Why gold
Note - this article was originally written when the gold price was hitting "highs" of around $400 and revised a few times till about Nov 2007. Now, in Oct 2010, it has more than tripled that value. USG has run honest people who were protecting themselves and others into the ground and stolen tonnes of gold. Our prediction made then was that Gold and Dow will meet. Our prediction is on track.
Latest research is available at the GSF
Because it works as such. The chief use of Gold is as Money .
Unlike paper money which is destined to inflate out of existence, Gold will continue to hold its own as a store of value. Countries come and go, Gold goes on forever.
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These 5 year chart shows the steady decline in the value of the dollar and the Euro. It costs more and more dollars or Euros to buy gold. As you can see from the charts moving to Euros is not going to safeguard your capital. Owning gold is not an "investment". It is a pure cash position in real money. Central banks are forced to sell gold to defend the value of the dollar and the Euro. As central bank stocks dwindle it is inevitable that gold will show fiat money for its true worth: ZERO. As you can see buying EUROs will not protect your purchasing power. Large purchase? Safeguarding your capital? Contact us for private personal service. |
If you had purchased $100,000 worth of gold when George Bush first became President, you would have bought 384.6 Oz of gold at $260/Oz. Today at 460/Oz that would fetch $176,920 or $100,000 would fetch 217.3 Oz a 43% drop in the purchasing power of the dollar that reflects the doubling of the money supply - the real reason why gas prices has doubled and your house (or gold) is "worth" more. [Note: Since we wrote this essay, gold has gone to $675 today (3 May 2006). 384.6 Oz is worth USD 259,605 - have your stocks, bonds and real estate done as well ?]
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The increase in the money supply otherwise known as monetary inflation results in the rise in price of commodities, especially gold since it is not easily produced. |
Chart: Economagic.com
Central Banks have surreptitiously sold gold to defend the value of fiat currencies. This means that as central banks run out of gold to sell on the market, a point will be reached when the dollar will collapse against gold. To get an idea of this risk, we suggest you read the Sprott Report and the information at GATA, as well as the new Cheuvreux Report.
A secret Plunge Protection Team (PPT) is propping up the stock market. Since the dollar is backed by nothing, it can be whipped out of thin air to purchase stocks on the stock market to maintain confidence in the US economy.
Protect yourselves, use gold as money.
Chart courtesy of Viking Coder. Tip Viking Coder
This chart shows the value of the dollar in gold as a percentage of the 24.75 grains of gold to the dollar defined in the 1792 Mint Act, which Viking calls the Constitutional Dollar. This is simple percentage ratio of what one dollar bought at a given date in grains of gold compared to the mandated value.
As you can see from this chart, the $800+/oz high and the "dramatic decline" in gold price to ~$260 are just quibbles over a few percentage points in the decline in the value of the dollar. The 1971 default by Nixon led to over a 95% collapse in the value of the dollar by 1980 when Paul Volker as chairman of the Fed arrested the sharp decline by raising interest rates to the sky and selling gold - this is how the markets have forced the Treasury to redeem its worthless paper.
The economy stabilized, and people forgot about gold for a while under the heady days of Alan Greenspan. The additional "liquidity" chased assets in the tech boom, causing a massive misallocation of resources while "capitalists" created companies to sell, not survive as a viable corporations. The USD escaping the tech stock bust was skillfully diverted into a froth of real-estate bubbles by Sir Alan Greenspan.
In the last few years in the reign of George Bush II more USD has been created since independence. The effects of this will play out as the purchasing power of the dollar collapses again, and this amounts to a another default by the US on its international obligations - print to pay interest on previous treasury bills. It can also be viewed as a massive tax on the rest of the world which sends the United States goods and services in exchange for worthless digital paper (95% of the Federal Reserve Notes are just entries in a computer).
