Is a return to the gold standard really in the cards?

The breakdown of the monetary system will be chaotic. When inflation commences, it will be highly disruptive. The damage to fixed-income assets will seem instantaneous. Foreign-exchange markets will become dysfunctional. The economy will become even more fragile and unpredictable.

Gold is an imperfect, but comparatively reliable, market gauge for the extent of current and future monetary destruction. The recent acceleration in the dollar price of the metal to $1,381, a record high in nominal terms, coincided with talk of a new round of quantitative easing and highly visible discord among major nations on trade and currency-valuation issues.

Naysayers point to gold's price and see a bubble, without understanding that the only acceleration that is taking place is in the rate of decline of paper currency. The Fed is organizing an attack on the dollar's value, believing that this is the most expedient way to defuse deflationary market forces. The man in the street is unaware, a perfect setup. Inflation can only be successful when the public doesn't see it coming.

The sudden torrent of commentary on gold isn't the sign of a bubble. Anti-gold pundits provide a great service to those who grasp this historical moment: They facilitate the advantageous positioning of the one asset most likely to be left standing when the dust settles.

Indeed, the whole rickety structure depends on the Fed printing presses running at full speed for the foreseeable future. At some point, the string will snap and the pyramid will come crashing down as inflation becomes the easy alternative for central banks to balance their books. Paying back investors in wildly inflated dollars will doom the greenback as the currency of choice among the industrialized nations.

At that point, might gold emerge as a serious alternative?

There are numerous, systemic problems with basing the world financial system on gold, but there may be no alternative - at least temporarily. However you look at it, serious investors are now looking at gold as more than a hedge against inflation. And that in and of itself is a sign of changing times.

Hat Tip: Vasko Kohlmayer