Wikileaks Discloses The Reason(s) Behind China's Shadow Gold Buying Spree

Tyler Durden's picture

Wondering why gold at $1850 is cheap, or why gold at double that price will also be cheap, or frankly at any price? Because, as the following leaked cable explains, gold is, to China at least, nothing but the opportunity cost of destroying the dollar's reserve status. Putting that into dollar terms is, therefore, impractical at best, and illogical at worst. We have a suspicion that the following cable from the US embassy in China is about to go not viral but very much global, and prompt all those mutual fund managers who are on the golden sidelines to dip a toe in the 24 karat pool. The only thing that matters from China's perspective is that "suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB." Now, what would happen if mutual and pension funds finally comprehend they are massively underinvested in the one asset which China is without a trace of doubt massively accumulating behind the scenes is nothing short of a worldwide scramble, not so much for paper, but every last ounce of physical gold...

From Wikileaks:



"China increases its gold reserves in order to kill two birds with one stone"


"The China Radio International sponsored newspaper World News Journal (Shijie Xinwenbao)(04/28): "According to China's National Foreign Exchanges Administration China 's gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB."

Perhaps now is a good time to remind readers what will happen if and when America's always behind the curve mutual and pension fund managers finally comprehend that they are massively underinvested in the one best performing asset class.

From The Driver for Gold You’re Not Watching (via Casey Research)

You already know the basic reasons for owning gold – currency protection, inflation hedge, store of value, calamity insurance – many of which are becoming clichés even in mainstream articles. Throw in the supply and demand imbalance, and you’ve got the basic arguments for why one should hold gold for the foreseeable future.

All of these factors remain very bullish, in spite of gold’s 450% rise over the past 10 years. No, it’s not too late to buy, especially if you don’t own a meaningful amount; and yes, I’m convinced the price is headed much higher, regardless of the corrections we’ll inevitably see. Each of the aforementioned catalysts will force gold’s price higher and higher in the years ahead, especially the currency issues.

But there’s another driver of the price that escapes many gold watchers and certainly the mainstream media. And I’m convinced that once this sleeping giant wakes, it could ignite the gold market like nothing we’ve ever seen.

The fund management industry handles the bulk of the world’s wealth. These institutions include insurance companies, hedge funds, mutual funds, sovereign wealth funds, etc. But the elephant in the room is pension funds. These are institutions that provide retirement income, both public and private.

Global pension assets are estimated to be – drum roll, please – $31.1 trillion. No, that is not a misprint. It is more than twice the size of last year’s GDP in the U.S. ($14.7 trillion).

We know a few hedge fund managers have invested in gold, like John Paulson, David Einhorn, Jean-Marie Eveillard. There are close to twenty mutual funds devoted to gold and precious metals. Lots of gold and silver bugs have been buying.

So, what about pension funds?


According to estimates by Shayne McGuire in his new book, Hard Money; Taking Gold to a Higher Investment Level, the typical pension fund holds about 0.15% of its assets in gold. He estimates another 0.15% is devoted to gold mining stocks, giving us a total of 0.30% – that is, less than one third of one percent of assets committed to the gold sector.

Shayne is head of global research at the Teacher Retirement System of Texas. He bases his estimate on the fact that commodities represent about 3% of the total assets in the average pension fund. And of that 3%, about 5% is devoted to gold. It is, by any account, a negligible portion of a fund’s asset allocation.

Now here’s the fun part. Let’s say fund managers as a group realize that bonds, equities, and real estate have become poor or risky investments and so decide to increase their allocation to the gold market. If they doubled their exposure to gold and gold stocks – which would still represent only 0.6% of their total assets – it would amount to $93.3 billion in new purchases.

How much is that? The assets of GLD total $55.2 billion, so this amount of money is 1.7 times bigger than the largest gold ETF. SLV, the largest silver ETF, has net assets of $9.3 billion, a mere one-tenth of that extra allocation.

The market cap of the entire sector of gold stocks (producers only) is about $234 billion. The gold industry would see a 40% increase in new money to the sector. Its market cap would double if pension institutions allocated just 1.2% of their assets to it.

But what if currency issues spiral out of control? What if bonds wither and die? What if real estate takes ten years to recover? What if inflation becomes a rabid dog like it has every other time in history when governments have diluted their currency to this degree? If these funds allocate just 5% of their assets to gold – which would amount to $1.5 trillion – it would overwhelm the system and rocket prices skyward. 

And let’s not forget that this is only one class of institution. Insurance companies have about $18.7 trillion in assets. Hedge funds manage approximately $1.7 trillion. Sovereign wealth funds control $3.8 trillion. Then there are mutual funds, ETFs, private equity funds, and private wealth funds. Throw in millions of retail investors like you and me and Joe Sixpack and Jiao Sixpack, and we’re looking in the rear view mirror at $100 trillion.

I don’t know if pension funds will devote that much money to this sector or not. What I do know is that sovereign debt risks are far from over, the U.S. dollar and other currencies will lose considerably more value against gold, interest rates will most certainly rise in the years ahead, and inflation is just getting started. These forces are in place and building, and if there’s a paradigm shift in how these managers view gold, look out!

I thought of titling this piece, “Why $5,000 Gold May Be Too Low.” Because once fund managers enter the gold market in mass, this tiny sector will light on fire with blazing speed. 

My advice is to not just hope you can jump in once these drivers hit the gas, but to claim your seat during the relative calm of this month's level prices.

h/t Simon via TF Metals Report

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DosZap's picture

 Jendrzejczyk @19:45,

Sure, if that was their goal, why would they cut their own throats, and SAVE the world econs they are desperately taking down on purpose.

People seem to think this is all an accident, and there is no rhyme or reason..........there is.

LOOK,watch,both hands..................

This is pre-planned event,for those that think they are trying to get this controlled you are truly in the dark.

If by magic we could go back to what we USED to call normal, how does the NWO come into effect?.

It can we MAKE it so.

Just like their doing. We/they, have to bring everyone under central control..........or it won't work.

Temporalist's picture

This story demonstrates "they" are losing control as China is exerting its monetary muscles.  I think China is the sleeping giant in this currency war WWIII and all they have to do is buy gold.  Russia will comply, Middle East will comply, India will comply; most of the world really.

i-dog's picture

""they" are losing control as China is exerting its monetary muscles"

...*sigh*... China is a PART of the plan (and so is Russia) -- and they have been so since at least 1958. The Luciferian Globalists (both Sabbateans and Jesuits, working hand-in-hand) work to much longer timescales than democratic governments and corporate boards.

Oh regional Indian's picture

Spot on i-dog. They are all on the same team.


Inibo E. Exibo's picture

This is the first time I've heard it blamed on Sabbateans.  Next your going to tell me Jacob Frank was working for the Rothschilds.

i-dog's picture

You said it for me ... however, not 'for' but 'with'. It was a marriage of convenience: means (Rothschild), motive (Weishaupt) and opportunity (Frank) came together at a meeting between the three in Frankfurt in 1785.

Weishaupt (on behalf of his controlling Jesuits) had already divulged his plan to the Illuminati at the Masonic Congress of Wilhelmsbad, held in a Rothschild castle in 1782. Rothschild, an Ashkenazi who had probably already become a Sabbatean, had only recently become filthy rich as a result of his dealings on behalf of the protestant Prince William of Hanau (grandson of King George II of England), beginning in 1775. Frank had earlier, in 1759, convinced thousands of his followers to convert to Catholicim (as a 'cover' for their Sabbatean beliefs), which enabled them to infiltrate the royal courts of Europe.

That's when the Sabbateans (jews in name only) and Jesuits (catholics in name only) joined forces for planned Luciferian global domination.

High Plains Drifter's picture

billy graham's name before he changed it was frank.....was it not?  interesting , no?  what kind of people go around changing their names all the time?  so here we have this great evangelist who got his start by money inflows from a notorious satanist, william randolph hearst, and graham would never had been anything unless powerful people had helped him gain fame. now then, may i ask , what was the real and true purpose of billy graham, 33 degree freemason. grasshopper, there is much we do not know, no????

High Plains Drifter's picture

the rothschilds are sabateans.............the jesuits are a very minor cog of no real value at this time. at one time they did have much power but at that time , they were needed and necessary and so they were created and the reason for the society of Jesus was to destroy and to kill all those who refuse to bow the knee to the jewish inspired goy false world religion that is called is falsely said that the inquisition was created to find jews who had faked their religious conversions. but in reality the inquisition was created by jews who pretended to be good catholics and since most of popes were also conversos as well, they had no problem in their machinations. their overall goals and strategies were to destroy anyone who refused to bow the knee to the roman church and refused to give their money to the roman church, a false church, created by the jews to fool the goyim. today thqt "church" sits. it is empty spiritual shell filled with empty people  and the organizational structure is in place, waiting to be used again for its intended those who bow the knee to rome i say to you, come out of her while you still can.......

i-dog's picture

"the jesuits are a very minor cog of no real value at this time"

Au contraire, Blackadder! The Jesuit Knights of Malta are far more politically powerful than their wealthy Hofjuden ... and the religious Jews are in for a shock when the Sabbateans currently running Israel sell them down the river in the weeks ahead.

