Fed To Prompt Currency Crash and Return to Gold Standard

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Gold’s 1.3% gain yesterday was its biggest one-day gain in three months, as Federal Reserve Chairman Ben Bernanke's defense of U.S. debt monetisation confirmed bullion's inflation hedging appeal.

‘Helicopter Bernanke’ confirmed the Fed’s ultra dovish monetary policies are to continue which supported gold as a hedge against central banks' cash printing.

Gold is trading flat today near a one and a half week high hit yesterday as Federal Reserve Chairman Ben Bernanke defended the U.S.  ultra loose monetary policy.

The selloff in gold ETFs in February underscores the weakness in gold sentiment among retail investors that has been prominent recently. 

Our trading desk has never been so busy – on the sell side - as weak hands and lack of conviction buyers have engaged in panic selling.

However, the sell off’s genesis was again hedge fund and bank paper players on the COMEX many of whom still have large concentrated short positions.

Total Known ETF Holdings of Gold – (Bloomberg)

February is set to be the weakest month in terms of gold ETF outflows thus far, and the decline is set to exceed the 2.3 million ounces liquidated back in January 2011.

Total known gold holdings held by exchange traded funds worldwide include the SPDR, ETF Securities, ZKB, iShares, Swiss & Global, Central Fund, Credit Suisse, Source, New Gold, Sprott Gold, Deutsche Bank, Central Goldtrust, Claymore (now iShares), and Goldist.

It is important to note that despite the significant decline in gold holdings in January 2011, gold bottomed at $1,313/oz on January 27, 2011 and then embarked on its nearly 50% increase or $600 increase to record nominal highs above $1,900/oz.

World powers and Iran ended two-days of talks over the Islamic Republic’s disputed nuclear program with a pledge to hold further discussions at both technical and political levels, an Iranian official said.

The officials adjourned without an announcement on a proposal by the U.S. and its partners to ease some banking, petrochemical and gold sanctions if Iran curbs its atomic activities.

Gold in USD (February 2010 To Today) - Support At $1,540/oz to $1,550/oz Level – (Bloomberg)

Jim Grant, astute monetary economist and respected author of the Interest Rate Observer said in a Bloomberg interview overnight that the dollar would crash and  a new Gold Standard would be the end result of the U.S. Federal Reserve’s irresponsibilities.

Although the interviewer said that Grant’s remarks were inflammatory Grant said that it is important to examine our monetary affairs over the sweep of time.

“Over 100 years ago the U.S. Fed was founded and in 1944 at Bretton Woods they decided there would be no more Gold Standard but rather a U.S. dollar that was backed by gold. If you fast forward to the present we now have a full blown PhD standard where the former heads of Economic Departments are running federal institutions. Central Banks across the world are waging an all out struggle against the price mechanism which is going against Adam Smith’s invisible hand.”

A guest host said that no one in academia is calling for a Gold Standard and suggested it would result in a deflationary period for the U.S.

Grant disagreed and said that the Gold Standard is the only answer as it was monetary system good practice for the 100 years ending in 1914, whereas everything else since has been a “try out”.

Grant says that he expects more quantitative easing from the U. S. Fed, and likens their single mindedness to a doctor prescribing to a patient that is clearly overmedicated.

He notes, credit in the world is an infinite sum of numerous simultaneous equations. He notes that if humans knew how to allocate credit than the USSR would have been a success. Socialists unions over manipulating credit don’t work.

Therefore, just as central banks are continually try to print their way out of our current global debt crisis their manipulation is not working.

Click here
 in order to read GoldCore Insight - Currency Wars: Bye Bye Petrodollar – Buy, Buy Gold

Gold holds near 1-1/2-week high as Bernanke backs stimulus - Reuters

Gold gains most in 3 months as Bernanke defends policy - Reuters

Gold Miners Come Clean on Costs After Lost 6 Years - Bloomberg

U.S. to ease some banking, petrochemical and gold sanctions if Iran curbs its atomic activities - Bloomberg

World’s largest gold ETF cleared for HK pensioners – Asian Investor

Gold posts best day of 2013 - CNN

Video: Why Gold Is a Buy - CNBC

Video: Fed To Prompt Currency Crash and Return to Gold Standard – Bloomberg

Gold Looks Good and Why I Welcome The Collapsing Pound – Money Week

Structural Bull Market For Wheat – Dr. Thomas Chaize

For breaking news and commentary on financial markets and gold, follow us on Twitter.


