The True Gold Standard (Second Edition)
It was no surprise that a deliberate threat at the start of this year by Palaniappan Chidambaram, Indian finance minister, to make gold “a little more expensive to import” sent shudders through the international gold market.
India is the world’s largest gold importer and accounts for more than a fifth of global demand. Last year, a drop in Indian gold imports of about 20-25 per cent – due perhaps to a previous increase in import duty but also to the slowdown of the domestic economy – was one of the main reasons for gold’s relatively lacklustre performance.
What is not yet clear is whether the measures contemplated by the Indian authorities will actually curb the volume of gold imports, and so affect the price further.
What colour would you like your gold or silver? Yellow? White? Red? Green? Blue? Nanotechnology researchers at Southampton University have discovered how to make precious metals appear in any colour you please, by making microscopic changes in the surface that change the way it reflects light.
It has long been possible to change the appearance of a metal through alloying or adding a film to the surface. For example, “red gold” or “rose gold” is traditionally made by adding copper. The Southampton scientists say they are the first to colour metals without coating or chemical treatment.
You might think that the point of gold is to look golden, but the researchers say there are a lot of applications where another colour would be desirable, even for jewellery and watches. You could, for instance, design a gold watch face in which the hours are denoted in different colours, or add coloured banding to a silver ring.
The process involves embossing tiny raised or indented patterns on to the surface. For it to work, each feature on the surface pattern has to be smaller than the wavelength of visible light.
In the film A Few Good Men, Colonel Nathan Jessup (Jack Nicholson) famously tells the military court: “You can’t handle the truth!” Today, politicians and policy makers seem unable to handle the truth – the prospect of little or no economic growth for a prolonged period. They refuse to acknowledge that expansionary fiscal and monetary policies may only provide temporary palliative relief, but cannot restore the health of the real economy.
Recent economic growth was driven by financialisation of the economy, primarily the use of debt to create demand. It also relied on allowing degradation of the environment and mispriced non-renewable natural resources, such as oil and water.
As a result of multi-trillion-dollar quantitative easing programmes, central banks have compromised their ability to control the money supply, making them vulnerable to runaway inflation. When interest rates rise, the value of central bank assets could fall below the face value of their liabilities, potentially rendering them incapable of protecting the purchasing power of their currencies. To better understand the potential consequences of quantitative easing, it is useful to review the historical evolution of central banking. Early central banks were essentially clearing houses for gold. Individuals and trading companies placed their bullion on deposit and received a claim that could be redeemed upon demand. The system’s strength was largely derived from its simplicity. Today’s global monetary system, by contrast, has virtually no gold backing and depends entirely on faith that central bankers can control the supply of paper money.
China is set to launch interbank gold trading at the end of next month amid a broader set of banking reforms, in a move that has the potential to boost demand for bullion in the world's largest consumer.
The Shanghai Gold Exchange confirmed it 'has this plan' to create an interbank market and was working with other government agencies to do so, but declined to disclose details of how it would function.