When the United States owned
most of the gold on Earth
Chart courtesy of GoldChartsRUs
Few Americans know that just after World War II the United States owned most of the official sector gold bullion on earth – about 22,000 metric tonnes or 80% of the world total. As part of the 1944 Bretton Woods Agreement, though, the United States allowed unrestricted redemptions from its reserves at the benchmark rate of $35 per ounce. In the 1960s, a group of European nation-states, led by Germany and France, got the idea that U.S. trade and fiscal deficits had undermined the dollar, making gold a bargain at the $35 benchmark price.
Steadily over the next decade, they exchanged dollars for gold at the U.S. Treasury’s gold window. By the early 1970s, 14,000 tonnes of gold – or 64% of the stockpile – had departed the U.S. Treasury never to return. The transfer of gold finally ended in 1971 when President Nixon halted redemptions, devalued the dollar and freed the greenback to float against other currencies.
The era of global fiat money with the dollar as its centerpiece had begun. Gold went from its official role as backing the dollar to one as a hedge among private investors against its depreciation. Since that role reversal, gold has risen in fits and starts from the $35 official benchmark in 1971 to a peak of over $1900 in 2011. It is trading now in the $1300 range. For the central banks that made those original redemptions at $35 per ounce, the gains have been extraordinary – over 3700% at current prices or 7.5% annually compounded over the 47-year year period. Simultaneously, the dollar lost 84% of its purchasing power. In short, for those central banks that redeemed their dollar for gold in the 1960s, gold lived up to its historical billing as a means to long-term asset preservation.
Will 2019 be the year of the big breakout for gold?
“In each of the last three years, gold has gotten off to a strong start only to fizzle as the year moved along. Will 2019 be the year gold finally breaks the pattern? A good many investors, fund managers and analysts think that 2019 might very well be the year when gold breaks the restraints and pushes to higher ground. One of those is Carter Worth of Cornerstone Macro in New York who CNBC’s Melissa Lee refers to as “the chart master.” In a recent interview with Lee, Worth referred to a rendition of the long-term chart below saying that there is “a well-defined set-up and a lot of tension.” He says that combination is going to resolve to the upside – “a breakout to all-time highs.” With respect to gold’s relationship to the dollar, Worth says “Gold’s got its own momentum now. . .It is all setting-up for higher gold prices and trouble for equities, trouble for the economy.”
Gold coins, hoofs found in 2,000 year old Chinese tomb
“Chinese archaeologists. . . discovered 75 gold coins and hoof-shaped ingots in an aristocrat’s tomb that dates back to the Western Han Dynasty (206 BC – 24 AD). The gold objects — 25 gold hoofs and 50 very large gold coins — are the largest single batch of gold items ever found in a Han Dynasty tomb. They were unearthed from the tomb of the first ‘Haihunhou’ (Marquis of Haihun) in east China’s Jiangxi Province. The coins weigh about 250 grams each, while the hoofs’ weights vary from 40 to 250 grams, said Yang Jun, who leads the excavation team.” – Xinhuanet/11-17-2015
USAGOLD note: These gold artifacts were found along with a portrait of Confucius, perhaps the oldest known. Wisdom and gold make easy company. Confucius once said something that has current applicability: “In a country well governed, poverty is something to be ashamed of. In a country badly governed, wealth is something to be ashamed of.” Or at the very least, well-hedged . . . . . . . .
Gold in six easy lessons
1. Don’t buy it because you need to make money; buy it to protect the money you already made.
2. Don’t look at price as a barrier; look at it as an incentive.
3. Don’t buy the paper pretenders; buy the real thing in the form of coins and bullion.
4. Don’t fall prey to glitzy TV ads; do your due diligence instead.
5. Don’t allow naysayers to divert your interest; allow yourself the right to protect your interests as you see fit.
6. Don’t forget the golden rule: Those who own the gold make the rules!
Worry about the return ‘of’ your money,
not just the return ‘on’ it
“To be fair, the fiscal side of our current system has been nonexistent. We’re not all dead, but Keynes certainly is. Until governments can spend money and replace the animal spirits lacking in the private sector, then the Monopoly board and meager credit growth shrinks as a future deflationary weapon. But investors should not hope unrealistically for deficit spending any time soon. To me, that means at best, a ceiling on risk asset prices (stocks, high yield bonds, private equity, real estate) and at worst, minus signs at year’s end that force investors to abandon hope for future returns compared to historic examples. Worry for now about the return ‘of’ your money, not the return ‘on’ it. Our Monopoly-based economy requires credit creation and if it stays low, the future losers will grow in number.”
