Christopher Fildes

What goes up but won’t come raining down? The price of gold, and gold ingots

What goes up but won’t come raining down? The price of gold, and gold ingots

New York

No helicopters are flying in the cold clear skies above Liberty Street, home of the Federal Reserve Bank of New York, from which I assume that monetary policy is in neutral. If money were running short, Ben Bernanke, successor-designate to Alan Greenspan as chairman of the Fed, would be prepared to contemplate an air-supply of dollar bills, dropping as the gentle rain from heaven upon the place beneath. An air-drop of gold ingots would, by contrast, constitute a health hazard, which is one reason why Mr Bernanke has no plans for it. Another is that he cannot produce the ingots for the asking. For that purpose, nothing compares with the printing press which, as he has pointed out, can produce extra dollars to order. It has already supplied most of the $2 trillion held in reserve by China, Japan, South Korea and Taiwan, and is still able to meet the demand which has been stoked up by the Fed’s repeated increases in interest rates. No wonder that, although the dollar has been rising, the price of gold has been rising faster. Supply and demand must have something to do with it. Pushing up towards $500 an ounce, gold is at its highest level for the best part of two decades. It is also $200 above the price at which the Chancellor sold half the nation’s gold reserves — but then, he had waited for the price to fall to its lowest level for the previous two decades. He was apparently looking for some eye-catching initiative which would upstage his next-door neighbour. Not his best call.

Nobody’s promise

Ministers — and central bankers, too — are apt to resent gold, because it competes with their own branded products. When gold is at a premium, that implies that paper money is a leaky store of value, so, rather than mend the leaks, they attack the premium.

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