Redburn Partners On The Coming Gold War: "Gold Is Money And Nothing Else"

Tyler Durden's picture

A must read paper by Redburn Partners, "Gold War - Gold is money and nothing else", written in November 2007, which due to its extreme prescience on not only the shift of the economy following the bursting of the credit bubble, but being virtually spot on in its prediction on the price of gold, can serve as an sufficiently comprehensive introduction to anyone wishing to get up to speed with the primary forces determining the price of gold and its implications in a fiat-money world (and especially the prevailing current variant in which competitive devaluations galore).

Key highlights:

  • Gold price will reach at least US$1,500/oz: we are raising our long-term gold price estimate to US$1,500/oz (from US$900/oz) with the possibility of a spike to US$4,000-5,000/oz. We see gold acting as a ‘Giffen good’ for a period – a rising price leading to accelerating demand as its investment profile sees a resurgence.
  • Rising gold price is a warning signal: it casts doubt on the US economy. We believe inflation is far higher than reported, money supply growth is running at 14%, debt/GDP is nearly 350% (vs the 270% peak in the Depression) and the ‘fiscal gap’ faced by the Federal Government is US$50-70trn. The Federal Government’s accounts have not been signed off by its auditors for ten years.
  • The US faces rapidly rising inflation or deflationary recession: credit cycles (and this one is extreme) always end in a deflationary bust – this is the lesson of the Kondratieff Cycle. The Fed will most likely try to defy economic gravity using increasingly inflationary means. Gold is the only asset to outperform in periods of either uncontrollable inflation or deflation: the US economy is on a knife-edge between the two.
  • A “Crack-up Boom”?: should the Fed choose to stave off recession via inflation, the scene could be set for a “Crack-up Boom”. If inflation is perceived to be a deliberate policy, there will be major shift out of financial assets (like cash and bonds) and into “real” assets. Gold will be the asset of choice and gold stocks will experience a bull market. In the report, we highlight Peter Hambro Mining (rated Buy). Natural resources and natural resource stocks will also benefit: the Mining sector as a whole would continue to outperform.
  • Lack of transparency: gold is a vital barometer and if the gold market is not free and transparent, it acts against the interests of businesses, investors and the public. IMF accounting regulations continue to obscure the level of gold remaining in central bank vaults. Furthermore, the use of unallocated gold accounts masks the fractional reserve nature of most gold banking/trading and private investment. Holders of “unallocated” gold are simply unsecured creditors with general claims on  "pools” of gold. If all those claiming gold ownership demanded physical delivery, we argue the gold price would soar.

Full research paper:

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trav7777's picture

gold is just a shiny thing that people like and which has been USED as money

Doug's picture

I agree. If gold is money, then so are Steinway pianos and '57 Chevys, both of which I have folded neatly into my wallet.

Anonymous's picture

Pianos as any consumer item can be produced in unlimited quantities. Therefore they are not suitable as store of wealth. Furthermore, over time they suffer aging and finaly break some time.

Gold is money and was over 6000 years.

Central banks and the wealthy "in the know" hold on to it, just the uninformed public has been dumbed down and misses the boat again.

Soros biggest position since December is GOLD.


Anonymous's picture

if gold is a store of value, it is not a very good one. In inflation adjusted terms it has not exactly performed well over the last 30 years. Furthermore - to suggest that gold will once again become 'money' is to suggest that the powers that be - who grow more brazen and powerful every day - will reverse course and become less powerful. This fantasy scenario is not supported by the facts on the ground.

Al Gorerhythm's picture

Yeah, right. Let's test it over a longer term and get a definitive outcome. Why don't we start around..... oh, I don't know, how about somewhere around 1913? Duh.

Sabremesh's picture

Gold fluctuates in (fiat-determined) value in the short term, like any other investment. Yes, the fiat value of gold diminished in the period 1980-2000, but to cite this short time period as evidence that gold "is not a good store of value" is simply cretinous.

