Return to the Gold Standard? (CNBC)

Published: Monday, 15 Aug 2011 | 7:20 AM ET


By: Shai Ahmed
Associate Editor, CNBC.com

With gold surpassing record highs in recent sessions, some experts argue governments could re-introduce a return to the gold standard where countries would peg their currencies to the value of gold at a certain level.

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"I think we will easily break $2000 per ounce within a year. The way to think of the gold price is to think of it as a currency against which other currencies depreciate," Irakli Menabde, M2 precious Metals told CNBC Monday.

Although the future of gold as a safe haven remains secure at least in the short term, the ability for it to retain record highs consistently rests on a number of wider macro-economic factors as well as being more attractive than other currencies and bonds.

"The questions are whether there will be a third round of quantitative easing and whether central banks will continue to print money to bail out other insolvent banks, therefore gold has a bright future," he said.

"When we look at currencies, the Swiss franc has the safe haven status because of its past links with gold. It's assumed safe haven status because it was one of the last currencies to get off the gold standard.

"The money that has been going into the Swiss franc and coming out of it now will likely find its place in the gold market," he added.

Menabde said despite the rapid rise of gold in recent weeks – it hit $1813.79 last Thursday -value remains in the commodity which has yet to see its peak.

"Gold has had a rapid appreciation to $1800 (per ounce) so you would expect to see some pullback. If you want to participate you should buy gold shares, that's where the better opportunities are. We've had one bailout and gold rallied, we had another and gold rallied and we have not yet resolved the fiscal problems that are plaguing Europe and the United States. It's the bailing out that rallies the gold price," he said.

He dismissed critics who argue that although there is room left for further rises these are likely to come back down as the rally ends.

"If governments take the right steps and end the bailout mania that is plaguing currency markets than gold relative to other currencies will correct.

Unfortunately the governments are way over in debt  and there appears to be no appetite for austerity and prudent monetary and fiscal policies. I see only more bailouts and irresponsibility," he added.

Other analysts argue that with deep structural issues affecting the developed world economies a rebalancing of economies with the very definition of safe-havens being renegotiated leaving gold in a prime position.

"Gold's greatest strength is that it has no default process, no liability. When I hear the word bubble around gold I would argue that it is as undervalued as it was in 2001 and what we are experiencing here is just a re-rating of gold....The problem is we have run out of capital and the system is bankrupt, we are at a monetary juncture.

We are likely to see very high inflation  rates in the future and perversely gold could go even higher if we go into a default situation," Ben Davies, CEO at Hinde Capital told CNBC Monday.

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