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Author: Peter Suhai
Monday, December 20, 2010 14:21 Reply
Currencies used to have the backing of gold. If you took a note to the government, you could get gold (or silver) in return. But relatively recently, governments decided to abandon gold and instead issue "fiat" currency. Today, a dollar can be exchanged...for a dollar. With the advent of fiat currencies, the idea of holding gold seemed quaint. The U.K. sold half of its gold reserves from 1999 to 2002. More recently, however, the head of the World Bank wondered aloud if gold should play some role in a reorganized global financial system. With so much currency volatility, gold as a store of value and backer of government money is getting more attention than possible just a few years ago.
Along with these themes, it's important to bear in mind that gold, adjusted for inflation, is well off its record high. That would be more than $2,300 an ounce -- in today's dollars, the level gold reached back during the last gold surge, which came at the end of the stagflation 1970s.
And an ounce of gold is, according to legend, supposed to pay for a gentleman's tailored suit. In London, Saville Row bespoke suits start around $5,000.
While gold's strong run has increased the number of skeptics, its sprint pales next to its poor cousin. Silver has gained more than 50% since August. Now that's a scary move.
Dave Kansas is European markets editor for The Journal in London. Email: firstname.lastname@example.org
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