All That Glitters: Why I’m Not Investing In Gold

All That Glitters: Why I’m Not Investing In Gold

By J.D. ROTH| Published: 28 April 2020

Over the past month, I've read a lot of articles about the virtues of investing in gold. Especially in Facebook forums, there's a lot of talk about how gold makes a great long-term investment. (Fortunately, I haven't seen any comments like this in the GRS community on Facebook.)

Whenever the economy gets turbulent, the goldbugs come out in force. They shout from the hilltops that the world is doomed and that the only safe haven is gold. And I'll admit, their arguments can sound pretty convincing.

When I started this site in 2006, I felt unqualified to comment on gold. I hadn't read much about it, and I didn't feel educated enough to offer an opinion. That's changed.

Now, after fifteen years of reading and writing about money, I know enough about economic history and I know enough about gold as an investment to have what I believe is a (somewhat) educated response to this subject. And that response is this: Gold makes a lousy long-term investment.

Today, let's have a discussion about the pros and cons of investing in gold while using my own opinion as a starting point. (And note that this article contains my opinion. It's backed up by some facts, but it's still my opinion. Don't take everything that follows as gospel.)

Put simply: I'm not a fan of precious metals. I have 0% of my investment dollars in gold and silver, and I expect that to hold true for the foreseeable future. It's my opinion that gold is a bad investment right now. Let me explain my reasoning.

Before we dive into the meat of this article, it's important to understand that I'm not an economist, and I'm not a gold expert. But for the past fifteen years, I've made a career out of personal finance, and gold is one tiny part of that subject. The core of this article was originally published here on 10 May 2011, the last time the goldbugs were out in force. This update contains substantial revisions. Also, please note that many of the comments on this article are from its original publication in 2011.

The Gold Standard

Many folks dislike our current monetary system because it's based on fiat currency. That is, a dollar is worth an arbitrary amount because the government says so. It's not based on anything concrete. Plus, the government can add and remove cash from the money supply at will, which affects the dollar's value.

U.S. dollars — and other world currencies — were once backed by gold. Under the Gold Standard, you could ask a bank to convert your paper money to gold at the legal rate (whatever that might be). In order for the government to print more money, they had to have the gold to back it.

Proponents of the “Gold Standard” argue that since the U.S. abandoned it in 1933, the dollar is more susceptible to inflation. That's true. But the Gold Standard didn't eliminate inflation, and it created other problems besides.

I am not an economist, and I struggle when it comes to economic theory, but my understanding is that much of the run-up to and aftermath of the Great Depression was thought to have been caused by the Gold Standard. Under the Gold Standard, currencies were much more susceptible to speculation and devaluation, which could lead to runs on the banks. That's why the U.S. abandoned it. And it wasn't only the United States that did so. Not a single country in the world uses the Gold Standard anymore. Until recently, most economists and politicians considered it a deserved relic.

Note: Though it's long, this 2004 speech from Ben Bernanke about money, gold, and the Great Depression is interesting, and explains why we're not likely to ever return to a Gold Standard in the U.S.

To continue reading, please go to the original article here:

https://www.getrichslowly.org/investing-in-gold/

Why The Price Of Silver Could Skyrocket

Why The Price Of Silver Could Skyrocket

Notes From The Field By Simon Black 

April 13, 2020  Bahia Beach, Puerto Rico

By the mid-6th century BC, Darius the Great was ‘King of Kings’, ruling over the vast Achaemenid Empire.

By that time, gold and silver had already been in use by earlier civilizations for thousands of years.

There are cuneiform tablets that are nearly 4,000 years old from ancient Sumeria which record commercial transactions made in gold and silver.

And subsequent civilizations-- the Babylonians, Egyptians, Lydians, etc. all used gold or silver in commerce.

But Darius had a unique idea.

He borrowed the idea of minting gold and silver coins from the Lydians… but then established a fixed exchange rate between the two metals.

Darius decreed that one gold “daric” was worth 13.5 silver coins-- one of the first examples in history of a fixed, bimetallic standard.

His idea caught on. And for thousands of year afterward, later civilizations established a fixed gold/silver ratio.

In ancient Greece during the age of Pericles, gold was valued at 14x silver. In ancient Rome, Julius Caesar valued gold at 12x silver.

It remained this way for centuries.

Even in the earliest days of the United States, eighteen centuries after Caesar, The Coinage Act of 1792 established a ratio of 15:1.

(According to the law, one US dollar is supposed to be 24.1 grams of silver, or 1.6 grams of gold. So those pieces of paper in your wallet are not dollars-- they are technically “Federal Reserve Notes”.)

In modern times there is no longer a fixed ratio between gold and silver, though its long-term average over the last several decades has been between 50:1 and 80:1.

This is a lot higher than in ancient times… but the circumstances are obviously different.

Today, gold is still widely used as a reserve by central banks and governments around the world. And investors still buy gold as a hedge against inflation and uncertainty.

Silver, on the other hand, has countless industrial applications; it’s a critical component in everything from mobile phones to automobiles to solar panels.

Like gold, silver is also a hedge against inflation and uncertainty.

But silver’s demand fundamentals are more heavily influenced by overall economic health. If the economy is in recession, silver prices can fall because there’s less demand from industry.

Gold, on the other hand, doesn’t follow that pattern. In 5 out of the last 6 recessions, in fact, gold has increased in price.

That’s why recessions, and extreme turmoil, can lead to a massive spike in the gold/silver ratio. Gold goes up, and silver stays flat (or falls).

Just prior to World War II as Hitler launched his invasion of Poland, the ratio spiked to 98:1.

In 1991 as the first Gulf War began, the ratio again reached 100:1.

Today we’re back again in that territory; as of this morning, the ratio is 110:1, and it’s been as high as 120 or more in recent weeks.

Now, there are very few things about this pandemic that we can be certain about.

Things that were unthinkable even a month ago are now part of our daily lives. And so as I’ve written over and over again, EVERY possible scenario is on the table right now.

But one thing that does seem very clear is that central banks around the world are going to print an extraordinary amount of money.

Many of them already have.

The Federal Reserve in the US, for example, has already expanded its balance sheet to SIX TRILLION DOLLARS.

That’s a nearly 50% increase from last month. And they’re just getting started.

Why does something so mundane as a central bank balance sheet even matter?

Because a rising balance sheet means they’re conjuring trillions of dollars out of thin air to bail everyone out.

This is the way they solve problems: they print money and debase the currency, something that policymakers have been doing for thousands of years.

But you can only get away with doing that a limited number of times before the currency starts to lose value.

And whenever that happens, gold and silver tend to rise as a result.

There’s a lot we don’t know about this pandemic.

We don’t know how long it will last, how much destruction it will cause, or what the world will look like once this is over.

But we can be pretty sure that central banks are going to print a ridiculous amount of money, and that governments will go into a ridiculous amount of debt.

They’ve told us this much. And they’ve already started to do it. So this seems pretty obvious.

The price of gold is up significantly over the last several months, and since the start of this crisis.

But the price of silver has declined… leading to a record-high gold/silver ratio.

This ratio may stay elevated for a while, or even go higher.

But in the past, the ratio has always returned to more traditional levels. Always. Even when the world was facing Adolf Hitler or the Great Depression.

So it stands to reason that, if they keep printing money (which they already are), and the ratio eventually returns to its historical range, the price of silver could really skyrocket.

We’ll spend some time this week talking about some interesting ways to take advantage of this.

To your freedom & prosperity, Simon Black, Founder, SovereignMan.com

https://www.sovereignman.com/trends/why-the-price-of-silver-could-skyrocket-27650/

The Most Important Insurance We Never Buy

The Most Important Insurance We Never Buy

By Len Penzo

It’s ironic, but bankers and fiscally irresponsible governments despise gold and silver. Why? Because precious metals demand accountability, that’s why.

In short, gold-backed currencies force responsible governments to live within their means.

That is precisely why, back in 1971, Richard Nixon was forced to nullify the Bretton Woods agreement, which was signed at the end of World War II, and permanently close the gold window.

As you might expect, Nixon felt he had no choice. The US had been living well beyond its means for more than a decade, printing lots of federal reserve notes to pay for expensive endeavors the country couldn’t truly afford, like the Vietnam War and LBJ’s so-called “War on Poverty.”

