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Guggenheim On Gold And The 'Unsustainable' Return To Bretton Woods
Via Scott Minerd of Guggenheim Partners,
Bretton Woods is a resort in the mountains of New Hampshire that was made famous by a series of meetings of world leaders and economists in 1944. Nine months before the last of Hitler’s V-2 rockets struck Britain, 730 delegates from the 44 Allied Nations congregated in Bretton Woods to create a new world order, including a monetary system that could resolve the festering economic consequences of the First World War and the Great Depression.
Under the Bretton Woods Agreement, the world’s currencies would be pegged to the U.S. dollar and central banks would be able to exchange dollars for gold at a set price of $35 per ounce. It was this arrangement that firmly established the U.S. dollar as the global reserve currency. The system worked relatively well for almost three decades (1944-1971). During that time, Bretton Woods’ member states achieved increasing levels of trade, economic cooperation, and initially, a period of relative price stability.
The trouble with the system was that global central banks had pegged their currencies at low levels to support exports to the U.S. This led to the accumulation of massive dollar reserves in the hands of foreign central banks. These dollars were used to buy interest-bearing U.S. Treasuries. The structural imbalance, which resulted in ever growing dollars reserves, created problems that would ultimately compromise the very existence of Bretton Woods.
Today, global central banks are once again managing the exchange values of their currencies relative to the dollar to ensure export competitiveness. Just as pressure mounted as a result of the accumulation of large Treasury reserves by foreign central banks under Bretton Woods, today, ever-expanding dollar-denominated reserves on central bank balance sheets around the world threaten global price stability and even dollar hegemony. Though a reversal of this unsustainable pattern is not imminent, the ultimate consequences could be even more severe than the precedent set 41 years ago.
By understanding the demise of Bretton Woods, we gain a better handle on how today’s global monetary arrangement may result in a period of relative price stability in the short-run followed by a rapid depreciation in the purchasing power of currencies on a global scale. An historical perspective provides the framework to better understand the current monetary system and the impact these policies have on investment portfolios.
The Golden Years of Bretton Woods
At the outset of Bretton Woods, the value of the United States’ gold reserves relative to the monetary base, known as the gold coverage ratio, was approximately 75%. This helped to support the dollar as a stable global reserve currency. By 1971, the issuance of new dollars and dollar-for-gold redemptions had reduced the U.S. dollar’s gold coverage ratio to 18%.
The consensus view during the early years of Bretton Woods was that the dollar was as good as gold. Gold has no yield so central banks held interest-bearing Treasuries on the assumption that they could always be converted to gold at a later time. By the early 1960s, there was widespread recognition that the U.S. could never fulfill its commitment to redeem all outstanding dollars for gold.
Despite this disturbing fact, central banks did not call the Fed’s bluff by selling their dollar reserves. They had become hostage to the system. By the end of the decade, the problem had intensified to the point that if any central bank attempted to convert its dollars to gold, its domestic currency would rapidly appreciate above the levels that were pegged under Bretton Woods. This would lead to severe economic slowdowns for any country who challenged the U.S.
Throughout the 1960s, foreign central banks implicitly imported inflation as a result of maintaining the exchange value of their currencies at the artificially low rates set in 1944. The overvalued dollar led to trade deficits versus a sizable trade surplus for the United States. Because of the undervaluation of non-U.S. currencies, Bretton Woods member states were forced to expand their money supplies at rates that compromised price stability. As foreign exporters converted dollars back to their local currencies, the dollar reserves on central bank balance sheets continued to grow.
This surplus of dollars held by central banks, and subsequently invested in Treasury securities, reduced the United States’ cost of borrowing and allowed the country to consume beyond its means. Valéry Giscard d’Estaing, then finance minister of France referred to the situation as “America’s exorbitant privilege,” but he was only half right. As Yale economist Robert Triffin noted in 1959, by taking on the responsibility of supplying money to the rest of the world, the U.S. forfeited a significant amount of control over its domestic monetary policy.
The End of the Golden Years
When Triffin introduced his theory to the world, he accurately predicted the collapse of Bretton Woods and the end of an era of U.S. trade surpluses. Triffin told Congress that, at some point, foreign central banks would become saturated with Treasury securities and seek to redeem them for gold. However, because this would appreciate their currencies and slow growth, it was difficult to envision a set of circumstances that would lead foreign central banks to stop accumulating more dollars.
By the middle of the 1960s, the U.S. was escalating the war in Southeast Asia while expanding social welfare programs under Lyndon Johnson’s Great Society. As the U.S. pursued a policy of both ‘guns and butter,’ its trading partners questioned the country’s willingness to restore fiscal balance. Over time, the U.S. trade surplus deteriorated as America imported more than it exported. Further, the increasing trade deficit in the U.S. accelerated the accumulation of dollar reserves around the world. As a result of the massive growth in reserves, the Bretton Woods nations saw domestic inflation rise by an average of 5.2% during the 1960s, relative to U.S. inflation, which was 2.9%.