The Sabbateans and Jesuits are all but indistinguishable from one another and are closely intermarried ... the Sabbateans are not "jews" (in that they do not follow the Torah or Talmud) and the Jesuits are not "catholics" (in that they are not "Christian" followers of the New Testament) -- they are both Luciferians with superstitious pagan beliefs and rituals that date back through Middle Kingdom Egypt to Babylon (as does the "jewish" Old Testament ... which was cobbled together thousands of years later based on Egyptian and Babylonian history and legends #).

The Skull & Bones initiation includes swearing a blood oath, kissing the Pope's slipper then being 'knighted' by Don Quixote (Loyola). The higher masonic degrees were all written by the Jesuits. The Bohemian Grove rituals are Sabbatean/Jesuit. All recent US presidents have had audiences with the Pope and kissed his hand in obeissance. World leaders (and leadership candidates) who have sworn blood oaths to serve the Jesuit Black Pope, as Knights of Malta---that supercede any other oaths of office they may have sworn to their own countrymen (ie. they have committed treason)---include: Silvio Berlusconi, Queen Beatrix, Michael Bloomberg, Boutros Boutros-Ghali, 4 Bushes (GHWB, GWB, Jeb & Prescott Jr), Bill Clinton, Dwight Eisenhower, Gerald Ford, Rudy Giuliani, William Randolph Hearst, J. Edgar Hoover, 2 Kennedys (Joe & Ted), King Juan Carlos, Henry Kissinger, Nelson Mandela, Thabo Mbeki, Rupert Murdoch, Ronald Reagan, 2 Rockefellers (Nelson & David) ... and a raft of other well known power brokers, catholic cardinals and deceased leaders (including all previous directors of the CIA and some US Secretaries of State and Treasury). They are far from minor cogs and the Black Pope rules the White Pope from behind the screen.

It is the Jews that are an irrelevance.


# The religious jews have been furiously digging all over Israel for all of the 63 years since they gained control in 1948 ... in a vain attempt to find any evidence for the fairy tales of their Torah. They'll never find any because the stories of 'Noah' and 'Abraham' and 'Iaaac' and 'David' and 'Solomon' and 'Moses' and 'the Exodus' are merely plagiarisms of Egyptian pharaonic history mixed with Babylonian legends.

High Plains Drifter's picture

oh here we go. its those wascally evil jesuits.  yeh sure pal. been down that rabbit hole before and it leads to nowhere. 

here are the two major proponents of the "its those evil jesuits"


a simple question would be, who owns the city of london? the jews or the jesuits? money is power and power is money. who owns most of the world's gold, the jews or the jesuits? the jesuits are some silly thing that was created to do a job and today they are almost out of the picture more or less. perhaps they too will be brought back one day, when the time is right, but i doubt it. i see no reason for it. jews started the jesuits and these jewish jesuits bowed the knee to jewish popes......blah blah blah....

don't mess with hpd about this bullshit. anyone that comes around certain blogs talking about jesuits is summarily shown the door because it is nothing but pure bullshit and misdirection and misinformation and experienced people know this....

i am hpd, and i approve of this message...

i-dog's picture

"yeh sure pal."

I'm not your "pal" ... and you're sounding like an idiot or a shill. You've completely missed the point while staring at your Jewish curtain. Pull it aside and look behind it, if you wish to find the magician(s).

The Jesuits are an illusion ... Judaism is an older illusion ... just as Communism is a newer illusion ... all created as devices by the rulers to overawe, divide and conquer. ALL 'isms' are illusions for both the masses and the acolytes alike. Even initiation rituals into the 'secret societies' are just devices to ensure that the blood oath of allegiance (to the level of the hierarchy that a gullible acolyte is being accepted into) is taken very seriously by the acolyte.

The true rulers have bloodlines that pre-date all these isms (and, no, they're neither reptilian nor 'superior beings' ... they're just damned determined).