If you consider the last 10 years, or the last 100 years, or the last 1000 years it is evident that gold is unequalled as a store of value. 

Anonymous's picture

How did you come to choose 30 years as a reference period? Why not one week, three seconds or five months?

I'd rather look at averaged results over the past several thousand years.

Anonymous's picture

... the powers that be ...

The powers that be come and go. I wouldn't be surprised if today's "powers that be" are stocking up on gold for the day to come when they will be "yesterday's powers that were". They know it. Retired Nazis like to hide in South America.

Anonymous's picture

Exactly. When markets have decided on money, markets have consistently chose gold. If we ever have a free market in money, that may change but I don't see why.

Gold is easily portable and divisibile. It's scarce (unlike pianos) and durable (even when used for industrial uses or jewelery, it remains in existence unlike say oil).

Doug's picture

I'm no shill for Steinway, but you should consider the following:

Now about those '57 Chevys....


Windemup's picture

Drove a 1950 Chevy from Veradero to Havana last month. It had a Japanese diesel 3 speed engine , no suspension and no two bolts holding the car together had the same head.

Good store of value if you're Cuban.

Almost Solvent's picture

Yeah GM keeps pumping out those 63 Chevys

Dirtt's picture

God I love gold is king pissing contests.

You may be on to something here.  If they cranked out something like that w/o GPS...

Al Gorerhythm's picture

I've got some Greek bonds I can sell you. You can neatly fold them into your wallet and keep them for a rainy day. 

Anonymous's picture

I believe in Bernanke, Greenspan, Paulson, Geithner, Obama, Bush, the Tooth Fairy, and Santa Claus. They care about me and will save me from the Bogey Man under my bed.

Anonymous's picture


Anonymous's picture

Termites eat Steinway pianos.

Doug's picture

Wow!  I feel like I'm at a convention, circa December, 1999.

Anonymous's picture


Gold is the core of all central banks assets.

Its the mother of all currencies, because as store of wealth it is finite and not printable.

Gold & Silver related assets are the only safe haven now, not only to protect oneself, but even prosper & profit from the incompetence of our leaders.


akak's picture

Like moths to a golden flame, any mention of gold here brings out the predictable and laughable bankster trolls and disinformation agents, to attack that which strikes at the very heart of their sociopathic masters.

Methinks you all doth protest too much.

MarketTruth's picture

"gold is just a shiny thing that people like and which has been USED as money"

Agreed, and it has been used as such for thousands of years. On the other hand, pieces of green paper made of linen/cotton made by Crane & Co, then stamped with ink and made into a Federal Reserve Note has been used as money only about 100 years. The USA has already had THREE central banks that offered such paper-like items that are said to be money. Gold has been money for a multiple of thousand of years.

Each current Federal Reserve note, from $1 to $100 costs 4 cents to make. An ounce of gold takes time, effort and (usually) some expensive equipment to mine. Costs vary yet we shall call it hundreds of dollars an ounce to bring to a final product.

PS: Gold is also a universal currency as is acceptable in Japan, China, USA, UK, EU, South America, etc. More and more places i travel to ARE NOT accepting dollars (which they were happy to do 10 years ago, yet not today).


Anonymous's picture

Actually, Trav7777 is right. Gold is nothing but a shiny rock that is found on planet earth. In it of itself, it is as worthless as the other rocks out there, if not more (not many industrial uses possible). The only reason it has any value (other than being shiny...) is because it is a durable metal found in finite quantities. Because of that, it is a good form of money.

But what's money in the first place? It is only a medium of exchange that enables me to quantify (in a nearly universally recognized way) my labor-hours so that I can exchange them for other goods or services. Who wants to have to trade lettuce for goats, and every other possible permutation out there? I don't. Money is a good thing. Fiat money, on the other hand, is a whole different story. From Investopedia: "[Fiat money is] [c]urrency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves." Our dollars are only units of debt, which are instrinsicly backed by a country's productive labor. We don't have much of that left in this country... so which kind of money do you have in your pocket?

