Gold in the International Monetary System: A Catalog of the Options

For much of the last decade, one of the apparent paradoxes has been the contrast between the attitudes toward gold as an international reserve asset by officials in monetary institutions, especially in the Anglo-Saxon world, and the attitudes of investors and market participants. The monetary authorities in the United States and several other countries have sought to demonetize gold or to move gold from ‘the center of the international monetary system’. If their views prevail, the likelihood that the real price of gold would rise significantly is low, primarily because central banks might sell gold from their holdings so that the market price of gold would be depressed. Yet in the last decade, investors and market participants have priced gold as if they expect its price to rise indefinitely, and by as much or more than the increase in the consumer price level. They view gold as an inflation hedge, even though there is modest evidence to suggest that gold should be a better inflation hedge than most other storable commodities. Apparently the investors and market participants do not believe that the monetary authorities will sell much of their gold, even though over the decade they sold about 5 per cent of their gold to private parties.