High Plains Drifter's picture

i keep telling people that any movement by china is choreographed and they are just playing their part. the same jews who started russian communism floated across the border and started it in china as well. chairman mao, the most powerful man in china, the murderer of millions of people, was just some punk they chose for the job and the jews were the boys behind the curtain pulling the strings on this puppet and making him dance to their well as any of the other talking heads in that country. they bow the knee to their jewish masters just like all zog countries....they are members of the imf. if the chinese were refusing to go along with the program, kind of like gaddafi did, then they would be bombed into the stone age with depleted uranium bombs like anyone else that is considered to be a axis of  evil be it.....i am hpd, and i approve of this message...........

Ranger4564's picture

Thank you for bringing some sanity to these speculations.  It's as if people just forget that there is a global plan in play and to be global, it has to account for global contingencies, which means, all countries are controlled, the same as the Western nations, Middle East, African nations, etc.  No nation is free, and all governments are already pwned. There's no point in pretending some rogue nation will break the cabal. In fact, there is likely no point in buying gold, because in the end, we'll still have to fight for our freedom or surrender all possessions.  At that point, what we value will be in such flux, that gold may become irrelevant.  Just saying.  BTW, I'm 100% invested in G + S + Mining.

High Plains Drifter's picture

nazi germany and ww2 japan refused to go along with the new world order. so they were destroyed and they were called  what? the axis powers. no?  so then fastfoward til today. now we have the axis of evil. why? because these countries refuse to bow the knee to the new world order.....they used the amerikan mercenary armies in ww1 and ww2 and now to destroy anyone who stands in the way of world government.  i am hpd, and i approve of this message...

Smiddywesson's picture

Yes, the Israelis have no gold, and they keep it with the nuclear warheads they don't have either.

macholatte's picture

So what happens if people start buying micro gold contracts (10 oz) and then demand delivery?

Do you get the goods without paying a premium?  Can you get it delivered to your house via FedEx and not have to screw around with all the storage BS?


{I put this question in here at this location in the thread because there's an argument going on down below and I'd really like some feedback on this}

James's picture

Read the fine print in your contract.

Skid Marks's picture

Come and get it, bitchez!

Might get Pb at a high velocity first though...



You and all your friends are in fantacy land. If and when the jack boots come to your house, you will hide in the corner and it will be your children who will protect you. Guns & Ammo bravado is bullshit. I say this as a collegue, a fellow traveler, not as any kind of insult to you or your friends, but as a word of caution from someone who knows. Your life and your freedom are worth much more than the shiny metal. Let us all hope you will never have to confront that challenge and all this is rhetoric and nothing more.

Live Long and Prosper


Tompooz's picture

Don't underestimate TPTB. The protection that physical gives is limited.

First of all, all sellers of gold need to report on their sales. Your address and the quantity you have purchased is in that new database. Maybe even with a surveillance pic.  Ready for that eventual knock on your door.

Second, it will be easy to pass a new law that will outlaw all sales of gold without documentation. "To combat scams of fake gold" and of course the perennial money laundering and ha! terrorist financing.

If you then want to cash in on your physical stash, you will have the problems associated with  undocumented phyz.

I advocate 50% paper for quick sale and 50% phyz for keeps.


Smiddywesson's picture

I don't think they will confiscate from individuals for reasons I've stated numerous times.  They don't need your stash.  They very well may take your profits in the form of a windfall profits tax on speculators, but they won't provoke a physical confrontation.  They don't need to.

Ganja Jane's picture

It's not a question of whether 'they' need to; it's not even a question of whether 'they' can; it's comes down to when they want to.Look at what they did/are doing to the Liberty Dollar!

<sarcasm> I'm just waiting around for the anouncement that thanks to the Southern Poverty Law Center, all the financial terrorists of the SLA, Zero Hedge, TF Metals and Keiser's Crash JP Morgan Campaign are being brought to 'justice.' </sarcasm>

Bendromeda Strain's picture

What are going on about? Don't understimate who? Those stuttering, babbling aholes profiled on "Inside Job"? I'm quaking in my boots. Leviathan government is more dysfunctional than ever, or haven't you been paying attention?

That new database

Oooh spooky. Boogety boogety. Hold me.


Solid Gold Bubble's picture

In that film, George Soros and DSK are interviewed and portrayed as the good guys. The stuttering and babbling assholes you refer toare just minions and shills for the Real Bosses who are not even hinted at as existing. The film is clearly the work of TPTB, and I was quite disappointed to see it advocated by ZH a few months ago.