European countries began to consider that the price of dollar-denominated inputs such as oil would fall dramatically if their currencies were revalued upward. By abandoning Bretton Woods, they could reduce their domestic inflation by reasserting control over their domestic money supply. However, the possibility of an exit from Bretton Woods had not been contemplated in the original 1944 plan.
How would member states leave Bretton Woods? The answer could be found in Trffin’s prediction. Forced to swap dollars for gold, the U.S. would have to admit that it could no longer keep its pledge to exchange gold for $35 per ounce. Between Bretton Woods’ establishment in 1944 and its demise in August 1971, the U.S. exported almost half of its gold reserves. In the 12 months leading up to the end of Bretton Woods, the Fed lost nearly 15% of its total gold reserves; a rate at which the U.S. would have depleted all of its reserves in a short time. This led then-President Richard Nixon to abruptly end the dollar’s gold convertibility by ‘closing the gold window.’
While the United States’ trading partners immediately reaped the benefits of reduced inflation and cheaper imports, the end of gold convertibility for the dollar would set in motion a decade of subpar growth and high inflation. In the early 1970s, members of the Organization of the Petroleum Exporting Countries (OPEC) saw the purchasing power of their dollar-denominated oil receipts rapidly erode. They seized the opportunity to raise prices. Between 1973 and 1980, oil prices would rise by more than 1,000%. As a result, during the 1970s, countries that had pursued relatively weaker currencies under Bretton Woods began to seek relatively stronger exchange values to constrain their energy costs. The resulting fall in demand for the dollar led to a drastic reduction in its purchasing power.
Bretton Woods II: The Sequel
The early success of Bretton Woods, which relied upon weak currencies to successfully promote exports looks surprisingly similar to the policies being practiced by central banks around the world today. Some have referred to the current policies in foreign exchange markets as Bretton Woods II. Although not officially acknowledged, central banks are once again tacitly pegging their currencies to the dollar. As the U.S. is expanding its monetary base through quantitative easing (QE), other countries have few options but to join this race to the bottom. This situation is as unsustainable today as it was in the 1960s. (For a more in-depth discussion, read one of my previous commentaries, The Return of Beggar-Thy-Neighbor.)
Once global growth begins to accelerate and capacity utilization increases, economic bottlenecks will cause the price of inputs, such as energy, to rise. There will then be another inflection point when countries will realize that by allowing their currencies to appreciate, reduced import prices will spur productivity and domestic growth. This will happen when it becomes apparent that the savings resulting from lower input prices exceeds the export losses associated with a stronger currency. Though the timing of this event is difficult to forecast, its occurrence will likely cause Bretton Woods II to collapse.
Investment Implications: A Green Light for Gold
Gold was an important component of the Bretton Woods system. As a monetary anchor, it provided stability for the dollar as a global reserve currency. With the demise of gold convertibility under Bretton Woods, global price stability began to unravel. After being depegged from its official price of $35 per ounce in 1971, gold rose by more than 2,000% over the next 10 years. Investors migrate to gold when currencies no longer function as good stores of value.
The U.S. gold coverage ratio, which measures the amount of gold on deposit at the Federal Reserve against the total money supply, is currently at an all-time low of 17%. This ratio tends to move dramatically and falls during periods of disinflation or relative price stability. The historical average for the gold coverage ratio is roughly 40%, meaning that the current price of gold would have to more than double to reach the average. The gold coverage ratio has risen above 100% twice during the twentieth century. Were this to happen today, the value of an ounce of gold would exceed $12,000.
The possibility of an upward revaluation of the official price of gold should not be minimized. Although I do not anticipate or advocate a return to the gold standard, an upward revaluation of gold by one of more central banks is possible. If the Federal Reserve, for instance, announced that it stood ready to purchase gold at $10,000 per ounce, the gold-coverage ratio of the dollar would return to 75%, roughly where it stood at the beginning of Bretton Woods. This could restore confidence in the value of the dollar if its ultimate role as a reserve currency were to be challenged.
Gold’s industrial use only represents .03% of global GDP. Therefore, its upward revaluation would not cause a significant economic shock associated with rising input prices. Likewise, a higher price would probably not affect the behavior of the world’s largest holders, which are central banks and sovereign wealth funds.
Prescient investors should consider making allocations to gold and other precious metals as a hedge against the erosion of purchasing power of the dollar as well as for the potential upside from positive market price appreciation or a possible intervention at the policy level. Despite the sizable appreciation in gold prices in the last decade, gold is far from overvalued. This makes gold a low-risk investment and leads me to believe that gold will never again trade below $1,600 an ounce.
The Precarious Balance Continues
Almost 70 years later, the global monetary system is still living in the long shadow of Bretton Woods. Triffin’s views are as relevant today as they were when they were first published more than half a century ago. The current paradox in the global monetary system is as unsustainable as it was under the original Bretton Woods Agreement. The exact timing of an inflection point for Bretton Woods II remains unclear, and although it is not imminent, its eventual occurrence is virtually certain. As was the case in the 1960s, a reversal of the acquisition of Treasuries by foreign central banks will cause a major shift in global capital flows and insecurity about the value of dollar-based assets, particularly Treasuries.