That, in turn, led to an increasingly devalued US dollar. So, in order to preserve their wealth, many of the world’s central banks — led by West Germany, France and Switzerland — began redeeming their rapidly depreciating US dollars for the gold stored in Fort Knox; so much so that by the time 1971 rolled around, America had only half the gold reserves it did in 1960.

In fact, it’s been said that the gold outflow was so rapid, if it continued, America’s gold reserves would have been completely consumed within a few more years.

Of course, instead of closing the gold window and abandoning Bretton Woods, the US could have simply scaled back its spending — but that’s what happens when critical financial decisions are left to profligate politicians and their complicit central bankers.

Since abandoning its ties to gold in 1971, America has greatly expanded the size of the federal government, destroying the dollar’s utility as a store of value in the process — so much so that it takes $615 today to buy the same basket of goods and services that $100 would fetch in 1971.

The bad news is, savers, retirees and other folks on fixed incomes depend on their currency to hold its value; and if currencies depreciate too quickly, it leads to lower living standards — for almost everyone.

Over the past decade, the Fed’s printing presses have conjured more than $4 trillion in new money out of thin air — and that doesn’t bode well for the US dollar’s value and continued confidence in its future.

Unlike paper money, precious metals can’t be created out of thin air, and that makes them proven instruments of wealth protection; it’s why some people choose to keep a portion of their savings in gold and silver.

How Secure Are They?

To continue reading, please go to the original article here:

https://lenpenzo.com/blog/id22332-economic-collapse-101-the-most-important-insurance-we-never-buy-2.html

If You Think It’s Too Late, Think Again. There’s Still Time

If You Think It’s Too Late, Think Again. There’s Still Time

Notes From The Field By Simon Black 

March 23, 2020  Bali, Indonesia

[Editor’s note: This letter was written by Tim Staermose, Sovereign Man’s Chief Investment Strategist and Editor of the 4th Pillar newsletter.]

I’m writing from my remote rural villa in Southern Bali. I made a mad dash to get back here from Hong Kong before the borders effectively shut to visitors, and airlines cancelled virtually all flights.

Nearly a quarter of a million tourists and other temporary visitors have left Bali in February and March, and no one has come in to replace them.

Up to 80% of the island’s economy relies directly or indirectly on the tourist trade. So, it’s going to be very hard for most people here to make ends meet for as long this coronavirus pandemic, and the extreme government measures instituted to try and deal with it, last.

My family and I are fine, and we are well prepared to ride this sort of thing out. But I do fear a break down in law and order if the shutdown goes on for months.

Mentally, I was prepared for this sort of event. I had a plan to deal with it. And I am in a position of relative strength. Though, the scale and speed of the complete meltdown of the world economy and financial system has surprised even me.

It’s like a giant rolling earthquake striking one country after another, pushing health systems to the brink and wrecking the economy.

Amazingly enough, there are still countless people in the world who are not taking this seriously and are cluelessly going on about their lives as if there won’t be any consequences.

They’re like ostriches with their heads stuck so far down in the sand they can’t see what’s right in front of them.

As a Sovereign Man reader, I know you’re different. You’ve hopefully already made preparations with things like cash and gold, and have also taken the opportunity to sell marketable investments prior to the crash, just as we have been writing about.

If you haven’t, there are still things you can do.

When I was in Hong Kong briefly last week, I was very surprised to find that I was still able to buy physical gold at the bank, and at only a minor mark-up above the spot price. (I often buy gold coins at Wing Hang Bank on Queens Rd Central).

While people have been stripping the shelves bare of toilet paper and instant noodles, they have apparently not been buying gold. Yet.

But as Simon will no doubt be discussing later this week, we predict that precious metals are going to very valuable as this crisis continues to play out.

The economic effects alone will be devastating. Central banks will have to print trillions of dollars, euros, etc. to bail out EVERYTHING, from big airlines to small businesses.

And that bonanza of paper money will have a big impact on gold and silver prices.

Moreover, in a crisis, it makes sense to have at least a portion of your precious metals holdings in a place that’s readily accessible to you… for example, in a safe at home.

(That’s also a great place to store some physical cash, which makes sense to own in case the banks start having problems too.)

So, if you haven’t done these things yet, you’re not too late.

My take is that we’re still early in this crisis. And as the old saying goes, the wise man does in the beginning what the fool does in the end.

To your freedom & prosperity, Simon Black, Founder, SovereignMan.com

https://www.sovereignman.com/trends/if-you-think-its-too-late-think-again-theres-still-time-27572/

Payments Panic And The Ending Of Fiat Currencies

Payments Panic And The Ending Of Fiat Currencies

 By Alasdair Macleod Goldmoney Insights March 19, 2020

The unilateral response from governments to the coronavirus is to helicopter money to people and their businesses in unlimited quantities. Their priority is to keep the debt-driven Keynesian show on the road, and policy makers are approaching the task with unseemly gusto.

There was evidence that the credit cycle was already on the turn with the global economy entering its regular period of financial and economic crisis even before the coronavirus hit.

Thinking it is only a matter of dealing with the pandemic before returning to normal is therefore a common and fatal mistake. The combination of current events is leading to an infinite problem: central banks, and the Fed in particular, are trying to backstop everything and they will undoubtedly fail.

The central issue is the dawning inability of the Fed, in charge of the world’s reserve currency, to keep financial markets under control. The quantities of money required to rescue the US economy and dollar-centric supply chains abroad are potentially far greater than anyone realises and will destroy not just the dollar, but the whole fiat money system of rigged financial markets upon which debt financing depends. The EU is in a similar but more parochial fix with the addition of a banking system visibly on the verge of collapse.

The timescale for the demise of unsound fiat currencies is likely to be very short, by the end of 2020 – exactly three centuries since a similar fiat currency experiment failed in John Law’s Mississippi bubble.

Introduction

Doubting Thomases must surely realise by now that the central banks are in danger of losing control over financial market prices, not just for a short period of time, but more drastically than that. Besides a new round of quantitative easing announced last Sunday - $500bn into Treasuries and $200bn into agency debt – the new target for the Fed funds rate was lowered to 0 - ¼ %.

This 1% cut followed an earlier reduction in the funds rate of ½ % as well as last Thursday’s announcement of a $1.5 trillion cap on three-month and one-month repos. To these sums we must add the $60bn in purchases of coupon-bearing securities also announced last Thursday.

Taken together, that is a liquidity injection into the American banking system of $2.206 trillion, which in context will be the equivalent of a 59% increase in the Fed’s balance sheet since the repo crisis started in September.

A further source of monetary inflation is in the dollar swap lines with the Bank of Canada, Bank of England, Bank of Japan, the ECB and the Swiss National Bank.

Clearly, the Fed is doing everything it can to achieve a number of objectives simultaneously. It needs to ensure the funding is in place for the US Government, which is dramatically increasing its spending. It must ensure the banks have sufficient reserves so as not to foreclose on its customers, thereby preventing a deflationary contraction of bank credit.

It needs to inject liquidity into wholesale money markets to ensure no financial entity becomes insolvent. It is trying to anticipate future negative effects of the coronavirus, which are likely to be far greater than anyone dares admit in public.

Heroically, the Fed’s public mission is to rescue the American economy single-handedly by providing the money required. And last but not least, it must retain control over financial market pricing to deliver these objectives.

To continue reading, please go to the original article here:

https://www.goldmoney.com/research/goldmoney-insights/payments-panic-and-the-ending-of-fiat-currencies?gmrefcode=gata

Will COVID-19 Lead To A Gold Standard?

Will COVID-19 Lead To A Gold Standard?

 By Alasdair MacleodGoldmoney Insights February 20, 2020

Even before the coronavirus sprang upon an unprepared China the credit cycle was tipping the world into recession. The coronavirus makes an existing situation immeasurably worse, shutting down China and disrupting global supply chains to the point where large swathes of global production simply cease.

The crisis is likely to be a wake-up call for complacent investors, who are content to buy benchmark bonds issued by bankrupt governments at wildly excessive prices. A recession turned by the coronavirus into a fathomless slump will lead to a synchronised explosion of debt issuance for which there are no genuine buyers and can only be monetised.

