History rhymes

Credit Bubble Bulletin/Doug Noland

“And what about the possible impact of a positive G20 and momentum toward a U.S./China trade deal? Stocks, no surprise, are readily excitable. For global safe haven bonds, however, it’s of little consequence. How can this be? Because even a trade deal would at this point have minimal impact on what has become deep and rapidly worsening structural impairment. Trade deal or not, Chinese exports to the U.S. will decline, right along with capital investment. Even with a deal, the Chinese financial system faces the consequences of years of rapid expansion as economic prospects deteriorate. Sure, 6% growth as far as the eye can see. That implies a further surge in consumer debt and even more dangerous mortgage finance and apartment Bubbles. Unparalleled overcapacity and maladjustment.”

USAGOLD note:  For Noland, it’s all about China’s internal economy rhyming with the U.S.-based sub-prime debacle of 2007-2008. . . “China’s crisis clock,” he says, “began ticking no later than with last month’s takeover of Baoshang Bank.”


Repost from 6-30-2019

Posted in Today's top gold news and opinion |

Better Business Bureau Five Star Review

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Recent Better Business Bureau Client Review

I made my first purchase of gold about 5 years ago and it was with USAGOLD. They answered all my questions and allowed me to buy a larger amount than they usually allow for a first time buyer. They trusted me and it worked out fine for both parties. Their BBB rating was a big factor in me trusting them. Other firms looked pretty sketchy and I didn’t want to spend that much money on a shaky firm. Since then I have purchased coins quite a few times from USAGOLD and have never been disappointed with the quality of the coins. The whole staff is very professional and courteous and are not pushy at all. They treat you as a friend, not a number. They remember me as soon as I tell them my name. That is a nice feeling. I will continue to buy from them and I highly recommend them.

Jim W.

Scorecard: 38 45 48 53 five star reviews. Zero complaints.
A+ rating. Accredited since 1991.

[Link]

USAGOLD Recommendation: The precious metals industry is unique in the financial industry in that it is not subject to oversight or regulation by third-party government entities like the SEC or CFTC. As such, marketplace forums and feedback sites often serve as a replacement for investors attempting due diligence. While several options can be found, by far the most impartial and least susceptible to vested influence is the Better Business Bureau. When looking at a company’s BBB profile, don’t focus solely on the rating. To be honest, pretty much everybody has an ‘A’ or ‘A+’ rating. What is far more important to assess is the number and nature of complaints, number and caliber of positive and negative reviews, longevity with the BBB, as well as the number of ‘stars’ given a company through the actual customer review system.

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Posted in ClientInsights, Today's top gold news and opinion | Tagged |

Favorite web pages

Daily gold and silver price history
1968 to present

Our Daily Gold and Silver Price History pages are among the heaviest traffic pages at the USAGOLD website. The archived data is licensed from the ICE Benchmark Administration and the London Bullion Market Association and Netdania Creations and run from 1968 to present.  FOREX prices for the day are posted as a live feed and then frozen at the end of each trading day.  These pages are frequented by data gatherers of all descriptions from professors and their students to market professionals and investors – all interested in gold’s price performance both over the long run and within specific time constraints for their own research purposes.

Daily Gold and Silver Price History is another of the quiet pages at USAGOLD that garners significant global interest particularly when the market is moving or breaking news warrants more than average interest. We also invite you to return here regularly – to this Live Daily Newsletter page – for up-to-the-minute gold market news, opinion, and analysis as it happens.

We invite your visit.  We encourage your bookmark.

GOLD • • • SILVER

USAGOLD’s
Daily gold and silver price history pages

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Posted in Favorite web pages, Today's top gold news and opinion | Tagged |

Open letter to Mark Zuckerberg from Steve Forbes

Make the Libra as good as gold

Steve Forbes/Forbes

“Your consultants, like most economists today, will be vociferously opposed to the yellow metal, burdened as they are by ignorance and countless myths and superstitions. This widely shared skepticism will actually be an advantage, as it will keep away well-capitalized imitators.”

USAGOLD note:  Advice delivered with tongue firmly in cheek . . .