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Wed, 02/27/2013 - 15:43 | 3282802 steve from virginia
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"... credit in the world is an infinite sum of numerous simultaneous equations. ... if humans knew how to allocate credit, the USSR would have been a success. Socialists unions over manipulating credit don’t work."


Banker-criminals allocating credit to their tycoon 'friends' doesn't work either, this is the regime we're stuck with.


True Believers think Jesus multiplied loaves and fishes, market cultists believe something similar about multiplying capital. The presumption is incorrect: on a finite planet, markets misprice capital, which doesn't multiply anything, it subtracts instead.


The free markets have subtracted the world to the edge of the abyss, please stop before you succeed!



Wed, 02/27/2013 - 14:29 | 3282489 Michelle
Michelle's picture

Can't you people read charts??? Go ahead, BTFD.

Wed, 02/27/2013 - 15:08 | 3282678 lasvegaspersona
lasvegaspersona's picture

Michelle are your last 2 initials DB by any chance?

Wed, 02/27/2013 - 14:28 | 3282488 Acidtest Dummy
Acidtest Dummy's picture

"The history of currencies is unambiguous." -Jim Grant

Wed, 02/27/2013 - 14:36 | 3282528 akak
akak's picture

The history of fiat currencies is even more unambiguouser.

Wed, 02/27/2013 - 14:02 | 3282382 DowTheorist
DowTheorist's picture

Declining ETF gold holdings, are bullish, as they denote great avidity for physical gold, which forces GLD to disgorge its gold in order to put out fires elsewhere. Past inventory declines were followed by rallies. This is explained here




The last time (from 05/03/2011 to 05/09/2011) we encountered five days of declining inventories in a row, GLD made an intermediate bottom (5/5/2011 at 143.47), and a powerful rally ensued in the next three months which brought GLD to 174.58 on 08/10/2011 (a gain of 21.68%)., Furthermore, the 5 days in a row inventory “puke” experienced from 05/03/2011 to 05/09/2011 only involved 22.54 tonnes, whereas the current drain exceeds 50 tonnes. Thus, the severity of the current “puke” is not to be underestimated.


Wed, 02/27/2013 - 13:54 | 3282351 lasvegaspersona
lasvegaspersona's picture

FOFOA has convincingly argued that the dollar cannot return to the gold standard. FOA has argued that only a very strong currency with plenty of natural resources could support a gold 'backed' currency. It seems more likely that gold will reenter the monetary system on the balance sheet as opposed to it being used as it was in the gold standard or the gold exchange standard. This is how the Euro is structured.

When one considers the impact of re-introducing gold backing to a dying currency (the dollar) it becomes obvious that this cannot be a rational plan. I believe the Fed knows this and gold bugs should study this issue.

Physical gold is the winner in either case.

Wed, 02/27/2013 - 14:11 | 3282431 LawsofPhysics
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America doesn't have plenty of natural resources?!?!?  Physical always win, yes.

Wed, 02/27/2013 - 14:05 | 3282396 akak
akak's picture

I must admit, I completely do not understand the fondness of FOFOA, an ostensible advocate of gold and sound money, for the euro, which is as fiat a currency as has ever existed.  The euro is in NO way different from, nor superior to, any other fiat currency, as it is not backed by gold in any way, shape or form, nor has even the slightest connection or ties to the price or value of gold.  Fiat is fiat is fraud, and FOFOA's hard-on for the euro is one of several reasons why I am skeptical of him and his entire Freegold thesis (his turgid and tedious verbosity does not help his cause, either).

Wed, 02/27/2013 - 14:32 | 3282502 lasvegaspersona
lasvegaspersona's picture


I believe this is the piece (5 parts not 4)


Wed, 02/27/2013 - 14:36 | 3282527 akak
akak's picture

Thanks LVP.