Anonymous's picture is an anchor for wackos and gun nuts. It keeps them home guarding the hoard instead of on the streets going postal.

Mad Max's picture

Yes, we should be grateful, since the people with knowledge and skills will be at home guarding their "hoards" while all the monkeys who trusted in government, Obama and fiatscos will be out looting and pillaging so that they starve a week or two later than they otherwise would.

Thank goodness.

Anonymous's picture

Im not a gun nuts and have never called yet a wacko by anyone.

I am 80% in Gold and 20% in Silver bullion.

No further diversification at all.

Time will tell, and I'm more confident than ever that im perfectly positioned for the next 3-5 years.

RhoRhoRhoBoat's picture

That is an investment allocation which is guaranteed to underperform the equity market over any long span of time.  If you want 100% real assets, why not buy assets with a cashflow, like real estate?

Oracle of Kypseli's picture

Real estate not too bad if there is some land with it to grow something.


  1. You can't take it with you
  2. Governments can tax you to death
  3. Eminent Domain seizure
  4. Maintenance costs
  5. Insurance increasing costs
  6. Taxes on derived income
  7. Hard to sell in bad times
  8. Erosion of capital by deflation
  9. Sink holes (uninsurable.) My brother-in law's case.
  10. Spouse can take half of it. (My sister is enjoying her ex-husband's pad)
Mad Max's picture

What he said.  Real estate is a terrific investment, if you can trust in a stable and fair government and legal system, and some reasonably stable economy.  Hence, anything small and portable looks a lot better at the moment.

malvotron's picture


Gold may well go to 1500, as may the S&P...

There is no investment I can think of which engenders such a rabid obsession in the hearts of investors.

akak's picture

"There is no investment I can think of which engenders such a rabid obsession in the hearts of investors."

And that is because there is no other "investment" the holding of which strikes most directly to the heart of the corrupt and failing pro-fiat financial establishment, and against which they will go to any length to malign, ignore and attack ---- because it is an inverse play against their fraudulent paper schemes to strip wealth from the average investor.

Learn a little history, and this will become abundantly clear to any objective and open-minded observer.  Gold is the money of both freedom and security for the average individual, neither of which it is in the interests of the political-financial establishment that the average person enjoys.

Hitman's picture

Agreed.  I currently have 100% of savings invested in gold shares, but the only gold I own is my wedding band.  I don't consider myself a gold bug.  My investment is based on having read 30,000 or so investment articles over the past 10 years by 100 or so writers, providing real time commentary by each writer as the current diaster unfolded.  Commentators with genuine insight versus those just trying to get publicity, talk their position, sell newsletters, etc. reveal themselves over several years.  The commentators who have been most consistently correct over this period all believe gold is heading much higher.  For now, that's a good enough reason for me to remain invested.

Lot's of commentators with PhD's in economics, positions at Ivy League schools, Nobel Prizes, etc. seem compelled from time to time to bash gold, which is a good thing, as the clear lesson is each person needs to think for themselves as even people with Nobel prizes can be clueless when it comes to certain subjects.   It may be true that gold engenders a rabid obsession in the hearts of investors, but it also seems that gold engenders more ignorant comments than almost any other financial topic, and is possibly the most useful topic to reveal a commentator as a fool.

Of the hundred or so people I have discussed investments with over the past several years, I have not met a single one that had any investment in gold.  All are college graduates.  Most have advanced degrees.  The talk of a widespread bubble in gold and widespread enthusiasm by the public is laughable.

nevket240's picture

Wedding band = bad investment. Expensive to get out of contract and then upgrade. Signifies handcuffs.

Better off forming a company, shag everything under a Red light, get a receipt, you know the rest.



Crime of the Century's picture

Agreed.  I currently have 100% of savings invested in gold shares, but the only gold I own is my wedding band.  I don't consider myself a gold bug.