The adjustment to reality will be catastrophic for government finances, and their currencies. This article explains why the collapse in overpriced financial assets and fiat currencies is likely to be rapid, perhaps giving ordinary people in some jurisdictions an early prospect of a return to gold and silver as circulating money.

Introduction

My last article suggested that both financial assets and currencies would collapse together. the basis of this supposition is twofold: first, central bank policies are binding together the rise in financial assets with the maintenance of value in fiat currencies. Therefore, if one falls, they both fall. And secondly there is historical precedence for this when one examines The Mississippi bubble 300 years ago.

The timing for such a collapse appears to be imminent. Every day, more and more data confirm that the global economy is sliding into recession. So far, people have been ignoring this important development, but now that it is becoming hard to ignore, no doubt the coronavirus will be blamed.

This is a mistake because the factors leading to a slump, principally the end of the expansionary credit cycle combining with trade protectionism against Chinese imports by President Trump, echo developments leading up to the Wall Street crash in October 1929. If that point is accepted, then clearly the world could be on the edge of a very deep slump exacerbated but not caused by the virus.

The coronavirus has all but closed down China's economy. It threatens to become a pandemic with serious consequences for all other national economies and their fiat currencies.

The central issue flowing from the upcoming monetary crisis centres on the rating of government debt. Almost all welfare-driven states are in debt traps. They think price inflation is under control, because their colleagues in the statistics departments tell them so, allowing them to continue to run increasing budget deficits with apparent impunity.

Central banks do not realise that very soon they will be the only buyers of their governments’ debt which they will pay for with newly minted money. The irony of repeating the mistakes of Germany’s Reichsbank in 1918-23 will be completely lost to them and the path of escalating failure will only encourage the pace of printing to be accelerated.

The latest bombshell, coronavirus, is a trigger perhaps for the markets to regain control from the statist price riggers. This has to be the first step to fixing broken economies.

The Panglossians in the ranks of the banking and investment communities will be rudely awakened to find themselves staring down the barrel of economic reality. Only then is there a chance that neo-Keynesian lies will be discarded by one and all, and a retreat towards sound money commence.

To the extent the coronavirus has had a hand in the forthcoming destruction of fiat currencies and Keynesian mythology, we can take some comfort that it will have brought forward the eventual reintroduction of gold and gold standards.

To continue reading, please go to the original article here:

https://www.goldmoney.com/research/goldmoney-insights/will-covid-19-lead-to-a-gold-standard

Price of Physical Gold Decouples From Paper Gold

Price of Physical Gold Decouples From Paper Gold

By Tyler Durden  Sat, 03/14/2020  Submitted by BullionStar.com

In the last month, from 14 February 2020 to 14 March 2020, we have seen a record number of orders, record order revenue and a record number of visits to our newly renovated and extended bullion centre at 45 New Bridge Road in Singapore.

For the above-mentioned period, we have served 2,626 customers with a sales revenue of more than SGD 50 M, which is 477% higher compared to the same period last year.

The last few days have been our busiest days of all time. Our staff members have been doing a fantastic job in going out of their way to serve as many customers as possible.

With order volume increasing to this magnitude, it’s difficult for us to timely answer all phone and support requests but we are doing our very best to keep response times down.

Gold & Silver Shortages – Supply Squeeze

The enormous increase in demand is straining our supply chains. BullionStar has supplier relations with most of the major refineries, mints and wholesalers around the world. Most of our suppliers don’t have any stock of precious metals and are not taking orders currently. The U.S. Mint for example announced just this Thursday that American Silver Eagle coins are sold out. The large wholesalers in the U.S. are completely sold out of ALL gold and ALL silver and are not able to replenish.

We are already sold out of several products and will sell out of additional products shortly if this supply squeeze continues. All products listed as “In Stock” on our website are available for immediate delivery. For items listed as “Pre-Sale”, the items have been ordered and paid by us with incoming shipments on the way to us.

Paper Gold vs. Physical Gold

As we have repeated frequently over the years, only physical gold is a safe haven.

It’s noteworthy that the paper price of gold, although up 5.7% Year-to-Date denominated in SGD, has been trading downward in the last few days.

Paper gold is traded on the unallocated OTC gold spot market in London and on the COMEX futures market in New York. Both of these markets are derivative markets and neither is connected to the physical gold market.

This means that the physical gold market is a price taker, inheriting the price from the paper market, and that the derivative markets are the exclusive and dominant price makers. The entire market structure of this financialized gold trading is flawed. So while there is unprecedented demand for physical gold, this is not reflected in the gold price as derived by COMEX and the London unallocated spot market.

By now it is abundantly clear that the physical gold market and paper gold market will disconnect.

If the paper market does not correct this imbalance, widespread physical shortages of precious metals will be prolonged and may lead to the entire monetary system imploding.

And with progressive central banks in Eastern Europe and Asia having stocked up on gold in the last three years, gold will likely be the anchor of the new monetary system arising out of the ashes.

Mainstream media assertions that “Gold has been stripped of its Safe Haven Status” are utterly ridiculous and distorted beyond belief, when in fact the complete opposite is true. Unbacked paper gold and silver may be stripped of safe haven status, but certainly not real physical gold bullion.

Physical Premiums & Spreads

The current supply squeeze and physical bullion shortage has caused and is causing an increase in price premiums. It’s currently difficult and expensive for us to acquire any inventory. We have therefore had to increase premiums on products to compensate for the constraints.

We have endeavoured to also raise our prices offered to customers selling to us, but with the extreme volatility and wild price fluctuations, the spread between the buy and sell price may temporarily be larger than normal. It is regrettable that premiums and spreads are larger than normal but it is outside our control that the paper market is not reflecting the demand and supply of the physical market.

As many of you know, we are one of the largest critical voices of the LBMA run paper market and its bullion bank members in London.

Please note that premiums are likely to be higher on weekends when the markets are closed compared to weekdays.

We do not take lightly the decision to alter premiums but feel that it is a better alternative than to stop accepting orders altogether during weekends. Likewise it is a better alternative than to stop accepting orders when the paper gold market is in turmoil and failing to reflect the demand and supply realities of the physical bullion market.

Currently, we are completely sold out on BullionStar Gold Bars, BullionStar Silver Bars and are running low on several other products which we are not able to replenish for now. Several stock items will therefore likely go out of stock shortly. This is despite us having been aggressively buying bullion to create a buffer reserve inventory.

https://www.zerohedge.com/commodities/price-physical-gold-decouples-paper-gold

How the Coronavirus Outbreak Could Impact Gold Stocks

 How the Coronavirus Outbreak Could Impact Gold Stocks

 By: Michelle Jones MAR 9, 2020, 2:38 PM

As the gold price struggled to stay in the green for the day due to coronavirus concerns, so gold stocks have plunged along with the rest of the equity market. Some investors might think gold stocks offer a safe place to park their capital as the concerns about the coronavirus continue. However, history shows us that it won’t be smooth sailing, even if the gold price continues to soar.

Gold stocks fall amid coronavirus worries

Investor’s Business Daily looked at what happened to gold stocks and the gold price around the 2008 financial crisis, which was the last time gold’s status as a safe-haven asset was called into question.

The VanEck Vectors Gold Miners ETF tumbled 14.5% in the last week of February, which was even more than the 11.5% decline seen in the S&P 500. Last week was a little better because the Federal Reserve revealed an emergency interest rate cut. The S&P was up 0.6% for the week, while the SPDR Gold Trust climbed 6.2%, climbing to the highest level in seven years. The VanEck ETF was up 12.2%.

Today the VanEck Vectors Gold Miners ETF plunged more than 3%, although that was much better than the more than 6% decline in the S&P. Meanwhile, the SPDR Gold Trust fared better, falling less than 1% as it struggled to get back to the opening price this morning.

Gold price and gold stocks around the 2008 crisis

Comparing the performances of the SPDR Gold Trust and the VanEck ETF around the 2008 financial crisis and during the current time may offer some insight into what expect from gold stocks during the coronavirus outbreak.

According to Investor’s Business Daily, the SPDR Gold Trust plunged almost 30% between mid-July 2008 and Oct. 24 of that year. Gold did only a little better than the S&P, which lost one-third of its value during those same months. The VanEck ETF plummeted 70% during the same timeframe, indicating that gold stocks actually did much worse than the overall stock market.

