Gold is the World's Currency

Central bank and government actions around the globe increasingly prove that gold is the place to be. 

Here is an interesting Bloomberg headline that shows what I mean:Central Banks to Retain Gold to Manage Debt in Crisis

Central banks, net buyers of gold for the first time in a generation, are likely to retain their holdings even if they need to raise cash to counter an escalating debt crisis, according to Morgan Stanley. 

“Once they’ve sold, that’s it, and buying back would be extremely expensive,” said Peter Richardson, chief metals economist at Morgan Stanley Australia Ltd., who’s studied metals markets for 20 years. “They would rather have the backing of a rising asset within their reserve portfolios than use it to reduce debt.” 

Gold rallied to a record this week as rising government debt burdens and weakening currencies boosted demand for a haven. Central banks are the biggest gold holders, and Thailand, South Korea, Kazakhstan, Mexico and Russia have added to reserves this year. The precious metal is the “currency of the world” amid the debt crisis, economist Dennis Gartman wrote Aug. 19. 

“Under conditions of austerity we’re going to see a further deterioration of debt,” Richardson said in an interview yesterday. “Rising risk argues in favor of holding on to their gold reserves rather than selling them because they’ve only got one shot at selling.” 

Currency Credibility 

“The European central banks won’t sell their gold because while it may be a means to raise cash, it definitely won’t be enough to settle their debts,” said Duan Shihua, head of corporate services at Haitong Futures Co., China’s largest brokerage by registered capital. “Besides, none of the central banks believe in the currencies of other countries.”

“The euro is breaking down and the process of its breaking down is creating very considerable difficulties in the European banking system.” 

“Gold, unlike all other commodities, is a currency. And the major thrust in the demand for gold is not for jewelry. It’s not for anything other than an escape from what is perceived to be a fiat money system, paper money, that seems to be deteriorating.”

See more top stories from Townhall Finance. New Homepage, more content- Be the best informed fiscal conservative: