The Coming Revaluation Of Gold

Tyler Durden's picture




 

Submitted by Hugo Salinas Price via Plata.com.mx,

The current melt-down of the world's debt bubble is likely to continue in the course of the next months. The secular trend to expansion of credit has morphed into contraction and liquidation. It is my opinion that the new trend is now established and no action by any of the Central Banks (CB) that issue reserve currencies will do anything at all to reverse that trend.

Sandeep Jaitly thinks that the desperate reserve-issuing CBs - the US Fed, the ECB, the Bank of England and the Japanese CB - may resort to programs of QEP, by which he means "Quantitative Easing for the People". This quantitative easing will mean putting money into the hands of the populations by rebates on taxes, invented make-work schemes or any other excuse to furnish the people with the famous "helicopter money", to get them to spend.

As the present crisis deepens and given our experience with the way our so-called “economists” think, we can reasonably expect such programs to be launched. Nevertheless, the present trend of world economic contraction will not be reversed by any ad hoc program. The world’s expectations - positive for growth since WW II - have turned negative. This is an event of such magnitude that no “QE” will have any effect upon the final outcome: debt collapse.

The growing fear in the world's markets arises from the recognition on the part of indebted corporations and individuals that their debt burdens are increasing due to devaluations of their national currencies. International investors are attempting to reduce their exposure. “Hot money”, invested in countries which offered higher interest rates, now wants to go home. In recent years of bonanza, foreigners borrowed some $11 trillion dollars, in various Reserve Currencies, to invest in their own countries. Of this total, it is calculated that about $7 trillion of those dollars are denominated in dollars. The debtors are now attempting to pay-off their dollar loans, and this has the effect of lowering the value of their own currencies with respect to the US Dollar, thus aggravating the situation. There is a loss of confidence in national currencies, producing Capital flight to the rising Dollar, because the countries that issue those currencies are no longer able to maintain export surpluses against the reserve-issuing countries, and are thus unable to increase reserves and are actually losing these reserves. The export-surpluses are disappearing in the "rest of the world" because the reserve-currency countries, plus China, are in an economic slump (essentially attributable to excessive debt) and are reducing their consumption of imports, thus reducing the exports of the export-surplus countries.

The loss of Reserves on the part of the countries which depend on export-surpluses for economic health makes the accumulated debt burden in the world increasingly unsustainable; investors around the world are worried that some of their assets (which are actually debt instruments, that is to say various sorts of promises to pay) may turn out to be duds, and they are trying to find ways to protect themselves - and Devil take the hindmost!

Whatever expedients are implemented, the final outcome of the unprecedented economic contraction in the world will have to be the revaluation of gold reserves, as desperate governments of the world resort to gold to preserve indispensable international trade. The revaluation of gold reserves held by Central Banks will be the only alternative for countries seeking to retain a minimum of international trade to supply their economies, whether they are based on agriculture, on manufacturing or on mining.

The amount of gold held by any particular country will not be the important factor in maintaining operating economies, because even a small amount of gold will be sufficient for that purpose; the reason being, that gold coming into newly rediscovered importance, no country will be able to maintain either trade surpluses or trade deficits. The first case would imply that other countries are sending their precious gold to the surplus export countries, but the scarcity of gold and its vital importance will not permit other countries to lose their gold to the (would-be) surplus-producing countries. In the second case, the trade-deficit countries would immediately correct their activity by devaluing their currencies ipso facto, rather than continue to lose their precious gold to cover their trade-deficits: devaluation would put an immediate stop to the excess of imports over exports. Governments resorting to credit-creation to fund their deficits would find themselves limited to balanced budgets; otherwise, their budget deficits funded by credit-creation would spill over into excessive imports and the consequent necessity for immediate devaluation of their currency.

Only gold-producing countries will be able to run trade deficits, limited to the amount of gold they produce to pay for such deficits.

Thus, the revaluation of gold will have the beneficent effect of restoring the world to a healthy condition, lost a century ago, of balanced trade and balanced national budgets.

The discipline of gold as Reserves backing currency at a revalued price will restore order to a world that has refused to adopt the necessary discipline until forced to do so in the desperate situation now evolving, where there will be no other alternative but to accept the detested fiscal and financial discipline imposed by gold.