Ranger4564's picture

I agree... not too many people realize or express that DSK / Soros / Buffet / etc are all just lackies for the real monied class.  The Financiers as I call them, are not so visible, and are definitely not any of the people we commonly refer to, except for maybe in a rare case or two.

Believable-Hypocrite's picture

"To combat scams of fake gold" and of course the perennial money laundering and ha! terrorist financing.


It's actually " for the children."

Prometheus418's picture

There's something to what you are saying, but it's advice with only limited value.  What you've said is somewhat true, or at least, potentially true- but that does not affect many situations.

I can see how you're viewing things, and based on where you're likely coming from, you are entirely correct.  What you've described can and will affect those who are currently well-off, or at least moderately so.  Those who have six digits to put into gold in one fell swoop will be noted and tracked- that's almost inevitable, as a small coin shop is not likely to have the volume available to cater to such sizable demand, and you will need to deal with sellers who have a strong interest in following all the applicable rules and regs.

The same comes into play when it is time to sell.  It will never be that hard to sell an ounce or two- that is what the black market is, and always has been for.  It'll be a problem if you intend to liquidate a 1000 oz. box of gold in one shot.

Now to provide the counter point to your argument, it's not only possible, but actually very easy to purchase small quanities of bullion coins that are recognizable enough.  In gold terms, you've got double eagles and kruggerands- in silver, you have not only silver eagles, maples and philharmonics, but you also have sizable private stashes of pre-1964 90% silver coinage.  There are milk jugs, coffee cans and suitcases full of the stuff tucked away in sheds and closets, under beds and in attics- while most people don't think about them much, it's just not that hard for someone to research and quickly realize that they have something of value when they are going through Grandpa's stuff when he passes on or goes to the nursing home.  These coins will be trickling back into the system for the next hundred years, and there's no way to stop that from happening, PTB or no.  They don't have to go to dealers, if it's a pain in the ass for the person selling them- they could easily just start circulating from hand to hand.  Nobody tracks anything you bought from your neighbor with cash or goods.

In another case, coin shops do not take your personal information- at least, not at the one I frequent.  I have some cordial conversations with the guy behind the counter, but the shop is 40 miles away, and I've never told him my name, and he's never asked.  There is a big sign on the counter that says Cash Only.  How are they going to track that, exactly?  I had more invasion of privacy buying my girls school shoes yesterday, where the cashier wanted my name, phone #, address and e-mail to get a couple of pairs of shoes.  I shut her down and asked why she needed to know when I was paying cash.  "It's for coupons."  Well, I don't need coupons, so I asked her, politely, to bag them up and skip the information collecting.  If they would have pressed the issue, I would have left- and that is for childrens' shoes.  Why on earth would I allow that behavior when buying metals???

In both of the cases above, the metals are anonymous, and do not need to enter any system.  They were minted by governments, and the marks and seals imprinted by the dies are the only authentication most people need.  No one questions whether or not a Morgan dollar is "real-" the question itself is stupid.  No one was forging coins 100 years ago, in anticipation of the silver price going up today.  The documentation is stamped on the coin itself.  In the case of the bullion, it is still true, but often carries the added weight of being encased for protective purposes.

On the other hand, if you walk in with a gold nugget, or a silver bar, good luck with that- but that's not something that will be a problem someday, that's an issue right now.  Nobody has to make a law or regulation about it, it's just human nature.  If I give you a lump of something without documentation, how do you know what it actually is?  Unless it's a large quantity, and you really, really want it, you're not going to go through the expense and trouble of having it indepedantly verified.

The problems you see are when you are considering buying from and reselling to an extant system.  It's an easy pattern to fall into, particularly if that system has made you relatively prosperous.  What most physical holders anticipate is not buying from AMPEX and reselling the coins to a reputable dealer (at least, that's not what I expect.)  It's to buy recognizable metal however it can be done with relative privacy, and to hide that metal until it is needed for purchases in a SHTF situation, most likely on a black market.

Carmagnole's picture

How legal would it be to melt yourself some of your gold to make it stick to the outside of this nice tungsten brick and place it in your drawer labelled "my little gold stash", while the rest of your unmelted gold has an unfortunate accident with a hole in the ground and a camping shovel ?

