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Continued from page 4


Meanwhile though, the gold still resided with the central banks such as the New York Federal Reserve, which is the largest repository in the world. Each country's gold is stored in their particular area of that bank and when a foreign exchange transaction takes place, that amount of gold is physically moved from the debtor's cache to the creditor's cache.

The price of gold has varied considerably and has sold as high as $800 per ounce in recent history. It is now under $300 per ounce and has sunk to its lowest price in 13 years. The value of Gold is determined in the same manner almost as any commodity, the law of supply and demand determines its price and it is traded on the London Metals Exchange and the Chicago Board of Trade among other places. Gold has minor industrial value at these prices and has been used primarily for jewelry and currency backing because of its beauty and limited availability. At today's prices, gold has dropped below the price of removing it from many of the world's deepest mines and as it goes lower, it is just a matter of time until many of the world's gold mines close.

Gold's price has been a subject interest to economists for some time because; the gold used for industrial purposes and jewelry far exceeds the amount of gold that is mined each year. The difference has been made up by gold taken out of inventory in one place or another but recent events will cause a new chapter to be written on its value. The central banks of the world have pretty much determined that while gold is pretty, it no longer has value as a medium of exchange between nations and has long since ceased to be a backing for currencies.


Thus, many nations have begun to unload their hoard with the result that while gold has historically played the role of a safe harbor during times of international crisis, during the recent collapse of Asian economies the price of gold has regularly hit new lows for the last decade or more. Australia, a major gold producer and Switzerland and major holder have both made public their belief that gold is dispensable and numerous countries such as Belgium, the Netherlands and Canada have started unloading their holdings. Argentina for example, has literally disposed of all of the gold it held in its central bank while the fiscally conservative United States Federal Reserve Board has indicated publicly that gold has lost its luster in almost every respect. What has occurred in the world is the historically unsuccessful "fiat by mandate" approach to national currencies. Must economists predict that the new central bank planned for the EU will not hold the precious metal and informed sources have indicated the American Federal Reserve has been evaluating the effect of its sale.

Argentina's sale of gold came with some fanfare that what it was doing was selling the yellow metal and replacing it with U. S. Government Securities. This was a most interesting approach, they were able to stabilize their currency with the backing of the dollar and at the same time earn interest on their money. While it costs money to store gold, you can use money for what it can buy. Thus, when the most recent Brazilian currency collapse took place, Argentina was not immediately brought to its knees and may ride out the storm. If Argentina weathers the current economic turmoil, it will mark a Hallmark for the country, because every time Brazil has sneezed in the past, Argentina has caught cold.

Gold not only has provided a safe harbor for investors concerned about political developments in one region or other. The trouble with gold though, is the fact that it just isn't portable enough. Diamonds travel much better, but the best of all is the debit card which can contain literally all the money in the world and if you didn't have the key to unlock it, no one would know it was even there.


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