Gold-the New Reserve Currency?

Prior to President Nixon removing the gold standard from the dollar in 1971, gold was considered as the only real money. The world's currencies were measured against gold. The U.S. dollar over that time has enjoyed the status as the world's reserve currency. The reserve status has allowed the U.S. economy to flourish in a seemingly endless supply of capital. As the U.S. continues to "print money" at an accelerated pace, what will happen to the dollar in its role as the worlds reserve currency?

In a recent commentary featured in Financial Times, the former U.S. trade representative and current president of the World Bank, Robert Zoellick, said that "gold should be part of a new monetary system along with a basket full of currencies". The new world currency would replace the dollar as the international medium of exchange. In a later interview on CNBC, Mr. Zoellick stated that "the dollar will not be the sole reserve currency".

As the dollar is being printed into oblivion with increasing debt, talk of a demand for a new reserve currency is not new. In March of 2009 China's Central Bank Governor, Zhou Xiaochaun urged adoption of the International Monetary Fund's Special Drawing Rights SDR's as the world reserve currency. This was swiftly followed by Russian President Dmitry Medvedev who also adopted the Chinese position that SDR's would become the world's currency.

The United Nations later came forward with a recommendation that the new global currency be backed by a basket of currencies of all of its members. The talk of a new reserve currency and the "attack" on the U.S. dollar was fueled by the most part by the Federal Reserve's Quantitative Easing II plan of spending $600 billion to bolster the economy. This pattern of massive borrowing and spending dollars has increased the burden of carrying dollars by other countries and most governments no longer want to hold devalued dollars.

Mr. Zoellick's talk of gold as part of a new world currency is in part because gold cannot be manipulated by nations as well as being a safe haven asset. Former Federal Reserve Chairman Alan Greenspan also states "we have at this particular stage a fiat money which is essentially money printed by a government and it's usually a central bank which is authorized to do so". Some mechanism has got to be in place whether it is a gold standard or otherwise that keeps in balance the money supply that is produced, otherwise there could be hyperinflation and very difficult times ahead.

There is talk if the new currency was fully backed by gold that with the current U.S. debt, gold priced in dollars would have to rise to $6300 per ounce. Of course as our debt as well as the interest rates continues to go up to pay down the debt, that number could go much higher. Whether or not if gold becomes part of a new currency backing or it fully backs the new proposed currency, it is very bullish for the price of gold. Any small dips that we see in the price of gold today represent great buying opportunities for tremendous profits ahead!