Podcast

Jim Rickards: The New Case For Gold

A powerful set of arguments for owning the yellow metal
Monday, April 4, 2016, 12:32 AM

Monetary expert Jim Rickards returns this week to share the insights from his latest work The New Case For Gold, a detailed and highly-researched study of the fundamentals likely to drive the price of gold bullion in the years to come.

Rickards is quite confident that the price is going higher -- much higher in fact -- as the current world fiat currency regimes falter, to be replaced by ones backed (at least in part) by bullion.

On the way to that outcome, expect the price to be subjugated to the interests and aims of the largest players on the geopolitical chessboard:

Is there gold price manipulation going on? Absolutely; there’s no question about it. That’s not just an opinion.

I spoke to a PhD statistician who works for one of the biggest hedge funds in the world. I can’t mention the name but it’s a household name, you would know the fund. This guy is a PhD statistician. He looked at COMEX opening prices and COMEX closing prices for a 10-year period and he was dumbfounded. He said…This is the most blatant case of manipulation I’ve ever seen. He said if you went into the aftermarket, bought after the close and sold before the opening every day, you would make risk-free profits. He said statistically that’s impossible unless there’s manipulation going on.

I spoke to Professor Rosa Abrantes-Metz at the New York University Stern School of Business. She is the leading expert on globe price manipulation. She actually testifies in some of these gold manipulation cases that are going on. She wrote a report reaching the same conclusions. It’s not just an opinion, it’s not just a deep, dark conspiracy theory. Here’s a PhD statistician and a prominent market expert lawyer, expert witness in litigation qualified by the courts, who independently reached the same conclusion.

Now, where is the manipulation coming from? Well, there are a number of suspects but my number one suspect is China. To that you might say: Wait a second, China has 5,000 tons. They lie about it. They say officially they have 1,700 tons but it's very easy to establish that China probably has 5,000 tons or more. Again, that’s not a made up number. How do we know? Well, we look at Hong Kong imports. China lies, Hong Kong doesn’t -- they actually have fairly reliable trade statistics. They’re showing about 700 or 800 tons a year of exports from Hong Kong to China. Let’s just say 800 tons a year there and we have geological surveys that show China produces about 450 tons a year from the mining output and we know they have zero exports. Combine Hong Kong exports to China with Chinese indigenous mining output and you get a figure of about 1,200 or 1,300 tons a year times six years. That’s 9,000 tons right there. The only thing that’s not clear is how much of that is public and how much of it is private.

I was in Switzerland a couple of weeks ago and met with the head of the world’s largest gold refinery. His estimate is about 70% goes to private usage and about 30% to the government. Take the 9,000 tons, apply 30% and you get 3,000 tons, plus the 1,000 they admit, so you easily get to a figure of 4,000 or 5,000 tons. But here’s the problem: China has to get to 8,000 tons. If they want to look the US in the eye and have a big enough pile of poker chips the next time the major trading financial powers sit down to play poker and recut the deal and reform the international monetary system, they have to have as much gold as the US. So they’re still out to buy another 3,000 or 4,000 tons. Ultimately, the price will go much higher, but if you were a buyer of 3,000 tons wouldn’t you want a low price? Of course you would.  By the way, they are untouchable by the CFTC or the Justice Department. We can’t prosecute China. We can’t get access to them. They would laugh at is.

So you’ve got a big whale out there buying thousands of tons through stealth interception motivated to have a low price, which is untouchable by US regulatory authorities. There’s your culprit right there(...)

(...) The senior officials know about it. They’re very relaxed about it. They think we need to do this. The question is: Why? Why does China need gold reserves? Obviously, you’re going to reset the monetary system on a gold basis. If you do that, back to Churchill 1925, you’ve got to get the price right. What is the implied, non-deflationary price of gold in the reset monetary system? The answer is at the low end $10,000 an ounce, at the high end $50,000 an ounce. It’s coming.

People say "I hear you Jim and I agree with your argument, but I’ll wait until it starts to take off." Sorry, you’re not going to be able to get the gold. It will take off, but you’ll be standing there watching it on television going to $2,000, $3,000, $4,000 an ounce while frantically calling your dealer saying: Get me some gold! You know what the dealer is going to say? Sorry, sold out: back ordered. You call the Mint: back ordered. You’re not going to be able to get it. That’s my point. Get it now, while you can, at a good entry point. Not 100%. Just get 10% of your assets in gold, sit tight, and you’ll be fine.

Click the play button below to listen to Chris' interview with Rickards (39m:36s)

Transcript: 

Chris Martenson: Welcome to this Peak Prosperity podcast. I am your host, Chris Martenson. You know, with every passing day there is another example of central banks doing something, anything, to rescue or stabilize financial markets, especially the equity and currency markets. To help us understand this better we have back with us today, a man who really needs no introduction, Jim Rickards—seasoned financier, risk manager, and author. We’re going to discuss his latest book, The New Case For Gold, hot off the presses as its release date is April 5, 2016. Now, Jim is perhaps best known for his expertise in describing how currency wars are one of the most destructive and feared outcomes in international economics and that history shows they always end badly. In fact, that is one of the core reasons we’ve been suggesting gold to our listeners for a long time is because of central bank monetary action more than anything else.

Now, in 2014, Jim warned us that the world was going to engage in a new currency war and it was going to pose risks that every prudent individual should be aware of and of course, we do consider gold to be a form of money at Peak Prosperity, which is a different thing from being a form of currency, a distinction that matters a lot and maybe we’ll get to here today. Jim, welcome back. It’s always a pleasure to have you on.

Jim Rickards: Thank you, Chris, great to be with you. Thanks for having me on your program.

Chris Martenson: Let’s set the stage for why you wrote this book. Gold, I hate to say it Jim, it’s a long-suffering relic, at least if we go by its price over the last five years; and Grant Williams, who I admire a lot, makes the case that in the west nobody cares about gold. It’s beaten down, it’s forgotten about by most financial managers in the west. Your new book is making the case that every portfolio should have some gold in it, so let’s talk about that. First, why is gold suffering and forgotten by western financiers, and are they making a mistake here?

Jim Rickards: Well, that’s a great question. First of all, you’re exactly right Chris. You can’t get into normal conversation with most people, or certain monetary elites—university professors, academics, central bankers, etc. journalists for that matter—with few exceptions. You can’t get into a normal conversation about gold without being either ridiculed, or you’ll be treated like a gold bug, or gold nut, or a Neanderthal. I’m kind of used to it all. I’ve heard it all. You need a pretty thick skin to be in the space.

But that’s the reason I wrote the book; you’re exactly right that we now have upwards of three generations of Americans who have either been miseducated, uneducated or led in a false direction with regard to gold. So 90% of my book, The New Case For Gold, are positive, affirmative reasons to have gold in your portfolio. But the first 10% of the book, and part of the motivation for writing it, I had to knock down these anti-gold arguments once and for all. I know that they don’t hold water, they’re empirically, factually, historically, analytically incorrect or obsolete but you hear them all the time. I was on Bloomberg with my friend Joe Weisenthal and he starts calling gold “a shiny pile of rocks.” I said, “Joe, it’s not a rock, it’s a metal; so why don’t we start there and get some facts straight?”

There are half a dozen obsolete canards you hear all the time and I shoot them down one by one. Let me just give you a simple example. People say that the gold supply does not expand fast enough to support the growth of the world economy; you hear that one all the time. The fact of the matter is mining output relative to total stock is about 1.6% a year and world growth, it varies but between 3% and 4% a year, so people say "Hey, if gold output grows 1.6% a year and world growth is growing 3% or 4% a year, obviously it’s going to be deflationary because the gold can’t keep up with the growth." Well first of all, that’s complete nonsense. Those facts are correct but they’re irrelevant because mining output has nothing to do with the ability of central banks to expand their gold supply and to have discretionary monetary policy. It confuses mining output official gold and total gold. As you know, total gold above ground is about 180,000 tons, give or take, but official gold, that is gold held by central banks and finance ministries, is only about 35,000 tons. That leaves 145,000 tons out there that central banks can acquire that has nothing to do with mining output.

If you’re a central bank and you want to expand the money supply and you want to have some monetary ease, but you’re on a gold standard or some kind of modified gold standard, you don’t have to wait for the miners to dig it up. All you have to do is go out and buy some gold from the private sector. By the way, that’s called an open market operation. It’s exactly what the Fed does today in bonds. When the Fed wants to expand the money supply, what do they do? They call the primary dealers, which are the big banks, they buy some bonds, the dealers deliver the bonds, and the Fed pays for them with money that comes out of thin air. You can call private gold dealers—have a list of primary dealers in gold—call private gold dealers, buy some gold, pay for it with money that comes out of thin air. If you want to expand your gold base, and you want to expand your money supply, and you want to conduct discretionary monetary policy, it has nothing to do with mining output. You can just go buy some private gold. When you say that, people go "Oh yeah, I get that. I understand that." That’s one falsehood you can knock down.

The other one of course: There’s not enough gold to support world trade and commerce. That’s another nonsensical statement. There’s always enough gold. It’s just a question of price. At $1,250 an ounce if you want to have a gold standard, not a good idea; that’s highly deflationary. But, at $10,000 an ounce it's not deflationary; it’s mildly inflationary. It’s never about the gold supply. It’s about the price. I think going to a gold standard at $1,250 would be a disaster. Same mistake Winston Churchill made in 1925 when he went to gold at about $20 an ounce; that was disastrous. By the way, the person who told Churchill not to do it…Churchill was Chancellor of the Exchequer at the time, which is kind of like Treasury Secretary. The person who told Churchill not to do it said go to gold at a much higher price, meaning at the time about $40 an ounce, was John Maynard Keynes. Keynes has this reputation as a gold basher but in my book, The New Case For Gold, I talk about how Keynes actually understood gold very well. By the way, he never called gold a barbarous relic; that’s another thing you hear. When he used the phrase "barbarous relic," he was referring to a flawed gold exchange standard of the 1920’s. And he was right about that; it was flawed because the price was wrong.

So again, I take these anti-gold arguments, you hear them…they’re all friends of mine by the way, whether it's Barry Ritholtz, or Joe Weisenthal…they’re good people but they just don’t get it. I’m not a gold dealer, I don’t get paid a commission if somebody buys gold. I am an author, I am an analyst, so what I do is provide an educational function. First I knock down the anti-gold arguments (and none of them hold water) and then I spend the rest of the book giving you very good reasons why you should have good.

Chris Martenson: Well Jim, let me get to one of my favorite gold bashing pieces, which we have to discuss now, which was this—people used to throw this out like it was a very, very astute, very savvy thing to say—"Gold has no yield." Well, now I can at least rejoin that and come back and say "at least it doesn’t have a negative yield." Certainly, this negative yield environment has to be gold positive I would think, but from your view, how is this negative yield environment actually working and should we expect that it's going to influence this new case for gold?

Jim Rickards: Gold has no yield, you’re absolutely right Chris, is one of the most frequent anti-gold comments you hear. You hear it prominently from people like Warren Buffet. Of course, Warren Buffet is the king of tax deferred compounding so he likes his yield. You’ll hear it from talking heads and TV anchors, and you hear it all the time. There are two answers to it. One is the one you just mentioned which is that in a world of negative interest rates, zero yield is the high yield asset because zero is greater than negative one, so that makes gold very attractive. There’s another answer that applies even in a positive rate environment that I think is a little more to the point, which is that right, gold has no yield, that’s true. It’s not supposed to. It’s money. Take a dollar bill out of your wallet. Reach in your wallet or your purse, pull out a dollar bill, hold it up in front of you. What’s the yield? Zero. You don’t get any yield on your money. Now, people say "Oh, I can put it in the bank and get a yield, you know, 25 basis points or whatever—" maybe, until you get to negative rates, but when you put it in the bank it’s not money anymore. It’s a bank deposit.