Repost from 6-29-2019

Posted in Today's top gold news and opinion |

Soaring gold prices put Indian buyers off ahead of Diwali

INDIA UPDATE

Bloomberg/Swansy Afonso

“India’s festival of lights is bringing little cheer to jewelers in the world’s second-biggest gold consumer.”

USAGOLD note:  We see these stories from time to time talking about dwindling demand in India based on anecdotal evidence.  When the hard numbers come out they tell a different story.  Demand for gold remains strong in India mostly because the currency is losing its purchasing power while the gold price continues to rise in rupee terms.


Repost from 10-10-2019

Posted in Today's top gold news and opinion |

Why central banks are edging away from the dollar

Financial Times/Eva Szalay and Colby Smith

“The US dollar has long towered over global markets and finance. But cracks are starting to appear in the edifice.”

USAGOLD note:  Gold is mentioned as one of the alternatives central banks are deploying to counter over-reliance on the dollar.


Repost from 10-10-2019

Posted in Today's top gold news and opinion |

Gold tracks lower overnight, suddenly bolts higher at COMEX open

(USAGOLD – 10/16/2019) – Gold continued to track south in overnight trading at one point hitting the $1477 mark before suddenly bolting to the upside at the start of COMEX trading.  It is now trading at $1490 – up $8 on the day.  Silver is priced at $17.42 and level on the day.  At the moment, we see nothing in the news significant enough to explain the sudden turnaround with the exception, perhaps, of news out of Europe that the Brexit talks have taken a unsettling turn for the worse. Volatile trading in the British pound, now on the downside, confirms a gloomy outlook – at least for the moment. ZeroHedge reports another possibility for gold’s surge this morning – a surprise oversubscription for available Fed advanced repo funds by about $5 billion ($80.35 billion subscribed, $75 billion offered).

Stewart Thomson takes a philosophical approach to gold’s pricing over the past several days. “It’s been my firm contention,” he says in an article posted at 321Gold, “that rather than roar higher or melt lower, gold is poised to consolidate with sideway action. The $1465 support zone is acting like a sponge more than a trampoline or trap door, and that’s positive. While the Western fear trade gets the most attention from gold market fundamentalists, it’s like the hare while the love trade is the turtle. In the long term, it could be the love trade that drives and sustains gold at prices that currently seem almost unimaginable.”

Quote of the Day
“My next argument for central banks holding gold is that a country’s reserves should be diversified to minimise risk. Research shows that gold is an ideal portfolio diversifier. When I was given the Brunei fund to manage, I had to go on a crash course because I knew nothing about gold management. I took much expert advice and even commissioned, at great expense, advisers to give me an idea of how much gold should be in a portfolio. The boffins who deal with those matters believe that, over a long term, the ideal gold holding in a major portfolio is about 20 per cent. That is because gold is an ideal diversifier as its returns are what is technically known as “negatively correlated”, which means that they operate in a counter-cyclical manner. When bonds and equities fall in price, gold tends to go up.” – Sir Peter Tapsell, speech before Parliament, June 1999

Chart of the Day


Chart courtesy of Animated Stats

Chart note: Fascinating to watch. It takes about four minutes.

 

Posted in Daily Market Report, dailyquotes, Today's top gold news and opinion |

The Bank of England’s golden evolution

Alchemist/Ruth Crowell/Q4-2019

“Today (a sunny day in early September 2019), we hold around 400,000 gold bars in our vaults, currently worth approximately £200 billion, making up 15% of official declared gold reserves globally. We are the largest gold custodian in the UK – we hold over 65% of the gold in London.”

USAGOLD note:  For those with an interest in the central role the Bank of England plays in the upper stratosphere of the gold market.

Posted in Today's top gold news and opinion |

Larry Summers: US economy is just one bad recession away from zero rates or worse

CNBC/Jessica Bursztynsky/10-14-2019

“The United States is just one bad recession away from being right back at zero interest rates or even lower, Larry Summers warned on CNBC on Monday.”

USAGOLD note: File for future reference. . . .from an ex-Secretary of the Treasury and still a major player on the international economic scene.

