
G20 finance ministers and central bankers are meeting in Moscow this week and market players are waiting to see what clues are given for the stability of the euro.
Gold continues to flow from the west to east. Reuters reports that U.S. Commerce Department data showed U.S. exports of nonmonetary gold, which excludes central bank transactions, climbed by 43% to $4 billion in December from the prior month.
That’s the highest total and the largest month-on-month jump in U.S. private gold exports since September 2011, when gold rallied to a record nominal high over $1,920/oz. Hong Kong accounted for nearly half of the $4 billion.
The Group of Seven nations have reiterated their commitment to market-determined exchange rates and said fiscal and monetary policies must not be directed at devaluing currencies.
Actions speak louder than the words of the communiqué and the reality is that the fiscal and monetary policies of many members of the G7, and especially the U.S., are directed at devaluing currencies through competitive currency devaluations.
Concerns about the devaluations and the growing risk of a severe bout of inflation have led to calls for a return to fixed exchange rates and a gold standard.
Bloomberg’s Trish Regan and Adam Johnson interviewed TCW Group’s Komal Sri-Kumar and Bank of New York Mellon’s Michael Woolfolk about the risks from currency wars on Bloomberg Television’s “Street Smart.”
Trish Regan asks whether there is a danger that “we have massive inflation worldwide for years to come?”
The answer is yes and both agree that inflation is a real risk as is a loss of credibility by central banks.
Komal Sri-Kumar is asked what the solution is and is asked about his Op-Ed in The Financial Times in which he calls for a return to a gold standard.
He replies that a gold standard today would be no different to “how good it was from 1945 to 1971.”
“It worked, the world was in prosperity, there was economic growth and there was clearly certainty in terms of what exchange rates were.”
He warns that “even in the short term there is nothing to be gained by devaluing. We have tried that in the United States. We have been devaluing through QE1, QE2 and QE Infinity, the most recent one … we don’t have sustained economic growth.”
In his Op-Ed in The Financial Times, Sri-Kumar called for gold to be fixed just above today’s levels at $1,675/oz:
“A first step would be to fix the price of gold in dollar terms at near its current level of $1,675, with assured convertibility. To ensure that currencies are neither over- nor undervalued, the consumption basket (or the hypothetical loaf of bread) should be valued at roughly similar levels in different currencies at fixed rates against the dollar.”
Bank of New York Mellon’s Michael Woolfolk says that you could back the dollar with gold as “the value of gold would have to be astronomically high to back the money supply”.
“At the time of the 1960’s a dollar was a unit of currency and $35 bought an ounce of gold, but the velocity of money is so much greater now the price would need to be higher”, Columbia University educated Kumar said.
The benefit of the gold standard was that there was a fixed exchange rate.
“If we went back to the gold standard you would be looking at a global recession,” says Michael Woolfolk. “We don’t have enough gold and it’s not growing fast enough”.
Kumar disagrees that by using a gold standard and that having it fixed exchange rates, the certainty would increase global trade and overall global production.
“The price of gold would have to be astronomically high, plus you couldn’t guarantee that all countries have different interest rates set”?
“Michael, I don’t think the inflation would be much higher if the country submits itself to a fixed exchange rate” said Kumar.
Sri-Kumar concluded the following:
“During the Bretton Woods period the The Vietnam War pushed the inflation up as the U.S. had to print dollars to finance a war. Then Nixon abolished the gold link in August of 1971 was death net. After that, money supply increased by 10% in one year and this was not consistent with the fixed exchange rate. If you had not done that we would have avoided the push up in inflation in 1973-1975 and the subsequent increase in oil prices in 1979.”
This debate shows how gold is being seen as money and as a safe haven asset again, and shows the silly nature of the ongoing suggestions that gold is a ‘bubble’.
NEWS
U.S. gold bars and coins find new home overseas on Asian demand – Reuters
Gold Rallies From Lowest in a Month on North Korean Nuclear Test – Bloomberg
Gold Declines to Lowest in More Than a Month; ETP Assets Drop – Reuters
Gold now oils the wheels of Iran’s economy – The Times
COMMENTARY
Video: Would Returning to Gold Standard End Currency Wars? – Bloomberg
Fix Gold and Exchange Rates To Revive Growth – Financial Times
Video: World’s Most Gold-Hungry Country? Not the U.S. – Bloomberg
A Brief 2000-Year History Of Silver Prices – Commodity HQ
Year of the Snake is a Year to Buy Gold – SCMP.com
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‘Gold-standard’ (and ‘silver-standard’ too, in truth) is just an excuse to pass paper stamps around in pretense for ‘money’. When the evidence strongly infers that most ‘gold’ supposedly held by governments and financial institutions is merely claim tickets, what the hell does the term ‘gold-standard’ mean anyway?