Housing and Gold Compared
Most people are excited when the value of their house goes up. It seems that they are getting something for nothing... but it is not so: No extra value is created, nor realized. Rising house prices effectively causes you to spend more on housing as a percentage of your pay - a hidden tax collected by the federal government. The next generation is unable to purchase a home with money saved by the family, and is forced into a life of hard work to pay the ever increasing mortgage costs - effective slavery to big government.
 Chart Source: GoldMoney |
This chart from James Turk's excellent commentary series shows how in reality house price measured using an objective standard such as Gold have stayed relatively constant. In fact one should expect new home prices to go down as productivity increases and fabrication techniques improve. |
Gold being fungible and divisible, it makes for far better money than real-estate-as-money. The privacy and liquidity or online in a private currency such as e-gold or Pecunix, the absence of property taxes and tiresome tenants, makes it a far better way to store your wealth.
Rising Oil Prices when Viewed by Gold
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"... this analysis assumes that one barrel of crude equals $100 and 100 goldgrams as of December 1945, and then calculates the month-end price thereafter based on the actual dollar price of crude oil and the prevailing dollar-to-goldgram rate of exchange." Chart and Analysis by James Turk. |
"To those who argue that oil is still cheap compared to inflation-adjusted prices in 1981, I would counsel running to the nearest jewelry store and buying every gold bracelet, necklace and tie pin. In 1981, gold was selling for about $800 an ounce and, adjusted for inflation, it should be selling for $1,700 an ounce today. Given today's price of $450 per ounce, it's clearly a bargain that can't be passed up." From LeMetropoleCafe.
This chart shows the DOW index measured in ounces of gold (dark blue, left vertical axis). The purchasing power of the dollar as a percentage of its constituitional value (yellow line, right vertical axis). This line is mostly flat in the earlier part of the century because the government would redeem the paper dollar at an artificial fixed exchange rate, despite the creation of fractional reserve money in the days when the dollar was nominally backed by the gold exchange standard.
The 1920s
The creation of new unbacked "fractional reserve" money by the Fed since its creation, and the acceleration of this process in the 1920s caused a euphoria in the stock market. The euphoria changes to depression as the wealth stolen by inflation leaves the people poorer than when they enjoyed the easy money, and politicians brought on WWII. The gold confiscation by FDR was merely an overnight correction attempt to being the value of the USD in line with gold reserves.
The 1960s
The end of WWII and the "lets go to the moon" euphoria collapsed with the Vietnam war and Nixon's default. Government had got so big that they thought that they literally could do "anything" - even "go to the moon", "smash the planet"! After all, the had spent enormous sums towards fighting the other big government, namely the USSR and in the process became very similar in size and scope as a result.
During WWII the US Dollar had become the de-facto currency of the world, despite being only nominally backed by gold. It was the complete dominance of the USD, including military dominance that enabled the government to shrug off the default in 1971 - since who could force redemption in gold on such a powerful nation?
The 1970s
The answer is the free market. The socialists and fascists who alternate in power in the USA had the hubris to imagine that since gold was de-monetized, it would become useless. They imagined that they were artificially holding the value of gold up to $35 and that once de-monetized, gold would sink to its worthless nature, perhaps $7 per ounce. However the free market may be blind, but a massive increase in the supply of one money (the USD) and relatively little change in the supply of another money (gold) meant that the market would cause the "value" of gold measured in the inflating currency to soar, and it did.
Over 95% of the purchasing power of the dollar in terms of gold had evaporated by the late 1970s, despite only minor attention from people using money. Paul Volker who was then chairman of the Federal Reserve realized the gravity of the situation and stepped in with a hefty increase in the interest rate, and arranged for the sale of gold to satisfy demand.
The 1980s
This dual strategy of Paul Volker worker a charm in the market. Obsessed with the "price" of gold, many "investors" were "burnt" when the price of gold dropped. The attention of the pseudo-capitalists in American Industry was diverted back to the stock market and the resumption of massive inflation lead to another euphoria. Gold was safely forgotten by "the masses", and fascist-socialism was firmly entrenched in power.