Posted in Today's top gold news and opinion |

Russia looks at alternatives to dollar for energy transactions

Financial Times/Max Seddon and Henry Foy/10-12-2019

“Russia is exploring currency settlements in euros and roubles for its vast energy exports in an attempt to avoid the dollar and insulate Moscow from the US-led global financial system.”

USAGOLD note:  Russia’s move to replace the dollar in its reserves is the known part of this story.  The unknown is how successful it will be in persuading corporations and countries to settle oil transactions in roubles.

Posted in Today's top gold news and opinion |

The gold price could rise to $2,000 according to analysts

The Motley Fool/Edward Shelton/10-15-2019

“Can the gold price keep rising? Some City analysts certainly believe it can. Here’s a look at some recent gold price forecasts.”

USAGOLD note:  For our regular readers this article is a rehash, but for new visitors it might be worth a visit to see what some major trading desks are forecasting for the price of gold.

Posted in Today's top gold news and opinion |

Dutch central bank: ‘If the entire system collapses, gold will be needed to start over’

ZeroHedge/Tyler Durden/10-14-2019

“An article published by the De Nederlandsche Bank (DNB), or Dutch Central Bank, has shocked many with its claim that ‘if the system collapses, the gold stock can serve as a basis to build it up again. Gold bolsters confidence in the stability of the central bank’s balance sheet and creates a sense of security.'”

USAGOLD note:  Though the public statement from DNB is somewhat surprising, it is no secret why most central banks hold gold in reserve. DNB states the case for gold well. . . . . .

Posted in Today's top gold news and opinion |

Is this the real Golden State?

SafeHaven/Richard Mills/10-11-2019

“Major gold companies are running out of reserves and every year it costs more to mine. That is causing an “existential crisis” for the gold mining industry, as executives at gold producers like Barrick, Newmont Goldcorp, Randgold, AngloGold Ashanti, Newcrest and Kinross, puzzle over how to replace their depleted reserves, where new gold will come from, and how they will deal with the rising costs of extraction.”

USAGOLD note:  In-ground reserves are down 26% from their peak in 2012 due to “a dearth of new big deposits” being discovered. . . .

Posted in Today's top gold news and opinion |

Thinking about buying gold and silver?

Gold in six easy lessons

1. Don’t buy it because you need to make money; buy it to protect the money you already have.

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!


QUESTIONS?
ORDER DESK: 1-800-869-5115 x100/orderdesk@usagold.com

ORDER GOLD & SILVER ONLINE 24-7

Posted in ClientInsights, Today's top gold news and opinion | Tagged |

McKinsey sees ‘ominous’ signs of another Asian debt crisis

Bloomberg/Subhadip Sircar

“More than two decades since the Asia debt crisis gripped the region, global consulting firm McKinsey & Co. is warning that signs of a rerun are ‘ominous.’ Increased indebtedness, stresses in repaying borrowing, lender vulnerabilities and shadow banking practices are some of the concerns cited by McKinsey in an August report.”

USAGOLD note:   Physical gold demand in Asia under these circumstances is stronger than ever.


Repost from 8-20-2019

Posted in Today's top gold news and opinion |

Business Insider: We got a copy of billionaire hedge fund manager Seth Klarman’s letter to investors

Business Insider/Bradley Saacks

“Similar to his billionaire hedge fund counterpart Ray Dalio, Baupost Group CEO Seth Klarman is concerned about an incoming financial crisis as well as political and social tension in the US.”

USAGOLD note: Quite a bit of discussion on what Seth Klarman has to say about the current state of economic affairs.


Repost from 1/25/2019

Posted in Today's top gold news and opinion |

Don’t expect calm markets in October, historically a month for wild swings

CNBC/Yun Li

“There isn’t a lack of catalysts to drive the market crazy, including upcoming trade talks, third-quarter earnings reports and President Donald Trump’s impeachment saga. Over the past 30 years, more than 190 S&P 500 companies have seen a daily move of more than 1% in October, the most companies in any given month, according to Macro Risk Advisors.”