Although gold stocks plunged along with the rest of the stock market leading up to the Lehman Bros. crash, the SPDR Gold Trust had mostly finished its decent by Sept. 11, 2008. The S&P was right on the edge of a bear market with a 20% decline from its record high. However, the index plunged another 40% in the next six weeks through Oct. 24, while the SPDR Gold Trust fell less than 5%.

At that point, the SPDR Gold Trust and VanEck ETF finally showed their strength as safe-haven assets. While the S&P plunged another 21% between Oct. 24, 2008 and March 6, 2009, the SPDR Gold Trust jumped 34%, while the VanEck ETF more than doubled in value.

Lessons for gold stocks and the coronavirus

Investor’s Business Daily notes that most of the decline in the gold price and the SPDR Gold Trust came as the Fed fell further and further behind the curve. The central bank slashed its interest rate target by 25 basis points to 2% on Apr. 30, 2008, although the financial market and economy became increasingly frail.

Then the Fed enacted an emergency rate cut of 50 basis points on Oct. 9. Another cut of 50 basis points followed on Oct. 29. These interest rate cuts marked the time when things started to change for the gold price and SPDR Gold Trust.

The gold price remained volatile in fall 2008, and the same should be expected now in the gold price and gold stocks amid the coronavirus outbreak. Interest rates remain a major driver of gold and gold stocks. If the economy and financial conditions are weakening faster than interest rates are falling, gold doesn’t exactly fulfill its safe-haven status.

How the coronavirus outbreak is different

Investor’s Business Daily notes that before the coronavirus outbreak hit, Fed policy already had weak inflation in focus. In 2008, the gold price started to recover after the Fed slashed its target rate to 1%. This time around, the central bank cut the federal funds rate half a percent on March 3 to between 1% and 1.25%. Markets are already pricing in another rate cut when the Fed meets later this month.

Like in 2008, gold stocks will be more volatile than the gold price during the coronavirus outbreak. The VanEck ETF still fell 15% on Dec. 1, 2008 when the S&P recorded one of its biggest percentage declines ever. However, with interest rates remaining low, the VanEck Gold Miners ETF and individual gold stocks should hold up better than other stocks.

Investors should also remember that deflation could be a major concern for gold and gold stocks. Inflation was already weak before the coronavirus outbreak, which means there is a risk of deflation when factoring in the macro risk from the virus.

If the economic impacts from the coronavirus end up being much worse than expected and deflation begins, even 0% interest rates would be a problem for the gold price. However, any deflation that might occur would be temporary, and the macro environment after the crisis could be good for gold prices, similar to the recovery from the financial crisis.

https://www.valuewalk.com/2020/03/gold-stocks-coronavirus/

Will COVID-19 Lead to A Gold Standard?

Will COVID-19 Lead to A Gold Standard?

By Tyler Durden   Sat, 02/22/2020  

Authored by Alasdair Macleod via GoldMoney.com,

Even before the coronavirus sprang upon an unprepared China the credit cycle was tipping the world into recession. The coronavirus makes an existing situation immeasurably worse, shutting down China and disrupting global supply chains to the point where large swathes of global production simply cease.

The crisis is likely to be a wake-up call for complacent investors, who are content to buy benchmark bonds issued by bankrupt governments at wildly excessive prices. A recession turned by the coronavirus into a fathomless slump will lead to a synchronised explosion of debt issuance for which there are no genuine buyers and can only be monetised.

The adjustment to reality will be catastrophic for government finances, and their currencies. This article explains why the collapse in overpriced financial assets and fiat currencies is likely to be rapid, perhaps giving ordinary people in some jurisdictions an early prospect of a return to gold and silver as circulating money.

Introduction

My last article suggested that both financial assets and currencies would collapse together. The basis of this supposition is twofold: first, central bank policies are binding together the rise in financial assets with the maintenance of value in fiat currencies. Therefore, if one falls, they both fall. And secondly there is historical precedence for this when one examines The Mississippi bubble 300 years ago.

The timing for such a collapse appears to be imminent. Every day, more and more data confirm that the global economy is sliding into recession. So far, people have been ignoring this important development, but now that it is becoming hard to ignore, no doubt the coronavirus will be blamed.

This is a mistake because the factors leading to a slump, principally the end of the expansionary credit cycle combining with trade protectionism against Chinese imports by President Trump, echo developments leading up to the Wall Street crash in October 1929. If that point is accepted, then clearly the world could be on the edge of a very deep slump exacerbated but not caused by the virus.

The coronavirus has all but closed down China's economy. It threatens to become a pandemic with serious consequences for all other national economies and their fiat currencies.

The central issue flowing from the upcoming monetary crisis centres on the rating of government debt. Almost all welfare-driven states are in debt traps. They think price inflation is under control, because their colleagues in the statistics departments tell them so, allowing them to continue to run increasing budget deficits with apparent impunity. Central banks do not realise that very soon they will be the only buyers of their governments’ debt which they will pay for with newly minted money.

The irony of repeating the mistakes of Germany’s Reichsbank in 1918-23 will be completely lost to them and the path of escalating failure will only encourage the pace of printing to be accelerated.

The latest bombshell, coronavirus, is a trigger perhaps for the markets to regain control from the statist price riggers. This has to be the first step to fixing broken economies.  

The Panglossians in the ranks of the banking and investment communities will be rudely awakened to find themselves staring down the barrel of economic reality. Only then is there a chance that neo-Keynesian lies will be discarded by one and all, and a retreat towards sound money commence.

There is unlikely to be much time. Even without the downhill kick of coronavirus a bear market in bonds could be a devastating event on its own in a period of less than a year. Inflation of fiat currencies and interest rate suppression have been the principal agents for ramping bond prices, which tells us that their collapse will undermine currencies as well, giving complacent investors a double hit.

But what are we to measure a decline of fiat currencies against? Sound money of course, gold and silver, with other stores of value, such as bitcoin, favoured by tech-savvy millennials, who will be quick to observe and understand the debauchment of fiat money. And the sooner we throw out fiat currencies, the sooner we can revert to sound money, which is gold.

Changing Values For Government Bonds

We shall take as our primary example the US bond market, because fiat currency fans believe that other than individual time-values it is the risk-free investment yardstick. The ten-year US Treasury bond yields less than 1.6%, but its future pricing raises some serious issues.

Before addressing risk, we should note that time preference theory tells us that possession of cash is always worth more than its non-possession. The discount of that future value is not significant if you part with it to buy a ten-year UST with a view to trading it out in the next few days.

But if you buy it with a view to holding it as an investment, then its discounted future value does become relevant. We cannot know what this time preference is, because it can only be realised in an unfettered market, not a market manipulated by the Fed’s actions. But with history as our guide an annualised discounted value of about two per cent for a 10-year bond can be used as a rough guide.

Figure 1, which is a long-term chart of the yield on this bond, appears to indicate there is a solid floor in the region of 1.4% represented by the horizontal line joining points at July 2012, July 2016 and August 2019. This floor is about half a per cent less than our estimated time preference value.

 With its yield currently 1.56%, there appears to be very little upside in the price, and we can understand why. And if we accept government estimates of CPI-U all items index rising at 2.5% (year to January) the yield should be closer to 4% and must therefore be heavily suppressed at current levels.

That is not all. While the general level of prices is an economic concept, it is not measurable; a fact which allows the Bureau of Labour Statistics, along with all other nations who use “standardised” CPIs to effectively goal-seek an official figure for its rate of change.

Two independent analysts, Chapwood Index and Shadowstats confirm each other that a more realistic rate for monetary depreciation of the US dollar is not 2%, but about 10% annually.

But for the moment, investors believe the price inflation lie because they want to. When they begin to realise the official rate is pure fiction, then one would expect government bonds to reflect a far higher redemption yield. In other words, any upside in bond prices is strictly limited while the downside is substantial. As an illustration, a 10-year bond at the current yield would have to fall from par to $47.40 to yield a more realistic gross 10% to redemption.

Clearly, the US Treasury market is badly mispriced. To estimate the likelihood of the Fed losing control of bond pricing, we should also take into account the state of the US Government’s finances, because we have not yet incorporated future currency debasement risks in our calculations.