What is a bank deposit legally? A bank deposit is an unsecured liability of an occasionally insolvent financial institution. What is a money market fund? A money market fund is a share of an SEC registered fund—and by the way, last year (and very few people noticed this) the SEC changed the rules so that money market funds can suspend redemptions for the first time. They were never allowed to do that before last year. Hedge funds of course, can suspend redemptions whenever they want, but it didn’t used to be the case with money market funds. These are all misnomers…money market fund. Forget the word money, think about the word market. People say "I have my money in a money market fund." They think they can call their broker, give a sell order, and the money will be in their bank account the next day.

Guess what; let me tell you all the things that can go wrong. First of all, now, in a panic, the money market fund can suspend redemptions so you can’t get your money. Number two, even if it goes to the bank, who is to say the bank is open? Who is to say the bank is not insolvent? What if the power grid goes down? What if Vladimir Putin hacked it? What if the bank closes, which…by the way, I say these things and people roll their eyes and go "That will never happen." Every one of them has happened. 1933, by executive order all the banks were closed. In 1914, the New York Stock Exchange was closed for five months…months, not days. How many people know that? From July to December 1914, the New York Stock Exchange was closed. Vladimir Putin has a 6,000-member cyber brigade. These are not criminal hackers trying to get your credit card number. These are Russian military intelligence assets working day and night to destroy, hack, disrupt, delete and erase every digital asset in the world.

I say to people when I talk to people and meet people in Greenwich, Connecticut, they’re billionaires, I say "What have you got?" They say "I’ve got stocks, bonds, all this other stuff." I say "No you don’t. You’re a billionaire? What you have are electrons. You have digital wealth. You may get a paper statement from your broker or bank once a month but it's all in digital form. It can be wiped out and erased." People say "That will never happen." Guess what? It happened last week. The country of Bangladesh, one of the poorest countries in the world, had one hundred million dollars on deposit with the Federal Reserve Bank of New York that disappeared. It wasn’t on deposit with some rinky-dink bank in Bangladesh. In theory, the Federal Reserve Bank of New York is the safest bank in the world. Here’s a poor country and a hundred million dollars disappeared. By the way, if they had that money in physical gold they would still have their hundred million dollars.

So, every one of these things has happened, every one of these things is coming. I don’t say "sell everything and buy gold." I don’t say "pull all your money out of the bank and buy gold." I do say take 10% of your investable assets, put it in physical gold, put it in safe, non-bank storage and you will weather the storm.

Chris Martenson: I couldn’t agree more and what’s intriguing to me, Jim, is that what you’re talking about is just buying insurance, and unlike an insurance policy where you dump the premium and if nothing bad happens all you’re left with is nothing, gold is a form of insurance where it's always going to have some value. It may be in dollar terms, higher or lower than when you bought the insurance policy, but you’re talking about prudent insurance given real risks that we can see.

You mentioned Putin hacking. It was two years ago I think Symantec released this (I thought) alarming report saying somebody out of Eastern Europe, we think, got root level admin access to our nation’s power infrastructure grid. It made little waves like in wired.com. I saw a little mention of it in some newspapers, but I don’t think it got widely circulated because it's actually a very scary thought. That was the one we found out about; there was a Trojan horse that inserted some malware that gave them root level access…somebody. We don’t know who but let’s imagine for the moment, Eastern Europe is close to Russia, or somebody…could be China, doesn’t matter…what you’re saying is look, these are known things. We’ve already seen that there’s a big global game of chicken and hacking going on and something could come from that. To me, that’s just a prudent A goes to B, goes to C. Somewhere along the line, it makes sense to have your wealth out of the system in physical assets and yet people still resist it. First, why? And second, how do you approach that in your book?

Jim Rickards: Well, the reason why is as we discussed earlier Chris. Call it conditioning, miseducation, brainwashing, take your pick but since the mid-1970’s, gold has not been taught in universities, in economics departments, in education. I was sort of fortunate. I got a graduate degree in international economics but my class, the class of ’74, was the last class that was taught gold as a monetary asset. Everyone says the gold standard ended in 1971 with Richard Nixon. That’s not quite correct. Richard Nixon in August 15, 1971 suspended redemption of dollars for gold, that’s true, but that was not the end of the gold standard. It kind of struggled along for a couple of years. It wasn’t until 1974, that the International Monetary Fund officially demonetized gold and then we went to the world of floating exchange rates where we’ve been ever since.

My years, ’73-’74…I studied gold. Actually my professors, I’m a 25-year-old grad student but my professors were in their 50’s, they were the young guns when the IMF was created in 1944 and the early 1950’s so I was taught by the professors who had created and administered the IMF in its early years and I studied gold in a monetary context. If you’re younger than I am and you know anything about gold, you’re either self-taught or you went to a mining college, because they don’t teach it in academic economics departments, with very few exceptions. So we just don’t know about gold.

By the way, it’s the number one trick of a propagandist. Either don’t talk about something, as George Orwell said "Send it down the memory hole," or if you do talk about it, lie about it. Remember the famous interview with Ben Bernanke talking to George Washington University students a couple years ago. I love lecturing and meeting with students because they always ask the smartest questions because they haven’t been totally brainwashed yet. One of the students raised his hand and said to Chairman Bernanke, “Mr. Chairman, if gold is so irrelevant why does the United States have 8,000 tons?” Chairman Bernanke said, “Well, you know, it’s a tradition.” He used the word "tradition" and just threw it out there and moved on. Well you know what; it was a good question. Why does the US have 8,000 tons? Why does China have more than 5,000 tons? Why has Russia acquired 1,000 tons in the past six years? Why do the 19 members of the Eurozone have 10,000 tons? Why does the IMF have 2,000 tons? What is up with all this gold if it has no role? Of course it has a role. It’s propping up the Fed.

By the way, I talk about that in chapter one of my book. I explain how the Fed is periodically insolvent and has leveraged over 100:1 if you don’t count the gold on their balance sheet, but if you do take the gold on the balance sheet mark-to-market, they look pretty healthy. They’re leveraged 13:1, which is a normal commercial bank leverage and they have a very solid equity base. So gold is propping up the Fed. Now, nobody will talk about that but I do explain it in the book. I take you through. I take the Fed balance sheet, I pull the line items out, I do the math and I explain it analytically so it's all there in chapter one of my book, The New Case For Gold.

I don’t know what to say Chris; it's a great question. I guess it's miseducation but we’re trying to remedy that. I think with your program and your output and some interviews I do and my book, hopefully we can little by little have an impact.

Chris Martenson: Absolutely. I think it is spreading, of course thanks to your great work as well and others. This might be a little geek moment here but you’re the only person I know who might be able to answer this. You just mentioned that the Fed carries a lot of gold on its balance sheet, they carry it at the rate of 11 billion dollars, which is $42 an ounce and change I think if I have that right.

Jim Rickards: That’s right.

Chris Martenson: It should really be 300 billionish under today’s terms. When I wander over to the Treasury Department, I find that they also are recording 11 billion of the same gold on their balance sheet as an asset. How do two entities both record the same asset as an asset?

Jim Rickards: There’s a little bit of history there. First of all, let’s go quickly through the history of how all the gold got confiscated and why we don’t have it anymore. Private citizens can buy gold. I tell people "Don’t want for central banks to go on a gold standard. You can go on a personal gold standard. Just get some gold today." Fortunately, we have the freedom to do that. As you know, from 1933 to 1975, it was illegal for Americans to have gold. It was a crime. It was like having drugs or contraband. Fortunately, that changed in ’75 and we can own gold today.

Anyway, go back to 1912. People actually walked around with gold coins in their pockets. Not all the time; there were silver coins, there was paper money, they were all kind of side-by-side in the marketplace but people could pull out a $20 one-ounce gold coin and go shopping with it. In World War I, the banks hoovered up all the gold (I’m talking about commercial banks) and they melted it down and turned it into 400 ounce bars. So they said to people "Okay, you can have gold but by the way, we’re holding it in these 400 ounce bars." It’s 35 pounds. Nobody is going to walk around with a 35 pound gold bar in their pocket so people were like "Okay, I’ve got gold, I’ve got money that can be turned into gold, but the gold is in the bank vaults." That was step one.

Step two, the Federal Reserve, after it was created in 1913, required all the commercial banks who own the Federal Reserve to give them the gold, meaning give it to the Federal Reserve. That was part of their investment in the Federal Reserve to get their stock. That’s how they got to own the Federal Reserve. So now the gold is at the Federal Reserve. In the 1930’s, during the Roosevelt administration, President Roosevelt ordered the Federal Reserve to hand it over to the Treasury. That’s why they built Fort Knox in 1937, because they were actually holding it at the Treasury Building on Hamilton Place next to the White House before that and they said there wasn’t enough room in the vaults so they built a new vault out at Fort Knox.

Look at the sequence. First, the citizens have gold, then the commercial banks have it, then the Federal Reserve has it, then the Treasury has it and that’s where the gold still sits. Now, here’s the point. The Federal Reserve is privately owned. The Treasury is the United States government. It is unconstitutional under the Fifth Amendment, for the government to take private property without just compensation. So when the Treasury took the Fed’s gold, they had to give the Fed just compensation so they gave them a gold certificate. That’s what the Fed has on its balance sheet. It’s not physical gold, it's the gold certificate, equivalent to a certain amount. It’s not double counting. The Treasury counts physical gold and the Fed counts a gold certificate backed up by the physical gold. It appears twice but it's not quite the same thing.

Here’s where it gets really interesting and I talk about this in chapter one of my book, The New Case for Gold. You’re exactly right, Chris, both institutions value it at $42 an ounce approximately and we all know it's $1,250 an ounce and it fluctuates. Take the line item, take the historic cost value on the Fed’s balance sheet, divide by 42; that gives you the number of ounces of gold. Convert that into tons and guess what you get? 8,000 tons. How much does the Treasury have? 8,000 tons. It’s no coincidence that the Treasury has the same amount of gold that that Fed says it has. In other words, the Treasury gold backs up the Fed.

This unlocks one of the great mysteries, something I’ve thought about for a long time and I only recently solved it and I talk about this in the book. Go back to 1950. The Treasury had 20,000 tons of gold. By 1970, we were down to 9,000 tons. Where did the 11,000 tons go? Well, it went to our trading partners under Bretton Woods. Germany, we were buying Volkswagens; Japan, we were buying transistor radios…they had trade surpluses, they could cash in their dollars and get the gold under Bretton Woods and they did. 3,000 tons went to Germany, 2,000 to France, 2,000 to Italy, 600 to Netherlands etc. Add it up and that’s where the 11,000 tons went. Then we suspended redemptions in 1971.

Between 1971 and 1980, the United States dumped another 1,000 tons in a futile effort to suppress the price of gold and they twisted the IMF’s arm. The IMF dumped 700 tons. So there was 1,700 tons of US and IMF gold dumped between 1971 and 1980, to suppress the price. It failed the same way the London Gold Pool failed in the 1960’s and the price skyrocketed to $800 an ounce in January 1980. Then the Treasury stopped.