USAGOLD note:  October is the month when markets have been known to go bump in the night.  For details, we recommend a visit to the link above.


Repost from 10-1-2019

Posted in Today's top gold news and opinion |

Does central-bank stimulus mean ‘the end of stock market corrections’?

MarketWatch/Chris Matthews

“’Normally the business cycle is the key driver of asset prices. … But not at the moment,’ [Deutsche Bank’s Torsten] Slok wrote in a Tuesday note to clients. ‘How can the S&P 500 be so high and credit spreads so tight when rates markets are so worried about the growth outlook and therefore the corporate earnings outlook?’”

USAGOLD note:  The answer to the question is that we are in a stock market bubble blown out of proportion by the availability of nearly unlimited credit.


Repost from 10-9-2019

Posted in Today's top gold news and opinion |

The relevance of gold as a strategic asset (2019)

World Gold Council

“Today, gold is more relevant than ever for institutional investors. While central banks in developed markets are moving to normalise monetary policies – leading to higher interest rates – we believe that investors may still feel the effects of quantitative easing and the prolonged period of low interest rates for years to come. These policies may have fundamentally altered what it means to manage portfolio risk and could extend the time needed to meet investment objectives. In response, institutional investors have embraced alternatives to traditional assets such as stocks and bonds. The share of non-traditional assets among global pension funds has increased from 15% in 2007 to 25% in 2017. And in the US this figure is close to 30%.”

USAGOLD note:  Gold is considered to be a “non-traditional asset” in this context, yet in reality, it may be the most traditional asset of them all.  It is wealth in its purest form – a stand-alone asset detached from any counterparty risk.  Simultaneous to this piece’s publication, Azerbaijan’s sovereign wealth fund announced it is looking to add 50 tonnes of gold to its holdings in 2019 and that it is “steering clear of larger bets on bonds and especially equities.”


Repost from 2/8/2019

Posted in Today's top gold news and opinion |

The father of the yield curve indicator says now is the time to prepare for a recession

CNBC/Jeff Cox

“This is the time where you need to reflect upon your strategy. It’s actually easy to manage assets when the economy is booming. It’s much more difficult to manage into a turning point.” – Campbell Harvey, Duke University

USAGOLD note:  Yes.  Well said.  One of the more enduring strategies is to have a hedge in place before that turning point is headlined at all the financial websites.


Repost from 10-9-2019

Posted in Today's top gold news and opinion |

Favorite web pages

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BlackSwansYellowGold
How gold performs during periods of deflation,
disinflation, stagflation and hyperinflation

“That men do not learn very much from the lessons of history is the most important of all the lessons of history.” – Aldous Huxley

Though Huxley’s observation is readily applied to humanity collectively, it does not apply so easily to individual investors. As justification, we offer the ongoing (and long-term) success of the USAGOLD website as well as the soaring statistics on the growth of private gold ownership over the past decade both in the United States and abroad, inspired directly by the lessons learned from financial market upheaval. The following short essays are dedicated to the safe-haven gold investor who, like noted financial author Nicholas Taleb, believes that it is just as important to prepare for what we cannot foresee as what we can.


BlackSwansYellowGold Series

Gold as a deflation hedge

Gold as a disinflation hedge

Gold as a stagflation hedge

Gold as hyperinflation hedge

Gold as the portfolio choice for all seasons

A chronology of panics, mania, crashes and collapses
(400 BC to present)

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Posted in Announcements, Favorite web pages, Today's top gold news and opinion | Tagged |

There are bigger market risks than impeachment

GoldSeek/Frank Holmes

“I see gold as a solution to many of the issues I’ve laid out, whether it’s recessionary spillover from Germany, high debt levels or helicopter money. I’m not alone in thinking this. In a September report, the World Gold Council (WGC) calls the yellow metal ‘the most effective commodity investment,’ adding that ‘allocations of 2 percent to 10 percent in a typical pension portfolio have provided better risk-adjusted returns than those with broad-based commodity allocations.’”

USAGOLD note:  Holmes goes on to make an important point. The very small slice of global capital now devoted to gold among major players leaves room for significant expansion in the future.