The most likely outcome will be renewed support for precious metal, which functions as a store of value and a hedge against currency depreciation. In contrast to the 1960s, bullion is free to float at market prices and gold markets have already begun discounting a future set of circumstances which is much different from today. The time to buy insurance on the end of Bretton Woods II is before the inevitable occurs.
None of this should come as a surprise given the unorthodox growth of central bank balance sheets around the world. The collapse of Bretton Woods in 1971 caused a decade of economic malaise and negative real returns for financial assets. Can anyone afford to wait to find out whether this time will be different?
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Gold is my salvation,,,,,make no mistake about it...... This is the end!!! My friend
The Careless Whisper News Update & Threadjacking
Jamie ("We don't do any prop trading." @19:45) Dimon breaks down Europe ("Italy and Spain can't stop a run on the banks."), BearStearns (JPMorgan did the government - i.e. we the people, a favor), big banks ("We're the bigest of the big") and everything else economic to The Council On Foreign Relations:
http://www.c-spanvideo.org/program/DimonR
thread detour...
Columbia Business School's version of Every Breathe You Take;
http://www.youtube.com/watch?v=3u2qRXb4xCU
I imagine The Bernanke singing this song
http://www.youtube.com/watch?v=ZDN9y2vTdUs
"of our elaborate plans, the end
of everything that stands, the end,
of safety and surprise, the end
I'll never look into your eyes again."
"Come on baby, take a chance with us!"
but you get so much more silver for your money......
there's not enough silver to allow a return to the gold standard
But is there enough copper-plated lead?
Mmm still no.
There isn't enough of ANYTHING on the planet x2 to deliver against all derivatives produced last year in the US markets.
That how bad it is. The debt has it's own ecosystem now. Reality is only a minor sphere orbiting it.
Boris is warn for movement from $500T "soft asset" bank-o-sphere to "hard asset" real world. At first is convert "soft asset" dollar in 1 on 1 ratio, but panicking is set on fire, Weimar Republic like is picnic.
there's not enough silver to allow a return to the gold standard
You appear to have a deficiency in reading comprehension.
In contrast to the 1960s, bullion is free to float at market prices.
We are not returning to a fixed gold standard in which dollars are redeemed for 1/35th an ounce of gold. Rob Zoellick, former President of the World Bank, is proposing a gold-reference point standard. A modified gold standard in which exchange rates are not fixed (Also read FOFOA). Silver was utilized as money because of this fixing of the exchange rate (there was not enough gold). However in the system proposed by Zoellick and explored in FOFOA's blog, gold would have a floating exchange rate, therefore rendering silver as just another commodity - ruled by laws of supply and demand. Gold is not a commodity.... afterall, you can't eat it!
Everything is money except paper. Paper is about the only thing that is not usable as money.
Everything is money except paper. Paper is about the only thing that is not usable as money.
Not all moneys are stores of value. Food can be used as money but try using it as a store of value... see what your "money" is worth after well past its expiration.
Does salt count as food?
salt, no
toilet paper, yes
paper and digital money will still work fine as a meduim of exchange. just not as a store of value. that is what physical gold is for
AU, AG. PB
Black market yes. Open market no.
Can't happen in the open market in the West. TPTB would outlaw open trades/ownership of gold before a huge swing like that would happen. Historically, the currency du jour becomes a basket case, structurally speaking, in the forex space and then the question isn't whether but how soon the collapse will happen.
It took the Iranian rial some time before it really started to fall apart. Wise hands got out when the sanctions hit. Now you'll just be executed in Iran over gold unless you've already had an unfortunate boating accident.
(Also read FOFOA). Silver was utilized as money because of this fixing of the exchange rate (there was not enough gold). However in the system proposed by Zoellick and explored in FOFOA's blog, gold would have a floating exchange rate, therefore rendering silver as just another commodity - ruled by laws of supply and demand. Gold is not a commodity.... afterall, you can't eat it!
**********
FOFOA has their heads up their ass-
Gold is a commodity and so is the USD-
You sell your dollars for gas for your car-
The oil company sells you its gas for dollars-
Their is/was and always will be enough gold-you see gold is divisible and stable under gold standard and all prices must adjust to the amount of gold any one country has and the amounts held by any one country is based on trade balance-
LOL, let me guess, a Turdite... or is simply a Turd?
Please let the BIS, World Bank, FDIC know they must get their head out of their ass as well.
