The Advantages of a Gold Standard

By Derrick Schwabe

Gold is money.
And if you live in a country on a gold standard your money is gold.

Today there is considerable discussion about whether or not we, the countries of the world, should embrace a return to the gold standard. To solve the economic problems of today. Yet perhaps it is time that we move on from the debate... and on to a demand for it's return.
Global economy solution

In this short but sweet outline on the gold standard and it's advantages, you will learn why it is essentially the grand solution our global economy is seeking.
Gold Has Got Your Back

Being on a gold standard means the national currency is fully backed by physical gold. And thus, it's citizens can freely exchange paper notes for a set rate of gold.

When a government embraces a full gold standard, they are effectively declaring that gold is the highest unit of trade. And that the currency is merely a tool for people, businesses, government and foreign investors to facilitate gold transactions more conveniently than trading physical bullion.

And therein lies a key to a truly free market economy. Gold is a rare, heavy mineral that nobody can print out of thin air. Making it difficult to manipulate. And allowing the principals of production, savings, capital and economic growth to create natural prosperity. Uninhibited by the clutches of politicians and central banks.

Tremendous Economic Stabilizing Power

A gold standard provides the stability needed to foster greater prosperity and productivity throughout the world.

The limited supply of gold creates a stabilizing effect on international trade & the business cycle. Effectively preventing potential for economic collapse by limiting over expansion, inflation, and major imbalances before they spiral out of control.

Former Federal Reserve Chairman Alan Greenspan, as a young and ideologically different man, best explained, in an article he published in 1966, why a gold standard fosters economic stability at home and abroad.

"Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one-so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.

Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion."

Gold Enforces Responsible Government

A gold standard is necessary to the economic freedom of mankind. It acts as a tool for limiting the actions of governments and their ability to exacerbate economic problems.

Father of the legendary Wall Street investor Warren Buffet, made clear the correlation to a gold and it's power to enforce responsible government. Warren's dad Howard Buffet, a serving congressmen at the time, stated in his 1947 speech:

"When the people's right to restrain public spending by demanding gold coin was taken away from them, the automatic flow of strength from the grass-roots to enforce economy in Washington was disconnected...The gold standard acted as a silent watchdog to prevent unlimited public spending."

Without a gold standard, the government is free to create an unlimited number of paper notes & dollars. Allowing inflation to spiral out of control. As they selectively bail out banks and other institutions, regardless of a poor track record. Or spend billions of dollars on unproductive social programs. Or to wage war overseas.

The Gold Standard Produce Prosperity

Sound money cultivates prosperity. And under a gold standard you have sound money. There is no inflation. And alternatively, consumer prices are constantly falling. Which increases the purchasing power of the people. Improving the standard of living of everyone.

For about 120 years, between 1790 and 1910, with the exception of wartime, prices for Americans fell almost continuously.

In times such as in the Civil War, when the government temporarily resorted back to printing money, inflation became rampant again. Yet as soon as sound money was restored, prices would fall back down, reducing the cost of living, and improving living standards.

Savings is at the root of economic growth and capital formation. And a gold standard encourages savings. Because when the prices are constantly falling, the value of money is constantly rising. And people are more inclined to save money that is increasing in value. Under a gold standard, savers are rewarded for having saved money. Because the money that they have saved has more purchasing power.
Lady Justice

The most prosperous period in American, and even British, history was when these counties were under a gold standard. And even though a truly free & consistent gold standard was never achieved worldwide, it is clear that the power of gold, in combination with capitalism & human ingenuity, served as the basis for the Industrial Revolution.

While mankind has lost it's way, it is not too late to turn back. And now, more than ever, it is compelling to reverse the tides of inflationary money policy. To shift the focus from debate to a demanding roar that can be heard worldwide. To return to the proven model that is the gold standard.

Learn more about the gold standard at the Open Gold Exchange.

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What Was The Gold Standard?

By Kum Martin


The gold standard was a way fixing the price of the domestic currency against a particular amount of gold. So, when a country adopted this standard, all the money, including bank deposits and paper notes, could be converted to gold at a fixed price. England was the first country to adopt the gold standard in 1717, when Sir Isaac Newton, the master of the royal mint, ended up overvaluing the guinea against silver. However, at this time the adoption was not formal. The formal adoption of the gold standard in the United Kingdom occurred in 1819.

The United States was following a bimetallic standard, where the price of the US dollar was fixed against both gold and silver. The country shifted to the gold standard in 1834 after the US Congress passed the Gold Standard Act. The price of gold was fixed at $20.67 per ounce and this price stayed on until 1933.

During the 1870s, many other countries shifted to this standard, and the years between 1880 and 1914 were known as the classical period. This was the time the world witnessed significant economic growth clubbed with free trade.

