FOFOA: Reference Point: Gold - Update #1

[traelin0]

The system we have today is actually broken, only we haven't quite recognized it yet. And so we need a new one, and this is the time to do it, while the markets haven't quite figured it out yet.

The preceding were the words of a billionaire more than a year ago. The following are the words of a Federal Reserve Bank president from just a couple days ago (emphasis mine)… Should the debate that is happening privately remain hidden from the public eye…? Is the nation somehow better served by giving the public the impression that the entire [Fed] is in agreement…? A gold standard that forces countries to back their currency reserves with bullion is a legitimate monetary system.

This being the "year of the RPG" here at FOFOA, I thought it would be a good idea to keep an eye on how gold is acting as "a key reference point to allow people to assess the relations between different currencies" (to quote the head of the World Bank) throughout the coming year.

In order for the limited and stable quantity of above-ground physical gold to perform this important international function effectively, it will ultimately trade independent from the current network of bookkeeping derivatives that assume gold ownership through a counterparty's gold liability (receivables, futures, options, forwards, ETF shares, etc.). Such contractual obligations do not represent a stable and credible quantity like the physical gold itself does, and therefore they make a poor and distorted pricing benchmark.

Read more here.