The United States will return to a gold standard of some sort after the 2012 presidential elections because current economic policies that weaken the dollar in hopes of fueling economic growth can’t last forever, says publisher and former Republican presidential hopeful Steve Forbes.
"We will return to a gold standard. It will be a modernized version of it but in essence, it'll be the basic principle that the dollar will remain constant with gold," Forbes tells Newsmax.TV in an exclusive interview.
The U.S. abandoned the gold standard, which bases the value of the dollar to gold, in the Nixon administration in the early 1970s.
Today, currencies are valued in relation to one another, normally set by foreign exchange rates.
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However, since the U.S. dollar serves as the world's reserve currency, which means other countries use it for stockpiling reserves, to trade with one another or to buy and sell goods in global capital markets, the U.S. Federal Reserve enjoys the luxury of printing as much money as it wants in order to tinker with its economy as it sees fit.
The downside of such loose monetary policies includes higher inflation rates and a weaker dollar, and some say the United States should return to a gold standard in hopes of forcing the government to live within its means even if it means sacrificing the flexibility that comes from being home to the world's reserve currency.
Asked how high the price of gold might go, Forbes responds: “Keep in the mind the real value of gold remains constant. What you see now is fears about the future."
Fed Chairman Ben Bernanke has been criticized for weakening the dollar and pressuring inflation rates upward via loose monetary policies while the benefits they were supposed to generate — more growth and employment — failed to materialize of any measure.
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“If Ben Bernanke were to announce today that the dollar will be as good as gold and he would work toward it, you might see a reduction in the gold price because there’s a lot of future devaluation priced into the price of gold," the CEO and president of Forbes Inc. said.
“People see that Bernanke wants to trash [the dollar] so they don’t wait for it to happen, they start hedging right away."
Gold prices have soared this year thanks in part to Federal Reserve polices, trading above $1,800 per ounce and showing no signs of abating as investors flock to the precious metal as a hedge against a weak dollar.
"So it's in Ben Bernanke's hands. He could send it to $18,000 an ounce. I don't think he's going to have the opportunity to do so," the Forbes magazine editor said.
Those who don't plan for new leadership in the White House and an end to loose monetary policies could get hurt.
"In terms of investing in gold, of using it as a small part of your portfolio as an insurance hedge, be extremely careful," he said. "This dollar-weakening policy is not going to continue, certainly after 2012," he said.
"I think after 2013, you're going to see a new regime in Washington, and you're also going to see in the next five years something that sounds astonishing today — and that is for the first time since the 1970s, the dollar will be re-linked to gold," said Forbes, who ran unsuccessfully for the Republic presidential nomination in 1996 and again in 2000.
Some commodities experts agree that gold may be due for a breather, pointing out the asset is swelling to bubble territory these days.
"We're in it. This is a bubble as we speak. I think that we could see gold prices fall as quickly as we've rallied, I think we can go down north of $200 rather quickly," John Licata, chief commodity strategist at Blue Phoenix Commodities, told Newsmax.TV recently.
A breather, however, doesn't mean an end to longer-term gains.
"I think there is way too much momentum in the price of gold, and I think although longer term we can continue at the trend above $2,000, I just think that having a move from $1,300 back in January to over $1,900 overnight is far too great of an upside swing that makes me nervous."
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