Do some study on monetary matters--clueless fuckwit
**************
An increase in the money supply, then, only dilutes the effectiveness of each gold ounce; on the other hand, a fall in the supply of money raises the power of each gold ounce to do its work. We come to the startling truth that it doesn't matter what the supply of money is. Any supply will do as well as any other supply. The free market will simply adjust by changing the purchasing power, or effectiveness of the gold-unit.
http://mises.org/money/2s8.asp
fuck nuts
gold is a store of value nased on productivity and savings. it is not relative to how much meduim of exchange exists. The price of gold is not constant with anything.
The price of gold is not constant with anything.
**************
Stupid post as usual from you-re-read the post i replied to-
We were discussing a return to gold standard where gold IS a medium of exchange-you must be one of those clueless FOFOA dreamers-so be my guest-discredit what Mises says in the link i pasted...i know fucken well you can't-
We were discussing a return to gold standard where gold IS a medium of exchange-
********************************************************************
made your first mistake already..
That isnt the only quote Misus has on the subject you fool.
Is this guy on fucking drugs?
Gold’s industrial use only represents .03% of global GDP. Therefore, its upward revaluation would not cause a significant economic shock associated with rising input prices.
If gold skyrockets ALL precious metals will skyrocket. At 10K, silver goes to 200 an ounce [or higher like $625]
i smoke weeds and i buy gold; industrial use has no value in a depression. gold has values specially because it has no use. this is the dao, this is the way/
Is this guy on fucking drugs?
Gold’s industrial use only represents .03% of global GDP. Therefore, its upward revaluation would not cause a significant economic shock associated with rising input prices.
If gold skyrockets ALL precious metals will skyrocket. At 10K, silver goes to 200 an ounce [or higher like $625]
Silverbugs seem to be fixated on this arbitrary gold/silver ratio.
Gold’s industrial use only represents .03% of global GDP. Therefore, its upward revaluation would not cause a significant economic shock associated with rising input prices.
Precisely why gold serves as the ultimate store of value, because it is not a commodity. It has very few industrial uses, unlike silver. This is also why pegging currencies to a basket of commodities is ill-concieved. Imagine if central banks started holding oil, copper, silver or corn in reserves - leading to a supply shortages and price instability. There would be great social consequences.
If dollars lose reserve status and all those dollars are repatriated, the government will need to revalue gold. As Guggenheim points out:
If the Federal Reserve, for instance, announced that it stood ready to purchase gold at $10,000 per ounce, the gold-coverage ratio of the dollar would return to 75%, roughly where it stood at the beginning of Bretton Woods. This could restore confidence in the value of the dollar if its ultimate role as a reserve currency were to be challenged.
This sudden revaluation would in effect allow gold to act as sponge for the inflow of dollars. The USG would much rather gold soak up this excess liquidity than commodities such as oil, food or silver. Silver simply will not participate.
Here's an exercise. Point out where silver is mentioned:
6/18/2012 FDIC Recommends Zero Risk Weighting for Gold Bullion According to the latest proposals by the FDIC on regulatory bank capital rules, gold bullion is to be included in the list of 'zero weight risk assets'The following exposures would receive a zero percent risk weight under the proposal:
BIS says gold is a currency, not a commodity From the Bank for International Settlements International Convergence of Capital Measurement and Capital Standards: Page 179 “Gold is to be dealt with as a foreign exchange position rather than a commodity because its volatility is more in line with foreign currencies and banks manage it in a similar manner to foreign currencies.” Page 182 “718(xLiii). This section establishes a minimum capital standard to cover the risk of holding or taking positions in commodities, including precious metals, but excluding gold (which is treated as a foreign currency according to the methodology set out in paragraphs 718(xxx) to 718(xLii) above). ... The price risk in commodities is often more complex and volatile than that associated with currencies [ie gold] and interest rates. Commodity markets may also be less liquid than those for interest rates and currencies and, as a result, changes in supply and demand can have a more dramatic effect on price and volatility.”Also, tell me which central bank holds silver in reserve. That's what I thought....
+1
>> Silverbugs seem to be fixated on this arbitrary gold/silver ratio.
Newsflash some Silver to Gold ratios for you to consider -
It's not arbitary to value something in relation to another object.
Newsflash some Silver to Gold ratios for you to consider -
Newsflash, my shit is at least 1,000x rarer than both. Therefore, if the price of gold goes up to $10,000 my shit must be worth $10 million, at least.
Ratios are useless without context. If you didn't have context you'd short AAPL reasoning that it will revert to it's historic ratio of $1. Are ratios more important than trend, correlation, etc?
300 years ago when the arbitrary ratio was 16:1, I think of that as equivalent to a necklace vs. a spoon. Today the ratio is equivalent to a month's worth of rent for a Washington, D.C. studio vs. paying a mover to take your TV up to your livingroom.
The context is this, silver has found industrial usage and as such it must be priced according to supply vs its industrial demand whereas gold is a monetary metal and its price is correlated to the exponential growth of credit money (and as a consequence liability/risk from broad malinvestment).
Which one of your ratios are most important? Really... I don't care... the ratio that's worth pondering is number of central banks holding gold in reserve to those holding silver...
