Deutsche Bank’s Top Credit Strategist: ‘I Am A Gold Bug. Fiat Money Is A Passing Fad In The History Of Money’

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Written by Dana Sanchez
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Deutsche Bank’s top credit strategist Jim Reid describes himself as ‘a gold bug,’ says fiat money is a passing fad — unusual for a renowned banker. Money vector created by vectorpouch, www.freepik.com https://www.freepik.com/free-photos-vectors/money

Gold is having a good week with prices continuing to push higher while the U.S. dollar is pushed downward, stoking demand for anti-fiat alternatives.

Optimism about a global economic recovery has been overtaken by renewed fears over record-breaking new U.S. coronavirus cases.

Top Deutsche Bank strategist Jim Reid recently described himself as a “gold bug,” Goldseiten.de reported. Gold has seen extraordinary increases so far this year at a time of high global risk while central banks have worked in full rescue mode, according to Reid.

Reid said he thinks that “fiat money will be a passing fad in the long-term history of money” — unusual tones for a renowned banker, Goldseiten reported.

Reid added that he thinks “Gold is definitely a fiat money hedge” and more importantly, a transition asset to whatever monetary system is next.

This isn’t the first time Reid has predicted global realities may soon put the current fiat-money regime to the test. In 2017, Reid said the fiat currency system — a term which describes any currency whose value is backed by the government that issued it, rather than by a commodity like gold or silver — could be “seriously tested” over the next decade, Business Insider reported.

The U.S. dollar was convertible into gold until the mid-1930s, and was tied to the value of gold until the early ’70s, when President Richard Nixon severed the relationship between the U.S. dollar and gold. As a result, inflation became less volatile, and deflation became a non-issue except in the oil crisis and recession of the late 1970s and early 1980s. With more flexibility to control supply and demand of currency, the Federal Reserve can limit the impact of major economic shocks.

Critics of gold advocates often use the argument that fiat currencies aren’t really “worth” anything since there isn’t anything tangible that underpins its value, Jason Hall reported for The Motley Fool. “That’s really not a very accurate description of a fiat currency, versus a gold standard. Simply put, the value of any currency, whether a commodity or a fiat currency, is only relative to what people think it’s worth.”

Reid admitted that with the exception of gold, he has “always found many commodities difficult to recommend on a buy and hold basis as most underperform inflation over the long run – probably as they are mostly used in production and alternatives are found if too expensive. We also become more efficient at using them.”

Reid noted that between 1860 and 1971, the real price of gold fell by 75 percent. Since then, gold is up seven times, double its 1860s real level.

Central banks actively buoy up equities, whereas gold has been repeatedly knocked by monetary authorities, so its performance is impressive considering it has had to “fight the Fed” for almost 40 years.

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“Gold is not a typical investment,” former Rep. Ron Paul wrote in a 2010 guest column entitled “Here’s Why Governments Hate Gold”. 

“It is a defense against the predictable behavior of governments to debase a fiat currency under its absolute control.  The people who run the printing presses have trouble shutting them off.”

Reid contended in 2017 that the fiat currency system “is inherently unstable and prone to high inflation.” He wrote a paper discussing “the start of the end of fiat money.”

“Deutsche Bank isn’t known for its gold bugs, but that hasn’t stopped its strategist,” Thomas Colson wrote for Business Insider at the time.