The Treasury has not sold a significant amount of gold since 1980. In 36 years, they haven’t sold any gold. So how is it the case that they go down 12,000 tons in 30 years, between 1950 and 1980, and they go down zero tons in the 36 years between 1980 and 2016? The answer is the Treasury can’t sell gold because they can’t go below the 8,000 ton threshold, because then they’re violating their pledge to the Fed, which has that 8,000 tons on its balance sheet. What that means is highly significant. It means the Treasury can’t dump gold. The Treasury is out of the game in terms of gold suppression.

That’s why they’re going around getting everyone else to sell their gold. We got the UK to sell their gold in 1999. We got the Swiss to dump thousands of tons in the early 2,000’s. Poor Canada, they dumped the last of their gold the other day. We got the IMF to sell 400 tons in 2010. We’re getting everyone else to sell their gold. I saw a report just yesterday that poor El Salvador sold five tons. El Salvador is one of the poorest countries in the world but they had to dump five thousand tons. So we’re running out of gold. The US is getting everyone else to dump gold because the US cannot dump gold, because it can’t go through that 8,000 ton threshold. The minute I did the conversation and saw that the Fed was counting on 8 tons, and I knew that was the Treasury number, it was like a light bulb went on. The US is out of the game.

Chris Martenson: Somebody is in the game though and I think the game has changed slightly because paper currency on COMEX is certainly now driving this. On the date of this taping…we’re taping this on April 1, 2016…I’m looking at my screen and gold is taking another patented Friday swan dive. It is down $20-ish here at this moment. But of course, every student of gold knows that this would be the case today because the commercial short position…that’s the bullion banks…had built up again to a near-record short position which means that those big bullion banks, they need the price to go down to make a few bucks, make some money. They never seem to lose. The surprise weakness in the price of gold is nothing personal. It’s just how these banks make money. We’ve all in the gold community been waiting forever for maybe this dynamic to change, but so far it hasn’t so it never seems to; wash, rinse, repeat right? The bullion banks win, they win again. What in your mind could change this and is this a necessary condition to change for the price of gold to be unleashed so that people might take it more seriously?

Jim Rickards: It will change. Here’s the thing…Is there gold price manipulation going on? Absolutely; there’s no question about it and I talk about this in my book, The New Case For Gold. That’s not just an opinion. I spoke to a PhD statistician who works for one of the biggest hedge funds in the world…I can’t mention the name but it’s a household name, you would know the fund…this guy is a PhD statistician. He looked at COMEX opening prices and COMEX closing prices for a 10-year period and he was dumbfounded. He said "This is the most blatant case of manipulation I’ve ever seen." He said if you went into the aftermarket, bought after the close and sold before the opening every day, you would make risk-free profits. He said statistically that’s impossible unless there’s manipulation going on.

I spoke to Professor Rosa Abrantes-Metz at the New York University Stern School of Business. She is the leading expert on gold price manipulation. She actually testifies in some of these gold manipulation cases that are going on. She wrote a report reaching the same conclusions. It’s not just an opinion, it’s not just a deep, dark conspiracy theory. Here’s a PhD statistician and a prominent market expert lawyer, expert witness in litigation qualified by the courts, who independently reached the same conclusion.

Now, where is the manipulation coming from? Well, there are a number of suspects but my number one suspect is China. You say "Wait a second. China has 5,000 tons." Chris, they lie about it. They say officially they have 1,700 tons but it's very easy to establish that China probably has 5,000 tons or more. Again, that’s not a made up number. How do we know? Well, we look at Hong Kong imports. China lied, Hong Kong doesn’t. They actually have fairly reliable trade statistics. They’re showing about 700 or 800 tons a year of exports from Hong Kong to China. Let’s just say 800 tons a year there, and we have geological surveys that show China produces about 450 tons a year from the mining output and we know they have zero exports. Combine Hong Kong exports to China with Chinese indigenous mining output. You get a figure of about 1,200 or 1,300 tons a year times six years. That’s 9,000 tons right there. The only thing that’s not clear is how much of that is public, how much of that is private.

I just met recently…I was in Switzerland a couple of weeks ago and met with the head of the world’s largest gold refinery. His estimate is about 70% goes to private usage and about 30% to the government. Take the 9,000 tons, apply 30% and you get 3,000 tons plus the 1,000 they admit so you easily get to a figure of 4,000 or 5,000 tons. But here’s the problem; China has to get to 8,000 tons. If they want to look the US in the eye and have a big enough pile of poker chips the next time the major trading financial powers sit down to play poker and recut the deal and reform the international monetary system, they have to have as much gold as the US. They’re still out to buy another 3,000 or 4,000 tons. Ultimately, the price would go much higher, but if you were a buyer of 3,000 tons wouldn’t you want a low price? Of course you would. By the way, they are untouchable by the CFTC or the Justice Department. We can’t prosecute China. We can’t get access to them. They would laugh at us. So you’ve got a big whale out there buying thousands of tons through stealth interception, motivated to have a low price, which is untouchable by US regulatory authorities. There’s your culprit right there.

Chris Martenson: It’s been an absolute vast hoovering sound coming from the east, not just China in particular but India too. Thank you for that wonderful description by the way. I was talking with a gentleman who operates a refinery in Switzerland and he says "yeah, they’re still going three shifts, they’re taking physical gold out of London off the OTC market almost as fast as they can and converting it into kilo bars and sending it to China and there it goes." That’s been going on for a while. I’m on record as saying that can’t go on forever but I’m surprised at the durability of that particular process because it seems like it has to be sanctioned at some fairly high levels. I don’t think the west just doesn’t pay attention, and doesn’t care, and thousands of tons are leaving from the west heading east.

Jim Rickards: Oh no, you’re absolutely right. It is sanctioned. I spoke to—again…I want to be careful. Actually, this one is on the record. I spoke to Dr. Zhu Min. He is the number two guy at the IMF. He is Deputy Managing Director and reports to Madame Lagarde; an interesting figure. He was a PhD economist…actually, we went to the same school. Dr. Zhu was Deputy Governor of the People’s Bank of China, so basically a central banker for the communist party of China, and today he is number two guy at the International Monetary Fund. He’s got a foot in both camps; a foot in the Chinese camp and a foot in the western camp because the US more or less controls the IMF. There is nobody who knows more about the inner workings of the international monetary system than Zhu Min.

I spoke to him personally and I said "Zhu, I have a question for you. In 2010, China bought 1,000 tons of gold and the IMF sold 400 tons of gold. Who is right? You can’t both be right. You’ve got sellers and buyers. Somebody is on the wrong side of the trade." He kind of shrugged and said, “You know, China needs to do this.” He used a fascinating phrase. He said, “China needs to rebalance their reserves from credit reserves to real reserves.” I almost fell out of my chair because by "credit reserves" he meant treasury notes. That’s debt. Treasury note is debt. If you buy debt, you’re giving credit so those are credit reserves. This is the number two guy at the IMF referring to gold as a real reserve. This isn’t some fringe website. This isn’t Zero Hedge. This is the IMF. He says they need to rebalance their reserves from credit reserves to real reserves. So it is sanctioned at the highest levels of the IMF.

I had a similar discussion—this one I can’t mention the name, but I’ll just say one of the highest ranking officials in the US intelligence community, actually higher than the CIA because we’re talking about the Director of National Intelligence, which oversees the CIA. I can’t mention the name but I said, “You know what’s going on with China; they’re buying all this gold.” He had the facts; the facts aren’t secret. He kind of looked at me and he shrugged and he said, “Well, somebody has to own it.” As if it were a yard sale and I’m getting rid of my junk and you’re going to come buy some stuff at my yard sale.

So the senior officials know about it. They’re very relaxed about it. They think we need to do this. The question is why. Why does China need gold reserves? Obviously, you’re going to reset the monetary system on a gold basis. If you do that, back to Churchill 1925, you’ve got to get the price right. What is the implied, non-deflationary price of gold in the reset monetary system? The answer is, at the low end, $10,000 an ounce; at the high end, $50,000 an ounce. It’s coming. People say "I hear you Jim and I agree with your argument but I’ll wait until it starts to take off." Sorry, you’re not going to be able to get the gold. It will take off but you’ll be sitting there watching it on television going to $2,000, $3,000, $4,000 an ounce frantically calling your dealer saying "Get me some gold." You know what the dealer is going to say? "Sorry, sold out, back ordered. We called the mint; back ordered." You’re not going to be able to get it. That’s my point. Get it now, while you can, at a good entry point. Not 100%, get 10% of your assets, sit tight and you’ll be fine.

Chris Martenson: You keep saying get 10% of your assets in there. I feel like you’re kind of talking to an individual. Are you talking as well…would you recommend that every portfolio...are you including pensions, endowments, big money as well in that statement?

Jim Rickards: Here’s the thing Chris...by the way, do you know what percentage of US reserves—we talk about Chinese reserves and Russian reserves. Do you know what percentage of US reserves are in gold?

Chris Martenson: No, I don’t.

Jim Rickards: 70%. The US has 70% of its reserves in gold, and again, that’s publically available. Just go to the Treasury Department and look at the reserve report.

Chris Martenson: You’re saying the US should have more reserves then? [Laughs]

Jim Rickards: I’m just telling you the US is way over my 10% allocation. Look, I was…as I mentioned, I was in Switzerland and I did meet with the head of the world’s largest gold refinery but I was also there at a high-end investor conference. These were the largest institutional investors from around the world and when I arrived in Zurich, it was about a two-hour ride out into the Alps where the conference was. It was at a great spa in the middle of nowhere in the Alps, kind of an interesting Goldfinger type location. I shared a car from the airport to the spa with the head of the Government of Columbia—basically their Social Security fund. But unlike our Social Security fund, theirs is actually funded. They’ve got really assets in it as opposed to phony promises. This guy runs a 50 billion dollar portfolio for the benefit of the people of Columbia and I said to him, “How much gold do you have?” He said, “Zero.”

By the way, the institution allocations worldwide are about 1.5%. I think thanks to Kyle Bass, the University of Texas is bringing up the average a little bit but allocations are pitifully small. We can debate 10%, 30%, 50%, but the fact is the actual allocations are 1.5%. We’re talking tens of trillions of dollars. If they only move the needle from 1.5 to 3, forget 10, forget 5…3%, they would double the gold allocation. There’s not enough gold in the world at anywhere near these prices to fill that order. You don’t have to go to 10%. Just move the needle a little bit and you’re talking about a buying panic and skyrocketing prices. Again, my point to investors is... commodities traders and hedge funds have what they call the trend following technique. They say "I’m going to wait until it takes off and then I’m going to jump on. I’ll miss some of the early move but I’ll be along for the ride." That’s trend following, and fine, it works fine in liquid markets but this won’t be a liquid market. This will be panic buying. You won’t be able to get the gold.

Chris Martenson: I guess people can always say "I can own proxy gold then so I’ll buy gold futures, I’ll step in on one of the funds that are always liquid or something like that." They wouldn’t actually have access to gold. Why wouldn’t that work? Why couldn’t somebody say "I can always buy a gold future; trust me."

Jim Rickards: Okay, you admit to being a big of a geek, I’m definitely a geek. I was General Counsel to one of the world’s largest futures traders for a number of years and also worked in hedge funds and traded futures. I’ve actually read all the rulebooks of all the exchanges and guess what; there’s a rule that says they can change the rules. Everyone goes back to the Hunt Brothers 1980 and whines and says "The metals exchange changed the rules on the Hunt Brothers." There’s a rule that says they can change the rules.