Bond-fund guru Bill Gross posted that piece of advice in his Investment Outlook column back in 2016. It still applies today – maybe even more so now than it did then. In the wealth game, emphasize defense when you need to, offense when it makes sense. At all times, remain diversified. And by that, we mean real diversification in the form of physical gold and silver coins and/or bullion outside the current fiat money system. There is nothing wrong with owning stocks and bonds. Realize though that these assets are denominated in the domestic currency. If it erodes in value, the underlying value of those assets erodes along with it. A proper diversification addresses that problem now and in the future. Bill Gross, by the way, has recommended buying gold on a number of occasions over the years.
For gold . . .
It is not a question of if, but when
The lesson is one as old as the gold market itself: The best time to buy is when the market is quiet – a strategy that requires both discipline and conviction. As an old friend and client used to say (he passed away years ago): “It is not a question of if, but when.” He accumulated a large hoard of the metal in the 1990s and early 2000s between $300 and $600 per ounce and lived to see his prediction come true. His estate though was the ultimate beneficiary of his wisdom. He was not one to sell gold once he had acquired it. We chatted regularly on the phone back then and I told him that I had used the story just told in one of my newsletters. He was in his late 80s at the time. “Tell them,” he said resolutely, “that I bought my first ounce of gold at $35.”
“The possession of gold has ruined fewer men than the lack of it.”
– Thomas Bailey Aldrich –
Gold mine production by country
Divergent paths among the major global producers tell an important tale
When you take in the table to the left, it inspires little beyond a shrug until you consider the policies toward gold of the countries involved. China, for example, is the world’s top gold producer, but its production is essentially sequestered, i.e., it stays in the country and winds up at the central bank as part of its monetary reserves. Russia, the world’s third largest producer, also channels its production into central bank reserves. Thus, 23% (700+ tonnes) of the world’s gold production in 2017 did not see the light of day on international markets. Of the top-ten producers that still make their production available to the rest of the world, production is level for two – the United States and Australia. Of the three countries experiencing production growth – Canada, Russia and China – only one, Canada, makes its production available in international markets.
In short, the world is a different place now than it was prior to the 2008 financial crisis in terms of gold production. Should physical demand soar once again as it did in the 2009-2013 period, we could get the same price response we did then. Even as it is, substantially less metal is reaching the marketplace at a time when central banks have become net buyers of the metal and investor demand, though presently in a lull, is generally on the rise.
The trends now favor “strong-handed” long-term gold investors holding for asset preservation purposes and capable of weathering the market’s ups and downs. As for the official sector, the trend toward building gold reserves is likely to continue. More and more emerging countries are likely to see diversification as in their best interest while established states are likely to hold close the gold reserves they already own.
One for the history buffs:
730 years of a strong British pound ends
in 1931 with gold standard exit
Sources: Bank of England, ICE Benchmark Administration Limited, St. Louis Federal Reserve [FRED]
The St. Louis Federal Reserve recently released this interesting chart on consumer prices from 1209 to present. We added the price of gold to show the direct relationship between declining purchasing power in the British pound and the sterling price of gold after 1931, the year Britain departed the gold standard. Prior to 1931, there was an occasional minor bump higher in the price of gold, but for the most part, it followed along the same flat line as consumer prices. It was only after Britain separated the pound from gold in 1931 that the price began to move radically higher in terms of the currency. It gained significant momentum after 1971 when the Bretton Woods agreement was abolished. Currencies and gold were then allowed to move freely in international markets. Though interesting from a historical perspective, the real lesson in this chart is that when a nation-state goes from gold-backed to fiat money, gold coins and bullion become a logical and worthwhile alternative for citizen-investors – even after 730 years of relative price stability.
$200 billion in gold sits beneath
the streets of London
“One historical nugget of note: During WWII, the vaults served as bomb shelters. By that time, though, the gold they held had been secretly shipped to Canada, in case the Nazis overran London. ‘It’s all very James Bond,’ says the Sun of the relatively old-school security still in effect—access involves 3-foot-long keys. ‘You can’t visit the gold, of course,’ observes a post at Atlas Obscura.” – Luke Rodney, Newser
USAGOLD note: The Canada shipments seem to be much rigmarole over a barbarous relic, one would think. Here’s a photo of Queen Elizabeth amidst all that gold in December 2012 – a relic no more, but a very present and important component of reserves in nearly all the primary developed economies. The World Gold Council recently reported the strongest demand for gold among central banks in 50 years. Britain once owned one of the largest gold hoards on Earth, but most of the gold in this room belongs to other countries who deposited it with the Bank of England.
