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Rees-Mogg: Gold Could Be Next Reserve Currency

By Gene J. Koprowski   |   Tuesday, 10 Nov 2009 10:39 AM

Financial journalist William Rees-Mogg is wondering whether the latest rise in the price of gold reflects the return of the precious metal as the world’s reserve currency.

Writing in The Times of London, Rees-Mogg, a former editor of the paper and now a columnist there, noted that last week the price of gold rose to $1,100, the highest ever recorded.

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“The rise in the gold price reflects the weakness of the dollar as well the strength of gold,” writes Rees-Mogg.

“The latest rise in price reflects the significance of gold as part of the world’s monetary reserves.”

The current cause of the rising price of gold was the purchase of 200 tons of gold bullion by the Reserve Bank of India from the International Monetary Fund last week.

“The significance of the purchase is that it may be the start of a new phase in the struggle between gold and paper. Since 1971, when President Nixon ended the convertibility of the dollar into gold under the Bretton Woods Agreement, the world’s central banks have tended to be net sellers of gold and net buyers of dollars,” writes Rees-Mogg.

Ominously, Rees-Mogg notes that Sri Lanka has emulated India’s lead with a new purchase of five tons of gold.

“If the new fashion spreads, and particularly if it is joined by China, then Asia would have decided that it is better to have gold,” he writes.

For those fearful of the loss of prestige for the United States if the dollar is no longer the world’s reserve currency, here’s some good news.

The Wall Street Journal is reporting the rally in gold may be reined in by options selling sometime in the next four to six months.

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