Here’s what will happen. You hear some of the gold bugs say "Come on all you long futures traders. Stand up, take delivery. You’ll break the bank." No you won’t because what will happen is if a disproportionate number of long futures positions in gold put in notice to take physical delivery—and of course, there’s nowhere near enough gold in the COMEX warehouse to satisfy that. Everyone understands that. There’s not supposed to be.

First of all, they have a rule that says "we are not a source of supply." The only reason they allow physical delivery at all is to kind of keep people a little bit honest about the paper price and maintain an arbitrage. If you have a disproportionate number of requests for physical delivery, they will issue an order that says "No, you can’t take physical delivery. We’re going to—" what they call trade for liquidation only. That means you can take your long future, you can close it out against the short, you can roll it over to a future month in the calendar spread, but you can’t actually get the physical delivery.

They have a separate rule for what they call disorderly markets. When they have disorderly markets, they can do whatever they want. They can issue emergency orders. They’ll just say "Sorry, no delivery. Out of luck. Trade for liquidation. See you later."

Gold ETF is even worse. When you buy…I don’t want to pick on GLD; it’s the best known but there are other ETFs out there. You buy GLD, you don’t own gold. You own a share of stock that’s traded on the New York Stock Exchange. That stock is in a trust with authorized dealers and they go out…if you want to liquidate, all you can do is sell your share to somebody else. You can’t get the gold. The authorized dealers can but they run a nice arbitrage game kind of front running their own customers. Even there, when they get your money…and again, this is all in the fine print of the ETF offering document…they’ve got 28 days to go buy the physical gold. Well, when do you think they are going to get caught short? It’s not going to be when times are normal. It’s going to be when there’s a buying panic. They’re going to have your money and they’re going to say "Gold sky…better go buy some gold." Again, they’re not going to be able to get it and so they’re going to have to suspend redemptions and they are allowed to do that. They won’t steal your money. What they’ll do is send you a check for your profits as of the close of business yesterday and you’ll be sitting there watching TV saying "It’s up $200 an ounce today, what about that?" They’ll say "Sorry, you’re closed out as of COB yesterday. Here is your check. Nice knowing you."

Exactly when you want the price exposure is when you’re not going to be able to get it. This is something we learned the hard way—Long Term Capital Management. It’s called…my friend Myron Scholes won the Nobel Prize for the invention of the Black-Scholes Pricing Model…he called this "conditional correlation." It’s something that’s not normally or usually correlated but it becomes correlated upon the happening of a certain condition. In other words, the time you want your price exposure to gold is the time you’re not going to be able to get it unless you own physical.

Chris Martenson: That sounds like sort of a parallel inverse to derivatives. They work great as insurance until you actually need them as insurance.

Jim Rickards: Correct. It’s like you have fire insurance on your house and the day before the fire breaks out they cancel your policy. That’s actually not a joke. That’s exactly the way these paper gold contracts work. I’ve read them. Believe me; I’ve sat down and read the London Bullion Market Association standard gold purchase contracts for unallocated gold. It will hurt your head but I’ve read it and I’ve seen the force majeure clauses and the early termination clauses and what you have to go through if you want the physical gold. By the way, they can also close you out before you ever get the physical. I’ve read the offering documents on GLD, I’ve read the rule book of the COMEX. I’ve read all this stuff and again the devil is in the details but read the fine print. You’ll find out that you’ll never get your…not only will you never get your gold, you won’t even get the price exposure when you most want it.

Chris Martenson: That’s going to be a tragedy for a lot of folks and that’s one of the reasons that I’ve been actively encouraging people to get gold. Get physical gold in your hot little hands and if you have to have it in an account, it’s got to be a fully allocated account with your name on it. Again, read the rulebooks. Read very carefully what the conditions are because I think you’re supporting a statement that from your own direction, from a much deeper base of experience. One of my operating principles that I share with my listeners is when the going gets tough they’re going to change the rules.

Jim Rickards: That’s right and by the way Chris, all of this…everything we’re talking about…I love this conversation and I’m glad we are able to put this out there on your program but all of this is in my book, The New Case For Gold. The great thing for readers who buy the book, you don’t have to read the rulebook of the COMEX, you don’t have to read an LBMA contract. It’s all summarized in the book in plain English and I hope people enjoy it.

Chris Martenson: Me too. I’m really going to plug for it. I haven’t had a chance to read it yet; I’ve just downloaded it. I’m going to read it and I will be letting people know about it. I’m sure it's packed with great information. I got a lot out of Currency War. I know it’s going to be a fantastic read.

We’ve been talking with Jim Rickards, author of the newly released book, The New Case For Gold and Jim, thank you for a fantastic interview and great information.

Jim Rickards: Thank you, Chris.

About the guest

Jim Rickards

James G. Rickards is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is a writer and is a regular commentator on finance. Rickards advised clients of an impending financial collapse, of a decline in the dollar and a sharp rise in the price of gold, all years in advance. Rickards is the author of The New York Times bestseller Currency Wars, published in 2011.

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51 Comments

Brunel's picture
Brunel
Status: Bronze Member (Offline)
Joined: Jul 26 2015
Posts: 32
GSR

Chris, very interesting - thank you.  Does Jim have any thoughts on the consequences for the gold : silver ratio after a re-set of the gold price?  If we assume the GSR will revert to more traditional weighting, isn't there a more compelling case for hedging in silver?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
some additional questions

Lots of interesting stuff in there.  I have a few more questions I'd like to ask him!  [I'm guessing some answers are in the book]

1) Jim, have you read the prospectus for CEF, for PHYS, and PSLV as well?  What are the circumstances where an owner of these specific ETFs will end up not having exposure to the price of gold?  Same question for allocated gold at Perth Mint, Bullion Vault, and any other programs you know about.

2)  From my reading of history, revaluations of gold appear to have happened during crises, and (in the case of the US revaluation) there was at least three months of clear warning before it occurred.  In the other cases, there is usually a monetary crisis of some sort, accompanied by a flood of official denials regarding the solution, and then a revaluation takes place.

Is there a historical case where a revaluation occurred out of a clear blue sky?  This is apart from events including just barely sub ELE meteor strikes, power grid takedowns, EMP bursts, and nuclear attacks.

Apart from these catastrophic events, if you think a "clear blue sky" event is likely or even reasonably possible this time, please explain what is different about today.  And if possible, roughly assess the likelihood of a "complete surprise revaluation" versus the more standard case where some warning occurs first.

3) Related to (2), assuming a remonetization happens as the product of a crisis, can you describe a rough sequence of events and a rough timeline that would lead up to the remonetization?  Every crisis has a rough timeline because it is based on confidence, confidence timeline is driven roughly by people's emotions, which take time to change direction.

Oliveoilguy's picture
Oliveoilguy
Status: Platinum Member (Offline)
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Posts: 578
Rickards

I met Rickards at the 2011 Gata conference in London. Main reason I went was to talk with him. He is just a normal guy, no BS, very sincere and extremely brilliant. When Jim talks.....I listen.

I have always agreed with his directive to hold 10% in PMs.

JohnShippen's picture
JohnShippen
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Posts: 16
Silver is not a pure monetary

Silver is not a pure monetary asset. It will move with gold to some extent but in the scenario of a reset of the global monetary system you should own gold. 

Brunel's picture
Brunel
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Posts: 32
GSR

Thanks John - maybe I should have said "is there not a more compelling case to weight your PMs to favour silver".  At the moment my PMs are 40% gold and 60% silver.  With the GSR at circa 75, a fall to say 50 (I'm ignoring the commentators who propose it will go back to the historic level of 16!) and a re-set of gold to $10,000/oz provides a better hedge than 100% gold.  Hence my question - where does Jim think the GSR will go in his re-set scenario...

KennethPollinger's picture
KennethPollinger
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 654
More on Rickards

Many thanks Chris for having Jim.  GREAT stuff.

By the way I receive Strategic Intelligence Newsletter by Rickards and let me say this:

"OUTSTANDING."  For example in his March 2016 issue of 16 pages , you will find the following:

Satellite Wars: The Making of the Next Defense Boom.  Bottom line: BUY DigitalGlobe, Inc. (DGI: NYSE).

Nomi Prins: The Hidden Power Relationships Running the World (5 pages): Bottom line: watch closely:

ishares U.S.Healthcare Providers ETF (NYSE: IHF)  and  Huntington Ingalls (NYSE: HII)  and

Pro-Shares SHORT Financials (NYSE: SEF), an inverse ETF.          WITH REASONS WHY!!!

ALSO, "A Guide to Today's New Power Elite," by Jim (5 pages), with diagram of the top tier of the power elite today, headed by Robert Rubin--FASCINATING!!!!!!!   Nomi and Jim are preparing a full roster of the power elite that will run into the thousands of names!!

"The main object of the power elite is to ENHANCE THEIR WEALTH AND POWER at your expense."

"The best defense is to keep a close watch on how the players interact to advance their program."

 

ENJOY.  Ken

Jim H's picture
Jim H
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Joined: Jun 8 2009
Posts: 2385
GSR...

Excellent interview Chris!  I might quibble with Rickards as to the degree to which the US (vs. China) is complicit in the manipulation.. but in the end it doesn't change the outcome, nor the actions one should take.     

My personal take on GSR is that the "right" answer to this question is simply unknowable.  I have ended up not far from 50:50 on a dollar basis today... but I have always just bought both, without obsessing over the ratio.  I understand that the ratio is out of whack historically, and geologically.. but if industry comes crashing to a halt industrial demand for Silver will be reduced, and there is still a large component of demand that is industrial.  That being said, once the Gold runs out.. and I agree with Jim R (and not DaveFairtex whose comment earlier in this thread barely manages to contain his contempt for this particular concept) that it will run out VERY fast... Silver will come next.  There simply is not that much Silver for sale in the world, especially in today dollar terms... so Silver will most likely skyrocket in price.

But will governments come after Gold?  Will they not come after Silver?  Will they tax Gold profits but not Silver (since it's needed for industry as well and you don't want to hamstring industry)?  There are so many speculative rabbit holes to go down.. like I said, I have stores of both in and out of country, all outside of the banking system.  

Let's talk a little more about how fast Silver and Gold will run out.  Dave suggests he will somehow see this coming and be able to position himself.. maybe that will turn out to be true. But for most folks.. I think that will not be true.. I think that the physical availability will shut off within hours of an event/the event.  This will happen for a very simple reason;  The dealers will see the event before you and I do, and they will pull their Gold (and probably Silver too) from the shelves... they are going to stop taking orders.  I certainly would if I were them.  

This podcast from last Friday is very interesting in that the Doc and Eric Dubin discuss real time Silver demand.. and how when the price got smashed last week the SD Bullion business turned over 30K ounces in the first part of the day.  Listen for yourself;

     http://www.silverdoctors.com/precious-metals-market-podcast/blbs-trigger...

  • Insane Demand For Silver SD Bullion Burns Through 30,000 Silver Rounds Friday In Wake Of Jobs Report Silver Smash
  • Eric Explains Why Friday’s Action Demonstrates The 3rd Stage of the Secular Gold and Silver Bull Market is Underway
  • The Dollar is Reaching an Inflection Point – BIG Moves Ahead For the Greenback?

So the signals regarding PHYSICAL supply vs demand availability will be clear to the dealers before it's clear to you.  Maybe a few dealers will sell out their inventories.. and maybe you will get a few ounces of this or that.. at some price if you are watching in real time.  But now is the time to make sure you have what you think you need.  Buy the insurance now if you want insurance.      

