Does Gold Still Matter? (Interview)

Does gold still matter?

A lot of people dismiss gold and precious metals as irrelevant to the world monetary system. But how can money be irrelevant?

Liechtenstein-based Incrementum AG managing partner Ronald-Peter Stöferle joined Mises Institute president Jeff Deist to talk about all things gold, including why it is still money and an important part of the global financial system. 

Deist and Stöferle also talk about why the IMF still worries about the yellow metal, how gold might react to rising interest rates and why it seems to be flowing from West to East.

HIGHLIGHTS FROM THE INTERVIEW

“Central banks have a kind of paradoxical task because they have to explain to their people that the currency, be it the dollar, be it the euro, the yen, whatever, is great, but still they’re holding quite a lot of gold. I mean for industrialized countries, they’re holding roughly 20% of their total reserves in gold. So if it’s useless, as most central bankers would say, why do they still hold it?”

“If [gold] wouldn’t be money, why does the US have 8,100 tons? Why does the IMF have 3,000 tons? Why does the euro system hold more than 10,000 tons of gold? Why has Russia tripled its gold reserves in the last 10 years? Why is China buying every piece of gold that’s not nailed down at the at the largest mining production in the world and they don’t export any gold at all?”

“The central banks do not really enjoy talking about gold and its monetary aspects because of course, they have to defend their fiat currencies.”

“I think what is currently happening, we describe that with this term of de-dollarization, which is going on, which is a long process of course. And I think when it comes to gold, gold plays a major role in that process.”

“Gold just helps people with securing purchasing power.”

“I think it’s no coincidence that gold, on every continent, in every culture, in every religion, plays a very, very important role. And I think the market throughout history, throughout centuries, has decided that gold is something special.”

“Money used to be, ‘I owe you gold.’ Then it became, ‘I owe you nothing.’ And the SDRs [IMF Special Drawing Rights] is, ‘who owes you nothing.'”

“Over here in the eurozone, when they introduced the euro, in the whole campaign of explaining the euro and the concept of the euro, they really often told people the euro-system holds more than 10,000 tons of gold to create trust in the new currency.”

“I think the next big crisis, that will happen sooner or later, of course, might really be not a cyclical crisis, not a financial crisis, but a currency crisis.”

“Those headwinds that gold is facing, they will become tailwinds when recession fears come up, when the market realizes the emperor has no clothes, because let’s face it, the superficial stability of financial markets only depends on the faith of market participants in central banks, in the whole monetary philosophy, in their power to manage the market. And I’m pretty certain that if the Fed fails with its normalization efforts and the US falls into recession, which is our expected scenario, then there will be a severe loss of confidence in central bank-administered monetary policy.”

“This is probably the perfect storm for gold if this tide of the turn is happening.”

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