Time for the central bank to hoard gold
Thailand must protect itself as the major economies flood the world with what could soon be worthless paper
The price of gold hit a nearly seven-month high of $1,780 per ounce on Friday morning. At the same time, silver eased to $34.73 per ounce after failing to breach $35. Interest in gold as a store of value and an alternative currency has been renewed following the madcap policy of the world’s central banks to print money until economic conditions perk up.
Gold hit a record $1,920.30 per ounce in September 2011 before losing $300 of that value. Now gold is back in vogue. Many believe that gold has bottomed out. The only way is up – until the central bankers can clean up the big mess.
The problem with our financial system now, which has brought gold to the forefront again, is money-printing. Governments get money to spend by taxing people or borrowing it from savers and investors. When they have exhausted both means, they resort to the central banks to print money to finance their ever-expanding fiscal programmes.
The US Federal Reserve will print $40 billion a month to buy up mortgage-backed securities from the secondary market to pump further liquidity into the system. The European Central Bank intends to save the euro at all costs and is planning to buy up the sovereign debt of the weak euro-zone states as part of its bailout plans.
The Bank of Japan will print between 10 trillion and 80 trillion yen to prop up that country’s ailing economy. It has been printing money periodically since 2001, but to no avail. The Bank of England has a similar plan, to print more than 300 billion pounds to stimulate the UK economy after four quarters of dismal performance. At the same time, the banks are in dead water after years of credit bubbles. Central banks’ money-printing is also designed to prop up the banks and prevent them from collapsing.
One of the consequences of money-printing on such a vast scale is the debasement of the value of the currency involved. This is because there is more money in circulation chasing after fewer goods and services. The era of so-called fiat currencies – money without intrinsic value – is coming to an end with this money-printing. People will not hold on to paper money if they realise that the central banks will pump more paper money into the system.
Since the Fed, the ECB, the Bank of Japan and the Bank of England have pursued this money-printing course, we can assume that the economies of the US, Europe, Japan and UK are in bad shape. Together they represent most of the world’s gross domestic product. There is no global economic recovery in sight.
For this reason, gold is making a comeback with a vengeance. It is a store of value and an alternative currency at a time when the central banks of the world are flooding the world with what will soon be worthless paper money. The Bank of Thailand must resist this course. It’s time for our central bank to hoard gold.