I will give it a read.

Wed, 02/27/2013 - 14:53 | 3282599 lasvegaspersona
lasvegaspersona's picture


I'm pretty sure that is the correct piece. If not I'll respond in whatever forum I see you next.

Ari's writing was a real turning point for me in reading FOFOA. As you may not know FOFOA does not purport to have his own understanding of gold. He says he is just trying to understand the writing of Another and FOA from the USA Gold forum and Kitko forum of 1997 to 2001. That said I believe he has made significant contributions of his own. (He does a wonderful job on Marx in Debtors and Savers.)

Wed, 02/27/2013 - 14:19 | 3282458 lasvegaspersona
lasvegaspersona's picture


If you read FOFOA I think you will find the fondness is not for the currency but for the structure (gold on the balance sheet MARKED TO MARKET. Another reason is the without the Euro the world would have no reserve currency. the Euro provides a potential if the dollar fails.

Finally I suggest you read Aristotle's 4 part piece on why gold NEEDS fiat to perform. He said it better than I ever could.

I'll try to find the page for you.

Wed, 02/27/2013 - 14:02 | 3282388 DowTheorist
DowTheorist's picture


Wed, 02/27/2013 - 13:50 | 3282332 tony bonn
tony bonn's picture

"He notes, credit in the world is an infinite sum of numerous simultaneous equations. He notes that if humans knew how to allocate credit than the USSR would have been a success. Socialists unions over manipulating credit don’t work."

i love me some jim grant....

Wed, 02/27/2013 - 13:41 | 3282299 Bicycle Repairman
Bicycle Repairman's picture

"He notes that if humans knew how to allocate credit than the USSR would have been a success. Socialists unions over manipulating credit don’t work."

Oh yeah?  How about best 2 out of three.

Wed, 02/27/2013 - 13:44 | 3282294 somethingisrotten
somethingisrotten's picture

"February is set to be the weakest month in terms of gold ETF outflows thus far, and the decline is set to exceed the 2.3 million ounces liquidated back in January 2011."

Comparing your statement with the plot of US Mint demand versus price on ZH yesterday implies that sellers of gold ETFs decided to take possession of their non-currency, barbaric relic.



Wed, 02/27/2013 - 13:41 | 3282293 somethingisrotten
somethingisrotten's picture


Wed, 02/27/2013 - 13:38 | 3282286 Temporalist
Temporalist's picture

Another way of destroying price mechanisms

Thai Bankruptcies Rise as Minimum Wage Rolls Out: Southeast Asia

"Confederate International Co., a Thai family-owned maker of nightwear, lost a German customer of 22 years after last month’s minimum-wage increase in the Southeast Asian nation raised costs.

“They stopped talking to us, even though we have done business together for a long time,” said Veerayuth Sookhattako, 57, owner of the Chiang Mai-based company that ships about 80 million baht ($2.7 million) of apparel to Germany and France each year. “I established this company 28 years ago. I don’t want to let it go, but I may need to close down our business by the end of the year if we can’t get new orders.”

Veerayuth isn’t alone. Last quarter, 7,221 Thai companies closed down, 27 percent higher than in the same period a year earlier, when the worst floods in 70 years swamped most of the country. The figure is also more than double the average of 3,000 in the previous nine years, according to data from the National Economic & Social Development Board."




Wed, 02/27/2013 - 13:34 | 3282269 OutLookingIn
OutLookingIn's picture

Grant: "dollar would crash, and a new gold standard would result."

Interviewer: "Grant's remarks were inflammatory..."


Why inflammatory? Is not continually cranking up the currency printing inflammatory?

Useless interviewer. Another "talking head." Empty between the ears!  

Wed, 02/27/2013 - 13:43 | 3282306 Temporalist
Temporalist's picture

Below is the whole Jim Grant interview.  When the "economist" Mike McKee replies to these "inflamatory" remarks the happy little airheaded blonde bopsie doll Sara Eisen says something like "Yea defend the Fed Mike."  Those statists are there for propaganda to retort against common sense. 


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