These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:
Gold is selling for close to $1,500 an ounce, up from $258 in 2001.
Jewelry and industrial applications absorb at least 80% of new supply. The economic expansion of the 2000s and the recent recovery have boosted commercial demand, but this alone cannot explain the persistent surge in gold prices.
The cost of bringing new deposits on line has been less than the market price of recent years–investors see in gold what they cannot find in interest-bearing securities.
Exchange traded funds (ETFs) have made storing wealth in gold or simply speculating easier. These store bullion for investors who have lost confidence in the dollar, euro and yen, and may be a precursor of a new gold standard.
In 1944, the International Monetary Fund established a system of fixed currency exchange rates. The dollar was fixed to gold and other currencies fixed to the dollar. This system failed because rising production costs pushed the industrial price of gold above its monetary value, and fixed exchange rates among currencies proved unsustainable.