In the run-up to the G20 meeting there was a ton of underground chatter that the USD might get re-pegged at a new level, to gold. While much of that talk came from the gold-bug and macro blogosphere, we’re now getting some indications the idea is broadening out, to more mainstream observers.
In his weekly call today, Don Coxe suggested President Obama may want to revalue gold to 1000.00/ounce. Coxe’s view is that a number of problems would be solved at once by such a move. First, it would be an anti-deflationary tactic. The revaluation would make explicit what has already become tacit: that the gold in Ft Knox is worth alot more than 40.00/ounce. Second, by agreeing to both buy gold and sell gold at that price, the US government would be allaying fears that the USD was going to collapse, while at the same time acknowledging that decades of dollar devaluation had already taken place. In Coxe’s view, gold revaluation would demonstrate to the world that there was indeed backing to our currency, and, it could facilitate Treasury’s need to conduct more borrowings.
I share Coxe’s view that a gold revaluation would not solve all the problems of the US. However, I have held the view for some year’s now that once the US got into a nasty situation where its debt was put into play, that assets under the control of the US, from timber to oil to base metals, would have to be called upon and listed in a more formal way to creditors. The revaluation of the gold in Fort Knox would therefore be a way for the US to pledge the asset. It might also be a way to bring some discipline to future government spending. Given the current alternatives, issuing endless quantities of Treasuries and maintaining this impending sense that the USD is set for another huge downward move, gold revaluation starts to look like a decent solution at a difficult time. The lingering questio would only be: is there actually enough gold in Ft Knox to revalue at the 1000.00/ounce level?
-Gregor