Paper Rots, Coin Does Not.
Good one. I bet the COMEX would be all to happy to print tickets for that show. Guess we need a gold standard and an anti-theft standard that includes scanning for tungsten, a 24×7 web-cam on the gold like we do for cspan, fully published and accounted for serial numbers, full compliance with the request “I’d like to see my gold”,etc….
“…what the hell does the term ‘gold-standard’ mean anyway?”
Probably as many different things as there are economists to define it. I’m sure that most of us here have our own ideas as to what constitutes a proper “gold standard”. Many of our ideas are likely a good part of the picture but perhaps not as complete as we would like. The primary attribute to me is the backing of the currency that it brings. The old gold and silver certificates were paper but a fixed amount of metal could be acquired at most banks “on demand”. Because of this, the Gov HAD to have enough metal available to honor those demands, thus could not print just any amount of currency. The debauching of the dollar by massive over-printing and the resulting inflation that follows will likely be its undoing as a viable currency, let alone as the World Reserve Currency.
The paper would have to be able to be converted to gold on demand. Say $100 bill would get you a gram of gold. $5 bill 2 grams of silver as a rough example
@MaryB … “Say $100 bill would get you a gram of gold. $5 bill 2 grams of silver as a rough example”
No, Mary, that’s exactly the wrong rote connection I’m trying to inspire liberation from. A ‘dollar’ is an imaginary contrivance. Ideally, ALL such fiat designations … pounds, francs, yuan, pesos, etc. … ought to be wholly abandoned. Mixing imaginary ‘units’ with reality is an open door to confusing corruption of re-definition. That’s the glaring lesson of the Roman Sestertius in juxtaposition to the Chinese Tael pieces.
The only REAL definition of a PM coin is its composition, fineness and weight, so the ONLY receipt/claim ticket that’s eternally incorruptable is one that reflect those qualities … exclusively!
Those who propose a gold standard never quite get around to who would set the value of PMs in a new gold standard. Bankers, politicians, traders or us?
A nation that perceives fractional reserve banking as a moral entity, there is not much a person can do to value his labour. Saved labour is destroyed by the inflationary effect of the injection of unearned counterfeited money. It destroys the purchasing power of the old money by raising prices through falsely contrived new demand. I’m afraid that whilst the fractional reserve banking system is accepted legally, they banks will set the price through their ability to print money to buy goods with their perfectly counterfeited scrip. If gold were the coin of the realm, then it would value goods and services by market participants, not the banks.
A gold standard doesn’t necessarily mean an end to fractional reserve banking. A sound money system must be linked to property rights. A bank, to be a deposit bank, must observe the rights of the depositor to have returned to him the item deposited, in the condition it was deposited if it is personal property, or purchasing power if it is money. Weights and measures can’t be legally tampered with under law. Money should be linked to them to protect the saver from the fraudulent practice of allowing banks to create forged copies of the depositors savings and use them a good money in the market.
It’s time to end the deception and expose the duplicitous behaviour of the justice system in their interpretation of embezzlement laws. If I was to counterfeit money of art, I’d be doing time. If a banker does it, it’s acceptable in the eyes of the law. When did such a moral dilemma come into existence?
“When did such a moral dilemma come into existence?”
Probably shortly after the bankers realized that they had more than enough money to buy all of the politicians needed to write the laws in their favor.
The G7 is meeting. The members of the world’s biggest liars club are sitting down to tell each other they won’t engage in currency devaluation. Let me wipe the tears of laughter from my eyes. These grinches are planning to devalue at light speed and we are going to be hammered by this pack of thieves’ plans for our pocket lettuce.
Money? FIAT? Good luck with that and the banksters who hold our currency in their vaults. I’d like to know if any Venezuelans dial into the Silver Doctor channel. Maybe someone could tell us the effect of currency wars and devaluation in that country. Or Argentina
From what I saw on Utube, there was mayhem in the streets as folk stampeded stores to purchase what ever they could before prices rocketed. Coming to a mall near you.
@Sergio of The Jungle: They stampeded a day to late, no? Kind of gives meaning to what preppers are always saying. Would you rather be WAY EARLY or a day late or panic now and avoid the rush, hay.
The United States doesn’t have enough Gold now to create a Gold Standard. Their Vaults are empty. We will be following the Chinese Gold Standard.Lol
Maybe not, Charlie, but we DO have the world’s largest collection of gold-plated tungsten bars!
@Ed_B: LOL, that’s right we have quantities of tungsten! We are knee deep in that most precious shiny metal.
Well, we sure seem to. Of course, with no audit of the US gold supply for 50+ years and no audit of the Fed EVER, who can say what we have, where it is, or what we owe? I have a hard time with a philosophy that says ignorance is good and that knowledge is not but that seems to be what we are being sold these days. :-/