As you shouldn't. Gold bugs generally shun paper gold (except for mining shares), as the tinfoil hat consensus (see, I'm wearing mine) is that you will be forcibly cashed out when the fractional gold Ponzi collapses. This would likely be during a time of nasty inflation where receiving paper is not optimal.

malvotron's picture

I share your sentiments.  I distrust governments as much as the next man on this board..

I would like to point out to all goldbugs that gold was also "real" money in the 20 year period succeeding the 1980 high...

People 100% invested in "real" money may well wish to consider this.

faustian bargain's picture

Fiat is in a lot worse shape now than it was then.

masterinchancery's picture

I would (and did) call the investment in Dow 14000 about as rabid as you can get, with AJ Cohen and her bedfellows calling for Dow 50,000 or whatever--but nobody in the financial press talks about "stock bugs" or "bond bugs".

rubearish10's picture

I don't think the correlation lasts that long. A better trade would be to short the S&P vs Gold  right now. With a .95 rate, it will correct to a more historical level.

lawrence1's picture

What a stupid comment.

Segestan's picture

Good article. Got Gold?

Anonymous's picture

Off course I have Gold.

Every month I buy a little more for cost averaging.

gookempucky's picture

From 2007 to the present as gold continues to break out in all currencies. Link below.

BTW looks like Ron Paul blew out the CPAC poll--this am a point/ counter point political analist had to force the words Ron Paul out of her mouth she even had the balls to say he was 74 yrs of age and to old to run this country. I got news for ya most of our senate and congress members look like this.


Nice read TD

Anonymous's picture

What about SILVER??

If it truly is the "poor man's gold", then it should do better than gold....has anyone noticed that we have an entire planet full of poor people now??

Thanks Goldman! Nice work

rubearish10's picture

Silver's a winner either way. Lots of it gets destroyed and the Gold/Silver ratio trades lower, perhaps from 68 down to 35-40. Over allocate Silver.

seventree's picture

My retirement savings are split 50/50 between cash and silver bullion. This is not a trading strategy; I don't expect silver to reach ridiculous prices and make me rich. I also don't envision myself sitting on a pile of silver in a post-collapse America, defending the homestead with a formidable armory of guns & ammo (with an occasional trip to the gen'ral store to trade silver shavings for a sack of flour). In that scenario there is little hope for most of us so the hell with it.

But if the country & economy keep puttering along, and the optimists and dollar bulls are right, then 10 years from now the cash will be king and the silver should still be worth something. If inflation and devaluation have devastated the dollar's buying power, it seems reasonable that the silver will worth enough mini-bucks to live on.

At least that's the plan. I could be wrong and go bust anyway. But show me a safe investment.

Anonymous's picture

I agree about the silver, but wouldn't hold that much cash.
Look at the price of a nice Colt 1911, they continue to go up almost every year. Price of ammo has doubled in past three years (never goes bad, if stored properly). There are several food items that have unlimited shelf life. Just some diversification ideas.

35Pete's picture

Springfield 1911 A1 .45 ACP. Bought new in 04' for 550 bucks. Sold last fall, after 3000 rounds pumped through it, for 640 bucks. 

Now that's a ROI. 


Mad Max's picture

Most modern ammo (with noncorrosive primers) stores for 30-40 years and will be less reliable after just 20 or so years.  Still not a bad medium-term option, but I wouldn't plan on giving it to the grandkids with much value intact.

The ammo that stores forever is military surplus with corrosive primers.  The US stopped making such ammo in the early 1950's.  A lot of the Combloc ammo from the 1970's-80's is on the market with such features.

Anonymous's picture

When a research paper calls for a forecast of a price of something to $1,500, but can also go to $4000, it is a useless forecast. Nice way of not putting your neck out.

Anonymous's picture

Gold will hit 1224, then 1274, then 1650, and hit 5000 after.

Its a no-brainer.

Mad Max's picture

I want to see Zeno's Paradox applied to all these gold price predictions.