Gold prices are less reactive to factors such as geo-political tensions when compared with oil, according to a former IMF official.

“With the emergence of electric vehicles (EVs), oil no longer has a monopoly. Whereas, there is no substitute for gold,” said Sitharam Gurumurthi, former staff member of the International Monetary Fund (IMF) and founder-chairman, Sri Sardar Vallabhbhai Patel School for Monetary Economics.

“Gold prices have continued to move upwards,” Dr. Gurumurthi said speaking on the topic ‘The Role of Gold in Currency Markets,’ organised by MSE Financial Services Ltd.

West Asia situation

Citing an example, Dr. Gurumurthi pointed out in case of a war-like situation in West Asia, both oil and gold prices move upwards.

“Gold prices might go up to $500 from $400. But, it never again corrects to $400 levels and will remain at $475 or so,” he said.

Dr. Gurumurthi, a former bureaucrat, also reiterated his call to move back to the Bretton Woods-fixed exchange rate system (based on dollar and gold) and removing the current system of Special Drawing Rights, or SDR, which comprise a basket of currencies. He pointed out that SDRs had not been an effective alternative for the earlier system.

The SDR basket currently comprises U.S. dollar, British pound sterling, euro, Japanese yen and Chinese yuan, Dr. Gurumurthi noted.

He pointed out that the British pound sterling had been vulnerable due to uncertainties surrounding Brexit, while the euro was given shape more for emotional reasons than economic considerations.

“For example, if some economic failure happens in Greece, usually the currency has to be devalued. However, since euro is a common currency, devaluation cannot take place,” pointed out Dr. Gurumurthi.

He claimed yen and yuan were ‘manipulating’ currencies and said only the U.S. dollar and gold should be a part of the exchange system.