>>Newsflash, my shit is at least 1,000x rarer than both. Therefore, if the price of gold goes up to $10,000 my shit must be worth $10 million, at least
Do better than that asshole since we're talking about elements. Your shit is carbon, hydrogen, oxygen and nitrogen ... pretty fuckin easy to find but then you can't figure that part out.
Silver is money. Context: when people stop trusting fiat bullshit currency you'll see that. Use something up (decrease supply) and it gets more valuable.
fiat works fine in a place like jamaica yet nobody, not even rich jamaicans use it as a store of value. that is why when a banna republics government tries to print and spend, the inflation shows up right away and fast. where as a currency that everyone saves in, can be printed and inflated. the key is savings. if nobody saves in usd anymore, it will still work as a meduim of exchange.
it is the desire of the lazy and the risk-averse to "store" their wealth in "money", as opposed to simply using it as a medium exchange, THAT GIVES BANKS THEIR POWER THEM
You shit nuggets? Corral this guy.
The weakness in this arguement is that there is no reason whatsoever why the Gold cover ratio cannot fall to new all-time lows below 17% to keep an artificial cap on the price of Gold and hold up fiat, instead of maintaing the present 17% cover and letting Gold move up to $2200 as the Fed Balance sheet expands. It would appear that the Fed and its shareholder JPM have understood this already. Ultimately the Gold cover ratio can be restored by invading a few foreign countries and "Borrowing" their Gold, also by telling foreign countries who hold their reserves at the NY Fed that, sorry, your Gold has "Vaporised".
fuck yeah, american way. we needs da gold, we takes the gold. we needs da oils, we takes da oils.
not going to happen. The french backed out of the London gold pool and sent a ship to NY to pick up their gold. That is how bretton woods one ended. the french ended it. the europeans will end bretton woods two. they already took down a fed primary dealer ,mf global, by not backing italian debt. the US is getting pushed around by the euros so bad its just funny
http://www.gutscheincode-rabatt.net
Isn't it always different this time??
no its not diffrent this time. A debtor nations currency will not appreciate greatly as its economy implodes.
Did the Icelandic krona appeciate as its economy deflated ?
it appears all the dollies are waking up...it's a little unnerving...
Nice piece but this is a sore tumb;
''If the Federal Reserve, for instance, announced that it stood ready to purchase gold at $10,000 per ounce, the gold-coverage ratio of the dollar would return to 75%, roughly where it stood at the beginning of Bretton Woods.''
We been there, must it fail again like bretton woods (I & II) with all the chaos it bringss? Just end paper gold and let real physical price currency like Euro $, Pound and so on. Save in gold spend in fiat. Best new concept I heard. All that old monetary stuff is old for a reason, it failed. Take your own life in your own hand buy as much physical gold as u understand (and a some silver for speculation :) since its great stuff)
I'm liking that Back Down The Yellow Brick Road scenario.
The only people that can save the planet are the mandarins at central banks.
If it is broke, don't fix it. You aren't qualified.
Read more on past crashes, then, read this again. There will be a test.
24 Reasons For Gold
There are many reasons for Gold. First and foremost: Preservation of Wealth. The illusionary paper wealth will implode in the next few years. The initial trigger will be the collapse of the world’s reserve currency – the US dollar. The financial system is unlikely to survive in its present form. Gold has been money for 5,000 years and will continue to be the only currency with integrity.
http://www.mmnews.de/index.php/english-news/11038-24-reasons-for-gold
FreeGold!!
Free gold, release the Kraken.
"Wait...will...afford to be." As if capitalism has been held in abeyance oh these many years"but for your pronouncements herein." Provide some data from over the past four years so that you don't sound like a retard next time. What do you think this site has been doing over that frame? We've been fighting this fight. The data has been coming in fast and furious...the dollar cabal has held. Sorry but this article simply cannot be taken seriously.
Did you stop one in the head?
I just picked up 4 more gold maples - ain't cheap but my god it is REAL.
great summary article...worth reading to understand...and a last warning
believe what you want but the CBs are NOT HOLDING SILVER
I am tired of getting cursed by the ZH silver zombies so I am promising myself not to repeat myself again, but 'precious metals' is a dangerous concept, gold is the only precious metal that will enjoy reset, the others including silver will still make lovely rings and the 'other white metals' will still show up in your cars catalytic converter.
Silver has been fun but look at the facts, gold it is...and just gold!
lasvegaspersona: My understanding is that Silver is both a precious metal AND has widespread industrial use (unlike gold, which has some but relatively miniscule industrial use). Additionally important is that known silver reserves in the ground are low. So while you may say that CB's are not holding silver, you could make the same statement about Niobium, and that would ignore the fact that it is an important element that has little production and will likely apprecicate in value.
'Silver zombies' Never heard that before. I like it!
PS: Chris Martenson has some valuable insight on the differences between Au and Ag if you want to research more opinion there.