With a starting budget deficit in the current fiscal year estimated by the Congressional Budget Office at $1,027bn, a recession, let alone a slump, will make government finances considerably worse.

For the years 2020-2022 the CBO expects real GDP to grow at an average 2% per annum. In the very near future, due to the coronavirus alone that is likely to be revised sharply downwards, if not by the CBO, but by market participants as further evidence of a looming slump becomes too hard to ignore.

All we need to know for now is the revision of economic prospects will be significant, based on recent evidence of recessionary trends and the potential impact of the coronavirus. The current stage of the credit cycle indicates the banks are in the process of withdrawing circulating credit, hitting SMEs particularly hard. Unemployment will rise, along with bankruptcies. And this assumes little or nothing for the effect of coronavirus.

But even if coronavirus is contained to China and East Asia, US corporations’ supply chains will cease to function, requiring both time and bank credit to relocate. Neither are available in the short term and in the current credit climate. And this is an election year, when any president’s financial and economic prudence are at their lowest ebb and his administration is most inclined to throw money at any and all economic problems.

Without a recession, other things being equal the CBO’s forecasting assumptions and the effect on government debt outstanding might be taken to be credible by gullible investors. But expressed in the economist’s jargon, not all else is equal and we can already see why these forecasts are going horribly wrong. The question then is what the effect on markets will be when these errors are realised and prices for financial assets are adjusted for reality.

The adjustment will follow the current period of complacency. US Treasury bond prices have recently risen, partly on a safe-haven basis, but certainly with an enduring belief in the state’s economic management.

Equities are at or close to all-time highs on a relative value to bond yields argument, and an expectation that any recession will be shallow. Further monetary easing is expected to support the economy and maintaining the long-term prospect of a resumption to decent economic growth. Further monetary easing is seen to be bullish.

Concerns about the dollar are broadly absent. There is embedded in investor psychology Part One of Triffin’s dilemma, that concludes otherwise irresponsible fiscal policies will allow the provider of the world’s reserve currency to run deficits to increase its supply to foreigners, always hungry for scarce dollars, which they reinvest in US Treasuries. And if there is a recession, the argument goes, then there will always be a further flight to the safety of dollars and US Treasuries.

Part Two of Triffin’s dilemma ends in crisis, which broadly is what we now face. Investors are yet to take note.

Putting the effects of the coronavirus to one side for the moment, in their private capacity businessmen and their bankers are usually the first to see that economic optimism is misplaced. 

Businessmen are battling in deteriorating trading conditions, and bankers with their internal market intelligence and its impact on risk assessment. The authorities, particularly the Fed, who have made the mistake of believing in their own statistics, and of falling hook, line and sinker for Keynesian stimulation theories, will be next.

One can envisage the setup: having seen from its own internal information the economy is not performing as hoped, the Fed decides to call in the management of the G-SIB banks to hear their concerns, gather intelligence and reassure them they are on the case. Afterwards, we can imagine the following conversation:

Banker A. “Well, what did you make of that?”

Banker B. “The Fed must be worried to feel the need to reassure us. Things must be worse than we thought.”

Bankers A & B. (Thinking) I’ll report back to my Board that the Fed is very worried, and we must urgently reduce our loan book before our competitors do.

It has happened before. None of this would occur in an economy which is based on sound money and free markets, only susceptible to one-off disasters, such as war and the coronavirus. 

Instead, the US economy is managed on the basis of maintaining the crumbling confidence of consumers and the uninterrupted provision to them of credit. After many years of being bailed out, economic actors have become fully dependent on confidence being maintained and have no alternative plan in the case of its failure. But failure is now becoming evident.

The central question therefore devolves upon the future credit rating of the US Government. Assuming the Fed is losing control of the overall monetary situation and pricing returns to being set by markets, how do you rate a very large borrower with the following credit profile:

No surplus of income over expenses since 2001. Current trend is for further deterioration with no end in sight.

Net present value of future liabilities mandated by law is independently estimated (Kotlikoff) to be over $200 trillion. Current income (taxes etc.) of $3.6 trillion gives a ratio of income to future expense of well over 50 times. Tax income will almost certainly decline raising this ratio further.

Net interest cost at unrealistically low interest rates is 38% of last year’s deficit. A more realistic interest rate could have an immediate and catastrophic effect on finances.

Management Seems Unjustifiably Optimistic That Future Revenue Will Pick Up

 In the absence of a management that agrees to radically alter course, there can only be one answer: do not lend it any money and eliminate all existing exposure. When they wake up, this should, and therefore will be, the reality facing not just the banks but all holders of US Treasuries, including foreigners without sound reasons to be invested in them.

Consequently, the switch from the current state of suppressive control to realistic pricing of government debt will be both vicious and rapid. The only foreigners likely to delay selling existing US Government debt are some governments, either under the US Government’s cosh, or not wishing to exacerbate the situation.

With cross-border trade collapsing, others have no good reason to hold dollars and dollar-denominated debt, let alone extend their exposure. Furthermore, in recent years large hedge funds have made hay out of being short euros and yen and long dollars and US Treasury debt through fx swaps. Those trillion-dollar positions need to be unwound as well, which will put additional pressure on the dollar and the bond markets.

At anything close to these yields, the only buyer will be the Fed, which, as well as new issuance will have to absorb foreign sales and those of distressed hedge funds. For these reasons the monetisation of debt will almost certainly have to be on a far larger scale than following the Lehman crisis.

There is no price for government debt in these circumstances, because the higher the interest rate, the worse the numbers become. Nor will there be any value in the currency used to buy it, because if the government is effectively bust its unbacked currency will also be worthless.

Other governments with substantial future welfare commitments are in a similar position. High debt to GDP ratios will become a debt trap on a combination of recession-fuelled budget deficits and realistic funding costs. In the EU and Japan, government funding costs have even further to travel from under the zero bound.

Meanwhile, there is an air of complacency with a general assumption that the next crisis will lead to yet lower rates, as has been the case with every credit crisis for the last forty years. But as Figure 1, the chart of the ten-year US Treasury above clearly showed, after a long decline in yields the world’s reserve currency benchmark yield is now struggling to go any lower. Zero or even negative dollar rates imposed by the Fed cannot alter that fact.

This is important, because central banks have tried everything that they can think of to restore economic growth and have run out of ideas. Led by the Bank for International Settlements, they are now pleading with their governments to borrow more while rates are cheap in the hope that greater budget deficits will stop the world from sliding into recession.

Other Central Banks Are In The Same Boat

The debt devil tempts, and the weak follow, and debtor hell is the highest reward he can offer. The response by all G20 members to a sliding global economy will obviously be a BIS sanctioned coordinated burst of deficit spending leading to a synchronised expansion of government bond supply and fiat money to pay for it.

It is proving impossible, even for a free trader like Boris Johnson, to resist the political imperative to build new hospitals, train thousands of new nurses and policemen and throw money at a new, wildly over-budget railway connecting the North of England to London.

Which, incidentally, will probably empty the North of northerners seeking their fortunes in London, instead of spreading London’s wealth northwards. Most of this spending is classified as investment, but the fact is that without a commensurate increase in personal savings it is inflationary spending.

Perhaps the dollar will not be the first to slide, given the shutting down of China’s economy by the coronavirus. The yuan, surely, will be the first to suffer in the foreign exchanges, a process that appears to be starting.

But this might galvanise the People’s Bank into positive action to stabilise the currency, which it can do by tying it to gold. In doing so, it would do humanity a favour by leading the way early towards a sound money solution to the unfolding financial and economic crisis, which with the coronavirus threatens to be potentially much worse than anything recorded in modern times.

The reason the dollar is likely to be next to slide is the exposure foreigners have to it, the equivalent of more than one year’s GDP. It is comprised of about $4 trillion in bank deposits, and $19.4 trillion of US securities, according to the last available TIC figures.

For the short-term, perhaps China’s imploding economy, taking Germany’s and others with it, encourages the investor’s myth that the dollar is a safe haven. The trade-weighted index has strengthened in recent weeks on the back of both the yuan and euro weakening, and US Treasury yields have declined as well. It is a situation unlikely to survive deteriorating economic conditions for much longer.

In addition to foreign sellers, speculative positions of perhaps several trillion dollars in currency swaps held by large hedge funds will have to be reversed if and when the dollar is undermined by foreign selling. That would lead to temporary buying of euros and yen.