Copernicus on the debasement of money
“Although there are countless scourges which in general debilitate kingdoms, principalities, and republics, the four most important (in my judgment) are dissension, [abnormal] mortality, barren soil, and debasement of the currency. The first three are so obvious that nobody is unaware of their existence. But the fourth, which concerns money, is taken into account by few persons and only the most perspicacious. For it undermines states, not by a single attack all at once, but gradually and in a certain covert manner.” – Copernicus, Essay on the Coinage of Money (1526)
Few know that Copernicus applied his genius to the insidious effects of currency debasement. The ground-breaking essay linked above probably influenced both John Maynard Keynes (See below) and Thomas Gresham of “bad money drives out good” fame. Supply Side Blog’s Ralph Benko says Copernicus’ essay “has been translated into English several times yet those translations remained difficult to obtain for students of the monetary arts and sciences. It has remained mostly the property of elite historians.” Above we link Edward Rousen’s translation that you might keep company with the knowledgeable elite.
It cost 8¢ to mail a one-ounce letter in 1973 as indicated by the commemorative Copernicus stamp shown above. It costs 55¢ today – an illustration of his assertion that currency debasement “undermines states, not by a single attack all at once, but gradually and in a certain covert manner.” The post office increased the cost of mailing a letter by 5¢ – to 55¢ – beginning in 2019.
“By a continuing process of inflation governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.” – John Maynard Keynes, The Economic Consequences of Peace (1919)
A very old yet very new thought
from Mr. Charles Dickens
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.” – Charles Dickens, A Tale of Two Cities (1859)
USAGOLD note: Things change little. Things change a great deal. The opening passage to A Tale of Two Cities (1859) – a very old yet very new thought.
“This MMT sounds like a recipe for immense inflation, even hyperinflation. You are spending all this money directly into the economy. It will drive consumer prices through the attic roof, you say. This is crackpot. A witch’s sabbath of inflation would surely result. Yes, but here the MMT crowd meets you head on… They agree with you. They agree MMT could cause a general inflation, possibly even a hyperinflation.”
USAGOLD note: Modern Monetary Theory (MMT) is neither modern nor a theory. John Law, the Scottish financier, tried a version of it exactly 300 years ago (1717-18) in France.* He did so with the blessing of the French monarchy and with a rationale very similar to MMT’s proponents today. In the end, Law’s theories (to his surprise if we are to believe the historical account) bankrupted the French people and the government, reduced the economy to ashes, and created such a distaste for paper scrip among the citizenry that it took 80 years for France to reintroduce paper money as a circulating medium.
“The shrewder speculators* became alarmed. They began to sell their shares of stock, and hoard in gold the enormous wealth they had acquired. This resulted in a demand on the government for metal in exchange for its paper, and soon the government had no metal to give. Then the crash came. Those who had the government paper could buy nothing with it. Those who held the Mississippi stock could scarce give it away. It was worthless. The government itself refused to accept its own paper for taxes. A few lucky speculators had made vast fortunes; but thousands of families, especially among the wealthier classes, were ruined.” – Edward S. Ellis and Charles F. Home, The Story of the Greatest Nations (1900)
* Please see this link for a summary of Law’s Mississippi Company land scheme.
Image by Internet Archive Book Images [No restrictions], via Wikimedia Commons/The Mississippi Bubble, Street of Speculators/The Story of the Greatest Nations/Edward S. Ellis and Charles F. Home (1900)
Repost from 2-4-2019
‘Wannabes’ and ‘Gonnabes’ not the real thing
“Gold has often been referred to as a relic. But from a behavioural perspective, this may also mean it is ingrained in our subconsciousness and related actions. Put differently, as long as humans remain tangible, it is likely that they maintain a desire to hold real and tangible assets. Very few companies on the US stock exchange, for example, are older than 50 years. By comparison, gold has existed for thousands of years and any gold coin or gold bar will most likely outlive any company and their stocks and bonds. Put together, it is unlikely that a company that sells claims on gold, such as a gold ETF, will beat physical gold’s longevity.” – Dick Baur, Professor of Finance, University of Western Australia (Why ‘digital gold’ won’t ever kill off the real thing)
Wannabe and gonnabe paper gold will never pass for history’s time-honored store of value – nor will it be mistaken for actual gold coins or bars stored nearby should the cold wind blow. By the way, adding the word, blockchain, to a paper gold product might enhance its marketing appeal, but it changes nothing in terms of its usefulness to the investor. The instrument is still paper gold and little more than a price bet.
