Price of gold should not determine US monetary policy | Jeffrey Frankel

The price of gold reached an all-time high of $2,000 per ounce in early August. And while mainstream economists have treated gold as a sideshow since the world abandoned the gold standard in 1971, this recent price increase is a significant signal.Three explanations for the elevated gold price – related to US monetary policy, risk and investors’ growing desire for a safe-haven alternative to the dollar – have been offered. Each contains some truth.The US Federal Reserve has eased monetary policy aggressively since the onset of the coronavirus recession in March. True, there currently is little sign of inflation – for centuries a major motive for holding gold. But rising goods prices are not the only sign of easy money. Today’s low real interest rates, depreciated dollar and high stock prices – not to mention the size of the Fed’s balance sheet – all reflect the Fed’s accommodative monetary-policy stance.A low real interest rate is often associated with a high real price of gold, both in theory and empirically. After all, the long-time argument that gold doesn’t pay interest is less persuasive when other assets are also yielding scant returns.The last decade confirms the correlation. The gold price was almost To keep reading about Price of gold should not determine US monetary policy | Jeffrey Frankel, Click on the link. Seoul, Korea
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