However, when the First World War broke out, the gold standard fell apart, as countries responded by resorting to inflationary finance. Nonetheless, the standard was re-introduced for a short period, from 1925 to 1931 as the Gold Exchange Standard. In this new standard, the countries could keep reserves of gold, dollars or Sterling pounds and just the US and the UK were exempted from it, as they had reserves just in gold. But the Gold Exchange Standard broke after the UK shifted from the standard due to large outflow of gold as well as capital.

Then President Franklin Roosevelt decided to nationalize the gold that private citizens owned and also abolish contracts that paid people in gold. The US shifted to the Bretton Woods system from 1946 to 1971. Under this system, countries were allowed to settle their international debts in US dollars, while the US redeemed the dollar holdings of other central banks in gold. The price for one ounce of gold was fixed at thirty-five dollars. However, the US was facing deficits and this undermined the confidence of bankers and countries. They felt that as the US gold reserves were dwindling, the government would not have sufficient gold to redeem its currency. So, on 15 August 1971, the US President Richard Nixon took a decision that the country would no longer exchange currency for gold. This brought an end to the gold standard in the United States altogether.

However, the country faced high inflation in the latter half of the 1970s and early part of the 1980s, which prompted many economists to advocate a return to the gold standard. It is believed that whenever the inflation crosses 5 percent, there is renewed demand for return to the gold standard, as when the country was using the standard, the average inflation per year was just 0.1 percent.

About Author:
Kum Martin is an online leading expert in history and education. He also offers top quality articles like:
Gold Standard History

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Gold Is Still a Safe-Haven As a Greek Default Still Seems Inevitable

By Marko Puustinen


Concerns about Greek default, and the knock-on effects which could have drastic consequences on global financial markets, have diminished - for now. However it is far too early to completely write off a Greek default which seems inevitable in the long term. Some analysts say five years until default, but others say this is far too optimistic and Greece will collapse financially well before that.

However, for the moment with the help of a €12 billion loan from the EBC and IMF, Greece has managed to ward off default. Therefore, coupled with the traditionally weak summer period and less demand from Asia, we are likely to see gold remain under pressure for the next month or so.

Although lending further money to Greece seems to be pouring more money down the drain, a default would drive German and French banks near bankruptcy because of the huge amounts they have invested in the debt. The knock-on effects would then descend on Portugal and Ireland, who also face huge debts and which would in turn put stress on the U.K and Spanish banks.

The prospects for gold remain strong as the gold price continues to hang around $1500. At the moment (1/07/11) gold is trading in the low $1,490s however, this is largely from relief that Europe has not actually imploded financially yet. However, there is more than enough economic distress to keep gold prices from falling further:

• Massive structural problems exist in the U.S. The housing sector continues to be a problem and the fiscal deficit is large.
• Worries over the increasing possibility that Greece will default will resurface over the next few weeks and months.
• Greece defaulting would produce a domino effect, forcing Portugal, Ireland, Spain and Italy into the same position- European lenders still have almost $2.trillion linked to these countries.
• The weak US dollar is gradually losing its status as a global currency, which is a logical consequence from the quantitative loosening; however the US only has until the 2nd August to make a decision whether or not to raise its debt ceiling.

The safe haven aspects of gold investment will return especially from September so now is the perfect opportunity to buy gold while prices are sitting lower. Although technical factors could drive gold down further in the short term, things are likely to get worse for the Global economy, which will see gold continue upwards again; therefore this is perhaps not the time to be selling gold. Until the economies of countries in Europe and the USA begin to pick up (which seems some way off yet) inflation will continue to increase and as such gold prices will continue to climb.

Overall, given the chronic uncertainty the financial world is facing and the trust lost in central banks, we believe that investing in gold is the right answer. The situation for the Euro and the US Dollar only seems to be getting worse and therefore the global expansion of monetary supply should continue to provide gold investments with a positive environment to thrive in.

KK Bullion offers you the opportunity to participate in a rising gold market with gold bullion. Buy or sell gold bullion, have it delivered securely or we can store your gold bullion for you in our Vault. Click here to buy a Gold Bullion

Article Source: http://EzineArticles.com/?expert=Marko_Puustinen

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Gold and Geopolitical Tensions

By Marko Puustinen


The last few weeks the situation in Egypt has been dominating the headlines and making the markets even more volatile than normal. The gold price has been moving very rapidly since the uprising started. This shows the important role gold is playing in traders portfolios in times of uncertainty. They are trying to protect themselves with gold as it traditionally moves inversely to other equities.

The tension in Middle-East might keep investors on their toes for quite some time as Jordan and Yemen are very close to losing the control of their people too. Investing in gold will offer a safer option to invest one's money than stocks as long as the inequalities between people keep causing problems in Middle-East.