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
buy insurance

Well Jim, we definitely agree.  If you don't have insurance, then buy it now if you want it.  Its probably not wise to try and time your first purchase.  Do the dollar cost average approach so you don't have to stress about it.

Let's talk a little more about how fast Silver and Gold will run out.  Dave suggests he will somehow see this coming and be able to position himself.. maybe that will turn out to be true. But for most folks.. I think that will not be true.. I think that the physical availability will shut off within hours of an event/the event...

I don't agree.  Or rather, I do agree, but with this modest change: physical availability at the COMEX PRICE will shut off within hours of the event.  Those gold dealers will probably cough it up in exchange for a massive premium, if you make them an offer they can't refuse.  But the whole concept of buying AFTER the event is not something I support.  For heaven's sake, thats why I asked what the warning signs of the event might be, so IF we see those warning signs, we can "top up the tanks" - perhaps boosting our concentration to higher than the 10% number Rickards talks about.

After all, that's what Chris is doing for us when he sends out alerts.  He sees a signpost of something potentially unpleasant, and he lets us know.  Doesn't this seem like a good idea?  Jim imagines I'm disdainful - nope, I'm just looking for a realistic assessment of what Rickards sees as those signposts, rather than the usual goldbug fearmongering of "it could happen AT ANY TIME!  OMG!"

I get the sense that Jim lives in a constant state of near panic...I do my best to avoid such a situation by trying to understand the actual risk involved, and then taking action that matches the level of risk I see.

KennethPollinger's picture
KennethPollinger
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 654
Wealth Insurance and/or Wealth Investment

Dave:

 "But the whole concept of buying AFTER the event is not something I support.  For heaven's sake, that's why I asked what the warning signs of the event might be, so IF we see those warning signs, we can "top up the tanks" - perhaps boosting our concentration to higher than the 10% number Rickards talks about."

 

Rickards recommends at least 10% of assets for insurance, but I wonder;  IF gold does what he says it will do, why not go for wealth INVESTMENT, that is, buy WAY MORE than 10% for the gains.  I believe that I saw where Mike Maloney and others (Chris too?) were confessing that their % was much, much higher??  How risky??  What are the odds?

Comments, anyone.  Ken

ian.k's picture
ian.k
Status: Bronze Member (Offline)
Joined: Sep 23 2008
Posts: 41
Rickards comments on Putin

While I agree with  Rickard's comments on gold it is disappointing to hear him joining in with the noticeable media campaign  to demonize the Russian President. Rickards has spoken in the past of his involvement in financial war gaming with the CIA in order to develop strategies so he obviously has friends and a vested interest in maintaining the support of these people. Defence experts in Russia would be remiss if they did not  engage in similar activities. In my opinion Putin appears to act in ways that avoid violence and  promote peaceful outcomes while it is the USA and NATO that are behaving aggressively are expansionist and foment violence in places such as Libya, Syria Afghanistan and Ukraine. Before you dismiss my opininion and say "Putin troll would you like to live in Russia", no I would not. I do not want to live under a totalitarian regime anywhere and that is where the west is headed under the current crop of world leaders , their media manipulation, and their short-sighted militaristic policies.

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 146
Gold Allocation

I second Ken's view. Given that Jim has just written a book called 'The New Case For Gold', I don't understand why he recommends only 10%. When asked on Twitter, he has responded "Deflation". But gold can also do well in this scenario, when gold has to be revalued higher to break the deflation (as was done in the 30's). I really just can't see any good fundamental arguments against a higher allocation in gold.

scribe's picture
scribe
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Posts: 9
Rickards is good value

JR is a very bright guy. You can hear that when he speaks, and he speaks with authority. He words were music to my ears, since I have over $1.5M in gold and silver.

locksmithuk's picture
locksmithuk
Status: Silver Member (Offline)
Joined: Dec 19 2011
Posts: 123
JohnShippen...
JohnShippen wrote:

Silver is not a pure monetary asset. It will move with gold to some extent but in the scenario of a reset of the global monetary system you should own gold. 

 

Why is gold better? What about the industrial role which silver plays? Why wouldn't silver's non-monetary qualities have an exponential impact on its price, independently of gold? What about the possibility of a two-tiered structure between silver's commodity price and its physical price? What about the fact that China and other nations - but China especially - are having a red hot go at making a large shift to alternative energies? (Some of which is solar, which of course uses silver in PV manufacturing.) What about the emergence of crypto-currencies as a real alternative to fiat, perhaps at the small expense of PM chances as monetary assets)? What happens to gold & silver respectively after The Great Reset (assuming it happens) i.e. why couldn't silver's value & price continue to rise while gold's stagnates?

 

Making a simplistic statement like "in the scenario of a reset of the global monetary system you should own gold" is a one-dimensional way of looking at cause-and-effect, and a one-dimensional assumption that what happened before will happen again. Nothing is as simple as it used to be, least of all our markets, our economies, our industries, our technologies.... and the entwinement of all of them.

CrLaan's picture
CrLaan
Status: Bronze Member (Offline)
Joined: Sep 5 2010
Posts: 54
Gold, buy as much of it as

Gold, buy as much of it as you understand of this PM. It's priced MTM on the sheets of the ECB. Why??

CrLaan's picture
CrLaan
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Posts: 54
skyfall's picture
skyfall
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Joined: Mar 18 2014
Posts: 32
Harry Dent's theory of falling gold prices

Guys, when you have time could you address Harry Dent's theory that gold prices will likely fall to new lows over the next couple of years?  I think Harry has a number of commonalities with you (believes a severe crisis is about to take place) but this is one area where you differ.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
remonetization

locksmith-

I think the silver vs gold debate depends on what outcome you envision.

If we have a remonetization, gold owners are suddenly handed a prize - a full and complete price support (Rickards thinks it will be $10,000).  Silver will probably follow to some degree, but it will be gold that wins the lottery, not silver.

If we imagine the standard goldbug hyperinflationary outcome, then silver wins because it could actually stand in as an actual currency, and silver tends to outperform gold during inflationary times.

Its all theory though.  A remonetization at 8x the current price - what will the effect be?    I wish I knew.  I don't have a model for how that would play out.  I mean all the goldbugs (and I include myself) would win, but somehow that seems like such a fairy tale ending that it makes me automatically suspicious.  Such things never happen to goldbugs.  :-)

Silver at the gold/silver ratio of 81.65:1 seems like a bargain.  Problem is, the bargain might get even better if we have a more severe deflationary period prior to any remonetization and/or reflation via helicopter money.  And if I wanted to flee with my wealth intact, I always imagine trying to swim the Rio Grande with $100,000 in silver...

I guess ultimately I come down on the side of gold because its more portable, and based on history as well as price action I've observed in recent years, would decline less during a deflation.  (The current gold/silver ratio is an artifact of "gold behaving better during deflation than silver").  Based on the evidence, I think gold is a more reliable insurance policy in all the various scenarios I can see.  But silver could end up being a huge winner - the current gold/silver ratio could well unwind in silver's favor under the right circumstances.

The way I see it: gold is insurance, and silver is a bet.  If you have enough money, do both.  :-)

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Penny551
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Goldbugs "winning"

I mean all the goldbugs (and I include myself) would win, but somehow that seems like such a fairy tale ending that it makes me automatically suspicious.  Such things never happen to goldbugs.  :-)                                    

Dave,

I'm pretty sure they would put some kind of windfall profit tax on any revaluation...perhaps in the 80%'ish range.  That's another reason why it's prudent to have some silver, miners, platinum and palladium as well.

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cmartenson
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Excellent point on Libya's gold

Thumbs up to this post!

That one psychopathic statement you quoted should be sufficient grounds to both remove someone from public life and all forms of power, and probably institutionalize them.  

I've always wondered where all that Libyan gold went...as well as the Iraqi gold.  A lot of mysterious disappearances there.

For example, Iraq was noted to have 29.8 tons of monetary gold as of August 2014, up from a reported 6 tons in 2003.

But we know that the US Army had intercepted over 50 tons just at one checkpoint which is the origin of these photos.

Just for scale, here's what one ton of gold looks like piled up:

So we can easily see that the amount of gold confiscated at this one checkpoint was quite a bit more than the reputed 6 tons in the Iraqi central bank.  The rumors and reports at the time were that this stash represented melted jewelry that Hussain had secured from Iraqis to help fight the Iranian war.

At any rate, you can be sure that the few pictures circulating are but a small part of the gold that was 'found' in Iraq.

To find out where the rest went I would suggest opening up all the tax haven files from all the lawyers outfits in the Camen, Jersey, and Panama locations, among others.

You might find some of this in there too:

Missing Iraq money may have been stolen, auditors say

Jun 2011 Reporting from Washington — After the U.S.-led invasion of Iraq in March 2003, the George W. Bush administration flooded the conquered country with so much cash to pay for reconstruction and other projects in the first year that a new unit of measurement was born.

Pentagon officials determined that one giant C-130 Hercules cargo plane could carry $2.4 billion in shrink-wrapped bricks of $100 bills. They sent an initial full planeload of cash, followed by 20 other flights to Iraq by May 2004 in a $12-billion haul that U.S. officials believe to be the biggest international cash airlift of all time.

This month, the Pentagon and the Iraqi government are finally closing the books on the program that handled all those Benjamins. But despite years of audits and investigations, U.S. Defense officials still cannot say what happened to $6.6 billion in cash — enough to run the Los Angeles Unified School District or the Chicago Public Schools for a year, among many other things.

For the first time, federal auditors are suggesting that some or all of the cash may have been stolen, not just mislaid in an accounting error. Stuart Bowen, special inspector general for Iraq reconstruction, an office created by Congress, said the missing $6.6 billion may be "the largest theft of funds in national history."

Heh heh. “May have been stolen.” Yeah. Possibly. Or maybe it’s just sitting there still on pallets at the Baghdad airport unnoticed against a back wall?

The final disposition of all that cash too would probably be revealed by scrutinizing all the off shore accounts out there. It didn’t just disappear…and $6.6 billion is a lot of money. Hard to hide all that. Plus, you can bet that the serial numbers of the cash was recorded before it was sent over (assuming they used fresh-run money, which would have made sense, unless the plan all along was to steal it).

At any rate, like the missing Libyan and Iraqi gold, all we ever get at this level is the report that the stuff is missing and then the stories just disappear into the memory hole. Never to be examined again.

 

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Jim H
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Harry Dent...

Let's just think about this contention that Gold should get caught up in some kind of deflationary downdraft along with other stuff.....

Recall that we are talking about the price of the one, universally accepted form of money that is both unprintable, and nobody else's liability;  Gold. 

Recall that we are talking about the price of this Gold money, as denominated in an infinitely (digitally) printable form of money;  Dollars and other debt-based fiat currencies.

Recall that we are in a time of, historically speaking, monetary insanity, where we have stopped being hindered by the boundary of zero interest rates (note NIRP) and we see central banks continuing to print money in order to support (paper) asset prices in a system where the native, organic buyers of these assets (like broke pension funds, and you and me) have dropped out of the market to a high degree due to lack of funds   (http://www.zerohedge.com/news/2016-04-05/usdjpy-spikes-reuters-story-boj...)   Even the FED continues to print.. in case you are not aware, they continue to re-invest the income from the maturing assets on the balance sheet into more bond buying.... the balance sheet has become a form of perpetual QE that underpins the US bond market.