Two legendary central bankers embrace gold
All is not well with the economy. Growth rates continue to remain stubbornly low in the United States and at recessionary levels in much of the rest of the world. The Financial Times described the prevailing mood at the recent Davos conference as “a lot more gloomy” with attendees saying global growth is “likely to slow amid global uncertainty.” A recent Gallup Poll taken in January found that “Americans’ outlook for the economy has soured in the past two months, with 48% now saying economic conditions are worsening – up from 45% in December and 36% in November.”
In The End of Alchemy (2017), Mervyn King, the former governor of the Bank of England, writes of central banks’ frustration in dealing with the persistently stagnant global economy. “Central banks,” he says, “have thrown everything at their economies, and yet the results have been disappointing, Whatever can be said about the world recovery since the crisis, it has been neither strong, nor sustainable, nor balanced. . . [W]ithout reform of the financial system, another crisis is certain – sooner rather than later.”
“Our problem,” Alan Greenspan once said, “is not recession which is a short-term economic problem. I think you have a very profound long-term problem of economic growth at the time when the Western world, there is a very large migration from being a worker into being a recipient of social benefits as it is called. And this is legally mandated in all of our countries.” The western world, he concludes, is headed to “a state of disaster.”
It is interesting to note that both Greenspan and King, two of the most respected central bankers in modern times, have embraced gold since leaving their respective posts. The former Fed chairman has consistently suggested that gold is “a good place to put money these days given the policies of governments.” The former governor of the Bank of England says that he is “very struck by the fact that over many many years, central banks, governments and individuals have always, despite the protestations of economists, held some gold in their portfolio. . .[W]hen unexpected things happen, particularly when governments rise and fall, then gold is a means of payment that everyone is always prepared to accept. And I think that’s why even central banks have always had a role in their portfolios for gold.”
“Bear markets are sneaky beasts. . .”
“Bear markets are sneaky beasts and they like to do their damage as secretly and as unobtrusively as possible. I hate to say it but somewhere ahead, the bears going to get it all together and the innocent little stream is going to turn into a waterfall. What can you do about it? Stay out of the market? Protect yourself by remaining in pure wealth, gold. For thousands of years, silver and gold have been treated as pure wealth. As the standard measures of wealth (stocks and bonds) have deteriorated, veteran investors have forgone profits and moved their assets into pure wealth.” – Richard Russell, King World News, 2016
USAGOLD note: King World News called the late, great Richard Russell – who regaled us with his wisdom in the Dow Theory Letter for nearly half a century – “the greatest financial writer in history.” A Mish Shedlock warning recently that Americans should expect a “Lost Decade” and that the stock market rout is “just a start,” lit the memory banks and sent me off searching for this old quote. We can only guess what Russell would have had to say about the current state of affairs, but the quote above provides a clue. Never predictable in his opinions, he was rock solid on one axiom throughout his career – the necessity and transcendence of gold as a permanent component of the well-balanced investment portfolio. As he said, so often, it helped him sleep at night.
Stuck in a fiat dollar world
for some time to come
“For all its problems, the current dollar-based non-system has been far more resilient than the Bretton Woods gold-exchange standard, which never operated as White intended. And the real alternatives — a classical gold standard, in which interest rates are driven by cross-border gold flows; or a supranational currency, like Keynes advocated at Bretton Woods — are likely to remain too radical politically. We are, therefore, almost surely stuck in a fiat dollar world for some time to come.” – Benn Steil, Council on Foreign Relations
Those of you who frequent this page will recall previous references to Benn Steil’s gold advocacy. Steil, who is the director of international economics at the Council on Foreign Relations, sees central banks’ utilizing gold as a reserve asset to the offset the risks of holding national currencies as opposed to direct backing for the dollar. In this respect, his thinking is closely aligned with that of Nobel Prize winner, Robert Mundell, who also proposed the use of gold for the same purpose to the European Union at the inception of the euro.
