The Future of Physical Gold (Part V)

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The Future of Physical Gold (Part V)

Sorry for the late posting, this went up last week for those who were interested in reading but missed it.

The Future of Physical Gold, Part V - An Imperfect World in The End


The first four articles in this series (Dialectic Foundations, The Evolution of Value, The Final Realization and Deflationary Canyons and Caves) used theories, facts, data and general observations to explain why the dollar price of physical gold would most likely take a significant hit over the next decade. It was also consistently argued that the global financial system would not be "re-capitalized" through the revaluation and monetization of physical gold reserves, as argued by the theory of Freegold. That, in turn, means that physical gold is very unlikely to reach valuations as high as $50-100K in current purchasing power per ounce, either in the near future or, for all practical purposes, ever.

Much of this series has focused on the Federal Reserve, U.S. Treasury and the U.S. Dollar as THE key influences on future monetary developments in our global financial system. Freegold advocates would take issue with this focus, because they believe the "rest of the world" (ROW) will be much more instrumental in leading the physical gold-based re-capitalization process, such as Europe, the Middle East, China, Russia and India. The problem for them is that such a conclusion is not supported by either sound theories of complex systems' evolution (i.e. evolution of the global economy) or straightforward empirical evidence. Let's return to a passage from Part IV:

[Deflationary Canyons and Caves]: We could even see several large institutions, such as central banks and governments in Asia, Europe or Japan, flood the markets with (sell) a portion of their gold holdings to temporarily relieve pressure from their dire private and public funding situations. The sheer momentum of financial capitalism will lead them to conduct their "re-capitalization" efforts through established fiat currency and debt  mechanisms, rather than through an ongoing revaluation/monetization of gold by central banks such as the ECB (as argued in FOFOA's Reference Point: Gold - Update #1 and Update #2).

A complex and dynamic system relies on "central hubs" to keep itself functioning at anything close to its current scale, and therefore the "peripheral" branches of the system are more flexible and can deteriorate much faster. Accordingly, fiat currencies existing in the "periphery" of our global economy should be expected to fall first. For example, Belarus recently experienced the initial stages of HI as their currency lost 36% of its purchasing power in one month. However, the value of alternative mediums of exchange within the economy (i.e. dollars, gold, silver) can be suppressed in spite of such events as long as there are significantly bigger countries (currencies) willing to backstop the smaller ones, which will be Russia in this situation (with conditions of privatizing national assets, of course). [1], [2].

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