Alan Beattie, International Economy Editor of Financial Times and former economist at the Bank of England (the UK’s central bank), has produced the latest piece in the disinformation campaign against gold. In his article, “Britain was right to sell off its pile of gold,” Mr. Beattie puts forth the argument that Gordon Brown actually did the UK a favor by unloading a bunch of metal that served no purpose in holding. He further defends Brown’s decision to sell the gold at a 20-year low, stating that any criticism is unfair, and borne only out of hindsight. In reality, he concludes, no one could have predicted gold’s rise as even now no one can explain why gold’s price is where it is.
Mr. Beattie goes on to scoff at countries such as China and Russia that are currently in the news for using their excess reserves to accumulate gold. Presumably because they haven’t yet discovered the enlightened path of a “rich” country such as the UK that dispenses with the entire problem of excess reserves by simply not having any.
The truth is, in the short term, much of what Mr. Beattie says is correct. Governments and central banks of the world have been so successful in denigrating gold over the last 75 years that they have since been able to convince their citizens to accept a fully paper substitute. And with that substitution comes a power never afforded to them with gold – the ability to create money out of thin air. What good is a finite amount of gold money to the UK when it can create an infinite amount of its money substitute? And why bother with actually producing anything anymore? Countries around the world seem perfectly happy to trade their real resources, labor and goods for these paper IOUs.
This is all well and good in the short term, but in the long run things are very different. The reckless spending of governments coupled with the ongoing bailout of the banks have produced debt levels in many Western countries that can simply never be repaid. The United States has already defaulted on its debt by creating new dollars to cover much of its budgetary shortfall via its latest QE program. Old dollars are paid back with dollars of reduced purchasing power. Holders of paper money everywhere are nothing more than creditors to the government who are being forced to take haircuts.
Every day more and more people wake up to the fact that their standard of living is being reduced by this system. Every day their wages buy less food, less gas and less of the essentials required for daily life. Ordinary citizens and creditor countries alike are choosing to opt out of this confidence game in which purchasing power can be stolen at will. They do so by storing their wealth in gold. This is the reason for gold’s inexplicable rise over the last decade and not rampant speculation as Mr. Beattie postulates. It is a trend that will continue unabated until the insolvency of the debtor nations and their banks has been adequately dealt with.
The Federal Reserve has done a service to the price of Gold by devaluating the dollar, which results in the rise of the price of Gold.