So in the context of all this, where the Gold price today has been notably suppressed to the point where it's not far off the cost of actually extracting it from the ground.. in a time when most other assets are at or near all time highs and Gold is 40% off it's (recent) highs, we are to believe Harry Dent when he says that Gold (money) priced in these infinitely printable Dollars (money) is going to go down in value?  Does this make any sense at all?  Is there too much Gold, and too few dollars, or has the paper Gold system been abused to the point where some folks (like Harry Dent) may have lost perspective on how rare this form of money really is.  

If all the world's Gold was distributed equally to all the people in the world, each person would have how much Gold?  The answer is 0.7 ounces.    

When the system starts to break.. far from getting caught in a deflationary downdraft with other assets.. we will finally find out the true value of money without counterparty risk.    

       

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Remonetization vs. True Valuation...

Dave said,

If we have a remonetization, gold owners are suddenly handed a prize - a full and complete price support (Rickards thinks it will be $10,000)

I would argue that remonetization is the wrong word.  Gold does not have to be re-introduced in to the monetary system.. it is treated as money already if you look at what various central banks are doing, including BIS.  No, what Rickard's is talking about is simply the revaluation of Gold post the collapse of the paper pricing and derivitizing mechanism.  This requires no, "remonetization".. is simply requires the collapse of the paper leverage in the system.   

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fun with words

JimH-

Gold does not have to be re-introduced in to the monetary system.. it is treated as money already if you look at what various central banks are doing, including BIS

Central banks are treating gold as a reserve.  That's not the same as gold being money.

Once again I think we're having a disagreement about the world you want to be living in, and the world we are all actually living in.

For all of us non-central banks out there, gold is definitely not money.  It is not monetized.  Monetized has a specific definition: when something is monetized, that means it is legal tender.

Is gold legal tender right now?  No, it is not.  You may WANT it to be legal tender, but wanting doesn't make it so.  Gold is not good for all debts, public and private.  It must be first exchanged into dollars, just like a foreign currency or any other asset, and then those dollars - actual legal tender - are used to pay your debts.

Re-monetization of gold means assigning a fixed exchange rate between dollars and gold.  That act makes gold into legal tender, since there is a fixed exchange rate.  Until that happens, gold isn't money.

It may act like a reserve for central banks - but that's not the same as gold "being money" for us peons.

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gold during deflation

JimH-

Let's just think about this contention that Gold should get caught up in some kind of deflationary downdraft along with other stuff.....

I believe what happens to gold will depend largely on the size of the deflationary downdraft.  As Dent has said, most inflation comes because of an increase in private debt.  If private debt collapses (via defaults), then whatever reflationary acts the government attempts will have to overwhelm the private debt deflation for gold to do well.

If the government doesn't reflate enough, gold will likely go down when measured in units of legal tender (i.e. FRNs).

Of course, if you lose your entire bank deposit, gold at $800 may look pretty good by comparison, but a stack of $100s would have looked even better.

Again, I believe it will depend entirely on the scale of the reflation versus the size of the loss in bank deposits/private debt.

My projection relies on my belief that gold's current price (at least on the "monthly" timeframe) is determined by the market, and not by an artificial price suppression scheme.  On the monthly chart, the price evidence is clear and convincing: when debt growth and commodities deflate, gold drops in price.

But if in fact the central bankers have been setting the price (on the monthly chart) to whatever they like all along, then my projection will end up being wrong.

In some sense, this is where the rubber meets the road.  If the trend in gold really cannot be manipulated over the longer term, and if you act counter to this, you will suffer losses during deflation due to your imagining that once the central bankers lose control over the manipulation scheme, the price of gold will simply rocket higher regardless of the level of deflation we are hit with.

Flip side is true, of course.

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Eannao
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Gold During Deflation (i.e. now!)

We are currently in a commodity price deflation. A graph of gold vs commodities shows that gold is out-performing i.e. it has diverged from commodities. To me this indicates that gold is behaving less like a commodity (which Dent thinks it is) and more like real money. Dent mistakenly thinks gold is just another commodity.

Dave, you said that central banks are 'treating gold as a reserve'. How is that different to treating it as money? I know we are forced to walk around with paper currency, but gold is money in the truest sense.

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Eannao
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Gold as Legal Tender

I don't consider 'legal tender' to be the definition of money. I like the definition used by Mike Maloney, which includes the attribute of 'being a store of value'. Fiat currencies fall down here.

Further to Richard's idea of going on a personal gold standard, the gold-backed MasterCard from Goldmoney/BitGold is an interesting idea, in that it allows you to spend gold (just like legal tender!), through on-the-spot conversion.

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As usual Rickards provides an
As usual Rickards provides an insightful and interesting interview. But I always treat everything he says with a grain of salt. He was an insider and probably still is. You can't escape that, ever. He is saying what he is allowed to say, to foster a generally positive light on the western powers that be, if it wasn't for their darned bumbling and misguided hatred of gold. They may be shortsighted and ideological, but they aren't evil -- that's the story we're being given. 
 
Bangladesh should have had its savings in gold, then it would have been safe...  Lol. Don't think so. Then Bangladesh would become the new hotspot for terrorism which the western powers would then have to invade for the sake of our liberty. Oh and while we're there we'll take their gold too, otherwise it might be used to fund more terrorism! And least when they lost their paper money they avoided being invaded. 
 
And the US still has its 8000 tonnes because the law says the Treasury can't sell off its gold. Well I understand that the Treasury is allowed to swap gold and then lease that out... 
 
And it's all China's fault that the gold price is manipulated and we just can't do anything about it... So let me get this straight... the paper price is set in London and New York, and for years China has been in this market rigging prices and there's just nothing we can do about it despite all our fancy Microsoft super computers... Lol. It's all China; the US would NEVER be involved in something so nefarious, other than just allowing it to happen because we can't stop it...
 
Is the gold in Ft Knox still there? Who knows, I guess we'll find out soon enough. Maybe we'll be pleasantly surprised and find out China really does just want to equalize with 8000 tonnes each, US and China. I doubt it. 
 
He maintains that the short selling of the airlines before 9/11 was merely "signal amplification" or something to that effect, the result of some affiliates of the terrorists trying to make a few bucks in the markets, which was then piled upon by the hedge fund algos to massively short sell -- basically upholding the official story about 9/11 being perpetrated by Muslim terrorists. Lars Schall has shredded Rickards on that point in this video. 
 
 
I think Rickards is towing the line on issues that will become obvious after the financial supernova -- most obviously being a higher gold price. He will be vindicated when this happens as he rides off into the sunset as a hero. But those more sensitive issues TPTB want to keep hush hush forever? He tows the company line. 
 
Given that 9/11 was undoubtedly an inside job perpetrated by western leaders, and given the fact that western financial markets are completely artificially manipulated by the matrix of ESF tendrils, I find it a bit odd that Rickards criticizes Putin for having his hackers plugged in to western markets. If western powers can murder thousands of their own citizens and use this to take away our constitutional rights, then it isn't much of a step to assume they can and will also destroy the financial system when it's time. Why would they even need Putin? As a scapegoat. 
 
Undoubtedly when the plug is eventually pulled on the system and intentionally brought down by the western bankers, when the rubber band simply cannot be stretched any further and as much western middle class wealth has been stolen as is possible, Putin, and China likely as well, will be identified as the perpetrator. Maybe throw some Muslim terrorists in there too for a good story. Rickards will be praised for his gold predictions and the official version of 9/11 will be entrenched as truth in the history books because people will have bigger things to worry about than trying to dig up old Youtube Truther videos that will have been erased from the newly heavily censored internet. 
Uncletommy's picture
Uncletommy
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There is nothing in this world that can't be confiscated.

CM's pictures from post #19 are a telling reminder of what has been a standard feature of all governments over the centuries.  Confiscation can be direct, indirect, clandestine, overt or any other descriptor you choose. Consider bank fees, negative interest rates, QE programs or even pacifying legions as a few examples. If your thinking of hiding it in the garden, think again. They have just discovered an ancient Viking settlement in Canada by using infrared satellite images taken from space. Hmmm? The Lone Ranger used silver bullets. Now there's something I hadn't considered.

http://www.history.com/news/satellite-technology-suggests-new-viking-site-in-canada

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-Casey-
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Consolation

Every time I feel remorse that my laboriously planned and immaculately executed investment plan of acquiring barbarous relics and self medication is disappointing analyst expectations at least I can say I have more gold than our fine neighbor to the north.  Or at least I did before that tragic boating accident. 

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Gold IS legal tender

Dave,

In my state of Utah, gold and silver minted by the U.S. treasury is legal tender and the state is required to accept it for things like property taxes. I think it's also considered legal tender in the state of Arizona. Sure it's not an ideal form of payment and I would much rather trade in my dollars and hold on to my gold, but I just wanted to throw that out there. There are also a handful of states who have signed on to stop taxing the sale of precious metals in order to not discourage their purchase - Texas, Lousianana, Oklahoma, and Wyoming come to mind. Utah and the mountain west is a great place to live. 

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legal tender, money, balance sheets, and risk

lambertad,eanno-

Let me try and hit this from a risk and an accounting perspective.

So Utah requires that gold be accepted for things like property taxes.  That gets rid of the spread problem, which is good.  But are property taxes denominated in ounces or in dollars?  If in dollars, then how many ounces of gold must you save to meet your annual property tax liability?  If the answer is, "I can't say for sure", then gold isn't money - not from a balance sheet perspective.  You can't put "gold" in the "cash" bucket on your balance sheet.

Ultimately, if something is valued at a rate that fluctuates, it is not money, its just an asset.  It would be exactly the same from a risk standpoint as if Utah said they'd accept Canadian dollars (at the current exchange rate) for property taxes.  There would be no spread - but you could not know prior to the day of payment just how many canadian dollars you'd need to bring in order to meet that liability.

You guys may wish gold was money, you may like gold a whole lot, but from a risk analysis perspective, gold isn't money if there is a floating exchange rate.  It is just an asset that can be exchanged for money.

If gold is re-monetized, the exchange rate of gold vs money will no longer float, it will be fixed.  At that point, gold will once again be money.

Today, you are taking a risk position by saving money in gold - the risk that your liabilities denominated in local currency cannot be met if the price of the gold goes the wrong direction.  (Of course, there is always the chance that gold rises to $1400, and you can more than meet the tax liability; but if there is risk & reward, its not money, its an asset).

Gold sales people like to say "gold is the one true money" or some such.  It is just a sales pitch.  Gold is an asset, nothing more, for which they receive a premium when they sell it to you.   We may like its attributes, but "money" is not one of them, unless and until gold is re-monetized at a fixed exchange rate vs local currency, and we must recognize that we take a risk position whenever we acquire it.  By saying "gold is money" the gold sales people try and anesthetize us from examining the risk element.  Its the same thing a real estate agent says: "safe as houses", or "the price of houses has never gone down nationwide", to make the buyer forget about the chance the home price could actually drop.  Parroting a sales pitch is probably not in your interest if you want to think clearly about how everything works.

Ultimately, gold acts (from a balance sheet perspective) like a foreign currency.  I own gold, but not because I believe that "gold is money."  Gold is gold, and money is money.  They each act in different ways; I like them both for different reasons.

I feel the less we romanticize and parrot sales pitches, the more rational our decision making will be.

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Penny551
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CrLaan's picture
CrLaan
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freegold

in the end TA's will be wrong. Big banks do make you believe you're picture is right or in the right direction but the algorithms are constructing it I believe.  Gold will never be monitized; Gold will price the currency and not the other way. http://www.usagold.com/goldtrail/archives/goldtrailone.html some history and why I started accumulating fysical gold in 2008.