We do not know the true amount of gold held by the world's central banks, because it is a closely held secret. However, we need not know that figure. Whatever gold there is in CB vaults will be sufficient, for the reasons we have given.

Nor do we know at what price, in dollars, the price will be set, or how it will be set. However, given the truly astronomic amounts of debt in existence, a very high price will be necessary to "liquefy" i.e. make payable remaining debt, whatever the amount remaining after the purge which is now in process. The very high price of gold will mean that all debt instruments will be subject to large losses in terms of gold value. The revaluation of gold will reduce the weight of the present debt overhang upon the world.

The revaluation of gold does not mean that prices of goods and services will rise in tandem with the higher price of gold. Established prices will by and large remain the same prices that existed before the revaluation. However, prices will have to re-adjust to reflect the new economic realities. Many goods that we have taken for granted will disappear, as their artificial cheapness vanishes.

Another characteristic of a world that has begun to trade with gold-backed currencies as money, will be that one-way flows of gold from one region to another, or from groups of countries to a single country, will be impossible; such a flow would become a permanent drain on gold for some region or some country, and a permanent increase in gold for some region or some country. Eventually the gold would tend to pile up in some region or country, leaving the rest of the world with a lack of gold.

The oil-producing countries will have to adjust the gold price of their oil exports to balance with the gold price of their imports, plus the gold value of their investments abroad.

For a visual appreciation of the coming conditions, we have provided a few graphs. The first column illustrates the present condition, with present CB Reserves at $11.025 Trillion dollars, plus an estimate of CB Reserves of 31,110 tons of gold at $1,100 Dollars an ounce (according to an authoritative calculation of 183.000 tons of gold in existence at present, of which 17% are calculated to be held as Reserves by Central Banks around the world). The second column presents the present CB Dollar Reserves, below CB reserve gold revalued at $22,000 Dollars an ounce. The third column presents the present CB Dollar Reserves, below 50,000 tons of reserve gold revalued at $50,000 Dollars an ounce. We use the larger figure for CB gold, because some analysts think that China, and also Russia, have far larger gold reserves than they disclose publicly.

 

Why do we use $22,000 and $50,000 Dollars an ounce? Because other thinkers have estimated a necessary revaluation of gold, with various figures between a low price of $10,000 Dollars and ounce and a high price of $50,000 Dollars an ounce. So we arbitrarily selected $22,000 Dollars an ounce and $50,000 Dollars an ounce. Take your pick. The price and the quantity of gold in Central Bank vaults are really immaterial; the facts will be known eventually, and the result will be what we have pointed out above: the restoration of balanced trade and balanced budgets in our present highly disorderly world.

Once the world's currencies are "gold-backed", then the gold held by individuals, trusts or corporations will cease to lie lifeless in stocks of gold. All gold will have become money and will spring to life in furthering economic activity: the revaluation of gold by Central Banks will also revalue, simultaneously, the 151,890 tons of gold which are thought to be in private hands at present - 183,000 tons total, minus 31,110 tons held by Central Banks = 151,890 tons in private hands.

For China, the revaluation of gold means an end to the great export trade of Chinese manufactures, with the consequent inevitable, and surely very wrenching re-ordering of its economy. Perhaps this explains why the Chinese government has been urging the population of China to purchase gold.

China, which is rumored to have far more gold in its Reserves than it says it does, might have the opportunity to lend say, 50 tons of the yellow metal to each of 50 hard-hit countries, for a total of an insignificant 2,500 tons out of its large stash. In return, the recipient countries would place Chinese on the Boards of their Central Banks and as supervisors in their National Treasuries; in addition, China might obtain privileges to invest in the extraction of scarce natural resources or in agriculture - China has a huge population that will require establishing sources of food. Nothing comes without a price, and "he who has the gold makes the rules". The Chinese are well-known as consummate merchants and as people who know how to live unobtrusively in foreign countries. China's influence may extend around the world, with the world's return to gold-backed currencies.

