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Guest Post: Gold Will Soar as the U.S. Dollar Bubble Bursts
Submitted by Mike Krieger of Kam LP
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
- Thomas Jefferson
Gold Will Soar as the U.S. Dollar Bubble Bursts
I haven’t taken the time to write about gold in length as of late because quite frankly there is so much quality stuff being written about it at this point. In addition, the understanding of the monetary system and the dangers of fiat money in general is so much better than it was even a year ago. Nevertheless, while the understanding is considerably better it remains poor. While it has become a bit cliché, the statement that “gold is not going up but the dollar is going down” is the most important concept for every investor and indeed citizen to understand at this point. Completely wrapping one’s head around this concept may very well be the difference between economic survival and complete destruction in the years ahead. For when you truly comprehend this notion you stop thinking about gold in terms of its price and you can then make a rational decision about where it is going. Gold is not up 23% this year to $1,345/oz, rather the U.S. dollar has depreciated by 23% versus the world’s neutral money supply, gold. As we all know by now, there is no limit to the amount of money Banana Ben Bernanke can or will print. Thus, gold’s theoretical upside is infinite in a purely paper money world. Once you understand this, you recognize that gold is not the bubble but rather the biggest bubble on planet earth today is the U.S. dollar itself.
The Dollar Bubble Grows as FX Reserves Surge Globally
French enlightenment giant Voltaire said back in the 18th century that “paper money eventually returns to its intrinsic value – zero.” Indeed, this is the basic economic history of the world and not really such a profound statement, yet most people in the United States today have no idea what sort of immovable force they are fighting against by storing a their “wealth” in increasingly worthless pieces of paper backed by nothing that we call U.S. dollars. One of the most bullish factors behind the current gold bull market and one that will drive the price multiples beyond where it stands today receives much too little attention. While a lot of attention is placed on the low percent of FX reserves that are held in gold by the BRIC nations and other fast growing emerging economies what is not discussed is that rate at which these FX reserves are growing in the first place. While the fact that China’s FX reserves soared to $2.65 trillion as of the end of September made plenty of headlines, not enough people pointed out the fact that this represents a 17% year-over-year growth rate. The implications of this are clear. Everyone knows that the BRIC nations and many others own a woefully inadequate amount of gold in tonnage terms, but especially with respect to a percentage of total FX reserves. While the latest Chinese gold data is only from April 2009 and the amounts are surely considerably higher, this is beside the point I am trying to make. The key point is that if it’s FX reserves are growing at 17% then China has to increase its gold reserves by that amount just to keep the % FLAT. Forget about increasing it. It’s not just China though. It is the whole world. Russia’s FX data recently came out and guess what? FX reserves soared 19% year-over-year to $503 billion. Russia provides more up to date data on its gold reserves and they are actually up 27% year-over-year. Nevertheless, Russia has previously stated that it wants it share of gold to reserves to get to10%. Despite the tremendous buying the percentage has only been moving up slowly and currently stands at 6%. This is a function of the dollar bubble and the impact it has had on Russia’s FX reserves.
What investors seem to overlook is the fact that when countries fight back in this highly destructive currency war they print their own currencies and then buy dollars to keep their currencies from appreciating too rapidly. Let’s take a look at Brazil. They have been in the news lately as the Finance Minister has made a stink about the U.S. policies with regard to the way the FED is defiling the dollar. They have been all over the market trying to prevent a more significant appreciation of the real. Well guess what? As of the latest FX data they now have $283 billion in reserves, which represents an incredible 21% increase year-over-year. Unfortunately for Brazil, they basically have no gold and don’t appear to be buying. Perhaps the leaders over there just don’t have a clue, or perhaps it’s because they don’t have nuclear weapons. If you take a look at the countries with massive and growing FX reserves the ones that are actively and aggressively buying gold have either nuclear weapons or some sort of significant military deterrent to the U.S. Look at Japan and South Korea on the flip side. Japan has about 3% of its FX reserves in gold and South Korea has 0.2%. More importantly, neither nation has been adding to their stockpiles. While South Korea made some comment about adding gold they probably will have to think twice considering the troops we have in their backyard.
Sadly enough, many of the fastest growing countries in the world simply do not have the geopolitical might to shift some of their increased dollars into gold. At least not officially or out in the open. This is probably partly why they are so angered by U.S. dollar policy. Essentially we are stuffing ticking time bomb assets into their FX reserves (dollars and dollar related assets) and they are forced to accept these soon to be confetti “assets” as payment. Jim Rickards wrote an excellent piece a while back where he likened U.S. treasuries to opium that the British forced the Chinese to accept as payment during the 19th Century. The article is excellent and can be read here http://www.dailypaul.com/node/144070.
