Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
S&P SEASONAL ANALYSIS - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Utah Gold Standard

Commodities / Gold and Silver 2011 Apr 01, 2011 - 11:23 AM GMT

By: Adrian_Ash

Commodities

So Utah's new gold & silver law marks a step towards a Gold Standard...?

IT'S NOT QUITE an April Fool's, but it's close enough.

"Gold, silver coins now officially legal tender in Utah," reports MineWeb, along with pretty much everyone else.


"Utah's tax code says US Mint-issued gold and silver coins are currency, rather than assets taxable by the state." Which means – far as we can tell – no sales tax, and goodbye to Utah's 7% capital-gains tax too. Federal US capital-gains tax still applies. But it's a start, right

"If one state recognizes gold as a valid currency, I think it would embolden people not just in other states but in Washington," says one Gold Standard advocate.

"Utah has now become the first State on our list to actually enact a sound money bill into law," says another. Start typing "Utah gold" into Google, in fact, and "Utah Gold Standard" pops up as a suggested search, returning some 1.6 million results.

Now, there a many good reasons to consider buying gold today. But a looming return to a Gold Standard ain't one of them. First because it ain't gonna happen. Second because, even if it did (which it won't), an official US Gold Standard would not deliver the rapture of $5,000 or $7,500 gold which all-too many people are starting to imagine (or promise, depending on which side of the coin-dealer's counter they stand).

Utah's "first step", for instance, sees the nominal face value of US Mint gold and silver coins now worth...well...just their nominal face value. Same applies whether you're settling your local-state taxes or buying, say, an $8 ice cream. Hand over eight $1-face coins, and your trat will in fact cost you nearer $217-worth of silver in today's paper bucks. Which hardly solves inflation in prices. It would only gift you a giveaway profit if the metals had slumped so low, each coin traded below its nominal face value...rather than many times above.

"There is nobody – not one single person" who seems to understand what a Gold Standard would in truth involve, writes Nathan Lewis in his New World Economics blog. Most bluntly, because a precious-metals standard means pegging the value of money to gold or silver, not the other way round. Bullion set the standard. The volume of cash didn't.

Great Britain's long-running Gold Standard, for example, first set the value of each Pound as a certain quantity of silver (hence the name Sterling). Over time, and through use, it came to represent a certain quantity of money per ounce of gold – some £3 17s 10½d to be precise. Over time again, and thanks to the United States' Dollar usurping the Pound's role as the world's No.1 currency, it then came to mean $4.86 per Pound. But only because the Dollar retained its Gold Standard through WWI, thereby coming to represent a gold-value peg in itself.

To repeat: Pricing Great Britain's gold to match the volume of Pounds in circulation was never the deal. The aim was to keep a lid (and floor) on the value of each Pound in circulation. Because the ultimate aim was to maintain the value of cash across time...value set by gold and silver. Their value was of course eternal. It was not bestowed by the money of the day.

"From the middle of the [19th] century" and as global trade volumes leapt, "the previous concern about internal drains of gold from the Bank [of England] was replaced by a more single-minded concern with external drains," explains monetary historian Glyn Davies in his History of Money. "By means of trial and error, the Bank experimented with various devices for safeguarding its gold reserves, the most effective of which turned out eventually to be the combined use of bank [interest] rate with open-market operations."

Defending the Bank's gold reserves, in other words – and thus ensuring that the Pound's ultimate value in gold could be met by redeeming paper notes for bullion – meant defending it against traders (or foreigners or "speculators", depending on the day's politics) who would swap Pounds for gold bullion (or gold for paper) whenever the gold-price of Sterling slipped below (or above) its official value. Speculators overseas would of course need to cover the cost of shipping out (or in) their bullion. So the Pound did in fact enjoy a little breathing space – bounded by what became known as the "export" and "import points". And the Bank of England's primary tools for keeping the Pound close enough to its official value were open-market operations – where it bought/sold Pounds or metal as necessary – plus its interest rate.

That latter tool – the rate of interest paid to money – decided the longer-term direction of bullion flows, of couse. Just as it decides the longer-term direction of currency value today. Because low rates would encourage gold owners to seek better returns elsewhere, pulling metal out of London and thus nudging the Pound lower. Raising rates, in contrast, would encourage metal into Great Britain, buoying the currency in precisely that way which central banks everywhere today are loathe to do.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in