Gold Prices are up are around $957.30. They fell from last year when they went over $1000. In an article last yera the Wall Street Journal stated that many investors believe comparatively lower inflation is a key reason why gold and silver have a lot of room to run. The previous year is spiked up 19% which is typical for times of economic upheaval. Now at 957.30 gold is still less than half its inflation-adjusted peak on Jan. 21, 1980, of $2,239.67. Silver's nominal peak of $48.70 in January 1980 now it $14.66 down from $20.339 last year for a troy ounce. Investors hope that it will grow back to the 1980 levels.

Some of the economies are still based on the Gold Standard and the US is not. Brad DeLong of U.C. Berkeley explained in 1996 that under a gold standard, a decline of the dollar would not be allowed: instead the Federal Reserve would raise interest rates considerably in order to keep the value of the dollar fixed at its gold parity, and a recession would probably follow. He stated that if the U.S. and a substantial number of other industrial economies adopted a gold standard, the U.S. would lose the ability to tune its economic policies to fit domestic conditions.

A gold enthusiast, James Turk claims that Central banks intervene in the gold market – just like they intervene in many other markets. The reason for their attempts to manage the gold price is that by keeping the gold price low, central banks make the dollar look better. With their interventions central banks are trying to make the dollar look worthy of being the world’s reserve currency when in fact it is not. He went on to say that in his opinion the gold price is a barometer that measures whether a national currency is being managed well (i.e., no inflation).

Now the European central banks party to the Central Bank Gold Agreement have signed a five-year deal that will cut the annual sales limit to 400 metric tons of gold and allow the International Monetary Fund to join as a signatory if it wishes. The European Central Bank, the 16 central banks of the euro zone, Sweden's Riksbank and the Swiss National Bank signed the agreement, the ECB said Friday. The Bank of England, a previous signatory, didn't sign the agreement this time. A previous pact, which limited sales to 500 metric tons a year for five years, expires in September. (A metric ton is equal to 2,204.62 pounds.)

 

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