When that short-term effect is over, presumably these currencies will then suffer the combination of collapsing values for government bonds and stockmarket values at the same time as the currencies themselves fall measured against gold, silver and bitcoin.

Sound Money Alternatives Signal The Fiat Crisis

An unfolding crisis from the combined effects of the turn of the credit cycle and the coronavirus can be expected to hit individual fiat currencies both sequentially and generally. This article has made some suggestions over a likely sequence: yuan, dollar, euro and yen. But how things actually unfold is for the moment a matter of speculation. From the turmoil ahead of us, the clear winners are likely to be gold and silver, and supply-constrained hedges such as bitcoin.

In real terms, gold is still under-priced relative to the dollar, based on their relative quantities. This is illustrated in Figure 2, which is of gold adjusted by the increase in the fiat money quantity.

 This chart should contradict any thoughts that the recent increase in the price of gold might be overdone. The truth is that the devastating bear market in the gold price following the spike in 1980 has almost eliminated gold from investment portfolios in favour of inflation beneficiaries.

If that long period is coming to an end, investors will attempt to switch their allocations from inflation beneficiaries and bonds with rising yields in favour of inflation protection.

For this reason, the rise in the dollar gold price could be very dramatic, particularly when a further acceleration of global monetary debasement is taken into account. And this is before we see official CPI measures move much above their 2% goal-sought targets.

For both gold and silver, we can expect initial moves reflecting their eventual replacement of failing fiat as the trusted money in circulation. In the case of silver, it is worth mentioning that its original price relationship under bimetallic standards only become discarded when silver was generally dropped as money in favour of gold alone in the 1870s.

When fiat fails, it is likely that silver will regain a secondary monetary role, and its remonetisation will have a substantial impact on its purchasing power. From a current gold/silver ratio of 87 times, a move towards the old ratio of approximately 15 times means that for speculators buying into the sound money argument, silver is likely to be the catch-up form of sound money.

Bitcoin

During previous currency hiatuses, the problem of failing fiat money has always been evidenced in the rising prices of precious metals. Since the last financial crisis, there has arisen a new category of store of value in thousands of different cryptocurrencies. While most of them appear to be akin to quack monetary remedies, the first cryptocurrency to be devised with its innovative blockchain technology is sufficiently understood by a growing band of followers to be firmly established as a form of money.

Bitcoin is currently not ideally suited as a means of settling transactions, or for making value comparisons between one good against another. Settlements are severely restricted relative to the superior scalability offered by credit and debit cards. Where bitcoin scores is as a store of value.

In learning about bitcoin and why it works, a new generation of tech-savvy millennials have become aware of the way their governments debauch their currencies as a means of secretly transferring wealth from them as individuals to the state, the banks, and their favoured borrowers. Bitcoin supporters are an intelligent, educated mob angry at their governments’ abuse of their fiat currencies.

In all populations, there is therefore a marginally greater recognition of the fragility of state currencies, and therefore the abandonment of them by the general public is likely to develop over a shorter time period than experience of previous instances would suggest.

Conclusion

The straws in the wind listed in this article point to a more rapid collapse of financial asset values and currencies than generally thought by sound money theorists who have long anticipated this outcome. Doubts about the timing have been settled to a degree by the sudden development of the coronavirus, which has already imploded China’s economy, disrupting global supply chains and the provision of consumer goods.

To the extent the coronavirus has had a hand in the forthcoming destruction of fiat currencies and Keynesian mythology, we can take some comfort that it will have brought forward the eventual reintroduction of gold and gold standards. The path is not straightforward.

There will be destruction of financial asset values and the economic consequences for ordinary people will be dire. We can expect widespread civil unrest and political instability.

Western governments and their advisers are not familiar with the arguments in favour of gold, having spent half a century dismissing it. This fact favours the new economies which have not discarded gold, which include Russia, China, and many other Asian nations. Some governments, such as India, might attempt to confiscate their citizens’ gold, but in general the collapse of western economic fallacies could lead to Asia’s economic superiority.

It will be a rough ride for the rest of us.

https://www.zerohedge.com/geopolitical/will-covid-19-lead-gold-standard

Red Gold: China’s Stealth Plan to Use Gold for World Domination

Red Gold: China’s Stealth Plan to Use Gold for World Domination

By Marin Katusa

China gold

Gold used to be important.

During and after World War II, every major developed country amassed as much physical gold as they could. It stabilized currencies and signaled independence.

But with the end of the gold standard in 1971, most countries began to sell off their reserves.

So much so that in 1999, an agreement was formed to limit the amount of gold that central banks could sell. Fast forward to today, and Canada’s central bank owns ZERO gold.

Despite the agreement, most countries continued to shed their gold reserves as fast as possible.

Central bank gold reserves

That is until a few years ago, when a handful of countries reversed course. Central Banks started buying gold with fury, and they haven’t let up since.

In the final quarter of 2018, central banks purchased more gold than in any other quarter on record.

By the end of the year, central banks collectively held around 1.064 billion ounces of gold (equivalent to 33,200 tons).

That’s about one-fifth of all the gold ever mined.

In the first half of 2019, central banks purchased 11.97 million ounces of gold (374 tons). Once again, that was far more than ever before. And it’s equivalent to one-sixth of total gold demand in that period.

And total central bank gold purchases for 2019 were the second highest they’ve been in the last 50 years (2018 being the first).

The Unusual Suspects in Central Bank Gold Purchases

And the Keyser Söze of gold is Vladimir Putin.

I’ve been very quiet about Russia and Putin the last few years as I’ve been swamped with media requests following the success of my NY Times Bestseller The Colder War.

Don’t underestimate what the Russians are doing, as others are starting to follow…

While the world focuses on China, Russia has positioned itself at the center of the global political chessboard.

Here’s what’s interesting about the recent central bank gold purchases: the vast majority of that unprecedented purchasing came from just four countries.

These are places you’d never expect.

One of those countries is Kazakhstan, whose GDP is smaller than Kansas’s. Kazakhstan grew their reserves from 2.4 million ounces (75 tons) in 2011 to 12 million ounces (375 tons) in 2020 — A 400% increase.

Turkey moved far faster. In 2017, they had 3.71 million ounces (116 tons). Now, they have 12.32 million ounces (385 tons) of gold. That’s a 232% increase in just the last two years.

In 2018 alone, Russia bought 8.78 million ounces (274.3 tons). That’s the most it’s ever purchased in one year, and its fourth year above 6.4 million (200 tons) ounces of gold. For reference, that’s $15.7 billion worth of gold.

Putin is undertaking what’s called a “de-dollarization.” Aware of sanctions from the United States, Russia is positioning itself to not be dependent on U.S. Dollar holdings.

So, the central bank in Russia has sold nearly all of their U.S. Treasury notes. And it’s used the proceeds to buy gold.

Like I said, the Keyser Söze of gold is Vladimir Putin.

Pay attention to the world’s master strategist. This is very bullish for gold.

Russian gold purchases

You might be wondering why Russia doesn’t buy a yielding investment with the cash.

The problem is that other reserve currencies, like the euro or the yen, are extraordinarily weak against the dollar and Putin knows this will continue.

Russia bought $100 billion worth of euros, yuan, and yen in 2018… the Keyser Söze of gold won’t make that mistake again. 

And over eleven trillion U.S. dollars’ worth of global investment opportunities have a negative yield. So Russia would end up paying money to hold them.

Gold, on the other hand, has paid off handsomely for Putin.

In 2019, the value of Russian-held gold has increased from $86 billion to more than $112 billion. The rising gold price has generated a windfall for the Russians of nearly $20 billion that the Russians can leverage.

That’s providing plenty of incentive to keep Russia buying in the long run, stoking further demand.

The problem is that Russia’s buying is fairly well-known. Unless it continues to step up gold purchases, its effect on gold prices has mostly already been taken into account.

China’s New Golden Rule

With WuFlu (the Coronavirus) now having infected more people than SARS did in 2003, will China continue their gold purchases?

China stockpiled huge amounts of gold every single month last year.

You’re probably wondering why…

Well, you’ve probably heard the saying, “He who has the gold, makes the rules.” Xi Jinping, President of China, agrees with Putin’s strategy.

