What are the other reasons investors should be buying gold right now?
They should be buying physical gold, not paper gold like ETFs and other proxies. The supply of physical gold is very tight at current prices, which indicates to me that the price of gold has to rise to bring the market back into balance. In fact, a short squeeze is possible.
Many central banks have loaned out much of their gold, which is one reason the gold price is lower than I think it should be. As buyers realise that central banks are holding much less gold than is generally thought, it will create another reason to leave national currencies for the safety and security of physical gold.
Do other metals like silver and platinum make for good buys right now?
Platinum is being hit hard by the collapse of the automobile industry worldwide. It will probably rise over time, but I prefer gold and silver. In fact, I am more bullish on silver than gold, but silver comes with more risk because it is very volatile. So silver is not for everyone. But I expect that silver will exceed $20 sometime this year.
You seem to be a great believer in the Gold Standard. What are the advantages of a currency system based on the Gold Standard?
Gold is indeed the standard. It always has been and always will be. It is the numeraire by which all goods and services are measured because gold is money. The advantage of the classical gold standard is that it provides an external discipline on the creation of currency.
If too much currency is created by bank lending and the government printing press, the economy heats up, and the currency becomes overvalued. So gold leaves the country for other countries and other currencies where it can purchase more.
The classical gold standard provides a very natural mechanism that controls the expansion of credit, and therefore the value of currencies. The big imbalances today in world trade occur simply because there is no mechanism to bring order and balance to world trade.
The huge sovereign wealth funds amassed today by many countries could never have happened under the classical gold standard.
Do you feel that the current financial crisis would never have occurred if the world was still on the Gold Standard?
There have always been cycles of boom and bust, even under the classical gold standard. These cycles are inevitable in a monetary system in which banks do not keep 100% reserves for their customers’ deposits.
So crises have been a regular feature, but never as bad as the current crisis. Even the Great Depression in the 1930s was the result of government disruption in the economy and monetary system because the classical gold standard ended with the outbreak of World War I in 1914. And I fear that this current crisis will lead inevitably to another great depression that will be worldwide in scope.
The best way to protect yourself against that possibility is to own physical gold.
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