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The Golden Guard

The confusion that gold prices have caused goes well back into history


In times of extreme volatility and all-round uncertainty, gold is setting all sorts of price records. With businessmen, the investment banker community as well as governments’ actions leading to the current global crisis, we need to go back to George Bernard Shaw’s advice, given in 1928, for a proper perspective on gold’s rise: “You have to choose between trusting the natural stability of gold and the honesty and intelligence of members of the government. With due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold”. 

Since eons, the precious metal has been chased for its safety value and people are driving the gold craze as the U.S. is keeping its money printing presses running full steam in an effort to kick-start its economy. 

"I only know of two men who really understand the true value of gold — an obscure clerk in the basement vault of the Banque de Paris and one of the directors of the Bank of England. Unfortunately, they disagree"

Baron Nathan Rothschild

This has flooded the markets with dollars. But, there is no collateral backing it up. The Boston Federal Reserve Bank explains: “When you, or I, write a cheque there must be sufficient funds in our account to cover the cheque, but when the Federal Reserve writes a cheque there is no bank deposit on which that cheque is drawn. When the Fed writes a cheque, it is creating money”.

Federal Reserve Chairman Ben Bernanke said: “The U.S. government has a technology, called a printing press, that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services.”

While the final word on the efficacy of such a policy is still being awaited, it has certainly caused dollar to fall and gold to rise. Fear rules!

This article first appeared in the December, 2009 issue of Wealth Insight magazine. To read the full article, and more, please subscribe.