In the essay linked below Steil provides a brief but revealing history of the transition from the late-1960s, early-1970s gold-based system to the dollar-based system under which the global economy functions today. He includes a number of interesting stories about the countries and people involved. Few people know, for example, that France dispatched a battleship in the early 1970s to New York harbor to pick up its gold deposited at the New York Federal Reserve.
In the absence of a gold standard, the best recourse for the average investor is to put one’s portfolio on the gold standard through a diversification in physical coins and bullion. We agree with Steil: “We are almost surely stuck in a fiat money world for some time to come” with all its attendant risks.
Adopt a gold-backed dollar? This is what happened the last time we tried
The stock market faces ‘unlimited downside risk’
“There is unlimited downside risk in the market right now and I don’t think it’s being respected. It’s not until afterwards that they ask, ‘what happened? The Fed, the Trump, the ebola, or whatever excuse du jour is being regurgitated on the various media outlets. The only one to blame is ourselves.” – J.C. Parets, All Star Charts, as reported by MarketWatch
USAGOLD note: Especially if one fails to properly diversify. “We have met the enemy,” as Walt Kelly of Pogo fame once put it, “and he is us.”
Full article: The stock market faces ‘unlimited downside risk,’ warns veteran trader / MarketWatch / 10-24-2018
“The durable market rise that began March 6, 2009, is as intoxicating as the Lehman anniversary should be sobering: Nothing lasts. Those who see no Lehman-like episode on the horizon did not see the last one.”
USAGOLD note: This time around no one can claim that they weren’t warned or that they didn’t see it coming as was universally the case in 2008. Now the warnings come almost daily.
Repost from August 19, 2018
“In his most recent call, [John Hussman] argued that measured ‘from their highs of early-2018, we presently estimate that the completion of the current cycle will result in market losses on the order of -64% for the S&P 500 index, -57% for the Nasdaq-100 Index, -68% for the Russell 2000 index, and nearly -69% for the Dow Jones Industrial Average.’”
USAGOLD note: Trees, as Richard Russell used to say, do not grow to the sky.
Repost from July, 2018
The more things change the more they stay the same
In reading a recent piece of wayward analysis concluding that gold was headed below the $1000 level, I was reminded of an old Murray Rothbard quote that I first encountered when I entered the gold business in the early 1970s. He included it in the intriguingly titled pamphlet, What Has Government Done to Our Money:
“All pro-paper economists, from Keynesians to Friedmanites, were now confident that gold would disappear from the international monetary system; cut off from its ‘support’ by the dollar, these economists all confidently predicted, the free-market gold price would soon fall below $35 an ounce, and even down to the estimated ‘industrial’ nonmonetary gold price of $10 an ounce. Instead, the free price of gold, never $35, had been steadily above $35, and by early 1973 had climbed to around $125 an ounce, a figure that no pro-paper economist would have thought possible as recently as a year earlier.”
As you can see, even when gold was trading at $35, its adversaries were predicting lower prices ($10 per ounce), and even then under the flimsiest of arguments. Its ‘industrial” nonmonetary price? How is that different from its monetary price? Ultimately in that first leg of gold’s long-term bull market, it went well over $800 per ounce – a far (very far) cry from $10!
The lesson in all this? The more things change, the more they stay the same. Gold’s critics have not changed their tactics over the years, and they are not likely to anytime soon. Make your own assessment on gold and develop a strategy that makes sense for you. The worst thing you can do if you don’t own gold, or don’t own enough, is to allow yourself to be sidelined by predictions that may or may not be based on a realistic assessment of the markets, gold and the economy.
— Michael J. Kosares
Image courtesy of the Mises Institute
What Has Government Done To Our Money/Murray Rothbard/Mises.org/Pdf download
Trees don’t grow to the sky
“In the end, trees don’t grow to the sky, and few things go to zero. Rather, most phenomena turn out to be cyclical.” ― Howard Marks, Oaktree Capital
Marks’ observation resides at the philosophical core of the enlightened gold owner. Why? Because he or she understands the cyclical certainty (or is it uncertainty?) of markets and the economy, indeed the cyclical certainty in the grand scheme of things of which the investment markets are only a small part.
“A true cycle,” says historian Arthur Schlesinger, “is self-generating. It cannot be determined, short of catastrophe, by external events. Wars, depressions, inflations may heighten or complicate moods, but the cycle itself rolls on, self-contained, self-sufficient and autonomous. . .The roots of cyclical self sufficiency lies deep in the natural life of humanity. There is a cyclical pattern in organic nature — in the tides, in the seasons, in night and day, in the systole and diastole of the human heart.”
