As gold was being driven below $1500 earlier today, I received an email about an article titled “Gold’s irreversible trends driving it to $10,000.” The bullishness is based on the world’s central banks continuing to create money at rates never before seen, with some Establishment darlings (Paul Krugman, for example) calling for still more money creation.
If gold were trading below $1500 because of market forces, the action would suggest that all the world’s financial woes have been solved. No need for discussion here, they have not. So, why the drubbing?
Antony Sutton’s The War on Gold details governments dislike for gold and why they prefer “currencies” to gold as money. William Buckler, the Captain of The Privateer, in a recent issue wrote about governments preferences for currencies as money and not gold.
Basically, governments can (nowadays in conjunction with central banks) create currencies at will, whereas gold has be mined at great cost. Or, it has to taken from the people. It is much easier to create currencies than to extract gold from people. People seem accept that governments need a certain amount of funding and are willing to let go of a certain amount but balk when that amount get onerous.
Sutton covered the now almost forgotten London Gold Pool when the US and a few European counties in the last 1960s joined together to keep down the price of gold, which on the free market above the official $35 price because of inflation brought on by Lyndon Johnson’s “guns and butter” policies during the Vietnam War.
Governments do not like for the price of gold to rise because rising gold prices reveal flaws in government monetary policy. In the 1960s, it was Johnson’s “guns and butter.” Historically, when counties have gone to war, such as in WWII, people were asked to sacrifice for the war effort, but Lyndon Johnson gave American both “guns and butter.”
To conceal Johnson’s flawed policies, the London Gold Pool was established to suppress the price of gold. The effort, obviously, failed. But, that doesn’t keep governments from trying.
Today, the bullion houses are the Establishment’s proxies. They have carte blanche to take whatever positions they want in the gold and silver markets, with the goal of not letting prices “get out of hand.” The bullion houses get to keep whatever profits they make and are possibly indemnified by the US Treasury.
Meanwhile, those of us who think that we know what is going on have to suffer setbacks, such as gold dropping $400 from it 2011 $1900 high (a 21% decline). Basically, we have to decide: Do we ride out the downside moves or do we capitulate and say that the bullion banks are in control? Personally, I’m betting on gold and silver. I see nothing on the horizon that suggests the world’s financial woes are improving.
I tend to agree with you. The more money that they print the more the value will decline in the future. The interest rates have to rise. They can’t keep them at zero percent. Talk about a bubble.
This has all happened before and we know how it goes. Sooner or later, someone will ask, in a very loud voice, to cash out all their bank accounts, and the run will be on. Then, bullion will rise a great deal. It’s what the government does at that point that gets interesting (i.e. do they try to get all the gold from citizens or not…)
I personally like the fact gold and silver are on sale now. It gives me a chance to buy more before the price goes up again. When the public hates something like precious metals, it’s time to buy. When they start liking precious metals, it’s time to sell them some and buy more when the price goes down again.
“Personally, I’m betting on gold and silver. I see nothing on the horizon that suggests the world’s financial woes are improving.”
Gold 2 years later dropped another $400. So it indeed appears that you were wrong on that mark. Price of gold and silver appear to have nothing to do with financial woes as they have gotten worse but price of gold/silver has tanked further.
Ha ha. But then, as the great Yogi Berra is said to have remarked, “It’s tough to make predictions, especially about the future.”