The gold standard in the UK, or I should say circulating gold coins and the convertibility of paper into gold, effectively collapsed before World War One. Sir Winston Churchill attempted a re-link starting in 1926, but it failed.
For many the price of gold (and silver) is based on the second by second prices quoted on websites such as Kitco.com and others. It is important - very important - to understand this headline price is the price for a paper “derivative” of gold.
Normally a futures contract on the Chicago Mercantile Exchange (CME). Theoretically, this contract entitles the buyer or seller to lock in a price today for future delivery. If the contract is for immediate delivery, it is called the spot price, as in “on the Spot”. Furthermore, today’s price of $1,400 per ounce is based upon a contract minimum of 100 ounces, about three kilograms.
To explain how the paper market came into being, an analogy by monetary scientist Dr. Antal Fekete is useful. It is that of an Aesop Fable: The Fox That Lost its Tail.
Trying to hide his shame at losing his tale in a farmer’s trap, the wily old fox sets about trying to convince the other foxes that they too should cut off their tail. Burdened by the shame of losing his tail, the fox declared to the other foxes: "that they would not only look much better without them, but that they would get rid of the weight of the brush."
