Sunday, 1 April 2012

BBC Analysis explores a return to the gold standard

BBC Radio 4's Analysis: "What is money" includes a look at the debate about a return to the gold standard

During the show presenter Frances Stonor Saunders wants to buy a gold  bar... until Gordon Kerr of Cobden Partners points out a gold bar dispenser was  selling at a 30% mark-up on the spot price of gold. Cobden also said a return to the gold standard was "inevitable".

Catherine Schenk of Glasgow University says there's no likelihood that gold will become the "medium of exchange" just a store of value.

Dylan Grice Societe Generale - a gold bug - sees central banks as corrupted: "There is an argument that says by fiddling around with the price of credit with interest rates, by fiddling around with the supply of money with quantitative easing, what you have is a central bank, they would say they are independent of political interference but it's very difficult to make that case now given that they are buying an awful lot of government bonds with printed money and there is an argument that says these public sector institutions are abusing monopoly power for political gain... do you trust the Bank of England?...  some people would say that the Bank of England doesn't even know what the Bank of England does"

Author of "Whoops! Why everyone owes everyone and noone can pay" John Lanchester says quantitative easing is "easier to understand if you say there are money elves... that is probably as straight forward and makes just as much sense as explaining the mechanics of quantitative easing."  

Also on Sunday the Observer Magazine has a piece exploring gold and pawnshops and the jewellery market in the UK. It digs up some interesting institutions and  highlights the growth in the scrap jewellery market.

From the point of the physical gold market in the UK beyond investment, the crucial quote came at the end from David Lamb, managing director at the World Gold Council: "Will  gold return to its  high-street penetration through mass-market jewellers? I doubt it very much. Will it increasingly be centre stage at  Tiffany and in Bond Street? Absolutely."

I put some questions to the World Gold Council about whether it would step into the gold loan/pawn broking world upon which poor people depend but get such bad deals - especially in the UK (awaiting answers). An Indian who owns gold jewellery can use their gold relatively cost-effectively as an investment or collateral in loans, but in the UK jewellery owners are penalised and will lose every time they buy and every time they sell. I had a look at the gold market in and around Hackney and gold how it compares to other gold markets and gold investments - and why pawnshops seem to be on a parr with betting shops as a sign of an unhealthy community.

On 7 March the FT looked at this market and noted that the innovation was going on in India and the United Arab Emirates: "Indian banks, including the State Bank of India, ICICI and Bank of India, have begun lending money against jewellery as collateral – 500 tonnes of gold is used in this way at present. Meanwhile, in the United Arab Emirates, a product launched by Emirates NBD allows customers to borrow against the value of their gold." In London Muslim gold owners appear to have no acceptable options for redeeming the value of their gold but are among the most likely to own large quantities of it.

The FT piece also said  Mintel research found 14.5 million britons owned gold jewellery they don't use.

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