For the US, the revaluation of gold means an end to its ability to obtain any goods it desires, in any quantity, in any place, at any price by simply tendering today's mighty fiat Dollar in mock-payment, in exchange for those goods. The US economy will have to suffer a huge and also painful, wrenching adjustment to its new situation in a different world, where balanced trade and balanced budgets are relentlessly imposed by the new status of gold as international money. On the positive side, US manufacturing will immediately spring to life to supply the US market; employment and incomes will surge with the rebirth of US manufactures.

Once all currencies are "gold-backed" by revalued gold reserves, then gold is once again the international money, and the Dollar becomes nothing more than the national currency of the US, as quantities of gold become the international means of settling trade. We need not worry ourselves about how this will take place, because that it will happen is a certainty. All prices of goods and services around the world will really be gold prices, since all currencies will be redeemable at sight, in gold.

Such is the significance of the coming revaluation of gold.

 

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Tue, 02/02/2016 - 23:34 | 7133332 arbwhore
arbwhore's picture

"Not to worry, I'm hedged with loads of call options on Comex gold futures...."

Tue, 02/02/2016 - 23:38 | 7133345 38BWD22
38BWD22's picture

 

 

I wonder where he might have gotten the idea for $50,000 gold...?

 

(FOFOA?)

Tue, 02/02/2016 - 23:39 | 7133351 arbwhore
arbwhore's picture

Santa (js)

Wed, 02/03/2016 - 00:13 | 7133463 nink
nink's picture

Forget holding physical gold. Only buy my 500 to 1 paper derivatives of real gold. Honest it is worth the same price. 

Wed, 02/03/2016 - 01:42 | 7133666 Squid-puppets a...
Squid-puppets a-go-go's picture

the trick with this 'revaluation' analysis is that it works and works well when there is a broad agreement between major trading blocks.

The problem this time around is getting that broad agreement. American leadership seems too insane to agree to less than the global throne (there is one ruler of the ring, and he does not share power). One also wonders to what extent american leadership has been infatuated with technological advances of currency and banking - i.e. - just how much of the supposed 8000 tonnes of gold does it have left?

If it has none, it may prefer outright war to a gold revaluation that it will gain nothing from

I have not heard any peep that the US is willing for an independant audit of its reserves - which would be a necessary step taking many months to process to conclusion. This concerns me. Unless its being done in secret, it means the US is resisting the fabled reset. The alternative, unless the US miraculously has a USSR style internal implosion, is a war that will be so broad that nuclear exchanges will be very hard to resist.

 

Wed, 02/03/2016 - 04:06 | 7133868 bigkahuna
bigkahuna's picture

Auditing a vault full of nothing does not take much time.

Global war is assured. The only way this comes to a halt - or at least slows down is if we get some kind of control of our own government - that stands a snowballs chance in hell, the NFL is on. 

Wed, 02/03/2016 - 04:11 | 7133875 Squid-puppets a...
Squid-puppets a-go-go's picture

digital bread and circuses

Wed, 02/03/2016 - 08:12 | 7134095 VinceFostersGhost
VinceFostersGhost's picture

 

 

Cash settlement my ass.......WHERE'S THE GOLD?

Wed, 02/03/2016 - 10:52 | 7134670 Government need...
Government needs you to pay taxes's picture

A revaluation to gold isnt going to happen in any world heavily influenced by globobanksters who are backed by the US military.  Both fiat and gold and possessable and concealable by an individual.  Best I can tell, it is difficult to track both fiat and currency, and the purchasing power of both fiat and currency cannot be cancelled real-time based on who possesses it and what they wish to purchase with it.  Gold has additional negative characteristics from the perspective of the globofascista: it is finite, and intrinsically valuable in a way fiat (or toilet paper) is not.  If globofascistas dislike fiat, they HATE gold.  Their goal is a digi-fiat which is always tracked, and can be instantly cancelled or denied at the point of sale.  For those retards who think China or Russia or Europe is going to revalue to gold to try to throw off the US fiat conjurer's taxman's shackle, I would ask simply why would these regimes give their citizens more power?  What precedent is out where in the last 40 years. the Chinese/Russian/European technocrats have done ANYTHING to enable individual freedoms of purchasing or savings choice?  China has MANY MORE capital controls in place than the US.  Europe taxes the hell of its member states and their citizenry.  They dont want to empower those peons to dodge any of that!

