What if we go back to the gold standard to set a stable relationship between currency and a certain amount of gold that has historically risen? This is the question asked by the French economist Philippe Herlin, author of the book "L'or, un placement d'avenir" and contributor on GoldBroker.com.
BAB: The yellow metal crossed the symbolic bar of 2,000 dollars on August 4. What are the factors that allowed this increase?
Philippe Herlin: The main factor is the distrust of currencies; central banks are running their money printing presses at full speed, whereas with the recession due to the coronavirus, the production of real goods is falling. In this case, what is money worth? What are the major currencies, the dollar, the euro, the yen, the yuan, worth? Investors refer to gold, the ancient currency, the currency of trust, which nobody can print.
Several analysts believe that this increase is not yet complete. What do you think about this?
The previous record was set in 2011. We were then in a sovereign debt crisis in Europe with the bankruptcy of Greece, the risk of an explosion of the euro was real, but the European Union and the ECB took things in their own hands (by creating more debts!).
This time we are at the beginning of gigantic stimulus plans, the central banks of the major international currencies (dollar, euro, pound sterling, yen, yuan) can no longer turn back, i.e. stop buying the debts of their governments and raise interest rates to a normal level. It's too late, there are too many debts, the house of cards would collapse. Eventually, inflation looms... So yes, gold has a bright future. (Read: How to explain the drop in gold and silver prices?)
"If there are too many debts, the house of cards would collapse. Eventually inflation looms... So yes, gold has a bright future."
In a context characterized by the coronavirus epidemic and the U.S.-China trade war, how does this rise in gold impact the global economy? Or developing countries like Morocco (which has only 22 tons of reserves)?
The rise of gold does not impact the economy as such, it reveals the loss of value of currencies, and economic agents must take this into account. There is a risk of inflation, even hyperinflation, with all that follows: price explosion, exchange control, bank failures, looted savings, collapse of the economy, etc., which is what Lebanon is going through at the moment. And in the case of Morocco, if it has only 22 tons, it won't have much weight in case of a crisis on the major international currencies.
So the advice I give to investors, entrepreneurs, individuals, is to diversify your currencies: in addition to the country's currency, the euro, the dollar (with caution), gold, which could quickly regain its monetary function in the event of a crisis, and also Bitcoin, which is easy to use with a simple wallet on a smartphone.
The use of Bitcoin is increasing significantly in emerging countries whose currencies are collapsing or experiencing high inflation, which makes sense. That's the concept of Hayek's idea of currency competition: allow multiple currencies to circulate, give people a choice, and in a crisis, the economy is much more resilient. Faced with governments that manage their currencies more or less well, but more so in general badly, everyone must ensure their monetary autonomy, with one keyword: diversification.
But citizens must also act collectively to encourage their nation to manage their currency as well as possible, which they must consider as a common good. This includes stopping asking the government for more and more money and demanding, instead, economic freedom so that everyone can develop the national wealth. It is undoubtedly more difficult at the beginning, but it will pay off in the long run.
“The advice I give is to diversify your currencies: in addition to the country's currency, the euro, the dollar (with caution), gold, which could quickly regain its monetary function in case of crisis".
In his book entitled "Histoire de l'or", René Sédillot concludes with the following sentence: "For gold to lose its functions and virtues [...] it is necessary and sufficient for peace to reign between nations". Why does gold still have this symbolic value in the "hearts of men"?
This point of view is erroneous, gold is certainly the reference refuge value that becomes important in situations of conflict, but not only, as history teaches us. It is above all the inconsistency of governments that spend without counting, to satisfy their electoral clientele, and finance this deficit through monetary printing. After a while, the price increase manifests itself and acts as a tax that weighs on all citizens. With globalization and the strong international competition that it induces, we do not see significant inflation on consumer goods, but rather on real estate, which seriously erodes the purchasing power of households.
But with the monetary turmoil we're experiencing around the world, price increases are likely to spread to consumer goods, especially food and energy. This would be tragic for many countries; Lebanon must serve as a warning. Gold will never lose its value, which has been anchored in the hearts of men for millennia, but the way to remove its variations is simple, and it has already been applied in history, is to return to the gold standard; that is to say, to fix a stable relationship between the currency and a certain amount of gold. But this would prohibit governments from running deficits and ensuring a strict balance between spending and revenue. Are they ready for it? And are we, the citizens, who too often turn to them to ask for more and more, ready for it?