Repost from 10-9-2019

Posted in Today's top gold news and opinion |

Gold can’t get off the dime. Standard Chartered thinks retail demand will drive next leg higher.

(USAGOLD – 10/15/2019) – Gold continued to show a reluctance to get off the dime this morning.  It is trading at $1491.50 and level on the day.  Silver is down 7¢ at $17.58.  Meanwhile, markets in general remain precariously on edge awaiting clarification on a long list of concerns to which the turmoil on the Turkish-Syrian border is a new and little understood addition.

None of this is lost on gold investors globally among which funds, institutions, and central banks through their steady acquisitions still drive demand and pricing. StanChart’s Suki Cooper though believes that small private investors are poised to return to the gold market. “Although we’ve seen ETF holdings and tactical investment hitting elevated levels, like peak highs,” she says in a Bloomberg article, “we think retail demand is really going to be what drives the next leg higher. Retail investors almost want confirmation of further rate cuts, some weakness in the equity markets before they move into gold. The next leg higher in 2020 is going to be led by the retail side.”

Quote of the Day
“We should hold our gold. Gold still represents the ultimate form of payment in the world. Germany in 1944 could buy materials during the war only with gold. Fiat money in extremis is accepted by nobody. Gold is always accepted.” – Alan Greenspan, in testimony to the House Banking Committee (1999)

Chart of the Day

Chart courtesy of the World Gold Council

Chart note: “On a net basis, reported year-to-date purchases – of a tonne or more – now total over 450t,” writes the World Gold Council’s Krishan Gopaul. “Of this, a total of 14 central banks have increased their gold reserves so far in 2019, compared to only two that have decreased their gold reserves. Should central banks remain net purchasers this year – which is looking like a racing certainty – it’ll also mark a decade since they switched from being net sellers.”

Posted in Daily Market Report, dailyquotes, Today's top gold news and opinion |

Bank of China executive joins London Bullion Market Association board

Reuters/Peter Hobson/10-13-2019

“The London Bullion Market Association (LBMA) said on Monday a senior executive at Bank of China would join its board.”

USAGOLD note:  The presence of Chinese banks at the London gold fix and as members of the LBMA is a foundational element in the modern gold market.  China, after all, is the largest single source of demand for the physical (not paper) metal.  If an LBMA member, including major commercial banks, central banks and funds want to sell, China can (and likely will) enter its bid. For more detailed information, please see below.

Posted in Today's top gold news and opinion |

Shining a light on Asia (within the context of gold)

The Alchemist/Aelred Connelly interviews the LBMA’s Jeremy East/Q42019

“China remains the largest single consumer of physical gold globally, with estimated annual demand of approximately 2,000 metric tons. . . China is also the largest gold producer in the world, producing approximately 450 metric tons per year.”

USAGOLD note:  The shortfall between the 2000 metric tonnes in demand and 450 metric tonnes is Chinese production is made up from global supply.  We have often wondered: What are the actual sources for that roughly 1500 tonnes China demands annually?

Posted in Today's top gold news and opinion |

Should I buy a gold ETF?
Are you looking for a price bet or the real thing?


For safe-haven, asset-preservation purposes, the best alternative is not futures, options, mining stocks or even ETFs, but delivery of the metal itself in the form of gold coins or bullion.  Some think that owning an ETF is akin to owning real gold, but it is not. It is essentially a price bet simply because only owners of 10,000 ounces or more (with most trusts) can take delivery of the metal represented by the shares. Then there is the problem of counterparty risk. “Unlike physical gold bullion – which is a tangible asset,” says Mauldin Economics’ Olivier Garret, “ETFs are a financial product that have counterparty risk. Counterparty risk is present when there’s a possibility the other party in an agreement will default or fail to live up to their obligations. . .[O]ne of gold’s primary benefits is being the only financial asset that is not simultaneously somebody else’s liability. Therefore, these ETFs are a poor substitute.”  In short, by owning an ETF instead of the real thing, investors expose themselves to one of the primary risks they hope to avoid through gold ownership.