The world powers will cooperate long enough to establish several digi-currencies.  At that point, they will attempt to fuck each other by arguing about whose digicurrency is worth more, and gold might, at that point, be used as a marketing tool.  But this thing is going down similar to the way "R" versus 'D' gets sold to the fucktards in the US.  Like there is any meaningful difference.

Gold is old.  It appreciates in real terms during periods of peak fiat currency turmoil, but loses value after that.

Wed, 02/03/2016 - 11:56 | 7134992 Theosebes Goodfellow
Wed, 02/03/2016 - 13:49 | 7135525 buttmint
buttmint's picture

Gov't need..spot on take.

I know many are entralled buying "Monster Boxes of silver" and hiding their gold stashes. They are not going to become millionaires overnight. Okay to own g + s for numismatic value. USA would nuke itself and claim false flag first.

Wed, 02/03/2016 - 17:09 | 7136692 Squid-puppets a...
Squid-puppets a-go-go's picture

I think you might be overlooking that many banksters and govt are in the multidecade long game of overplay soft assetts, then reposition for a flip of the switch back to hard/gold. They may APPEAR to hate gold - for now!

look at JP Morgans phyz silver holdings for all the evidence you need.

Wed, 02/03/2016 - 08:00 | 7134078 Arnold
Arnold's picture

But, it pays well.

Wed, 02/03/2016 - 10:20 | 7134532 fockewulf190
fockewulf190's picture

I can see countries worldwide nationalizing gold and silver mines en masse when remonitization occurs.  There will also be a gold run at the Fed (as well as anywhere else where gold is being stored for other nations such as London) as any and all nations who have even a sliver of gold in storage will demand repatriation.  The truth will be forced open, and the gold better be there for delivery or else the US will be branded the biggest thief in the history of the world.  The political and economic consequences will be enormus...which explaines why gold and silver have been so ruthlessly attacked, manipulated, jawboned and discouraged by the powers that be and their MSM acolytes.

KEEP STACKING!

 

Wed, 02/03/2016 - 05:10 | 7133919 jaxville
jaxville's picture

  Once a major nation revalues gold all others will follow unless they decide that shutting down exports somehow benefits their economy.

Wed, 02/03/2016 - 07:59 | 7134073 Global Observer
Global Observer's picture

There will be no gold backed domestic currencies.

No country is going to trust another's claim to back their currency by gold and accept that currency as equivalent payment in gold. For gold to become an instrument for international payment settlements, it should be payment in physical gold or a currency backed 100% by gold deposited with a supra-national institution outside the national laws of any country and open for audit to all members at any given time. Since settling every payment in gold is an extremely slow process, the latter is the only possibility.

Once the problem of settling cross-national payments is resolved, not sure why any country would want to back its currency with gold.

Wed, 02/03/2016 - 09:19 | 7134298 RickyJabbour
RickyJabbour's picture

Absolutely! No government will ever back their currency with gold....that is their license to counterfeit. The demand for gold or gold-backed payment will come from international corporations.

Wed, 02/03/2016 - 00:20 | 7133479 zorba THE GREEK
zorba THE GREEK's picture

If gold goes to $50,000 , there will be millions of people in the US panning every river and stream west of the Mississippi and the population of Alaska will grow by 20 fold

Wed, 02/03/2016 - 00:42 | 7133539 Rubicon
Rubicon's picture

That sounds a bit like a gold rush.

Wed, 02/03/2016 - 00:44 | 7133545 Uchtdorf
Uchtdorf's picture

And a lot of people will have a happy little accident on the way there.

Wed, 02/03/2016 - 09:11 | 7134273 de3de8
de3de8's picture

Shovel ready jobs

Wed, 02/03/2016 - 10:42 | 7134617 detached.amusement
detached.amusement's picture

that'll open the AJ mine back up right quick

Wed, 02/03/2016 - 00:43 | 7133543 Uchtdorf
Uchtdorf's picture

Yeah, but then gasoline will cost $1000/gallon and Motel 6 rooms will be $10k/night. Might be hard to get up north to do some panning.

So Alaska one more time. Do you really want to Anchorage people to go up there? Don't Juneau they'll freeze to death?