According to bullion dealers in Hong Kong and Shanghai the physical demand for gold has been unbelievable before Chinese New Year celebrations. Chinese people traditionally buy gold as a New Year's gift and because of the emerging inflation pressure the hunger for the metal has been at record high ahead of the holiday.

Traditionally the physical demand calms down after the Chinese New Year and won't pick up until early September but currently the inflation pressure is likely to stop any major falls as governments are pretty helpless in front of market forces. In a healthy economic environment inflation is caused by increasing consumer spending and can be controlled by raising interest rates. Presently inflation is caused by rising commodity and food prices, not people spending too much. This causes politicians a dilemma as rising interest rates would cool down the commodity prices but it also would kill the emerging recovery.

Both the ECB and the FED have stated that they will not raise interest rates until the recovery is on firmer ground and the economy is adding far more jobs than it currently is. Recent employment data from the U.S is backing up this as the country is not creating new jobs fast enough to support the recovery. ECB is expecting inflation to be 1.8% in 2011 which is below the 2% target and would ease the pressure to raise interest rates in the Euro Zone.

As central banks are not currently able to do anything to cool down inflation without affecting the recovery, commodity and food prices are likely to keep rising. Some analyst suggest that rising food prices were the bottom reason for the riots in North Africa as in most of these countries over 50% of family income goes to grocery shopping. As food prices keep rising, it is likely that the anxiety and tension keeps spreading to other developing economies.

Resent economic statements from America and Europe are suggesting that the recovery is picking up but financial markets remain doubtful about it and especially Asian investors are keener than ever to buy gold as an inflation hedge. Whether the western world will follow until it's too late will be seen in the next few months but a lot of so called smart money from Asia is buying all the bullion they can get.

KK Bullion offers you the opportunity to participate in a rising gold market with gold bullion. Buy or sell gold bullion, have it delivered securely or we can store your gold bullion for you in our Vault. Click here to buy a Gold Bullion

Article Source: http://EzineArticles.com/?expert=Marko_Puustinen

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How High Will Gold Climb?

By Marko Puustinen

Last week I wrote that the next price barrier for gold is $1300/oz and recently the price has been hovering around $1298/oz for few days. Few months ago most analysts expected the gold price to be on these levels by the end of the year but recent news from America and Japan has encouraged investors to jump on board faster than predicted.

Last week the Japanese government announced that they will interrupt the markets by weakening the Yen for the first time in six years. This is a rather significant move from the Japanese government since they haven't injected any stimulus into the markets since the last recession in 1990s. The falling Dollar has caused problems in Japan since their large exporting industry has been suffering because of the strengthening Yen and the government was forced to take actions. All this is gold positive because one more of the few reserve currencies have been manipulated by the government.

The counter strike from the Dollar came on Tuesday when the FED announced the readiness to introduce a new round of quantitative easing to boost the economy. After the announcement gold has been very close to the $1300/oz mark and once this level is reached, investors need to revalue their price targets once again.

The depreciation of the Yuan compared to the Dollar has caused a growing tension between The U.S and China in recent weeks. The U.S is blaming the cheap Yuan for its economic issues and even financial sanctions against China have been on the cards. If these two giant economies are starting to threaten each others, the impact on the ever slowing recovery could be enormous. Both of the nations are key players in the global economy and how they manage to support the economic growth and stability will have a major effect on all economic regions.

According to the IMF, a growing number of central banks, especially from Asia, have been topping up their gold reserves in the last 12 months. Russia, China, Saudi Arabia, India, Mauritius, Bangladesh and Sri Lanka have been the main purchasers and the changing attitude towards gold investments from central banks has encouraged investors to buy gold.

Gold has gained 17% since January and has been the best performing asset by miles. Still most people don't see gold as an investment since it doesn't pay any dividend. This is a totally wrong approach to hard asset investing. Investors should keep gold in their portfolios to balance the risk aspect of investing. Every time something goes wrong in the global economy, people go for gold. This has been proven several times in last few years and is likely to be proven many more times before the recession is over.

KK Bullion offers you the opportunity to participate in a rising gold market with gold bullion. Buy or sell gold bullion, have it delivered securely or we can store your gold bullion for you in our Vault. Click here to buy a Gold Bullion

Article Source: http://EzineArticles.com/?expert=Marko_Puustinen

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Will the Gold Market Slow Down for the Summer?

By Marko Puustinen


Traditionally the gold market slows down for the summer along with other commodities as the holiday season approaches. Last year was an exception as the European sovereign debt crises hit the market hard in early June. Gold price went to record highs and stayed there until half way through July. The same could happen again as despite the 110bn Euro bailout Greece received from the EU, it has run out of money again and is asking for more.

