Zoellick made the proposal as part of reforms to be considered at this week’s G-20 meeting in Seoul.

“Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today,” said Zoellick.

He said such a reform would reflect economic realities and should be considered as a successor to the existing global currency paradigm known as “Bretton Woods II.”

Bretton Woods II refers to the system which began in 1971, when U.S. President Nixon ended the dollar’s link to gold as established under the Bretton Woods agreement.

Zoellick said a return to some sort of currency link to gold would be “practical and feasible, not radical.”

“This new system is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalization and then an open capital account,” he said.

 

 

 

Gold Declines After Advancing to Record as Dollar's Rebound Erodes Appeal

By Laura Mandaro and Myra P. Saefong, MarketWatch

SAN FRANCISCO (MarketWatch) — Gold futures surged to a record close Thursday after investors used the U.S. Federal Reserve’s new $600 billion quantitative-easing program as a fresh reason to sell the U.S. dollar.

December gold (GCZ10 1,388, +4.70, +0.34%) surged $45.5, or 3.4%, to $1,383.10 an ounce on the New York Mercantile Exchange, its biggest one-day gain since March 19, 2009, according to FactSet Research. Echoing the latest surge, gold on that earlier date had rallied after the Fed announced a $1.15 trillion bond-purchase program. 

Silver (SIZ10 2,623, +18.20, +0.70%) on Thursday rallied $1.61, or 6.6%, to $26.04 an ounce.

Copper (HGZ10 397.40, +6.20, +1.59%)  gained 13 cents, or 3.4%, to $3.91 a pound.

Platinum and palladium also made steep advances.

After Wednesday’s close of New York floor trading for gold, the Fed said it would keep rates near zero and unveiled a second round of quantitative easing, dubbed QE2, to revitalize the economy.

The Fed plans to buy up to $600 billion in long-term Treasurys until the end of June 2011, including about $75 billion this month. 

 “QE2 was a green light to buy everything commodities and sell [the] dollar,” said Zachary Oxman, managing director for TrendMax Futures.

Gold had gained in Asian electronic trading and then vaulted higher as New York floor trade opened. Also early Thursday, European Central Bank and the Bank of England kept monetary policy unchanged and refrained from taking any additional measures. 

ECB President Jean-Claude Trichet, at a press conference, said interest rates and nonstandard policy measures were appropriate. The ECB’s key lending rate was left unchanged at a record-low 1%.

 The dollar tumbled, falling sharply against the euro. One euro(EURUSD 1.4211, -0.0003, -0.0211%) bought $1.4210, up about 0.6% from $1.4132 late Wednesday after surging about 1% earlier. The dollar index (DXY 75.90, +0.02, +0.02%) fell 0.7% to 75.868 from 76.437.

 The Fed’s announcement added to investor concerns that government efforts to drag developed economies out of the recession would lift inflation in the long term and devalue the U.S. dollar, putting a premium on so-called hard assets like gold and other metals.

Asian investors and policy makers, in particular, are increasingly aware that “the U.S. debt and money-printing policies are ‘out of control,’ as the Chinese commerce minister noted last week,” said Martin Hennecke, associate director at Tyche Group in Hong Kong.