The USAGOLD storage option – strong competition for the ETF
One of the advantages of a gold or silver ETF is that the trustee stores the metal for you and makes it easy to buy and sell. We can open a fully-allocated storage account for you that offers the same advantages. In fact, the annual cost of storage and insurance is actually lower than most ETF fees. You can buy and sell with a phone call. Most importantly, because specific coins and/or bullion are stored in your account, you can still take delivery in part or full whenever you so wish – something, as mentioned above, that the ETFs offer only to their largest institutional clients.


QUESTIONS?
ORDER DESK: 1-800-869-5115 x100/orderdesk@usagold.com

ORDER GOLD & SILVER ONLINE 24-7

 

Posted in ClientInsights, Today's top gold news and opinion | Tagged |

Stock markets have long tails and tiny brains

BloombergOpinion/John Authers

“As yet the equity market seems totally unaffected, with volatile and risky stocks still making the running. Although the brontosaurus has been bitten on the tail, the message has not yet reached its tiny brain, but is proceeding up the long backbone, one vertebra at a time.” – Jeremy Grantham, June 2007

USAGOLD note:  After quoting Jeremy Grantham, Authers goes on to explain what has bitten the brontosaurus’ tail” and finds that the export business globally are in “true collapse.”


Repost from 10-3-2019

Posted in Today's top gold news and opinion |

DoubleLine’s Jeffrey Sherman warns against buying Treasurys, says gold could be smart recession play

CNBC/Thomas Franck

“DoubleLine Capital’s Jeffrey Sherman believes the August rush into Treasurys may have been overdone and said that those worried over a potential economic slowdown in the U.S. may be better served buying gold.”

USAGOLD note:  Sherman puts a degree of separation between financial markets’ two favorite safe havens over the past several months. . . . . .


Image courtesy of Visual Capitalist

Repost from 9-11-2019

Posted in Today's top gold news and opinion |

Buying pullbacks in gold and silver

GoldSeek/Andy Hecht/9-9-2019

“New highs are times to take profits on a scale-up basis, and significant corrections offer the opportunity to step up to the plate and repurchase the precious metals. Unfortunately, the human emotions of fear and greed often drive traders and investors to buy when markets are peaking and sell on days like September 5 and 6. Trailing stops can be useful tools and capital savers during wild bull markets.”

USAGOLD note:  For Investors in the physical metals, i.e., those who have their positions fully paid for and stored safely away, short-term price movements are not usually a matter of concern. For leveraged investors in the futures and options markets, it is a different story.  The short-term is always in such cases a direct and abiding concern. If one fundamentally believes in the metal’s safe haven attributes,  a drop in the price can be seen as an opportunity to acquire portfolio insurance at a more favorable price.


Repost from 9-11-2019

Posted in Gold and Silver Price Predictions from Prominent Players, Today's top gold news and opinion |

Gold in the Attic

Every once in a while we rummage around USAGOLD’s creaky old attic and dust-off a golden vignette from our storied past. Here is a longer piece that first appeared in our monthly client letter in December, 2015.  It considers how the celebrated British economist John Maynard Keynes might have reacted to the current economic predicament in which we find ourselves.  Some have criticized me for lending credence to the work of Keynes, but I try to look past the politics to the man and his philosophy, and from there, make my own judgement as to the value of his work.  This particular piece garnered a very large audience when it was first published and it still attracts readers three years later.  I hope you enjoy reading it as much as I enjoyed writing it.

Keynes on the menace of printing money
How the celebrated economist might have structured his investment portfolio today

“I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago.” – John Maynard Keynes, 1946

John Maynard Keynes made that admission to Henry Clay, a member of the Bank of England’s Advisory Committee, in 1946. Ten days later he passed away. Keynes had come full circle – from economic interventionist extraordinaire to proponent of Adam Smith’s laissez faire. Twenty-five years after that, Richard Nixon would suspend dollar convertibility, scrap the Bretton Woods fixed exchange rate regime system of which Keynes was the principal architect and allow currencies and gold to float freely in international markets. The fiat money system of the late 20th and early 21st centuries was born. Though a radically different system from the one Keynes created in the aftermath of World War II, Richard Nixon declared upon its launch that “we are all Keynsians now.”