So while you may say that CB's are not holding silver, you could make the same statement about Niobium, and that would ignore the fact that it is an important element that has little production and will likely apprecicate in value.
Correct! Silver is alot more like Niobium than it is to gold. Silver and Niobium are commodities that will boom and bust depending on supply-demand characteristics. They are not stores of value and this is also why no central bank holds any silver in reserve, or niobium for that matter... changing supply and demand characteristics make holding commodities as a long-term store of value a risky proposition. Again quoting the BIS:
The price risk in commodities is often more complex and volatile than that associated with currencies [ie gold] and interest rates. Commodity markets may also be less liquid than those for interest rates and currencies and, as a result, changes in supply and demand can have a more dramatic effect on price and volatility.”
50+ years of gold in above ground stock with only ~2% moving in annual flows. Any other commodity with 50 plus years in above ground inventory would see their price collapse to zero. In this way, gold is more like money than a commodity. Just look at your bank account... even if you had 5, 10, 20 years of annual salary in your bank account, you would still accumulate dollars because you [wrongfully] think it a store of value. Those strong hands holding the ~98% of gold are not selling it to you for just a couple thousands in fiat paper.
Silver and Niobium are commodities that will boom and bust depending on supply-demand characteristics.
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What is the melt value of a silver quarter?
Find out and then tell us silver is not a store of value-and do not confuse rare earth elements with money ie: silver
How do I explain this to you...
Image a tub on the second floor is leaking into a bucket on the first floor. Think of commodities as rubber ducks in this bucket. They rise as water continues to leak into the bucket they're floating in... the kicker is that the leak keeps getting larger and some jerk on the second floor is keeping the tap running into the tub.
Obviously, the tub is a metaphor for foreign creditors and the water is US dollars and Treasuries held in reserve.
While you oogle and awe over your rising rubber ducky, I am preparing for the blow out and the resulting deluge. In my mind, what Rob Zoellick and FOFOA proposes as a solution is most compelling. Revalue gold, set it free, and let it soak in all those dollars.
Yes well-from what i've been reading from your posts tonight-rubber ducks floating in water is your upper limit-
"Revalue gold" --what will china say-what will india say-the US is not the world and "revaluing" gold does not set it free-it locks it down-today in spite of manipulation it floats free and that is what will eventually unmask the fraud of paper currencies-
Pamploma, I appreciate your point of view about gold and silver. But let me ask you this. If gold were re-valued to $10,000oz how LIKELY is it that silver would stay at $34oz? My feeling is that market forces would force all pms higher.
http://fofoa.blogspot.com/2010/12/kicking-hornets-nest.html
"Yes, silver will run with inflation just like all physical assets. But it will not have the additional boost of being the new system's official reserve asset. This probably doesn't seem so significant to the silverbugs, but then again, most of you who have taken the time to understand Freegold now call yourselves ex-silverbugs."
"If the Federal Reserve, for instance, announced that it stood ready to purchase gold at $10,000 per ounce, the gold-coverage ratio of the dollar would return to 75%, roughly where it stood at the beginning of Bretton Woods. This could restore confidence in the value of the dollar if its ultimate role as a reserve currency were to be challenged. "
This sudden revaluation would in effect allow gold to act as sponge for the inflow of dollars. The USG would much rather gold soak up this excess liquidity than commodities such as oil, food or silver. Silver simply will not participate.
why would the Feds revalue just gold? Why not silver, too?
http://en.wikipedia.org/wiki/Gold_reserve
Again, how many central banks hold silver? Why hasn't the BIS and FDIC recognized silver as money? In fact, the BIS specifically says precious metals, excluding gold, is not money:
This section establishes a minimum capital standard to cover the risk of holding or taking positions in commodities,including precious metals, but excluding gold (which is treated as a foreign currency according to the methodology set out in paragraphs 718(xxx) to 718(xLii) above)
Why isn't Iran accepting silver for oil?
Big
I guess I could have added "but they ARE holding gold".
I am just observing...the future metal of the monetary world seems to have been chosen and not by me nor was it my favorite. I made money on silver in 2010 and 2011. Over the months following the take down I realized that silver was always going to be second. Not because it is inferior but because the stock is too unstable to be a reliable store of value.
Look, do what you want but I believe if you get this one wrong you will be very very sorry...to come so close but loose. There is still time to change. Read and think and OBSERVE. What are the big shots doing? It is likely the big shots will get their way.
I think I'm on the same page with both you and Pamploma. I would recommend ownership of both Au and Ag, but for very different reasons.
If by Ag Zombies, you mean those who believe Ag is good to hold because the Ag=Au and some Ag/Au ratio will hold upon an Au pop, I agree with you... not good reasoning... for many reasons.
If by Ag Zombies, you mean people who have good reason to hold Ag and preach it and explain their reasons why, I like those kind of zombies.
Me, I'm a Pb zombie. Everyone should own.
Big, he's referring to the brain-dead silverbugs using conspiracy theories of manipulation as a crutch for their investment thesis. So too is this flawed notion of inflation benefiting silver.