Buy Physical Gold While You Can
Fortunately, we as American citizens do have the right to buy as much physical gold as we want at this stage and now is the time to do so. By saying this I do not mean that gold cannot go down from here. Of course, if the markets experience a huge spasm after the elections and the next Fed meeting, gold could certainly pullback violently. The people that I am trying to reach today are those that have not yet bought a reasonable amount of physical gold (not GLD!!!). This is because I think the window of opportunity to buy at anywhere near the current level is fast closing. Pretty soon, it is going to be clear to everyone exactly what is being done to the dollar and what this means. Think about it this way. There are roughly 230 million adult Americans around today. What if each one of them realizes that what Thomas Jefferson warned about in the quote at the top has already happened. Go back and read that quote and think about the Fed, the bank bailouts and the foreclosure scandal. This is the oldest trick in the book and we continue to fall for it while mindlessly watching Snookie prance around on the Jersey Shore. What if this awakening caused each adult to go out and buy just ONE ounce of physical gold. This amounts to over 7,000 tons!!! This is only slightly below what the U.S. government supposedly has stored in Fort Knox and elsewhere. It is 2.8 times the amount of gold that is mined each year. While I understand that this scenario is unlikely, we are only talking about one nation and we are only talking about one ounce each. Even if the richest 10% bought one ounce it would still be 720 tons, or 30% of annual supply. You see the math just doesn’t work at these prices. People are climbing the learning curve and doing it fast. If you wait until the tipping point there is a very good chance you will never be able to get your hands on the supply you desire. Good luck and use your head that’s what it is there for.
All the best,
Mike
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There's a raging bull market in nostalgic founding fathers' quotes.
"The term nostalgia describes a yearning for the past, often in idealized form.[1] The word is a learned formation of a Greek compounds, consisting of ν?στος, nóstos, "returning home", a Homeric word, and?λγος, álgos, "pain" or "ache". It was described as a medical condition... " (http://en.wikipedia.org/wiki/Nostalgia)
I hardly consider a couple of days a bubble. if you're smart you sell gold, then when the dollar peaks, you buy more. simple. the problem is, gold, dollar, yen, are just stores of energy. they have no value other than what people perceive. use that to your advantage.
Jw, Robot, listen up. It looks like the "numerical facts" mixed with a heavy dose of insolence is not working, the goldbugs are firm. We must find new strategies. Any suggestions boys? I mean I tried every lie concievable at this point. even Dennis Gartman can't come up with anything new.
You may have to reconsider your decision to fire Bravo...
Daddy, can I buy some goled now?
The shape of things to come?
Government to issue "paper scrip" in place of dollars to purchase food.
http://www.fns.usda.gov/snap/ebt/fm.htm
With my overalls and farmer's tan I start the process of understanding the agricultural industry. Then I stumble across these macro plans for local producers to sell food to food stamp (EBT) recipients. More chilling is the emerging use of "paper scrip" to buy food in place of dollars. I am seeing a ton of new data collection of small farmers here in California. With that, Wal-mart is making a play into "local producers" in order to sustain local stores. All this while the Senate Bill S510 seeks to control small farmers from participating in the marketplace. Considering the USDA/FEMA calls certain regions/cities "food deserts," I am looking over the horizon to a time when half the population is being fed by the government and food is rationed via government issued systems. /tin foil hat
farmer's tan = check
overalls = check
foil-lined straw hat = check
point-of-sale system and internet connection = fail
The idea is for a single card reader located at a "greeter's station" to issue paper money good only at the farmer's market. The whole plan is to increase the distribution of fresh wholesome food to the poor (or newly poor'ed middle class) so their overall health and well being can be improved. This reduces (hopefully), on a macro level, overall burden on the health care system and helps local businesses and farmers. This is a very small program that actually might work. Expect it to be shut down soon.
S510 is evil and is supported by agribusiness, who can't stand to have any farmer large or small operating outside of the corporate kleptocracy. Given its position in the US Government, expect it to pass.
Walmart, on the other hand, is probably looking for small, young, inexperienced or idealistic farmers to fleece. BTDT, got the lesson the hard way.
For my part I offer my produce to some friends and acquaintances who have lately become the new poor. I hope they can extend me the same aid when the sh!tstorm really hits.
God Damn I love these gold threads. Such fun. Here is a thought experiment. Sometime around 1790 a British ship goes down off the Yucatan. It's carrying a chest of substantial wealth meant to subvert govts and set up intelligence networks in South America. Fast forward to today. You and I are scuba diving and we find said wreck. In the chest are about 200 ounces of gold and a big stack of Bank of England notes and assorted bearer bonds, in perfect condition. Now, we know we can't eat any of it but how about I take the specie and you can have the paper. Whadaya say? (Good buddy) :-)
Good one.