WuFlu no doubt has sidetracked China here in the near term, but it’s been proven that the gold insurance strategy is a very wise one.

The Chinese elite are aware of their aging demographics and high debt loads.

The gold will be valuable to potentially backstop any shortfalls without being overly dependent on their foreign exchange reserves.

China is diversifying its foreign exchange reserves away from the USD and towards gold. This will take many years, but it’s a sound strategy.

The major Western countries hold upwards of 60 percent of their foreign exchange reserves in gold.

China is currently at just 2.9%. Russia is currently at 20%.

China knows it has to pick up its gold to reserves ratio and WuFlu will accelerate this belief.

The chart below shows where Russia and China will want to be at—with the western superpowers. They will get there. And the price of gold will be positively impacted as a result. 

gold percentage

Of course, China has much larger foreign exchange reserves than most other countries. So its gold holdings represent a lower percentage of its total reserves.

But even when looking at actual gold holdings, you can see that China and Russia have long lagged behind the west. Only now are they catching up.

gold reserves in usd

If – and it’s a big if – China were to shoot for the same gold-to-forex reserve ratio as the United States, that would take 1.98 billion ounces of gold (62,000 tons) of gold off the market—or fourteen years’ worth of 100% of the world’s gold demand.

The subsequent rise in the price of gold would be unlike anything the world has ever seen. But it seems impossible… right?

Here’s the thing: Russia’s own gold-to-forex reserve ratio fell below 2.5 percent in 2007. Now it’s at 20 percent—and climbing.

Not only that, but China has a much longer-term vision in mind with their gold purchases.

According to one of my favorite people to debate on stage at conferences, Euro Pacific Capital CEO Peter Schiff, Russia and China are “preparing for the world where the dollar is no longer the reserve currency.”

China can’t do this, and they know it. Peter knows it too, until China’s reserves grow 10-fold.

In short, China and Russia want a world where the U.S. dollar is no longer the reserve currency.

To do that, both Russia and China (specifically China) have a lot of gold buying to do before they can realistically back up their currency.

It won’t be a return to the gold standard, certainly. It will be more of a “gold support.”

The Angry Dragon

So here are the trillion-dollar questions: exactly how much gold is China planning to buy?

And what will it do to the price of gold?

The problem with China is that it doesn’t update its gold reserve numbers very often. When the numbers are updated, their accuracy is impossible to verify.

Few believe the official WuFlu numbers, never mind gold numbers.

China lacks global trust.

Real gold reserves are one step towards building that trust.

China buys its gold extremely quietly via back channels to avoid running up the price via its purchases. (Remember Kazakhstan’s huge gold buys? Guess who they share a border with…)

From 2009 to 2015, the Chinese government didn’t provide any updates about its gold holdings. Then it suddenly announced a massive 57 percent jump in its reserves.

What we do know is that China purchased nearly 3.2 million ounces (100 tons) of gold in the past year. But, they need to buy 1.9 billion ounces to be on par with America. 3.2 million ounces is a lot of gold, but relative to where they need to be—it’s not.

Moving forward, that’s set to rise—dramatically.

Zhang Bingnan, vice president of the China Gold Association, forecasted the optimal gold reserve capacity for China for the next two decades…

He found that in 2020, China’s optimal gold reserves should be between 185.6 million ounces and 217.6 million ounces (5,800 and 6,800 tons) of gold.

Remember, China’s gold reserves currently sit around 58.94 million ounces (1,842 tons).

That means it would need to buy 128 million ounces (4,000 tons) at a minimum, this year, to meet Zhang Bingnan’s optimal rate.

But even that would be short by 1.77 billion ounces to meet the ratio that U.S. reserves are at.

Another way to look at it is, even if China doubles their gold reserves, they’re still short of meeting the same ratio as the United States by 93%.

A Dragon’s Appetite for Gold

According to a precious metals analyst at Standard Chartered Bank…

Just to achieve the diversification it’s looking for, China would need to buy two years of global gold production.

In short, when China really starts buying, it’s not going to be able to disguise it any longer. And that could cause a run on gold like the world has never seen before.

Central reserve banks are already snatching gold up at record levels… when prices are at record levels. These central banks themselves anticipate prices going much, much higher.

When central reserve banks begin to see gold both as diversification, insurance and leverage there will never be enough of it to go around.

I wouldn’t want to bet against them. I’d never bet against the Keyser Söze of gold, Vladimir Putin.

Because gold still matters—a lot.

And with any shakiness in the global economy, it’s going to matter a lot more.

Editor’s Note: In this shaky economic environment, big buyers like China and Russia, are accumulating as much gold as possible.

It’s no question that negative interest rates and the devaluation of currencies will only put fuel on the fire.

https://internationalman.com/articles/red-gold-china-stealth-plan-to-use-gold-for-world-domination/

Real Money Versus Cryptos and Currencies

Real Money Versus Cryptos and Currencies

The Final Wakeup Call  By Peter B Meyer

Money Marks the Relationships Between People

What Is the Danger That Threatens the Dollar?

Why and How Bankers Control Precious Metal Prices

Panic Will Take the Gold Price to Unsuspected Heights

Money Must Be a Commodity

 When the money goes bad, everything goes. The Rothschild Central Bank sent the US-dollar and affiliated paper currencies on their way down in 1971. It was then that they took the dollar off the golden handcuffs. Enabling the dollar to picking everyone’s pockets, added with coercion of cruel sanctions on every country the Deep State didn’t like. Compared to the pre-1971 dollar, it has lost 98% of its value.

The Fed showered over the last few weeks the financial trading houses – primary dealers – on Wall Street with a total of $2.93 Trillion in short-term loans.

The money is for a Wall Street liquidity crisis that has yet to be explained in credible terms to the public, but as of yet the New York Times does not appear to have an investigative reporter assigned to investigate what’s really going on. Just 11-years after those same trading houses blew themselves up in the biggest financial crash since the Great Depression that took the U.S. and the world economy along for the ride.

This repo – repurchase agreement- loan program began on September 17, 2019 when repo loan rates spiked from approximately 2 percent to 10 percent – meaning either liquid funds were not available to loan, or the mega banks on Wall Street were backing away from lending to certain counterparties.

Repo loans are typically between banks, hedge funds and money market funds on an overnight basis and are made against good-quality collateral. Since that time, the New York central bank has been making these loans to the tune of hundreds of billions of dollars a night.

One has to wonder how much money it would take for the Fed to throw at Wall Street before the MSM reports to its readers on the biggest Wall Street bailout by the Fed since the financial crisis?

Would the Federal Reserve, the central bank of the United States, actually lie to the American people? If withholding material facts from the people constitutes a lie, then, the Federal Reserve has a troubled history.

So everything the Fed said about the Repo problem being an event specific issue for the end of last year was a lie, as now turned out. As the Fed announced that over the next month it would shower a total of $2.93 Trillion in short-term loans. Confirming; The Repo market is failing because banks don’t trust their counterparties for the collateral they are lending in the overnight markets!

When the money goes bad, how come everything else goes bad, too? In extreme cases, it’s obvious. Take Hyperinflation, for example, it destroys the economy; people become desperate. In Venezuela, for instance, there were only 50 kidnappings per year before Chávez took office.

But now, with inflation at a million percent annually, robberies and kidnappings happen “all the time.” The government no longer even keeps track.

Real money is based on gold. While silver is also seen as real money, though not as apt as gold. Money is, has always been, and always will be a commodity. Cryptos, like Bitcoins, as well as Dollars and all other paper currencies today, are not and cannot be real money in this sense, because these are not linked with commodities.

Bitcoins and Dollars – and all Cryptos and currencies for that matter – are not “commodities”; they are nothing but numbers without substance.

Money Marks The Relationships Between People

Money is what marks the relationships between people. One is master; the other is servant. One is producer; others are consumers. One owes and another, the one that is owed.

Let us imagine that you spend a day making a tool, for which you are paid $50. That money is energy money as it rewards your effort, and measures the new wealth you have created. You can save that wealth, transfer it, or pass it along to future generations, as long that money is not inflated.

You earned it  and it puts you $50 ahead of people who didn’t earn anything that day. And now, assuming the going rate is $50 per day, with that money you can “buy” a day’s worth of someone else’s labour.