As explained, the governments will want gold to soak up excess liquidity rather than let hyperinflation manifest itself in useful commodities like oil. The onset of such price inflation (instability) would bring on great social unrest. Only gold will be revalued and silver will not participate.
As for these conspiracy theories... think about it. Put yourself in a bullion banks shoes for a minute. With fractional reserve banking, you could short the shit out of paper silver (and paper gold), use the proceeds to buy physical gold (a store of value unlike silver) and then lease it out ten times over. Is it manipulation or just recognition that physical is superior to the ocean of paper gold/silver? It's simple arbitrage.
How many wars have been fought over silver? LOL... how many for gold and oil? If I were JPM and indeed shorting paper silver into the markets, I'm laughing all the way to my gold vaults while silverbugs sop up all the meaningless paper.
FOFOA, you seem to be very busy on this thread. Did your handlers not cut you a big enough check this month? Question, why did the BIS change their silver derivatives data in their derivatives reports? But then again, why was Bear and now JPM so serious about shorting this mere "commodity"?
Me thinks thou dost protest too much
BIS Changed Silver DataSilver For The People
http://www.brotherjohnf.com/
In case you didnt know, there is allot of physical gold advocates out there now.
im not as hard on silver bugs because silver bugs have something figured out. just diversify and hold some gold too. Dont get too stubborn. I think all PGA have held silver or still do. its all part of the learning curve. FOFOA still has some silver... So do I.
LVP youre bustin my kneecaps here-aparently you have been overlooking the facts.
Here is your free tip of the day. Silver is more of a Military metal now than a monetary metal. Banks are a segregated branch of "govenment". Youre looking in the wrong place as to where the metal is being "stored".
“Gold is money. Everything else is credit.” -J.P. Morgan, testifying to Congress in 1912
Likewise silver was credit too. An ounce of silver, when presented in its official form -- unofficially silver was worth less, was a promise to pay about .064 ounces of gold.
I believe his larger point was everything else paper is credit and silver is not credit.
Silver, copper and gold have always been considered money. It a little sticky to walk around with oil (which has value) in the pocket and even more uncomfortable with a block of wood (still value but lesser).
They all have value but to be money there is a scalable difference & ready usage as money. The top of the pyramid is gold cuz its still hard to cut a diamond, rubies etc. for the proper change/exchange of value ;-)
You believe wrong then.
"Money is gold and nothing else."
http://memory.loc.gov/service/gdc/scd0001/2006/20060517001te/20060517001...
The 'gold-sovereign-redeemable' phase of Bretton Woods lasted 27 years ...
The pure-fiat phase, Bretton Woods II, since 1971, has already lasted 50% longer ...
This was aided by the dirty US deals to prop up the dollar with
(a) the petro-dollar scam with the Saudi Arabian monarchy, which would have been overthrown decades ago without US-led military support, and
(b) US narco money-laundering supported by the fake US 'war on drugs' to keep illegal drug prices high and narco-dollars flowing
The US dollar should have been de-throned a long time ago, but what was propped up with it is the US military machine, especially the techno-murder tools of drone planes etc.
Maybe that was the whole point for the US ... just keep the dollar-corpse alive long enough to play that ugly and nuclear military card when the dollar collapses ... a Fourth Reich in the 21st century, just as Goebbels predicted
...or we could just go wtih MASS ARRESTS and trials for the guilty... http://tinyurl.com/cd5cyjo/
the us military will go the same way as the sovirt military.
the price of oil and gold started rising months after the euro was introduced. the euro exists simply to take over after the usd is gone.
I have to poop.Paper sucks, you Wall Street fucks!
I'll see you vampires in the sun,
with my loaded silver gun.
Yer goin' down in flames,
from Lower Manhattan to the Thames.
Your paper is I know not where,
I'd rather shit my underwear!
For, be there bull,
or be there bear,
silver is the suit I wear!
(With gratitude, and apologies to Dr. Seuss.)
The only paper I own is the stuff I wipe my ass with. Market paper is worthless, because I cannot do a good job of wiping my ass with it. Gold was worth $28.00 an ounce when I was a kid. Silver was worth whatever was printed on the coin you spent. Any one think those days are coming back? All of the lying bum fucking aristocracy of the Age Of Paper Power can burn in their paper suits soonest. I won't even bother pissing on them to put out the flames.
I collect gold, silver, lead, copper, real dry powder, food, tools, diesel fuel, and other useful commodities. There is a community of folks all doing the same, so skill sets and extra eyes and hands can guard each others sixes, and re - create an America - by the People, for the People, governed by the People - not fucking career shills for the powers that be. "
HFT ain't good for me.
Credit defaults far as the eye can see.
CDS's gonna make some messes.Boo hoo hoo as thieves confesses.
TBTF gonna fall off a cliff - REAL NEAT.
Wall Street is a bunch of fucking dead meat.
Banks used to be so overleveraged bold.
