"http://ftalphaville.ft.com/blog/2011/12/12/793691/make-your-own-collateralised-gold-standard/ is an article by Isabella Kaminska that asserts "the price of gold has no choice but to stall" because of the "recollateralisation of credit with gold".

"It would be appreciated if you could comment on the validity of her argument."

David Fuller's view Thanks for an interesting article which I had not previously seen. It is also a complex subject and I found the Comments which follow the article interesting, particularly the early ones for which you have to scroll to the bottom.

As more people have rediscovered that gold is a monetary asset, it is hardly surprising that it is traded, loaned or otherwise used as collateral more widely.

Italy's new government of technocrats recognise that they need to lower the country's debt burden, and quickly because borrowing costs have risen. There are limits to what Italy can achieve through austerity measures alone, especially as these exert a deflationary pressure on GDP growth.

Fortunately, the Italian government is blessed with abundant fixed assets - land, palaces and other glamorous real estate, art treasures and gold. If Italy stays within the euro, as is certainly the stated intention of officials and the business community, it needs to sell some of its assets and pay down debt.

If we ask two questions: 1) which of Italy's most valuable assets can it sell most readily? And 2): which assets would the officials, bureaucrats and other influential Italians miss least - the land, palaces and other grace and favour properties, the art or gold?

The answers seem clear to me. Italy has previously sold gold in recent decades, with minimal public outcry. Therefore it could do so again, quickly and easily, averaging up on the prices of earlier sales in the process. Italians are unlikely to miss the gold but many would miss the other treasures mentioned in (2) above.

This is conjecture on my part but it seems logical for an indebted country facing high borrowing costs and slow GDP growth. In other words, they sell the family silver, in this case gold bullion. Had I though through this in a little more detain a few months ago, it would have saved me some trading money in the bullion futures market.