The struggle by private enterprise and people to economize and survive resulted in the innovations in computers, automated manufacturing and unionism. Unions demanded and got the minimum wage, health care and made it very expensive to produce in the USA. Socialism and monetary inflation bled the economy of any productive jobs, while government expanded to absorb the influx of people who could then spend their lives regulating and fighting other people.
In the meantime, the rest of the world was forced to use the Federal Reserve Notes known as the US dollar to trade oil and other commodities. The middle east was under the control of friendly despots who held their assets in US paper. This meant that other nations who did not have oil were forced to sell goods to the United States to obtain dollars which were handed over to the tinpot dictator kings in the middle east who in turn bought US treasury bills.
Strategic Analysis
The effect on resource poor countries was profound. They were forced to compete with each other to sell goods and services (i.e. export wealth) to the United States in exchange for dollars which they used to buy oil, which they then burnt and had to repeat the process all over again. The Federal Reserve whose notes were now backed by the debt and taxes of the American People, more than made up for the outflow of their paper from the US Economy - they could have their cake and eat it too - they could inflate and tax the world.
American manufacturers discovered the flow of goods from nations with no unions or minimum wage laws were undercutting their prices. Manufacturers saw the writing on the wall, and the free market forces them to produce at the cheapest possible price. This is what resulted in the massive "Foreign Direct Investment" in the far east.
However this flood of dollars never reaches the actual manufacturing plants in the far east - it is intercepted by their national governments and "converted" to their local currency - by printing local currency backed by "Foreign Currency Reserves". Of course, these governments add to the inflation in the dollar supply by printing more local currency than the inflow of dollars in order "to maintain their competitive advantage".
This entire charade was in effect a massive tax on the rest of the world - theft by counterfeiting if you will - with the Federal Reserve at the top of the pyramid scheme, and the poorest of the poor paying the costs, and the American people sold into bondage with debt they can never repay.
The massive inflation was used to channel wealth into unproductive and downright destructive purposes - the greatest military on Earth. It is now being used for the logical purpose of enforcing the use of the USD for the purchase of oil. Use it, or loose it - the same position that Hitler and the Germans were in when caught by a run on the reserves of their banks.
Currently we are witnessing the effects of the massive rise in USD circulation. The recent surge - more FRN money created in the last four years than since independence will play itself out, as it has in the past - war and total collapse.
The good news is that real money is available for use: e-gold [defunct courtesy USG] and Pecunix. Make your move before it is too late - it is in your interest to do so, and in the interest of the poor to stop this massive theft by inflation by returning to the use of gold as money.
For more information, read or buy the History of Money and Banking in the United States.
Quotable Quotes
"Almost every time the price of gold rises there's a debate about how much the central banks hold. All the central banks plus the IMF together hold gold worth $400 billion, that's less than the U.S. new debt issuance in a six-month period. So that's not much. And it's said that about half of gold reserves on the central banks' books have in reality already been sold via gold leasing.'' ...Martin Hennecke, Bridgewater Associates Ltd. From LeMetropoleCafe.
Conclusion
As central bank stocks of gold dwindle, there will be less available for them to sell on the market. As more people become aware of the falling worth of their dollar based investments it will become clear that capital preservation is best done via tangible assets such as gold.
Any business with its accounts in US dollars that makes a profit will have to return greater than the amount by which the dollar falls against gold to be considered profitable - this rate of decline sets the effective interest rate in the business environment - if a business is unable to generate profits to meet the decline in value of the US dollar, it will become better to simply hold bars of gold in a vault instead.
Thus it is WORTH IT to purchase and use digital gold as money instead of leaving your paper money in the bank.
In a systemic banking collapse, it will be impossible to recover more than the current Cash Reserve Ratio of 0.94% (94 cents in cash for every $100 deposited in the bank). FDIC "insurance" will mean you get to fill out a form to get back paper money that could be worthless post a banking collapse.