2012 long read: https://victorthecleaner.wordpress.com/2012/02/22/currency-wars-why-the-united-states-cannot-return-to-a-gold-standard/

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cmartenson
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But we're free to make it money

While the government has the power to declare what's money and what isn't, as Dave describes above, there's nothing preventing us from re-monetizing gold and silver.

You and I might decide that a quart of honey is equal to an ounce of silver and that's that.  Whether honey goes up or down in dollars won't matter to us.  Whether silver goes up or down in dollars won't matter to us.

I keep bees and know the work involved in getting that quart of honey.  You use honey and value its utility.  Once we agree that an ounce is a fair trade there's no reason for that price to ever fluctuate ever again unless we experience waaaaaay too much honey or waaaay too little silver in the future, and/or the opposite conditions.

But that's just the nature of how money and supply and demand are supposed to work.

 

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honey-silver fixed exchange rates

Chris-

If the honey-maker has dollar-denominated liabilities that he must pay every month or else some asset is lost, and all his honey production is exchanged for silver, then he is assuming price risk by agreeing to fix the honey-silver exchange rate.  Simply put, he is going naked long silver, and if price of silver drops substantially, he runs the risk of missing his debt payment denominated in dollars.

I also guess that the IRS would want its cut based on the US dollar/silver exchange rate at the time the transaction took place - and that's another dollar liability.  (it is tax time after all, so that's top of mind right now).

And of course there are dollar-denominated property taxes also.

Going naked long silver may be a good thing in the long run, but I'm just saying one should be conscious of the risk taken.  Cash money has a distinctly different risk profile than "silver money" and "gold money", especially when it relates to tax and debt liabilities, and uttering the words "gold is money" does not make these (exchange rate) risks go away.  It simply obscures the risks.

Its the old story: if your income is in Zloty and your home mortgage is in Swiss Francs, movements in the PLN/CHF currency pair is a very real risk to your ability to continue making your mortgage payments that is both completely out of your personal control, and may bite you in the butt at a most inconvenient time.

Of course if our honey seller has no dollar debt, and nobody reports the silver-honey exchange to the IRS, and this is just a "spare change" affair for everyone involved, then naturally there is no risk at all.

It suggests that getting out of debt brings a certain freedom of action, doesn't it?

 

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Eannao
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Gold vs Commodities

Hi Dave,

if as you say "On the monthly chart, the price evidence is clear and convincing: when debt growth and commodities deflate, gold drops in price", how do you explain the out-performance of gold vs commodities since 2008? 

(I would like to include a chart here, but inserting an image seems to be ridiculously difficult)

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thc0655
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Floating exchange rates

but from a risk analysis perspective, gold isn't money if there is a floating exchange rate. 

I'm no economist or mathematician, but I have noticed that the USDollar floats on the international foreign exchange markets in reference to other sovereign currencies.  It also floats on the "commodity" ""markets.""  But you might consider those special cases that don't apply to in-country transactions to which you were referring.  

Today, you are taking a risk position by saving money in gold - the risk that your liabilities denominated in local currency cannot be met if the price of the gold goes the wrong direction.  (Of course, there is always the chance that gold rises to $1400, and you can more than meet the tax liability; but if there is risk & reward, its not money, its an asset).

Yes, but I'm also taking a risk saving my labor/energy in dollars, or anything else.  Currently, I'm operating under the assumption that there is MORE risk in saving in USD's than in gold or silver, and that risk is rising every year.

Gold sales people like to say "gold is the one true money" or some such.  It is just a sales pitch.

Yes, but so is "Backed by the full faith and credit of the US government."  I hear them all as sales pitches and I have to do some due diligence and take some risks to decide where to put my savings.  I've gotten real shaky on government sales pitches.

In the last few decades in the US things have been so stable we've been lulled into complacency when it comes to money, savings, and survival in general.  "The next 20 years are going to be be very different than the last 20 years" and one way that will be evidenced is in volatility, unpredictability, broken contracts and promises, and so forth.  It's happened in other countries that currency undergoes swift declines in value, even to the point of retail shops having to change prices multiple times each day, post prices in multiple forms of payment (eg. national currency, acceptable foreign currencies, gold and silver) and rely on "black marketeers" outside the store or in the neighborhood to facilitate shoppers' purchases by swapping what the shoppers have to buy with for what is acceptable to the retail shop and/or government.  We are at a growing risk of those kinds of conditions in the OECD/West.

I like Mike Maloney's distinction: gold and silver are money; dollars (and Yen, Yuan, Pounds, Euros) are currency.  In fact, isn't that the US Constitution's view: only gold and silver can be money?  I also like thinkers like Ron Paul and Martin Armstrong who would agree, I think, that letting government or a private central bank decide what is money gives them tyrannical control over the people.  Even Rothschild, who was in favor of he and his cronies being able to decide what is money and be the issuer thereof said something like, "Give me control of a nation's money supply and I care not who makes the laws."  Like Ron Paul would say, "If the USDollar is so superior, what harm could come from allowing it to compete with other forms of 'money'?  Do away with legal tender laws and let the people and the markets decide what kind of payments and money they prefer and are willing to transact in."  Of course, that would be the death knell for any fiat currency, so it will not be allowed by our owners.

Maybe in the future we'll get a chance to try the "freegold" system, in which currency and gold (and silver) float against each other.  There have been many comments about "getting the price of gold right."  Rickards points out that Britain in 1925 went back on the gold standard but at a price that was drastically too low and led to a punishing deflation.  Personally, I wouldn't want to be the one charged with getting the price of gold "right" in a gold standard monetary system.  However, it would be much wiser and easier, it seems to me, if we could adjust the price (gold/currency ratio) from time to time instead of stitching ourselves into a straightjacket for all time.  Freegold!  This way the paper currency would always have gold/silver backing (and be Constitutional) but minor adjustments could be made to accomodate a growing (or shrinking) economy.  Pass a law stating that the gold/currency ratio could only be changed +/- 3% per year unless approved in a national referendum.  3% would normally be enough, but if an emergency arose (war, most likely) or some unexpected set of circumstances developed, let the leaders make their case to the people and let the people decide.  It's THEIR money after all.  And that would be a great way for the people to have the power to veto going to war: voting no on a big change in the gold/currency ratio would seriously restrict the funds available with which to wage a war.  And if "we the people" didn't like the changes in the gold/currency ratio, we could convert our paper currency into gold/silver, or exchange our gold/silver for paper currency.  There would only be a little wiggle room in the government or banks fiddling with the gold/currency ratio because the people would be free to move their savings from one to the other thereby negating any significant attempts by the government or banks to game the system.

Of course, all of that is pie in the sky because our owners won't allow any of these things because they benefit tremendously from the way things are, and because "we the people" aren't paying enough attention to demand what's in our own best interests.  However, a massive collapse of the current monetary system would provide a "teachable moment" and a brief window of opportunity to do something different and better...  Oh look! Here comes a massive collapse of the monetary system now.

"Welcome to the Hunger Games. And may the odds be ever in your favor."

 

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davefairtex
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gold's outperformance? its manipulation!

Eanno-

if as you say "On the monthly chart, the price evidence is clear and convincing: when debt growth and commodities deflate, gold drops in price", how do you explain the out-performance of gold vs commodities since 2008?

Oh gold's outperformance is clearly manipulation by the central bankers.  They're pumping prices higher to make their reserves climb in value.  :-)

Gold has seriously outperformed all the other commodities (the "index" chart below has all commodities set to "1" starting in 1960) over the longer haul.  At the same time, the rhythm of gold's price movements is still pretty clearly tied in with the rest of the commodity complex.  And if I were to toss a chart of China's growth in private debt as an overlay, the match is really strong.

 

You can see that different commodities peaked at different times, but its the rhythm of the movements that I'm talking about.

Now why has gold outperformed?  Crisis of confidence in government and central banking, perhaps?  It started (as you say) in 2008 and its just become worse over time.  Here's the gold-vs-metmin index.

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Posts: 3
Good News/Bad News/New AGW Paper

As I see it, most of Rickard's points should give us optimism.  Gold is honest and we can't have an honest economy unless we are on a gold standard. The Powers That Be will fight to make the New Fiat Money, SDRs work.  We will need to spread the word that this is not acceptable.  TPTB will demonize Russian and China, blaming them for the E-pocalyse.  War may be the diversion to our woes.  Off topic, Climate of Sophistry has been kind enough to post my paper: http://climateofsophistry.com/2016/04/06/the-hydro-flask-challenge-to-anthropogenic-climate-change/ . I suspect many of you will find it quite fascinating and revealing. Comments appreciated. I want this paper to receive hones peer review.  That's you.  Thanks. Dan.

brushhog's picture
brushhog
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Posts: 27
Dave is making alot of assumptions

Dave, I think your definition of money is the problem. Your assumption that money = a medium of exchange, and nothing else, is the point of contention. Historically the definition of money has included a medium of exchange, a measure of value, and a store of value. Fiat currency definitely does act as the most common medium of exchange but it is a lousy store of value. Likewise gold is not a very widely used medium of exchange but it's an excellent store of value. By the historical definition of money, gold is a form of money because it is a medium of exchange for some transactions, it is a measure of value, and a store of value.

We can argue all day which form of money is "better", but the fact is that gold is a form of money, whether it meets the criteria as well as other forms is a matter of opinion.

"Ultimately if something is valued at a rate that fluctuates, it is not money, it's just an asset"
 

You just described everything on the planet. By that definition, nothing is money, and certainly not fiat which fluctuates constantly against everything. Here's the dollar index, you'll note that it fluctuates daily against other currencies;
Marketwatch.com/investing/index/dxy

You'll also note that the value of the dollar, denominated in gold, silver, pork bellies, timber, oil, et,etc fluctuates by the minute.

The problem I see is that you are personally viewing the dollar as the standard by which you measure all else. Thats just a certain narrow personal view. If you are comparing the value of A against B and that rate is fluctuating then it is as true that A has gone down against B, as B has gone up against A. Which perspective you take depends on your personal view. If you personally want to believe that the dollar never moves, that it is the center of the economic solar system around which all other things revolve, then your above statement is true. Personally I think that view will be the source of alot of financial pain for alot of people in the future.

 

Quercus bicolor's picture
Quercus bicolor
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Posts: 470
Dan, I have responded to your

Dan,

I have responded to your comment on the climate thread.

DurangoDan wrote:

As I see it, most of Rickard's points should give us optimism.  Gold is honest and we can't have an honest economy unless we are on a gold standard. The Powers That Be will fight to make the New Fiat Money, SDRs work.  We will need to spread the word that this is not acceptable.  TPTB will demonize Russian and China, blaming them for the E-pocalyse.  War may be the diversion to our woes.  Off topic, Climate of Sophistry has been kind enough to post my paper: http://climateofsophistry.com/2016/04/06/the-hydro-flask-challenge-to-anthropogenic-climate-change/ . I suspect many of you will find it quite fascinating and revealing. Comments appreciated. I want this paper to receive hones peer review.  That's you.  Thanks. Dan.

CrLaan's picture
CrLaan
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Posts: 54
goldstandard

Kitco Q: are we already on a goldstandard? 

 

http://www.kitco.com/news/video/show/Kitco-News/1233/2016-04-07/How-Badl...

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Mark_BC
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Posts: 481
brushhog wrote: Dave, I think
brushhog wrote:

Dave, I think your definition of money is the problem. Your assumption that money = a medium of exchange, and nothing else, is the point of contention. Historically the definition of money has included a medium of exchange, a measure of value, and a store of value. Fiat currency definitely does act as the most common medium of exchange but it is a lousy store of value. Likewise gold is not a very widely used medium of exchange but it's an excellent store of value. By the historical definition of money, gold is a form of money because it is a medium of exchange for some transactions, it is a measure of value, and a store of value.