The rate at which the human race is getting richer, the rate of technological innovation, the Central Banks’ interest rate policies — all are irrelevant. What counts is the $50 and its faithful rendering of who owes what to whom.

If nothing changes, you should be able to buy a tool for $50 years later. If, on the other hand, technological progress cuts the time needed to make a tool in half, you should be able to buy two tools. And if productivity has doubled, a toolmaker should be able to turn out twice as many — two — in one day. But the basic relationship between you and others is unchanged.

 Think further; Cryptos like Bitcoins have no stated value. You do not know the total value of your Bitcoins, until the moment you have exchanged them for a quantity of fiat money. So, Bitcoin has no independent existence such as fiat money has.

Because, Bitcoin’s worth depends on the existence of fiat money in which to transact exchanges. As long as there are more buyers of Bitcoin, than sellers, the value of the Bitcoin will continue to rise, and that will bring in still more buyers and its value may rise to the skies.

But when the moment comes – as it always does – when there are more sellers than buyers, then the value of the Bitcoin will fall. When the holders of Bitcoins begin to see a trend of declining value, there will be nothing and no one to stop the trend: Owners of Bitcoins will rush in panic to sell their holdings – to other holders of Bitcoins – before its value falls even further.

With more and more owners trying to sell, there will soon be no buyers: no one will want to catch the falling knife! The value of Bitcoin will fall to practically zero.

When the famous Tulip Mania of the 1600’s was over, the losers at least had their tulips to look at. The Bitcoin rise in “value” that took months – or even years – will be over in a matter of hours. Bitcoin will become a phenomenon in history of mass speculation that amounted to ultimate mass grief.

 So, it is correct to conclude; Bitcoin and for the same reason all other cryptos are nothing more than a distraction, created to direct widespread public worry away from concern about the eventual collapse of the Dollar’s value.

What Is The Danger That Threatens The Dollar?

What entity would wish to distract investors’ attention away from concerns with the Dollar? Obviously, the US Government. Although clearly, there is no proof of that conclusion. To substantiate the conclusion is to ask, “For whose benefit?” The answer has to be: “The US Government”.

The greatest fear that besets the US Government is the collapse of the Dollar’s value, and Bitcoin is the distractor from the danger which threatens the Dollar. What is the danger that threatens the Dollar? The rising price of gold, which devalues the Dollar.

Conclusion: Bitcoin – and its imitators – serve to distract the attention of investors away from investing in gold. Bitcoin functions very well, as a distractor of attention from investing in gold, because to “invest” in Bitcoin is to use the Dollar to invest in what is essentially, nothing tangible, as is physical gold. And even more important; Bitcoin presents no danger to the Dollar’s value.

The majority of investors have little or no interest in gold. Their main interest lies in making Dollar profits. The rising price of Bitcoin attracts the attention of investors – and that is it purpose: “Think Bitcoins, and pay no attention to investing in gold.”

The prices of the precious metals – gold and silver – are under strict control by the syndicated Rothschild Bankers. Meanwhile President Trump and his Team may have been finding out from Jay Powell of the Federal Reserve, that the real power in this world is in the hands of the Rothschild owned International Bankers mob.

The time when it was necessary to prove the existence of this control, ended long ago. Today it is an unquestioned fact. However, most analysts of the precious metals market continue to bury their heads in the sand of falsity, for various personal reasons. That is, why they only comment on “market behaviour”.

Why And How Bankers Control Precious Metal Prices

Why do the Bankers mob wish to control the prices of the precious metals? Because their Power is based on the false money that they issue, and true market prices of the precious metals would very clearly reveal the steady loss of purchasing power of the false money they issue and thus erodes their Power significantly, or even destroy it.

This is the “Why” for control; Now, let’s have investigated the “How” of the control: Analysing the interest of the Bankers mob, from the operation of the world market in precious metals shows that the world market for precious metals includes some of the Central Banks of the world, as well as private investors handling either their own funds, or the funds of corporations under their care.

The Central Banks all know that the prices of the precious metals are under strict control to prevent their rise to a true market value. Until recently, these Central Banks had no interest in acquiring gold for their Reserves, as they were satisfied with their operations based on fiat money.

Now that the Central Banks are aware of the great problem of the existence of an absolutely enormous amount of debt in the world, and of its impending default, they have a renewed interest to obtaining gold for their Reserves, at the cheapest possible price.

Thus, they favour the continued suppression of the prices of the precious metals and remain silent regarding that suppression. Their overriding concern is their own solvency, and not the well-being of private investors or corporations.

Regarding the market for gold and silver on the part of corporations and private individuals; taken into account that the vast majority of both groups – corporations and private individuals – are heavily burdened with debt. Their over-riding day-to-day interest is to maintain solvency to being able to service their debts with fiat money.

Thus, both corporations and the great mass of private investors cannot afford to distract funds from on-going operations, and invest them in gold or silver, as they primarily need to service their present huge debt loads to preventing bankruptcy, while the stagnant price of the precious metals makes it impossible for them to contemplate placing funds in gold or silver investments.

Consequently, the gold and silver markets for corporations and private individuals have been reduced to a small minority who owe so little fiat money that they can afford to purchase gold or silver, and wait for its eventual rise to much higher prices, when the proverbial * hits the fan. So that explains the How the Bankers mob has been able to keep the price of gold low.

Panic Will Take the Gold Price to Unsuspected Heights

At present, the rising price of gold is very worrisome for them, as Gold already has seen around 3.5% gains in 2020 and they are now doing everything they can, to stem its rise. Aiding them will be those corporations and private individuals who will liquidate their holdings of precious metals to realise a quick profit. However, an investment firm thinks the yellow metal will out-gain the S&P 500 over the course of this year.

If, in spite of this situation, the price of gold continues to rise because of a gravely increasing amount of world debt issued by Rothschild bankers, the small minority who have been accumulating gold and silver in a listless market is going to turn into a mass of buyers who want to make a profit, and panic may take place which will take the price gold to unsuspected heights. “Wait and see” before buying, may turn into “Do it now!”

About a hundred years ago Von Mises already explained how this will end:

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system is involved.”

If there were any trick left that would save a nation from the effects of overspending, corruption and “printing” money to cover its debts, the Deep State would have discovered and applied it already long ago.

The Deep State’s time is up; President Trump and the Patriots are dropping the proverbial hammer on them. Many, most of them Democratic individuals who went after Trump, have themselves publicly exhibited as DS agents and will soon no longer be able to walk freely through the streets.

Because the false accusation procedures have shown who the real DS agents are. They have no other plan to expel President Trump from the White House. Now, the planned arrests can start soon. This will send a shock wave all over the world. The DS denouement is about to begin, now that many more people in America and hopefully elsewhere in the world have woken up. And once awake, they cannot any longer be soothed to sleep!

Bringing back the gold standard would be very hard to do, but, it would be wonderful; to have a standard on which to base our money. – President Trump and the Patriots are acting on their pro-gold instincts in a big way. Let me explain; President Trump has been able to wield more influence over the Federal Reserve than any other president since the Fed was created in 1913.

Gold is the primary competitor for the U.S. dollar’s top role. And as the American socialists inflate the value of the dollar away, it will make gold all the more attractive.

To the contrary; the Rothschilds are doing everything in their power to keep their entire rickety in tact by means of the IMF, World Bank, BIS, almost all Central banks and the TBTF banks conglomerate structure by opposing any change implementing the Gold Standard.

 “The Rothschild-owned private central banking monopoly’s ‘quantitative easing’ is another word for ‘buyback,’ artificially sustaining a collapsed market. Significant proof of this is the visibly unsustainable financial system structure that is near collapse. Another fact is that the banks are charging individuals ever-higher interest rates even as the Central Banks give the banks ever-cheaper money.

 Moreover, despite Zionist propaganda media cheerleading, the real central bank economy is getting worse by the day, as more of those expensive loans to real people and corporations are going bad.

Maybe that’s why the Rothschild’s World Bank subsidiary warned on December 19th of “the worst debt crisis in 50 years”? Anyhow, the central bank economy is in the process of being destroyed and will be replaced by the people economy, thanks to the relentless efforts by President Trump’s Team and his Patriots.

 http://finalwakeupcall.info/en/2020/02/19/real-money-versus-cryptos-and-currencies/