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May 17, 2010

Euro, Dollars, Yen ,Yuan, Gold and Future Reserve Currency

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For decades, the U.S. dollar has been the reserve currency of the world. With both the U.S. dollar and the Euro looking shaky, investors have been searching somewhere safe to put their money. Increasingly, they have been turning to gold.

In Business Week Christopher Wood, chief equity strategist at CLSA Asia Pacific Markets predicts the euro will be on par with the U.S dollar “sooner or later” as the region’s debt crisis worsens and gold prices may reach at least $3,500 per ounce in the “bull market” for the commodity, according to Wood, three times more than the current value.

The minimum target for gold in this bull market is $3,500,” Wood said. “Gold will go parabolic when the dollar ceases to become reserve currency.”

China will revalue the yuan before the G20 meeting next month, Andy Rothman, CLSA’s China Macro strategist, said at a CLSA media briefing. The Chinese currency may gain at an annualized rate of between 5 percent and 7 percent against the dollar once that happens, Rothman said.


Wikipedia looks at the history of the gold standard and the problems associated with it.

* A gold standard leads to deflation whenever an economy using the gold standard grows faster than the gold supply.
* The total amount of gold that has ever been mined has been estimated at around 142,000 metric tons. Assuming a gold price of US$1,000 per ounce, or $32,500 per kilogram, the total value of all the gold ever mined would be around $4.5 trillion.
* Many economists believe that economic recessions can be largely mitigated by increasing money supply during economic downturns. Following a gold standard would mean that the amount of money would be determined by the supply of gold, and hence monetary policy could no longer be used to stabilize the economy in times of economic recession. Such reason is often employed to partially blame the gold standard for the Great Depression, citing that the Federal Reserve couldn't expand credit enough to offset the deflationary forces at work in the market. Opponents of this viewpoint have argued that gold stocks were available to the Federal Reserve for credit expansion in the early 1930s. Fed operatives simply failed to utilize them. In this case, a causal factor of the Great Depression was not the gold standard but rather a politically usurped monetary system

The NY Times discusses the continuing fear of more problems beyond Greece. Fear of major bank problems and issues with Spain, Portugal and other places.

FURTHER READING

PBC Frontline has a timeline of the 1997-1999 Asian currency crisis. It describes how the crisis spread from Thailand to Malaysia, Singapore, Indonesia, Philippines, South Korea, Hong Kong, Japan and Russia.

Seawater contains, on average, 0.1 to 2 mg/ton of gold, depending on location. 0.1 to 2 tons of gold per cubic kilometer.

The world's oceans, with a total volume of more than 500 million cubic kilometers.

Therefore, 50 million to 2 billion tons of gold in the ocean.



Placer deposits are accumulations of resistant and insoluble minerals that have been eroded from their original locations of formation and deposited along river courses or at the ocean margins. The most important of these deposits contain gold, tin, titanium, and diamonds.

Today, much of the world's tin and many of the gem diamonds are recovered by dredging near-shore ocean sediments for minerals that were carried into the sea by rivers. Gold has been recovered in the past from such deposits, most notably in Nome, Alaska. Large quantities of placer titanium minerals occur in beach and near-shore sediments, but mining today is confined generally to the beaches or onshore deposits because of the higher costs and environmental constraints of marine mining.


The USGS indicates a cubic mile of ocean can contain up to 25 tons of gold and up to 45 tons of silver. A cubic mile has 4.17 cubic kilometers. So up to 6 tons of gold per cubic kilometer by this USGS estimate. 1 ton (32,000 ounces) of gold would be about $100 million if it was worth $3500 per ounce.

The Eros asteroid would have $14 trillion worth of gold at $3500 per ounce. The platinum and other metals at those higher prices would put the value of the Eros asteroid at about $200 trillion.

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