At no point along the historical continuum are we ever at an end, nor are we ever at a beginning, and all along the way the twists and turns of the cycle will be sudden and unpredictable. That, in a nutshell, is why people own gold.
In the end, the enlightened gold owner might buy into the latest investment fad and run with the crowd, if he or she so chooses. It is fundamentally better though to engage the madness of crowds with one’s safety net solidly in place.
I will leave you with a final observation from the famed investor, Bernard Baruch, one of the original Wall Street contrarians who made a fortune betting against the crowd. In the late 1920s, he became a gold owner because he was “commencing to have doubts about the currency.”
“Have you ever seen in some wood,” he asks, “on a sunny quiet day, a cloud of flying midges — thousands of them — hovering, apparently motionless, in a sunbeam? …Yes? …Well, did you ever see the whole flight — each mite apparently preserving its distance from all others — suddenly move, say three feet, to one side or the other? Well, what made them do that? A breeze? I said a quiet day. But try to recall — did you ever see them move directly back again in the same unison? Well, what made them do that? Great human mass movements are slower of inception but much more effective.”
Image by derivative work: Pbroks13 (talk)Archimedian_spiral.PNG: User Mets501 on en.wikipedia (Archimedian_spiral.PNG) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], via Wikimedia Commons
Gold’s transcendence in the fiat money era
Whenever you are concerned about gold’s price performance, please return to this chart. It restores one’s faith in the metal without reservations. Many paragraphs could be written about what you see in this chart, but it speaks for itself. At a glance, it tells us why gold in the fiat money era (in which we are still firmly ensconced) is a good thing to own. Simply put, it transcends. . . . . . .During the gold standard era, the chart is a flatline. The day the United States severed the dollar’s tie to gold, it registered a pulse.
Gold is deeply rooted in Chinese culture
“To anyone familiar with Chinese culture it is obvious that gold enjoys a very high status there. There are different theories explaining this phenomenon, sometimes linking it to Taoism or Buddhism. Buddhist temples across Asia share the same passion for gold, just to name the Grand Palace located in Thailand or The Potala Palace located in Lhasa. The same can be witnessed in The Palace Museum located in Beijing, China. The complex used to serve as the home of emperors and their households for almost 500 years. Today it is a museum where its exhibitions showcase Chinese history and arts. One can see how golden elements were important throughout the past. It is worth to note that when the complex was being built (the process started in 1406) the floors of major halls were paved with ‘golden bricks’ baked with clay.” – Sylvester Majewski, Finance Magnates
USAGOLD note: This quote offers an inkling of China’s deep, centuries-old attachment to gold – a cultural standard likely to drive demand as long as there is savings and capital in that country that can be directed to ownership of the metal.
Gold’s opponents can only win the occasional battle.
They can never win the war.
If the pressure exerted by the traders of gold paper were powerful enough to overcome the reality of a shortfall between production and supply in the physical gold market, the price never would have traversed the enormous gap between $250 per ounce in 2000 and $1850 per ounce in 2011, and roughly $1225 per ounce at present. So no matter how much we lament the impositions of paper traders, i.e., their corruptions of the market and restraints to the upside, gold’s opponents can only win the occasional battle; they will never win the war. With that in mind, the paper traders must equally curse the ever-present power wielded by physical buyers of the metal. Over the years, the true believers in the precious metals who understand these realities have only viewed episodes of price suppression as buying opportunities.
Investors hoarded gold in the Mamluk dynasty 15th-century inflation crisis
“[Fifteenth century Scholar-historian] Al-Maqrizi observed the effect of a liquidity crisis on the Mamluk dynasty in the early 15th century that caused money circulation to dry up. The solution was mass enforced currency devaluation through replacing the gold-and-silver-based Dinar, with copper coinage, or Fulus, and for a period the Mamluk economy recovered rapidly as trade once again flowed freely. However, inflation soon crept in and prices ran out of control as the currency was repeatedly debased. All the while gold hoarding was taking place behind the scenes.” – John Ficenic, The Telegraph
USAGOLD note: Some things never change. . . .”As central banks race to devalue currency,” says Ficenec, “private individuals are hoarding record amounts of gold.” And, we might add, so are central banks, funds and institutions – even now when the inflationary winds remain subdued.
Image by American Numismatic Society [CC0], via Wikimedia Commons [Edited], gold Dinar ca 1468