Gold as a Hedge; Gold as a Standard

|Peter Boettke|

Gold is back in the news.  Since 2001, and then with the onset of the financial crisis in 2008, the price of gold rose drastically as investors sought to hedge against extreme events on the bad side.  But also as the Fed has responded to the crisis with one round of quantitative easing after another, the discussion of a return to the gold standard has also been initiated in different corners.

Of course, a lot of these discussions are conducted not by professional economists, but by investment gurus, pundits and politicians.  But the discussion could be conducted by serious economists and a fruitful debate could be had.  Furthermore, while gurus, pundits and politicians are not always the best place to look for measured dialogue, the points raised by them usually contain some practical wisdom in them.  Jim Rogers is not someone to completely ignore, and do note that while he now believes gold may eventually fall to $900 (a 50% decline), he isn't selling his gold and he believes that when it bottoms investors should buy.  Understanding the reasons he gives for the rise, decline and eventual rise again of the price of gold are worth the intellectual effort.

Just recently, Ken Rogoff provides commentary on the fluctuations and future prospects for gold as an investment.  Rogoff concludes:

So the recent collapse of gold prices has not really changed the case for investing in it one way or the other. Yes, prices could easily fall below $1,000; but, then again, they might rise. Meanwhile, policymakers should be cautious in interpreting the plunge in gold prices as a vote of confidence in their performance.

On the other hand, George Selgin has just published in June a Cato Policy Analysis on "The Rise and Fall of the Gold Standard in the United States." 

 

Comments

[Mariorizzo.wordpress.com]

On a related note, there was a very recent conference at the NBER in Cambridge about the Fed and the *first* hundred years. If you look at the cast of invitees you do not see any serious re-evaluation of the Fed -- anything fundamental has been ruled out by the Establishment.