The financial markets are trading gold and silver like currencies. You know, those items that central banks can just create out of nothing to meet any demand and never suffer any shortfall, at least in terms of quantity. Quality is another matter altogether.
Ken Rogoff suggests that emerging markets should shift more of their reserves into gold.
"The problem with the status quo is that emerging markets as a group are competing for rich-country bonds, which is helping to drive down the interest rates they receive. With interest rates stuck near zero, rich-country bond prices cannot drop much more than they already have, while the supply of advanced-country debt is limited by tax capacity and risk tolerance.
Gold, despite being in nearly fixed supply, does not have this problem, because there is no limit on its price. Moreover, there is a case to be made that gold is an extremely low-risk asset with average real returns comparable to very short-term debt. And, because gold is a highly liquid asset – a key criterion for a reserve asset – central banks can afford to look past its short-term volatility to longer-run average returns."
'No limit on price.' Pet rocks!
Note to Mr. Rogoff, the emerging markets of Asia have been buying gold bullion and in some fairly impressive amounts for several years. It is the West, caught in a credibility trap, that does not see what has been happening and the implications of it.
There is a reckoning coming, and a hard lesson in market and monetary economics.
Have a pleasant evening.
