The price of gold has plateaued following a third-quarter rally in which it skyrocketed over 12%, in anticipation of looser monetary policy from the U.S. Federal Reserve.
Indeed, the price of gold Tuesday is just dollars away from its $1,733 an ounce close on Sept. 13, the day the Fed launched its third round of quantitative easing.
As is ever the case in markets, opinion remains divided as to gold’s future direction.
Some say the onset of Hindu festivals in India, the world’s largest gold importer, will give gold a lift after an unusual period of weak demand caused by the strength of the rupee vis-à-vis the dollar this year. Others say a decline in Chinese imports along with weakening customer demand signal a cooling of the market for gold.
Yet London-based HSBC is now forecasting a gold rally it expects to last through the end of 2013, taking the price of gold up to $1,900 an ounce, based partly on renewed strength in the jewelry sector.
Meanwhile, a working paper by two IMF economists arguing for a new fiat-currency-based debt-repudiation plan continues to generate buzz, including a recent commentary by Ambrose Evans-Pritchard about the effects of legislating away bank-created money. What would that do for the price of gold and precious metals?
It would send prices considerably higher, according to Leigh Greenberg, a Los Angeles-based gold dealer who says that if history is a guide, our current money system is likely to give way to a new one.
Gold was used as money from the Civil War to World War I, a period lasting 46 years, he says. From the founding of the Federal Reserve system in 1913 to the end of World War II, a period lasting 31 years, paper notes were tied to gold through a fixed rate of exchange between the U.S. and foreign central banks.
Then came the Bretton Woods system, lasting 27 years, when international currencies were tied to the dollar through exchange rates while the dollar was backed by gold. The current system began in 1971 when President Nixon ended the convertibility of dollars to gold, and formerly fixed exchange rates become free floating.
That period has lasted 41 years, and contemporary monetary and fiscal challenges convince Greenberg that the current system will end by 2020.