Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

New Uncle Sam Gold Scam

Commodities / Gold and Silver 2010 Aug 27, 2010 - 03:41 PM GMT

By: David_Galland

Commodities

Best Financial Markets Analysis ArticleDavid Galland, Partner, Casey Research writes: The latest data on global gold trends, Q2 2010, just popped into my email box from the World Gold Council. 

The bad news is that the higher nominal price of gold has caused a 5% decrease in jewelry sales over the prior year.


If you’re thinking “Hey, that’s not that bad!”, you’d be right. On this date last year, gold closed at $950… which is $286 below where it trades as I write. In other words, a 30% rise in price has resulted in a decrease of just 5% in jewelry sales.

And even that number is skewed, because the currency value of the gold purchased is up – way up. For example, India – the 800-pound gorilla in the global gold jewelry market – saw total gold jewelry sales fall only by 2%, but in local currency terms, there was a 20% increase in the nominal value of the gold trading hands. China, which only relatively recently reauthorized private gold purchases, saw a 5% increase in jewelry demand, but that translated into a 35% increase in local currency terms.

So, that’s the bad news.

The good news – at least for fiat money skeptics – is that total physical gold demand in Q2 rose by a whopping 36%. More tellingly, the increase was 77% when you take into account the dollar value of the ounces purchased.

As you’ve already figured out, the bulk of the physical demand is coming from investment – with the amount of gold held by ETFs growing 414% over the previous year.

Too far, too fast? I don’t think so.

In my opinion, as the fiat money monsters are brought to bay, the price of gold can really only go higher. Overly confident? I don’t think so.

That’s because when people lose faith in a currency, as they will before this crisis is over, they unfailingly rush to exchange the unbacked paper money for something more tangible. While pretty much anything with an intrinsic value will do – real estate, antique cars, old masters – for all the reasons that Aristotle enunciated, gold is viewed in a class of its own, and so has an unblemished history as a universally accepted store of value. And, thanks to its portability, divisibility, durability, and consistency, it has also always been looked upon as a convenient form of money.

The most pressing macro-observation I’d like to make – an observation that’s critical for investors to understand (though most don’t or won’t) – is that the tectonic monetary shift now underway is truly global in nature. And it’s not going to be over until a new and markedly different monetary regime has been implemented.

It’s like this: Throughout history governments have experimented with fiat money. They have done so because the benefits to the government and the insiders that invariably latch on to power are just so damn attractive. The Romans did it by debasing their coinage, but the modern version goes one better by completely disconnecting a currency from any value whatsoever, and then wantonly printing as politically motivated needs or wants arise.

The latest fiat system kicked off in earnest in 1944 when Uncle Scam, in Bretton Woods, NH, got the leaders of the world’s war-weary countries to agree to accept the U.S. dollar as their reserve currency. In return, the U.S. agreed that the currency notes it would subsequently issue would be convertible into a corresponding amount of gold. Then Tricky Nixon came along in 1971 and canceled the right of the bearer to swap the notes for gold. Overnight, the link between the currency and anything tangible was lost. 

That, of course, opened the door to all subsequent politicians to engage in the whole print, print, print thing. The keystone asset of the former system – gold – soon became a distant memory for the new crop of central bankers and, remarkably, to the bearers of the notes.

For any number of reasons, most of which related to the illusion of increasing prosperity, people simply stopped paying attention to what Uncle Scam was up to. Of course, that illusion was largely based on the increase in nominal wealth: if one year you’re worth $100,000 and three years later you are worth $150,000, the tendency is to feel richer even if your actual purchasing power has gone up by far less or even has declined due to a debasement of the currency.

Today’s dollar is worth just 18 cents in 1971 terms.

But all scams must, in time, come to an end. And that’s what’s going on now. It ends here. Before this is over, the current iteration of the U.S. dollar – the vaporous construct with no actual value – will lose its value as money.

Which brings me to an important nuance in this discussion.

Most failed fiat money experiments involve a single currency. The most convenient recent example is provided by Mugabe’s Zimbabwe. Rather than actually supporting the creation of marketable goods and services in what he sees as his private fiefdom, he took the low road of energetically abusing his fiat currency to the vanishing point.

In a situation such as that, the local citizenry suffers – as well as anyone foolish enough to be holding bonds denominated in the debased currency. But that’s about it.

