Meltdown drives new gold rush
By Garry Sheeran
bulls are having their day in the sun. And it's
not difficult to understand why.
The fine metal has long been seen as a safe
haven in times of trouble. What with carnage on
credit markets, banks on the bail-out and sundry
financial failures, no wonder people are buying
gold bars and hiding them in the back bedrooms.
An article titled Apocalypse Now on a website
originating from the United States reports that
people there "genuine, honest, normal people,
grandmothers, teamsters, blue collars and
restaurant workers" are "going long on the
Folks are working 50-hour weeks to scrape
together scant savings and invest in one-ounce
rounds. "Why? Because they want to barter in the
If God and Armageddon have a long association,
so too does gold and Armageddon.
Gold is also getting a good run in the more
rarefied atmosphere of some corners of academia.
Like George Soros, Professor Antal Fekete hails
from Hungary, now lives in Canada, and has
become a high priest for those who see the
return of the world financial system to the gold
standard as the panacea for current ills.
"There is no other way to stop the haemorrhage
... the battle cry should be: put gold back into
circulation and save our civilisation and save
the world!" says the professor of mathematics at
Memorial University of Newfoundland and
self-styled "monetary scientist" in a recent
Don't think all this is not happening at home.
Peter Wilson, a retired North Island farmer,
added to his collection of gold bars not long
before Christmas. He now owns 20 which he keeps
under lock and key.
Wilson says each gold bar about 1 1/2 inches
long and half an inch wide is worth around
"My motivation is not so much investing,
although I hope I will make a return," Wilson
told the Sunday Star-Times.
"But I believe there are huge problems ahead for
our world, the whole monetary system could
collapse and money would be worth absolutely
nothing. Having something physical in the safe
is one way of countering that, and buying a few
Besides gold, Wilson has invested in debentures
and finance companies. He lost $50,000 when his
Babcock & Brown investment crashed. So far his
gold investments are slightly ahead, but that's
not the reason he's into gold.
"I'm a Christian and I believe in the physical
return of Jesus Christ to Earth," he said. "The
Bible teaches before that there will be a
meltdown of systems when all forms of money will
Louis Boulanger's conversion to gold is of a
very different order. His last job in 2003 as
chief executive of Mercer Investment Consulting
was to provide advice to the guardians of the NZ
Boulanger then decided to step back from 30
years of investment consulting to global firms
to take time out to travel and read more widely
"That naturally led me to start questioning much
of the typical explanations of what money really
was and test the truth behind what we readily
accept as sound central and commercial banking,"
Since 2006 he had been strongly advising clients
to take at least some of their money out of
traditional financial securities and buy gold
instead, because "those able to create money
from thin air have been doing so with increasing
impunity and, to put it bluntly, money is
No one disputes that too much credit and easy
money are among the biggest culprits behind the
financial crisis. But Boulanger now believes the
root cause of current financial problems is the
abandonment nearly 40 years ago of a monetary
system which, in its extreme form, would require
governments to hold sufficient gold to back all
Roger Bowden, professor of finance and economics
at Victoria University, is "astonished that
anyone would seriously contemplate returning to
the gold standard".
"It would not only solve nothing, but would make
matters worse," he said. "A too high a gold
price was one reason why Britain fell into
recession in the 1920s."
Bowden said the expansion of credit had nothing
to do with the lack of a gold, or any other
standard, against which to measure money.
"Expansion of credit and money supply are two
quite different things. You could have a rhubarb
standard, but it won't make a lot of difference.
In fact, I could see an almost infinite creation
of credit on zero money supply."
But, said Bowden, the global financial system
certainly needed monetary discipline, "and I
believe we are going to see that in the next
year or two, sufficient to make the world safe
for bureaucrats for life".
Brent Layton, recently retired chief executive
of the NZ Institute of Economic Research, was
likewise dismissive of calls for a return to any
version of the gold standard as a way of
regulating money supply.
"The Bretton Woods agreement [which helped
re-establish the gold standard in post-war
years] was not a particularly good idea even in
its day, and we have moved a long way past that
in terms of economic policy setting," he said.
It would mean money supply would fluctuate with
the discoveries of gold.
"I would very much prefer to have Alan Bollard
running policy within set parameters than be
subject to the whims and discoveries of
geologists, and the fluctuations in the price of
gold as industrial demand changes," he said.
The lure of gold as an elixir of life and solver
of humanity's most fundamental problems has a
long history. In another age, alchemists sought
to create liquid gold from base metals, in the
belief that would somehow allow people to live
"Perhaps it has something to do with how gold
looks, how it feels in the hand," said Bowden.
"It is a lovely metal, but it is no quick fix
for a modern financial system."
Boulanger admits he was himself "totally
surprised" by the changes in his own thinking as
he read widely during 2004-05 on monetary
systems and the history of money. "I was saying
to myself, `but this is just conspiracy stuff'.
"I knew that advising people to `buy gold' was,
in effect, a protest vote against the currency.
And it does repel the mind to think of gold as a
good investment rather than mainstream financial
securities. In one sense gold is not an
investment at all. It pays no interest or
dividend, and provides no income in that sense."
But he took most of his money out of assets such
as shares and fixed interest when he decided the
financial system was facing serious systemic
And as much as he believes it is now unwise for
investors not to own gold, "very few of my
clients have in fact done that. It is too hard
for them to accept, and I understand that
because it took me almost two years to come from
where I was at Mercer, to where I am now".
As for a return to the gold standard, Boulanger
said he was not sure whether gold should be the
new measure of redeemability for currencies.
"What I know with a fair degree of certainty
now, not just a belief, is that there is
something profoundly wrong with our monetary
If critics find it easy to dismiss Boulanger's
belief that gold is an answer to current
financial problems, they are not so dismissive
of concerns that the global financial system is
in crisis, even danger of meltdown.
And while new controls on credit creation might
help prevent a repeat of the excesses of the
past, there is still the problem of huge amount
of risky debt in world markets now.
Bowden said there were two options facing
finance leaders. They could sell bad debt for a
minimal amount and take the loss. "That will
mean a lot more people will go broke, more banks
will go under and financial meltdown will
But the prospect now of a global depression
meant the risk that some quite sound banks could
go under as well.
The other option was for governments to act as a
guarantor in the last resort, and undertake the
kind of rescue packages that were being put in
place around the world.
Their failure would be another nightmare
situation. "But we have a long way to go yet,
and we have to figure our what is going to
happen even when things improve," said Bowden.
Governments did not yet have exit strategies in
place to deal with policy measures such as
guarantees on bank and other deposits.
"There will still be many problems to work
through, but I don't see them arising from money
Bowden said concerns for a return to a gold or
other standard to place limits on new credit
creation were probably fuelled by the US
government selling bonds to the US Federal
Reserve, which paid for it by crediting
"That is, in effect, creating new money which
the US government is spending," he said. That
would be a worry if inflation was a concern. But
that was not the situation now.