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Gold/Mining/Energy : Gold Price Monitor

GDXJ 124.09

-13.6%

Jan 30 4:00 PM EST

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To: Don Green who wrote (25070)	12/30/1998 8:40:00 AM
From: Hawkmoon	Read Replies (1) of 116955

Thanks for the excellent article Don. It reflected some of my thinking on gold (based upon a number of sources, of course. I'm not that bright... :0) But I have to differ on one point about central bankers backing up their currency with gold. One of the reasons we went off the gold standard in the first place is that there wasn't enough gold to back up the expansion of the US dollar as a reserve currency and our gold reserves at 'ol Ft. Knox were being depleted. Fiat money, based upon the full faith and credit of the country issuing it, has more flexibility relative to inflationary pressures and expansion of currency. To implement a gold-backed currency again would be equivalent to a tight money policy that contracts liquidity in the banking sector (each note having to be backed up by some percentage of gold). I also believe it would be counter-productive to the Fed's current "loose money" policy, and bias to lower rates, should the Fed undermine the value of paper currency while creating value in gold (CB's would have to spend Fiat money to purchase Gold). More money moving into gold away from Fiat money would force CB's to raise interest rates in order to attract depositors. I don't know, but my gut feeling tells me that the Fed/CBs is desperate to prevent gold from recovering due to the impact it would have on their current monetary policy of increasing liquidity. Returning to any percentage of a gold backed currency would have dramatic repercussions on the global financial system as well as the economy. Can you imagine having your currency strengthen while you're in recession? Makes it hard to export your way out of that recession. But there may be more afoot in the global power game than any of us peones can see. If the Euro increases gold backing to 30% then that would place pressure on the Fed and the Japanese to do the same. Regards, Ron

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