Here's another: Imagine yourself in the year 1875, you are visiting a battle site and come across a box stuffed with confederate $100 bills and a few confederate $20 gold coins. Which are still worth something in 1875?
Regards
C'mon Ty! The average US citizen can't rub two sticks together, much less figure out monetary policy! When this all goes to hell (and it will) do you REALLY think your gold is going to let you live the good life when all around are suffering? You just made yourself one big Assed Target. You are as big as a humper/pumper as that idiot on CNBC who I never watch.... he porns stocks, you porn the shiny. A few coins will maybe get you out of a jam.... your "old world" is never coming back in your lifetime. So continue to have your wet dreams of wealth in a failed politically and economically Amerika.
tell'em augmister, they ain't going to have a nice life no matter what, so you might as well keep the dollars instead of buying something that will keep its worth
"C'mon Ty! The average US citizen can't rub two sticks together, much less figure out monetary policy! When this all goes to hell (and it will) do you REALLY think your gold is going to let you live the good life when all around are suffering? You just made yourself one big Assed Target. You are as big as a humper/pumper as that idiot on CNBC who I never watch.... he porns stocks, you porn the shiny. A few coins will maybe get you out of a jam.... your "old world" is never coming back in your lifetime. So continue to have your wet dreams of wealth in a failed politically and economically Amerika."
This is exactly correct. Figures you got junked. If all hell breaks loose nothing will matter. And if/when things recover, have fun getting that gold back into any new system without being taxed and regulated to hell. Your gold will have an exclusive market just like a stolen firearm. BTW, I love how gold bugs hate the "system" and dont trust any of its shit, but they actually believe spot price. LOL.
This blog is full of idiot google and apple traders today. What happened? Oh yeah us gold bugs are buying the shit by the bag full as you chase 600 dollar google.
We eat our own.......................
Although this is a great quote it is however a false Jefferson and one which was never recorded anywhere in Thomas Jefferson's writings. The word inflation was not used as a reference to monetary inflation until roughly 1830.
Thomas Jefferson did however make the statement regarding banks being more dangerous that standing armies.
And also stated:
From a passage in the letter of the President, "I observe an idea of establishing a branch bank of the United States in New Orleans. This institution is one of the most deadly hostility existing, against the principles and form of our constitution."
Couple points: 1. Gold has already soared. 30% in last yr alone. On what basis should it reasonable continue to soar? One last burst of QE? How much is that gonna really move the needle in overall terms? So BB gives us QE2 and it either miraculously results in economic growth, job growth, balanced budgets and moderate inflation, in which case the panic gold buying falls off a cliff; or, more likely, it gives a short term one time boost and doesn't budge unemployment and the US slips into a prolonged period of deflation as corporate america freezes up and consumers quit spending. 2. The author of this piece doesn't honestly believe that gold is going much higher. If he did he wouldn't be broadcasting it to everyone bothering to listen to him. Neither would Tyler. Rather, both are hoping and hyping in an effort to profit. When I identify a desirable property to acquire I don't generally blast out an email to everyone I know in the industry. I keep it to myself.
The country's top bank officials and government officials have been hammering the shit out of the dollar for years and have sworn to keep hammering indefinitely, inflation be damned.
Inflation means the value of the dollar goes down and tangible assets go up including gold. What part do you not understand?
Couple points: 1. Gold has already soared. 30% in last yr alone. On what basis should it reasonable continue to soar?
Ans. Demand outstripping supply. (You had to ask?)
First mistake: You assume gold is 'panic bought'. What, everyday for the last decade? Not even close, yet.
2nd mistake: Just because you play with your cards close to your chest, doesn't mean everyone else does. LOTS of people talk their book. This is the internets, you know. Though, I agree that if you were looking to sell something you already owned, talking it up would be a given...but I think with the PM's, because so few are actually holding any physical, the other side of the coin is that suggesting ownership could be more of an altruistic public service; warning others about the devaluating realities of FIAT currencies. IE Not everyone looks at the world through "I'm all right so f all the rest" eyes.
3rd mistake: Defining egregious inflation as a monetary event and not a confidence event. It can be one, the other, or both simultaneously.
Finally: I agree with you on the quality of this aritcle; not so great. Timing was brutal too: op ex week, oog. But, fundamentally, it has it nailed: fiat currencies don't last forever, or at least they haven't so far. Are you saying that this time it is different?
On the other hand, entirely IMHO, even if everything you predict happens just as you say, PM's go down, then everything else goes down with them (likely more), so at the very least you preserve the wealth you have.
Are we learning yet?
Regards
Move the needle?
Is that like a gas tank needle, where gold is almost full up with dollars?
Or a speedometer needle, gold has accelerated to it's top speed?
Move the fucking needle. Jesus.
It's funny as the shorters talk up the bubble noise and we're selling this and hurry you better sell that.