Now, they're layin' bankrupt,dead and cold. Gonna be nothing but prepared people,all the rest gonna be surprised fucked up Sheeple.
God bless this mess.
I must confess.
I'm a fucking poet,
and didn't even know it.Put that in your derivative credit default swap pipe, and burn it.
A return to the gold standard today (unaccompanied by major structural reforms) would simply cause the inevitable collapse to happen immediately, which in turn would lead to gold taking the blame for the collapse.
Why not let things run their course and then go back to gold?
They are gonna have to do something to convince the financial world that matters they ain't blowing smoke (which they have been) up everyones's ass.
I think they should start @ $2k @oz till the next "reset".
Considering they use $35 @ oz as the base, can you imagine what the "free" market price would be if the government reset to a new base of $2k?
Wheeeeeeeeeeeeeee.
the vast majority of the world's governments do not value their gold at $35/oz, simply changing the base to the current market price isn't earth shattering
GOLD BITCHEZ!!!!!
"The central banks became 'hostage' to the system."
Right, because central banks weren't the ones destabilizing the system all along...
"If the Federal Reserve, for instance, announced that it stood ready to purchase gold at $10,000 per ounce." WTF? With clown bucks? Who would sell them all this gold form money the create from nothing? The Tooth Fairy?
WTF? With clown bucks? Who would sell them all this gold form money the create from nothing? The Tooth Fairy?
Gonzo, you are totally missing the point. No one said the Fed will buy all the gold in the world. By simply announcing that they stand ready to purchase gold at $10,000, this works to automatically reprice the gold market. Every speculator would try and buy gold for up to $9,999 in an effort to front run the Fed. The Fed need not actually buy a single ounce for the intended effect.
http://en.wikipedia.org/wiki/Gold_reserve
Gonzo: "Who would sell their gold to the FED for clown bucks? "
ME, for one, along with other borrowers. My monthly mortgage is $1700. I would now get 6 payments per oz instead of only 1 payment. This is what I pray for!
The post explains what the charts seem to be saying clearly: Gold is in a primary bull market.
So technically there is tailwind for the predictions of this article. Gold is in a primary bull market, and such bull markets tend to have long legs and witness significant price gains (i.e. more than 40% in 1-2 years). Furthermore, on Oct 4, the bull market was further confirmed. More on this here:
http://bit.ly/QK5T0C
"If the Federal Reserve, for instance, announced that it stood ready to purchase gold at $10,000 per ounce, the gold-coverage ratio of the dollar would return to 75%, roughly where it stood at the beginning of Bretton Woods. This could restore confidence in the value of the dollar if its ultimate role as a reserve currency were to be challenged."
This seems obvious and easy, so what are the obstacles? Would it cause inflation? Inflation worse than what is coming?
Bike - Great question.
One problem I can imagine is this:
The inherent problem with a "gold peg" combined with a debt-based reserve banking system (where money is lent into existence) is that as a $1,000 deposit makes its 'savings deposit/bank loan' circuit to become $9,000 in money, this increase in money would seem to me to necessitate a constant increase in the dolllar/gold ratio.
This would be fine for a while because the Fed could just keep printing. The real issue would be when creditors stopped loaning because they grew tired of being piad back with more and more worthless dollars.
After thinking about it, I think I have the reason, and you touched on it.
"necessitate a constant increase in the dollar/gold ratio."
The banks and government like to use financial repression to steal. That option is gone with an "official" floating gold price. Which is why they must repress the market price today. If people see the return on gold exceeds that of T-bills or stocks, no one is going to participate in these markets. Even a one time adjustment would blow their cover.
Too bad. An adjustment along with increased discipline in the future (e.g. 1980s level of discipline?) could get us out of this mess and keep us out. Like tomorrow.
It seems like most people in this post prefer gold to silver. I do to from a risk standpoint, but from an investment standpoint silver is better. Gold, actually, should not be perceived as an investment. Instead gold is a store of wealth. However, silver might just be the investment of this decade.
Silver is actually rarer that gold from a bullion and coin perspective. There is more gold bullion and gold coins than its silver counterpart. The silver inventory of physical silver available for purchase is likely less than $200 million. It is a tiny market compared to gold. Thus, there is a very high likelihood of a physical silver shortage.
If this shortage materializes, then the manufacturers who depend on it (Apple, Motorola, HP, Nokia, Samsung, Sony, GM, Ford, etc.) will be forced to hoard. This will eventually manifest and when it does you will silver prices well over $100.
The only thing that can prevent a physical shortage is for the economy to rebound and provide enough growth to prevent a meltdown in debt and derivatives. I think you have to be either very optimistic or naive to expect that outcome.
I have a given an argument for silver to exceed $100, but the investment of the decade is not physical silver, but stocks. First Majestic has went up from $1 in 2009 to $20 today and will likely go to $40. It won't be the only stock to have these staggering returns.
www.goldsilverdata.com (mining stocks)