Gold is in correction mode. The price of the metal has fallen by 8% from its high of $1,423 an ounce back in November 2010. And if history is any guide, it could drop further. As recently as 2008, for example, the metal lost 30% of its value at one point before heading higher. At various times, it’s even lost 50% of its value. But such volatility is nothing new. The dollar price of gold has tended to trade like this since the United States went off the gold standard in 1971…

Could The Price of Gold Retreat to $1000?

Today, the price of gold could yet retreat to $1,000 or less without breaking its long-term uptrend, as shown on the chart below…

Still, pundits try to boldly predict where gold is headed next. The debate reminds me of the crude oil market back in 2007. When oil hit $140 a barrel, the “experts” proclaimed that we were on a crash course with $200 oil. Instead, it slumped all the way back to under $40 a barrel!

A similar thing happened with gold late last year. When the metal hit $1,423 an ounce, doomsdayers started forecasting $2,000, even $5,000 gold. Dozens of new gold promoters started selling gold on Fox News and talk radio. Even Wall Street got involved selling it.

As a result, the yellow metal got ahead of itself and the price of gold tumbled.

Nevertheless, many gold bugs long for the day when we lived under the international gold standard, when the dollar was as good as gold. So could we return to a gold standard?

How the Financial Crisis Ignited the Gold Market

In 1988, I wrote in the second edition of my book, The Economics of a Pure Gold Standard, that it would take a financial crisis to reestablish gold as an essential linchpin of our monetary system.

And in the third edition, I further declared, “Gold isn’t just another commodity. Gold is money. Someday, an international monetary crisis may rudely awaken us to this reality.”

Now, the Foundation for Economic Education has just issued the fourth edition of my gold book. In the new introduction, I note that the financial crisis of 2008 and the subsequent Great Recession shook the very foundations of our current leveraged fiat money system and revealed the fundamental defects of a monetary model based on:

• Central banking
• Paper money inflation
• Excessive debt leverage
• Government mismanagement of the banking system

Since the financial debacle of 2008, economists and monetary authorities have reconsidered the role of gold, even to the point where some central banks (China, India and Russia, especially) are now adding substantial amounts of gold to their reserves. For the first time in decades, central banks have suddenly become net buyers of gold.

And the price of gold is now listed next to oil and the stock market as a key financial indicator in The Wall Street Journal and CNBC.

What’s more, individuals and central banks will continue to stockpile gold because nobody trusts the monetary authorities or irresponsible political leaders whose only solution to a crisis is to throw more money at the problem.

In terms of a return to the gold standard, however, while the chance is increasing, it remains small as long as the dollar remains the world’s reserve currency.

But the rise of China with regard to gold production and gold reserve buying is an important consideration…

China Claims the Top Spot… But Still Lags as a World Leader

It’s a little-known fact that China overtook South Africa as the world’s largest gold producer last year – a major development, given that South Africa was the #1 gold producer since 1905. In addition, most of China’s gold stays within the country.

So could the Chinese Yuan Renminbi (RMB) become the new world currency, backed by gold? Not for a long time. Consider that the Chinese only recently allowed foreign trading in the yuan, and while international yuan trading has soared, it’s unlikely that anyone is going to trust the Chinese to run the world’s monetary system – especially after they pumped up their own money supply by 26% last year!

So what’s your gold plan from here?

Your Gold-Buying Gameplan

In terms of your overall portfolio, I recommend that you buy gold and silver gradually – up to 10% of your portfolio as a long-term insurance policy against the next monetary crisis and inflation.

Specifically, take two steps…

• Consider buying the SPDR Gold Trust (NYSE:GLD) or iShares Silver Trust (NYSE:SLV) in your IRA or retirement fund.
• Squirrel away some American Eagle gold and silver bullion coins in a safe deposit box, or consider buying common-dated, pre-1933 $20 Saint-Gaudens Double Eagles.

Why? Because, in the gold coin market, pre-1933 Saint-Gaudens Double Eagle Gold Coins are now selling at their lowest premium over their gold value in 40 years.

You can buy brilliant, uncirculated Saint-Gaudens Double Eagles (MS 60) for around $1,450 per coin. A new American Eagle 1-oz. Gold Coin will cost you around $1,380. I consider the Saint-Gaudens Double Eagles among the most beautiful coins ever minted and even more alluring than the new American Eagle gold coins.

Where can you buy these coins? My suggestion is to call Van Simmons at David Hall’s Rare Coins, 1.800.759.7575.

Good investing,

by Dr. Mark Skousen, Investment U’s Contributing Editor

Related posts:

1. Is A Return To The Gold Standard On The Horizon? Not A Chance (GLD, GDX, GDXJ, DZZ, UUP)
2. Porter Stansberry: Enough Already, Let’s Return To The Gold Standard
3. The ‘Perils’ Of A Gold Standard? (GLD, SLV, GDX, IAU, DZZ, AUY, ABX, GG, GDXJ)
4. Standard & Poor’s To Eurozone: Fix It or Else… (VGK, EWI, EWG, EWP, EWQ)

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