Wed, 02/03/2016 - 01:48 | 7133680 Squid-puppets a...
Squid-puppets a-go-go's picture

in the same way that QE $ got bottled up and never made it to main street, i dont conclude that inflation will skyrocket under a gold revaluation (i do consider it a high probability, but not a certainty). If the revalued gold is shifted between the elite to quash and forgive debts, and mums and dads are selling their revalued gold to pay off their debts that have been reset to normalised interest rates it similarly may not get to ground floor - especially when it is out of vogue in the West to own gold and silver coins and bric-a-brac that would organically drive inflation from below.

I'd be interested in an update from FOFOA - his $55 000 call was several trillions of $ of debt ago.

Wed, 02/03/2016 - 09:05 | 7134254 VinceFostersGhost
VinceFostersGhost's picture

 

 

Yeah, but then gasoline will cost $1000/gallon and Motel 6 rooms will be $10k/night.

 

Total BS.....I watched gold go from $256 to $1920...and that didn't happen.

 

In fact prices didn't change....because you have it backwards.

Wed, 02/03/2016 - 08:10 | 7134093 ThanksChump
ThanksChump's picture

Lighten up. That would be OK.

Those of us who hedge well, hedged that also.

Where's the reset button on this damned thing?

Would you like a bean burrito with jalapenos? They're only a 1962 quarter each, or eight for an oz of .999.

Wed, 02/03/2016 - 08:39 | 7134156 Dr. Spin
Dr. Spin's picture

What does a Juneau? 

I'm wondering if silver is going to tag along for the ride???

;-D   

Wed, 02/03/2016 - 09:07 | 7134263 nopalito
nopalito's picture

Psst, silver won't tag along.

Wed, 02/03/2016 - 10:43 | 7134628 detached.amusement
detached.amusement's picture

Juneanows those mines will open back up if the price goes that high

Wed, 02/03/2016 - 00:57 | 7133573 Shad_ow
Shad_ow's picture

There will be millions of people in the US starving too.

Wed, 02/03/2016 - 08:13 | 7134097 ThanksChump
ThanksChump's picture

47 million on EBT/SNAPS.

That's a bread line that wraps around the planet twice, plus some.

Wed, 02/03/2016 - 08:17 | 7134107 greenskeeper carl
greenskeeper carl's picture

47 million NOW. And that's in the midst of this great recovery I keep hearing about. Just wait until the next downturn that we just may be entering. It'll be more like 60 mil.

Wed, 02/03/2016 - 10:30 | 7134564 fockewulf190
fockewulf190's picture

Your assuming they will be fed.  The Great Reset will probably cull a few billion people on this planet before a new system arises.

Wed, 02/03/2016 - 05:37 | 7133947 jaxville
jaxville's picture

 Hey Zorba....What about gold mining stocks?  It might be the rising tide that lifts the rest of the stock market.

Wed, 02/03/2016 - 10:33 | 7134578 fockewulf190
fockewulf190's picture

What happens to gold stocks when the mines are nationalized?

Wed, 02/03/2016 - 06:16 | 7133974 GardenWeasel
GardenWeasel's picture

remember, the $50,000 price is more indicative of how worthless the dollar will be. Weimar Republic II, anyone?

Wed, 02/03/2016 - 09:50 | 7134391 White Mountains
White Mountains's picture

There is gold East of the Mississippi too, both placer and hard rock.  Also Quebec province.

Wed, 02/03/2016 - 13:36 | 7135461 Strelnikov
Strelnikov's picture

Best opportunity to profit:  Get into the business of supplying the necessaries to this hoard of wealth seekers:  food, picks, whores, whiskey, smokes.  

Wed, 02/03/2016 - 00:52 | 7133559 hobopants
hobopants's picture

This scenerio does sound alot like FOFOA stuff. It also assumes that current political institutions remain in full control, with elites coordinating globally and a lack of major wars (like FOFOA)...

But I thought Hugo had a thing for silver (Silver peso?) and silver has no role for FOFOA.

Wed, 02/03/2016 - 08:51 | 7134209 AssN9
AssN9's picture

"Raising a host of a hundred thousand men and marching them great distances entails heavy loss on the people and a drain on the resources of the State. The daily expenditure will amount to a thousand ounces of Silver. There will be commotion at home and abroad, and men will drop down exhausted on the highways. As many as seven hundred thousand families will be impeded in their labour." Chapter VIII Paragraph 1 "The Art of War" Sun Tzu

100,000 Men on the march in a foreign land = 1000 oz Silver/day, so... 100 men = 1 oz /day, and... 1 man = 100 days/oz Silver !

Sat, 02/27/2016 - 22:25 | 7245645 Vendetta
Vendetta's picture

I think I read somewhere a roman soldier was paid 1 silver denarious a month

Wed, 02/03/2016 - 02:57 | 7133793 jaxville
jaxville's picture

  Actually it was "another" posting on Centennial Precious Metals forum back in the mid-late 90's who first suggested an eventual revaluation.  It's a long time back so I don't recall the original number but Another related the value to levels of debt. 

  The revaluation number has to be high, very high; so that gold flows back to central banks and they can create enough debt free currency with their purchases to allow a general servicing of debt.  I also see the coming revaluation as a confiscation.  The price will be set so high very few will be buying.  People will be having their gold crowns pulled to cash in and so many gold items (jewellery, artistic items, rare numismatics etc.) that no government claiming legitimacy would ever seize would be willingly sold by the public. 

  If there is a crisis of confidence in the currency they might even sell the revaluation as a "gold redemption" scheme.  With a real high price, gold will only flow to central banks.  After a few years when the public starts to realize they should be buying at the high price instead of selling the central banks will close the redemption facility.  There will be so little gold in public hands it will be several generations before it threatens their credit based currency scheme again.

Wed, 02/03/2016 - 10:44 | 7134638 detached.amusement
detached.amusement's picture

Sadly, I believe that is a most likely scenario

Wed, 02/03/2016 - 13:38 | 7135473 Strelnikov
Strelnikov's picture

So?  As my father was prone to say, "It's expensive to be stupid".  Heard that a lot.

Wed, 02/03/2016 - 03:47 | 7133853 Thinkor
Thinkor's picture

He probably got it from Jim Sinclair.

Wed, 02/03/2016 - 08:26 | 7134128 OceanX
OceanX's picture

I wonder where he might have gotten the idea for $50,000 gold.

 

Something like, All debt divided by all gold, z.b.  tirllions in debt (money supply)  / millions of ounces of gold,

 

Wed, 02/03/2016 - 09:25 | 7134285 Grave
Grave's picture

same nonsense as always

lets see what mr. armstrong has to say on the subject (and this man really knows his stuff):

"Now out of real desperation, they claim gold will be reset at $5,000 to $100,000 and silver $400-$500. I really do not understand where they come up with this stuff, as if government will surrender all power and bow before them after laying down their weapons. Government would NEVER do such a thing, and in case they have not noticed, we are moving to electronic money; not bullion. Even if this wild theory were correct, government would confiscate the gold and make it a criminal act to even own it so they make the profit – not you. That’s what Roosevelt did; confiscated first and revalued second.

This must be analysis inspired by peyote. There is just no other explanation. If there is a reset, it will not be a return to the past, it will be more like back to the future — electronic"

Wed, 02/03/2016 - 13:31 | 7135444 jaxville
jaxville's picture

  The same Martin who stole from his clients then lied about his assets when it came time to make restitution? The same person who has called for a collapse in gold prices since it hit $450?

  Not only does he lack credibility he really doesn't know his stuff.

Wed, 02/03/2016 - 10:46 | 7134640 Freegold
Freegold's picture

Freegold FTW! :-)

Wed, 02/03/2016 - 00:02 | 7133431 iggenFlot
iggenFlot's picture

Gold will definitely be revalued at some point in the distant future, but for now expect sub-$500/oz. gold as part of the deflationary epoch we're entering.  It's reasonable to expect $500/oz. or perhaps less for gold over the next 5 years or so, but no doubt gold will ultimately prevail by 2030 or 2040, being revalued to something about $1,000/oz.

Silver could easily breach $35/oz. by 2040 or so as well.  It's going to be an epic run!

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