We can argue all day which form of money is "better", but the fact is that gold is a form of money, whether it meets the criteria as well as other forms is a matter of opinion.

"Ultimately if something is valued at a rate that fluctuates, it is not money, it's just an asset"
 

You just described everything on the planet. By that definition, nothing is money, and certainly not fiat which fluctuates constantly against everything. Here's the dollar index, you'll note that it fluctuates daily against other currencies;
Marketwatch.com/investing/index/dxy

You'll also note that the value of the dollar, denominated in gold, silver, pork bellies, timber, oil, et,etc fluctuates by the minute.

The problem I see is that you are personally viewing the dollar as the standard by which you measure all else. Thats just a certain narrow personal view. If you are comparing the value of A against B and that rate is fluctuating then it is as true that A has gone down against B, as B has gone up against A. Which perspective you take depends on your personal view. If you personally want to believe that the dollar never moves, that it is the center of the economic solar system around which all other things revolve, then your above statement is true. Personally I think that view will be the source of alot of financial pain for alot of people in the future.

I agree. I've never felt that the classic definition of money explains much for people like on this site who try to relate the financial world to the real world.
 
"Store of value". What is value? A measure of how much people like things? How do we find that out? Economists have invented "utils" as a way of quantifying this which says nothing about the underlying processes themselves providing value but merely how much people like things. You can't get very far with that approach and IMO it isn't saying much more than, "people will pay more for things they like more". Sure, great, thanks.
 
"Medium of exchange". Exchange of what? Goods and services? What are those? Are goods "physical things" and services "transform physical things"? Still doesn't explain much about what they are.
 
"Unit of mesaure". Measuring what? Relative value? We're back to defining value.
 
These definitions all bring in more ambiguous terms than the word "money" itself.
 
The Crash Course and others have gone further by saying that money is a claim on human labour. I generally agree but I'd take it further and ask what it is about human labour that makes it valuable, and what supports it. Ultimately virtually everything in the economy comes from biological matter (97% of our energy + many of the physical resources we use. Those minerals from the ground which aren't biological in origin were all processed using biological energy) which is harvested and transformed by human labour. You could say that technology does a lot of that transformation these days, not labour, but ultimately human labour built and controls technology. The fact that we have so much more technology now in relation to human labour just means that the transformational power of labour has risen dramatically.
 
It follows from this that money is actually a claim on ecological production (complex carbon molecules), and specifically how labour and the technology of the time transform production into things that we humans find help us satisfy our desires (drugs that make us high are just complex cabon molecules, pretty paint on our cars is just ccm's, our smartphones are made from plastic which is ccm's, plus metal and glass which were transformed in factories by burning ccm's), live our lives (give us food, heat, clothes, energy to drive -- all from ccm's), and procreate. The more effective something is at providing that, the more value we place on it and the more money it's worth.
 
From this perspective, this definition of money is more concrete and eliminates a lot of the fuzzy terms above that can be interpreted in many different ways and are difficult to relate to the real world economy.
 
But how do we find some kind of immutable scale to measure that ecological production and its relative "utility", in the form of money? As you point out, everything is relative and moves in relation to each other. Ultimately you could try to boil money down to a claim on a kW-hr of energy and compare everything to that. But even the forms of energy can fluctuate widely and in relation to each other. Currently oil, gas and coal are down. Food is up. Electricity is about the same. Human labour is a fairly constant measure since it always takes the same amount of energy to power a person for an hour, from one decade to the next. But the amount of ecological transformation that an hour of human labour can achieve is not constant over time due to the levering power of technology which has gone up so much in the last century.
 
What does it mean that a unit of oil energy has gone down in price 6 fold over the last few years in relation to an hour of human labour? The energy driving the economy hasn't gone up 6 fold in the last few years so it's hard to call oil a bedrock to which everything else can be measured. Maybe food would be better? It seems to be about the most solid and direct measure you could have tracking supply and demand for 7 billion people. If food production or availability go out of whack even 1% you're going to know about it.
 
But the key difference between money and the real things of value like energy described above is that money is a token and doesn't actually do anything other than represent value, or wealth, which of course leads gold-haters to point out that you can't eat gold. But you can't eat dollars either. Given that we are always going to have money which is just tokens representing claims on ecological production of some sort, how can we have a rock-solid scale on which to base money? I don't know. It would seem to me that in a freegold scenario the relative value of gold could fluctuate over time given the rate of mining production in relation to economic growth. Currently gold production is 1% of the total gold held, every year. That's significant. If gold goes up in price 5 fold when freed, and results in mining production doubling over the next few years, then that means the gold supply out there is going to go up 2% per year instead of 1%. Over a couple decades that could have a major effect on the relative value of gold, unless of course there are central governments managing the supply of gold to satisfy what they deem to be a good rate of inflation or lack thereof. But then we aren't in freegold anymore, and it all comes back to how the economists calculate their inflation statistics.
Mark_BC's picture
Mark_BC
Status: Gold Member (Offline)
Joined: Apr 30 2010
Posts: 481
I guess I didn't get to my

I guess I didn't get to my final point above. Since money is a token of potential ownership of real world things of value, or a claim on ecological production, then in order to fulfill its role according to its three official definitions (store of value, unit of measure, medium of exchange), it should be a concentrated token. 

This is what the bankers have always historically tried to control, to keep the average person using their paper as that token. It's also why they hate gold because they can't control the ultimate amount of gold out there. Bankers do everything they can to close the loopholes to prevent people from storing their tokens of wealth in forms other that paper. They manipulate the price of gold to scare people out, they flood us with anti-gold propaganda. They may even use the heavy hand if the law to confiscate it. 

Ultimately what else is there to store one's wealth in that isn't cumbersome like an acre of land or ton of copper, that will provide respite from the bankers' paper inflation? I think there are a few other options. Platinum and palladium come to mind. I don't see why gemstones wouldn't work. Jewellery. Also consider pearls. I don't understand why a few shoeboxes full of high quality pearls and sapphires etc isn't a good way to store wealth outside of the system. Totally off the radar, you can be certain that pearls won't be cinfisvated. And fairly portable too. They will hold up to inflation. If I had the money to do it over again id have a significant portion if our tokens in gemstones and pearls. 

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davefairtex
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Posts: 5408
my narrow personal view

brushhog-

The problem I see is that you are personally viewing the dollar as the standard by which you measure all else. Thats just a certain narrow personal view...

Well yes, my narrow personal view, and anyone else who happens to have regular dollar liabilities that they must meet.   If you have dollar-denominated debt, you need dollars to service this debt.  Likewise, if you have an annual US dollar tax liability (property, income, etc) only dollars can meet these liabilities.

So for anyone with such dollar liabilities, they must also have this same "narrow personal view" - somehow being able to periodically collect enough dollars to handle their liabilities, or suffer the consequences.

Not gold bars, not silver coins - "narrow personal view" dollars.  Whether you like them or not, if you have a Fistful of Dollars, you are guaranteed to be able to meet your dollar-denominated obligations.  If you have a handful of gold bars, maybe you can, and maybe you can't - it depends entirely on today's price.

Do you understand these two distinct situations?  In one, you have certainty.  In the other, you do not.

I'm not making claims about stores of values, or units of accounts, or any of the usual confusing monetary theory claptrap.  Its just about assessing the risk of you being able to meet your dollar-denominated liabilities with the resources you have lying around.  Dollars = "known ability to meet USD liabilities".  Everything else = "depends on current price."

I own gold.  I do not know with certainty if I can use the gold to meet my USD liabilities.  That's why I have USD lying around too.  To pay my US taxes, USD is a zero risk position.  Gold is not.

This distinction won't matter if we have an inflationary outcome.  It is vastly more important if we have a deflationary crash.  After some time passes, debtors will be selling every asset class they have in order to meet their debt payments.

Make sense?

newsbuoy's picture
newsbuoy
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Posts: 252
Money (makes de vorlt go round)

Apples valued by the price of oranges. Fruitarian revolution!!

Money valued by weight: an oz. (of gold) is/will always be an oz. (of gold)

Money valued by fiat: a USD will always be what the FED/IMF/Rothschild's/Trump (whatever) says it is.

Is this logic correct?

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ecb
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Posts: 18
zero risk?

From my limited perspective, I do not see the dollar as a zero risk. Perhaps if you are paying taxes today (with dollars of course), their value is known, but so is gold. Looking out long is another story, I'll go with gold.

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-Casey-
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Posts: 74
Part way through the book

It is an enjoyable read thus far.  Rickards dismantles the rationale and structure of GLD as completely as I've seen anyone do it but my nagging question is why someone like a Druckenmiller, who evidently sees the case for gold since it is his largest long position, buy $300,000,000 worth of GLD as his way to gain exposure to gold.  I understand the big money gets treated differently under the governing documents and can perhaps redeem for physical but that is not exactly without counterparty risk.  If you are persuaded by the case for gold why not cut out the middleman and just buy the shiny stuff?  I don't get it.

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anthonymaw
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Greater Fools Playing Musical Chairs (Again)

All that yada yada yada about fiat currency debasement  and skyrocketing public and private debts has been in-and-out of the media before.  At the end of the day nobody buys that bullshit because the smart speculators bailed and left all the goldbug true believers screwed.  Gold, next to silver, just happens to be one of the most screwed around commodities in the Capitalist markets.  We witnessed with the dumping of the ETF trade in 2013 and the wholesale f-ing up of goldbug's portfolios that gold fell down to it's intrinsic US$1100 which is the nominal cost of mining and refining production.  All those gold naysayers calling for $700 or $600 or whatever were dead wrong but it put the willies into the spines of even the most die-hard gold bug.  The recent gold rally is just speculator trade piling in again ready to screw another round of investors.  They will yet-again pump the news all over again but this time with the Brexit twist or someother headline grabbing dis-information.  Beware.

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davefairtex
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Posts: 5408
no, not correct

cello55-

Money valued by fiat: a USD will always be what the FED/IMF/Rothschild's/Trump (whatever) says it is.

No that's not right.  Anyone who owns a home, and owes money on it, can "weigh" the value of a dollar to them by the amount of dollars it will take to pay off their home debt.  If you have a $500k house, and a 100% loan, a dollar is worth 1/500,000th of a house.

Same thing for anyone who owes taxes to the US government.

If "the Rothschilds" decide they want to massively devalue the dollar, that gives everyone with a mortgage an instant "free house."

In fact, anyone who owns debt is instantly destroyed - and all debtors win a prize - if "the Rothchilds" devalue the buck substantially.

Do we imagine the banks (who own debt) and the elites (who also own debt) will suddenly decide to devalue the buck?  Seriously?  You really think they'd let the little people win?

System can tolerate modest inflation, as long as rates adjust accordingly.  Elites can keep us in debt slavery without losing their principal.  But debt slavery vanishes after a massive devaluation.

Sound money, without some form of debt forgiveness, benefits exactly one group: those who own the debt.

You might ask - is that you?

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CrLaan
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Posts: 54
libya gold

http://www.foreignpolicyjournal.com/2016/01/06/new-hillary-emails-reveal...

@LukeLapi: ‭@JamesGRickards‬ isn't lying when he says its about #Gold , New emails show real reason #Libya was bombarded - GOLD! http://www.foreignpolicyjournal.com/2016/01/06/new-hillary-emails-reveal...

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