If the EU and the IMF decide to give Greece more money or to restructure its debts, gold should benefit from this as uncertainty in markets should be gold supportive.

This, combined with high inflation in the Euro zone, is likely to support gold as both the Euro and the Dollar are likely to keep falling. Falling fiat currencies have been the main reason for the latest gold run and when QE2 runs out in the U.S in June, its economy might start slowing down again. This would force the FED to start a third round of quantitative easing and push the Dollar even lower. This normally has an inverse effect on the Euro but with the current issues in several of the Euro zone economies, gold would be the biggest winner in this situation.

Another important factor supporting gold is the central banks, which have carried on purchasing gold bullions in the first quarter of 2011. Mexico announced that it has bought 93.3 tonnes during February and March, which is a clear sign that faith in the Dollar is fading amongst most of the developing nations. As Russia and China are practically buying their whole domestic production, the amount of new bullion coming into the free markets is relatively limited compared to the current demand.

The most important event over the summer will be the end of QE2 and how the U.S economy will react to it. If the FED decides to start supporting the economy with another round, gold is likely to carry on its upward trend throughout the summer. If the economy manages to stand on its own feet, gold is likely to consolidate lower until autumn when the demand for commodities in general picks up.

Whether people should still invest in gold or not, one has to think the reasons why the value has increased so much and have any of the issues in the global economy been solved.

The Dollar is still falling and with a possibility of another QE round it is likely to keep doing so. Sovereign debt issues in Europe are still ongoing and there has not been a clear solution how to cope with them in the future. Economic power is shifting east where people are used to buying gold as a preserver of wealth, which should keep the global demand for bullion high. Taking into account all these factors and the rising oil prices, it is still advisable to keep a portion of gold in your investment portfolio.

KK Bullion offers you the opportunity to participate in a rising gold market with gold bullion. Buy or sell gold bullion, have it delivered securely or we can store your gold bullion for you in our Vault. Click here to buy a Gold Bullion.

Article Source: http://EzineArticles.com/?expert=Marko_Puustinen

READMORE ... Will the Gold Market Slow Down for the Summer?

Gold and Geopolitical Tensions

By Marko Puustinen


The last few weeks the situation in Egypt has been dominating the headlines and making the markets even more volatile than normal. The gold price has been moving very rapidly since the uprising started. This shows the important role gold is playing in traders portfolios in times of uncertainty. They are trying to protect themselves with gold as it traditionally moves inversely to other equities.

The tension in Middle-East might keep investors on their toes for quite some time as Jordan and Yemen are very close to losing the control of their people too. Investing in gold will offer a safer option to invest one's money than stocks as long as the inequalities between people keep causing problems in Middle-East.

According to bullion dealers in Hong Kong and Shanghai the physical demand for gold has been unbelievable before Chinese New Year celebrations. Chinese people traditionally buy gold as a New Year's gift and because of the emerging inflation pressure the hunger for the metal has been at record high ahead of the holiday.

Traditionally the physical demand calms down after the Chinese New Year and won't pick up until early September but currently the inflation pressure is likely to stop any major falls as governments are pretty helpless in front of market forces. In a healthy economic environment inflation is caused by increasing consumer spending and can be controlled by raising interest rates. Presently inflation is caused by rising commodity and food prices, not people spending too much. This causes politicians a dilemma as rising interest rates would cool down the commodity prices but it also would kill the emerging recovery.

Both the ECB and the FED have stated that they will not raise interest rates until the recovery is on firmer ground and the economy is adding far more jobs than it currently is. Recent employment data from the U.S is backing up this as the country is not creating new jobs fast enough to support the recovery. ECB is expecting inflation to be 1.8% in 2011 which is below the 2% target and would ease the pressure to raise interest rates in the Euro Zone.

As central banks are not currently able to do anything to cool down inflation without affecting the recovery, commodity and food prices are likely to keep rising. Some analyst suggest that rising food prices were the bottom reason for the riots in North Africa as in most of these countries over 50% of family income goes to grocery shopping. As food prices keep rising, it is likely that the anxiety and tension keeps spreading to other developing economies.

Resent economic statements from America and Europe are suggesting that the recovery is picking up but financial markets remain doubtful about it and especially Asian investors are keener than ever to buy gold as an inflation hedge. Whether the western world will follow until it's too late will be seen in the next few months but a lot of so called smart money from Asia is buying all the bullion they can get.

KK Bullion offers you the opportunity to participate in a rising gold market with gold bullion. Buy or sell gold bullion, have it delivered securely or we can store your gold bullion for you in our Vault. Click here to buy a Gold Bullion

Article Source: http://EzineArticles.com/?expert=Marko_Puustinen

READMORE ... Gold and Geopolitical Tensions