For 10 years I've heard this noise every time a short term consolidation happens. I buy the crap out it on the dips and 4 weeks ring a cash register. Then the dipshits come back in right onthe fibo 61% and she drops and I buy and sell it again. And so on and so on. Now we have the normal novemebr consol and the poor bastards who bought 5 dollar copper are yapping that gold is crashing.
Over the years I have truly felt sorry for stupid investors. I've realized just now that it is the way of the universe and i can;t chaneg a damn thing.
For every cannon there is fodder.
Spooky revelation and cathartic moment just happened.
Indeud.
For those of you commited and insane enough to secure your gold in an offshore location, I just sent my stash to the Singapore Freeport. I'll save ZH readers the trouble of spending hours scouring the net for the logistics. The only approved precious metals storage in the freeport is provided by a firm called Malca Amit.
http://www.malca-amit.com/
If you decide to enquire with their Singapore office, just email
ariel.kohelet@malca-amit.com
Storage for anything but a mid 7 figure gold stash is 1000 a year plus 25 bps for insurance.
After a lot of time worrying about where to store my metal, I can honestly say I mfeel much better knowing it is out of the hands of the government, free for me to pick up and go a day away.
Obviously do your research, but after doing mine, this is what I came up with.
storage?
A 30 odd, some grenades, and a rocket launcher to disperse the zombies is all you need. Why would you trust an asian with your stash
jesus.
I agree with storing SOME of your gold overseas in a friendly jurisidiction. I have some overseas.
I also agree (big time) with having some firepower to protect your US stash (my AK and Beretta help me sleep better).
Another excellent quote from TJ. So maybe the founding fathers DID know what they were doing. Who'da thunk? Hello Congress? Anyone home? Hello?
All written material from the founders (and referenced material) should be required reading every year in high school. But that would cut into the 4 years of learning every nuiance of English I suppose.
And the Roman Denarius was backed by the Roman Centurions who had alot more to fight for than any US Marine. Your point?
I'll just casually mention that in the latest web bot report... the Asymmetrical Language Trending Analysis is showing a complete collapse of the global currency market. So significant is the event... that it will result in the destruction of the global financial system as we know it.
The tipping point data seems to be suggesting November 8th - 11th as the dates when it begins as something small and catastrophically grows. It suggests a massive social shock to the United States that has never been seen.
I suspect that after this date, I'll either probably never be on here again due to embarrassment... or may be back once the event is over, spraying my unadulterated venom, raging against the machine.
You can check it out at http://www.halfpasthuman.com ... and for the record, I'm not associated with them. This also not intended as investment advice.
i saw that web bot prediction 6 months ago.
At the time it just said there was some event that would take place, did not specify type of event. Suggestion it was not a phhysical event like an earthquake, but political type of mahjor shake up event (& not the election).
The analysis came out last night and it's pretty #uckin bleak. If their assessment it true, we are going back to the stone age for some period in time until a new currency system emerges.
Errors in above article:
1) "Gold is not up 23% this year to $1,345/oz, rather the U.S. dollar has depreciated by 23% versus the world’s neutral money supply, gold."
If gold were up 100% vs the dollar, would that mean the dollar has depreciated 100% vs gold? No. The correct figure in the above example is about 19%.
2) "The key point is that if it’s FX reserves are growing at 17% then China has to increase its gold reserves by that amount just to keep the % FLAT."
That's only true if the price of gold stays constant relative to the other currencies in China's FX reserves.
Learning and loving brother. That is the way of the open minded.
You suggest what alternatives in a sea of trouble? I suggest income produce properties in bullet proof locations that will maintain value in rougher markets and continue to generate income through the turbulence. Gold does not generate income. It has no intrinsic value except as jewellery. I cannot go to the store and buy a loaf of bread with gold. Your assumption is that America will devalue itself down to Zimbaworld proportions. With apologies to Zimbabwe, I suggest that even the incompentence of the Obama Administration will not steer the United States, still the largest economic force on earth, (suffering no doubt but still!) to anything close to those levels. I believe the outcome is very likely a greatly reduced standard of living for the populace, higher taxes, reduced services and probably a vastly reduced military. The armagaden so many of you expect or perhaps desire is not conceivable in my estimation.
If Paulson had let the damn bankers fail I bet most of the mortgages would already have been worked out at 50 cents on the dollar and millions would be living in affordable homes and gone back to building home equity through improvements and consumption related purchases. Instead of a necessary reset we got a crony capitalism and a pause that's now giving us robo signers and other red herrings designed to disguise the simple fact that the avg. person cannot afford mortgage payments on the avg. home.
You do realize, of course, that this puts you over the troll line?
And remember: the troll line is often synonymous with the breadline.
Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic.
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