Food for thought
Return to Gold Standard? Why Price Would Hit $10,000
All the major countries in the world are in a race to debase their
currencies in order to restart their economies. Either economic
growth returns or-as some doomsayers predict-the 40-year run of
fiat currencies ends.
And if under this worst case scenario the solution was to return to
the gold standard of the Nixon years, the price of bullion would
be worth $10,000-plus, six-times the current price, according to
Paul Brodsky, co-managing member of QB Asset Management company
and a self-professed 'Gold Bug.'
To be sure, a return to the exact terms of the Bretton Woods
Monetary Agreement is a near political impossibility because of
the traumatic devaluation in the U.S. dollar it would cause. Yet,
a move away from debt-based currencies to a system somewhat based on
hard assets is not out of the picture if the global economy doesn't
recover or policy makers don't allow for a painful deleveraging,
some investors say.
"Policy makers are holding a burning match," Brodsky said in a
speech to a packed crowd at The Big Picture conference Tuesday in
New York. "Baseless currencies follow the tyranny of short-term
politics and so shall this."
The country's monetary base (currency in circulation plus bank
reserves held at the Fed) has tripled to $2.68 trillion, following
the completion of QE2. Dividing this monetary base by the approximate
261.5 million ounces gold the U.S. Treasury is believed to own gets
Brodsky to the $10,000 an ounce figure.
While "politics are likely to intervene" to stop gold 100 OZ
GOLD DEC1GCCV1 1683.00 14.50 +0.87% from skyrocketing to this
destabilizing price, that doesn't mean bullion can't keep surging
from current levels as the devaluations continue, said Brodsky.
The money manager's comments were par for the course at The Big
Picture conference, named after the popular blog run by Barry
The conference featured panels on high frequency trading, the impact
of social networks and other contrarian topics one would never hear
at a gathering held by a mainstream retail brokerage. Here, attendees
were more likely to exchange twitter handles than business cards.
So no wonder that Brodsky's gold prediction was among the most-talked
about on the sidelines of this conference at the New York Athletic
"Economic policy makers across the political spectrum have
successfully maintained the debt-based monetary system since 1971,"
said the money manager. "To do this they have had to marginalize
the one competing currency capable of displacing it: gold."