If you didn't notice, the price of gold dropped recently. Is this responsible for renewed discussions regarding a return to a gold standard? Gold prices dropped more than 7% last week, which is the biggest weekly loss since September. The cause has been attributed to liquidity plagued speculators and banks that closed out long positions. Yet, while the price has fallen none of the reasons gold has gone up have changed. They’re still in place.[center][img]http://ng7.upanh.com/b5.s25.d2/054b569bb8da3019a973a68c930611b0_39197877.122111gc.jpg[/img][i]Past performance is not indicative of future results.***chart courtesy of Gecko Software[/i][/center]The economic crisis of the past several years, with unchecked government growth and spiraling debt are all still apparent. The problems with the global economy still exist and are apt to grow. And one only need look at what is happening as it serves to illustrate the dangers we face from living beyond our means. Yet, we continue to build upon unsupportable economic foundations. Our current path is unsustainable. We have moved away from the path of sound money and economic stability. So what to expect of gold?Well, bearish sentiment in the gold market is very high, which for some may be indicative of a market bottom. One thing to look at is that bullion buying in much of Asia has risen. Reuters reported that there has been a jump in buying in most Asian countries and that demand for gold in India, still the world's top buyer, rose slightly for the first time in almost a week on Friday.While opinions are divided about the outlook for gold, most analysts of the gold market remain positive about the price outlook for gold in the medium and long term. Some are cautiously suggesting that the worst of the sell-off may be over as gold looks very oversold technically and the fundamentals remain sound. It is worth remembering that with gold selling off this past week physical demand remains robust globally.What did central banks do in the gold market this week? Central banks in nations like China, India, Russia and Thailand keep buying gold reserves. These banks seem to be trimming their dollar exposure and have been buying whatever the International Monetary Fund chooses to sell. What does this mean? Does it mean that there are those who are reforming their thinking that perhaps gold can do a better job as an instrument to help a bank? Possibly; the Bank of England explores that subject in a paper that is to be officially published December 20, 2011, entitled, The Bank of England’s Financial Stability Paper No. 13.In the paper they propose countries reduce the need for accumulating foreign exchange reserves by creating “exchange rate insurance” that individuals, businesses and governments can use to protect themselves against gyrations in their home currency’s value. It certainly is interesting to note that progressive thinking is growing in earnest to reform the current International Monetary and Financial System. In a way it serves to reaffirm how gold has been viewed as a hedge against all currencies.The results of the BOE paper indicate that the real task at hand is to create a reformed international gold standard that would promote trade and prosperity throughout the world. Such a system has historical evidence on its side. What is proposed would provide a stable and secure international monetary system by redefining each of the key currencies, specifically the dollar, euro, pound, yen and Yuan, respectively, as a unit weight of gold. Other major countries, including Brazil, Canada, India and Russia would be invited to join in defining their currencies in terms of gold. Then smaller countries would then be free to fix their exchange rate to any one of the gold backed currencies.The notion that a reformed approach to a gold standard could actually produce better results than powerful central bankers who manipulate interest rates and currency values may be counter-intuitive but the facts speak for themselves. Evidence suggests a gold standard provides better apparent financial stability. It might be just the medicine to create an environment which returns the spontaneous order of the market place.With easy money and inflation again in the headlines, but without a Paul Volcker at the Fed's helm, the BOE analysis and arguments are timely and will hopefully bring new discussions. Monetary policy observers around the world may point to this as the death of the world dollar standard and why not? Haven’t we seen enough of the ill effects of the present system?Certainly the inability of the U.S. to reduce its budget deficit is a case in point as is the Federal Reserve’s easy money policy - they are bullish for gold. Among some students of the economy an argument for returning to the gold standard is brewing. Even more importantly is the argument for choice and competition and the role of government. The presidential election in 2012 will be focused on the economy and the role that government plays. [b]Summary[/b]Preserving the ability to choose which currencies to accept, with whom to trade and on what terms, is a hallmark of a free society. Sadly these freedoms are among the many that have been compromised, if not lost completely. Traders have watched as over time gold trades in an inverse relationship to the dollar. Right now, the gold market is likely sensing another round of Fed quantitative easing in the near future, and writing the script of its own recovery off recent lows.[b][i][u]Disclaimer:[/u][/i][/b] The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.