By David Galland in Casey's Daily Dispatch:

I would contend that, no matter what else comes out of the current crisis, the true nature of the fiat currencies has been revealed for all to see. And gold has been once again found to be the only reliable form of money.

The long-term consequences of these revelations (which are not revelations at all to most of you, dear readers) are that anyone who’s been paying attention – individual and institutional investors – will never again dismiss gold as having no role to play in modern finance.

Further, the idea that central banks should divest themselves of their only tangible asset – gold – has been relegated to the trash heap of history. It is thus that we are now hearing influential voices in China calling for an increase in its reserves of another 159 million troy ounces of gold, roughly twice annual global gold production. At $1,200 gold, that means they’d have to spend $190.8 billion, which, while a lot, is really not all that much compared to the size of their reserves of U.S. dollars.

Of course, were they to try and aggressively meet those sorts of targets – competing as they are with other central banks that have now seen the golden light – the price of gold would head much, much higher. That argues for them trying to do off-market transactions – buying whatever gold the IMF wants to sell before it hits the market, for example. And it argues for them rebuilding their gold reserves at a more measured pace.

But most of all, it says that there is a new and very solid floor under the price of gold. Can it correct 5 or 10% in the event of a broader market sell-off? Sure. But more than that? I doubt it.

Crux Note: Each day in Casey's Daily Dispatch, David Galland brings you an informative and entertaining overview of the markets, the economy, and politics... all from his unique and often contrarian perspective. Casey's Daily Dispatch is absolutely FREE and comes right to your inbox, five times a week. To sign up, click here...

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