One wonders what Keynes might have thought of that declaration. What we came to call Keynsian economics in the years that followed had little to do with the economic picture the most celebrated economist of the 20th century had painted. The free-wheeling post-Bretton Woods system reached its zenith in the aftermath of the 2008 crisis under the baton of Fed chairman Ben Bernanke who directly monetized government debt to the tune of trillions of dollars, bailed out an incorrigible financial sector and made saving at the bank a virtue of the past. When Keynes decried the debauching of the currency, this was exactly what he was talking about. Subsequently, central bankers the world over would follow Bernanke’s example.

Far from the laissez faire economics Keynes endorsed at the end of his life, we have ended up with the exact opposite: A command economy directed by the state and fueled by the beneficent paper money machine of the world’s central banks. Today the world economy floats on a sea of paper money backed by nothing but the promises of the governments that issued it and with little in the way of policy options except to do more of the same. Debasing the currency is no longer something to hide in the back corners of central bank policy, but to be trotted out in full view of everyone including the financial markets. Countries, in fact, compete with each other to see who can devalue their currency fastest. As Richard Russell, the recently deceased critic of central bank policies put it, the mantra has become “Inflate or die!”

Keynes would be buying gold hand over fist

How might Keynes, as famous for his investing prowess as he was for his advice to statesmen, have reacted to these circumstances in his own investment portfolio? Writing in the Wall Street Journal, Richard Hurowitz, publisher of the Octavian report, offers some interesting conjecture on that score:

“Keynes understood that sound money and stable exchange rates were necessary conditions for world prosperity and peace. Contrary to popular belief, he believed that in most cases currency devaluations were counterproductive, their benefits often outweighed by increased domestic costs and the undermining of sovereign credit. ‘There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency,’ Keynes observed in 1919. He consistently argued that a sound currency was critical to a functioning free economy. He understood that such a currency would ultimately create much greater wealth than the endless and vicious cycle of improvisational debasement we see playing out globally today.

Were Keynes alive today, he would likely be arguing along with German Chancellor Angela Merkel for more monetary discipline and a return to a more balanced international system. No doubt, however, his neo-Keynesian acolytes would be dismissing his concerns as hopelessly outdated and reactionary.

Keynes was an economic theorist, but he was also a clear-eyed market analyst, and a passionate and committed speculator for his own account and for Cambridge University. If he took in today’s economic vista of near-zero interest rates and quantitative easing, it is clear that he would be buying gold hand over fist—regardless of what his disciples might think.”

The economic consequences of inflationism

Those of you who read this newsletter regularly will recognize the quote from Keynes about the dangers of currency debasement. It occupies a place of prominence at the top of the page (see upper left column). Keynes first penned those words as a young man in The Economic Consequences of Peace (1919) – a treatise published in the aftermath of World War I. It argued leniency for the defeated Germany and its allies, but it also warned of what he called the “menace of inflationism” in the defeated central European countries.

Here, for the record, is that quote in its entirety:

“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.

Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

It will not escape the notice of the reader that Keynes description of the inflationary process eerily fits the set of social and economic circumstances in which we find ourselves today. Whether or not the advanced economies will proceed from asset inflation to rapid price inflation – remains to be seen, but we should not overlook the fact that the ground has been prepared and the seed sown. In 1919, when Keynes wrote those words, money printing in Germany, its point of reference, had yet to produce price inflation. In fact, the German economy experienced deflation in the period 1920-1921. In the end though, Keynes was right. By 1922 the hidden forces of economic law were unleashed. Hyperinflation gripped the German economy suddenly and with a vengeance.

I believe Hurowitz is right about Keynes and gold. He would have understood the wolf hammering on the door and adjusted accordingly – both in his personal finances and as an advisor to governments. I keep coming back to former Fed chairman Alan Greenspan’s comment last October that “Gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments.”


Posted in Gold in the Attic, Today's top gold news and opinion |