In the current scenario, the keystone of the entire global monetary system is the U.S. dollar. Which means that the primary reserve holdings of virtually all the world’s significant central banks are at risk of going up in smoke.

And it’s even worse than that, because the dollar is also the number one trade currency – which means corporations around the world are sitting on huge holdings or are dependent on commercial contracts denominated in dollars. 

And even that’s not the end of it. Because Uncle Scam has long served as a role model to other world leaders, those leaders have enthusiastically followed suit and universally launched fiat monetary systems of their own. It’s bad enough that the world’s reserve currency is a fiction – but the situation becomes really dire when you accept as fact that all the world’s currencies are a fiction.

Man, we’re in a lot of trouble.

If you have so far resisted our constant urgings to make gold – which is to say, real money – a core portfolio holding, it’s not too late. Just start buying on the inevitable dips. I can assure you that as the fiat monetary structures continue to crumble – and they will – more and more people will be turning to gold. The latest World Gold Council data is just a straw in the wind.   

In fact, thanks to the convenience of the gold ETFs (which you should make an effort to understand before blindly investing in them – there are important differences between them), once the show really gets underway, the relative trickle of investment funds moving into gold today will quickly become a torrent, completely outrunning available gold supplies and sending prices much, much higher – and in a hurry.

While no one can say when the big spike in gold will occur, one can say accurately that, given the systematic frailty, it could literally happen on any given day. That’s what happens when scams are unveiled. Remember Bernie Madoff? How many people do you think tried to give him money the day after he was arrested, versus desperately scrambled to get their money out of his sticky web? The answers are “No one” and “Everyone” – that’s what happens when people lose faith in a currency.

Of course, gold bullion, and gold bullion proxies, aren’t the only asset classes that will do well in the coming currency collapse. The chart below shows what looks to be a trend change in the gold stocks. In previous recent stock market corrections, people thought of gold stocks more in terms of being stocks and overlooked their direct connection to gold. That appears to be changing, with a divergence between gold stocks and the broader markets. The leverage in gold stocks to gold bullion could make them especially attractive.

Regardless of what you do, do something – because to stumble on as if this crisis will end with a whimper would be a dire mistake.

Gold and large-cap gold stocks can save your wealth when most other assets decline in value. Even in the Great Depression, investors who held both ended up with gains, while others lost everything they had. Read more about how gold and gold producers can shield you from the worst – click here.

© 2010 Copyright Casey Research - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Herb
28 Aug 10, 01:58
Gold

Notice all the, "buy gold now" , "it will soon look cheap" , "gold going to $1500, $3000, heck even $20,000)??

This influx of gold stories tells me one thing, the herd has formed and is molding any piece of data into the "you can't go wrong buying gold stories" Well guess what? You CAN go wrong and all these people selling you gold now will gladly buy it back from you when you bail, selling at $600 because you can't see a bottom any time soon.

The rise in gold is over 10 years old without a significant reversal, can you think of a better time for one? Just look at the charts of late, a slow bump and grind higher, still short of new highs and all this after the World's Reserve Banks are pouring trillions into the economies. The writers of these stories keep telling us gold's price will explode higher, we have been hearing that for two years now but the lackluster moves higher show a tired market. Want to buy at the top and sell at the bottom later, then join the herd and jump on the gold bull now.

The markets have an uncanny way of punishing the herd when the herd is large enough and deeply invested seeing no chance for drop. Today's floggers of gold will be same paople that in 3 months will be saying, "no one saw the big drop coming".

JMHO

Herb


Shelby Moore
28 Aug 10, 15:13
Gold bubble nonsense

Herb, the price of precious metals may dip (even severely), but the top of this secular bull market in PMs will not occur until the REAL interest rates are positive, which won't be until after the western economies implode:

http://www.marketoracle.co.uk/Article20327.html#comment94202

Go out into the street and do a survey of how many people own PHYSICAL gold and for that matter SILVER, and you find that less than 1 in 1000 own physical gold bullion and less than 1 in 10,000 own physical silver bullion. People own jewelry but in insignificant quantities relative to their networth.


Nadeem_Walayat
28 Aug 10, 15:36
Gold bull market

I cannot see any sign of an imminent end to the gold bull market, a year ago gold was at about $950, now its about $1250, thats a 31% gain, its a beautiful bull market to be invested in ! :)

How high ?

Well bull markets usually end in parabolic moves when every one jumps in near the end, so I will wait and watch for when its time to exit.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules