Gold bullion from a commodity to a financial instrument.
November 11, 2010 – The role of gold bullion has taken in the global monetary system will be discussed at length at the G20 summit in Seoul. Although World Bank President Robert Zoellick wants the group to focus on growth to stabilize the chaotic currency market, more immediate issues and fears about a global currency war in particular will likely dominate the session.
One of the major problems in the global economy is that national economies are growing at vastly different rates. While growth in the US and Europe is slow to stagnant, the economies of Asian countries are growing rapidly. Easing western currencies to stimulate exports raises the specter of capital flooding into Asian countries setting of inflation and causing asset bubbles. Zoellick plays down the threat, but we have seen before how little is needed to turn the Asian economy upside down.
In 1997 Japan signaled the possibility of an increase in interest rates to protect the yen. That never occurred, but it precipitated a selloff of Asian currencies and quickly brought the Asian market to it knees. Global investors have not forgotten that crisis and have been quick to retreat from uncertain currencies and hedge their positions with gold bullion.
Zoellick would like the world’s financial leaders to join forces and proactively redefine the global monetary system before the current situation gets any worse. He strongly suggests that gold bullion should be an integral part of such a system, not with a return to the gold standard but as a new universal currency.
That, in fact, is exactly what gold has already become to investors around the globe, dramatically changing the face of gold bullion from a commodity to a financial instrument. Whatever place gold takes in a new monetary system, it will likely contribute to the robustness and continued growth of gold bullion investments.