Quinvarius's picture

So the government PAID people the correct market price for for their gold based on the existing money supply.  So what.  I'll take 50k an ounce for mine right now.

Smiddywesson's picture

I'll take 50k an ounce for mine right now.

I wouldn't.  First, what would I put my money into to protect it?  Second, the price of gold will continue to rise until the financial crisis is resolved.  Taking $50k per ounce before the end means you will be sorry later.

Inibo E. Exibo's picture

First, what would I put my money into to protect it?



Esso's picture

I suppose they could outlaw the possession of PMs. Boy, that oughtta really supress the price.

Esso's picture

I was being sarcastic, folks. The outlawing of PMs would be like Prohibition. That damn near turned the whole country into alcoholics. Same deal with the "War On Drugs," it's easier for a 5-year old to get ahold of black tar heroin than it is to sneak a beer out of daddie's fridge.

If the goob outlawed gold, the value would skyrocket, everybody would want it. I'm not sure if that's a good thing or a bad thing though.

Troll Magnet's picture

i don't think they'd ever outlaw gold ownership but IF they did, how would one go about cashing it in? if it's illegal, you can't really do anything with it. well, nothing legitimately anyway.

Yen Cross's picture

You are beginning to test my "patience"" In a bad way!


  I'm over the Christy Brinkley Thingy Dingy!

foofoojin's picture

two words.


(ok a little more)

dogs cannot be trained to sniff for gold. and you can melt gold into bullets and snipe them into a soft tree a half mile away across borders... yes I actually know a person that moved gold by copper painting his hunting rounds. and one time had to go dig a couple of onces out of a tree when a .... you know what, road trip.

Doña K's picture

It is not illegal at this moment to move bullion gold in or out of the country. No duty or tax.

Snidley Whipsnae's picture

You're out of touch. If the US declares gold ownership illegal in the US that is not going to effect the remainder of the world from accumulating gold and/or remonotizing gold. It would simply impoverish US citizens more when the paper fiat collapse happens. The US cannot act unilaterialy with regards to gold without becoming an isolated nation, left out of the commodities backed currency that is coming. When the dollar sinks so low that the oil producing states refuse to accept it, with what will the US use to purchase oil? How about Europe when the Euro collapses? Or Japan? etc.

Do you believe that India, with the population owning ~15,000 tons of gold, will suddenly tell their citizens that they have to turn in their gold for fiat? How about China? Malaysia? The oil producing states of the Mid East? etc, etc, etc...

One thing the US could do as suggested by Jim Rickards... Peg the dollar to gold at about $5K -$7K per oz and defend that peg. Instant dollar devaluation and debt reduction. Also instant economic collapse, financial collapse, etc. It's going to collapse anyway on the current economic course...Why not have restructured banks and a new commodities backed currency ready? 

A gold backed currency or a currency pegged to gold/PMs/commodities is coming, we just don't know which soverign will introduce it first.

Get popcorn and PMs and enjoy the show.








































































































nuinut's picture

One thing the US could do as suggested by Jim Rickards... Peg the dollar to gold at about $5K -$7K per oz and defend that peg.

No, they can't. That would cause a repeat of the Nixon shock, where there is a run on the US gold reserves, just this time at $7k/oz instead of $35/oz and the US gold window would be closed again in no time... China (and most of the ROW) would just love to exchange their dollars for thousands of tonnes of physical, but there is not the flow of physical in the real world to accommodate that desire.

Fixing the exchange rate of currency to gold is the entire problem. The exchange rate of any currency for (physical only) gold needs to be set by the market, and the market only. Gold values currencies. Always has; the only thing that has ever changed has been the perceptions of 99% of the western world (not the few at the top who changed those perceptions, they always owned gold) who have been conditioned to accept an illusion that fiat paper values things. Accepting an illusion does not mean that reality ever changed, however. 

Any currency finds value only in its capacity to be exchanged for assets. A currency which does not buy you anything is valuless. An honest monetary system is one in which the money is valued by the assets, not the assets by the money.

Anyone who thinks currency values assets has their thinking backwards. I understand that most people are in this category, but this unfortunately just proves my point. Until such time as the assets once again value the currencies openly and unhindered, we will have problems, and no artificial peg to physical gold will be sustainable. A gold standard differs from today's floating fiat "system" only in that the currency's printers cannot misappropriate the saver's value as fast as today, but misappropriate it they did, as I described here.

Any gold standard pegs gold to a currency at a lower than market rate and the printer pockets the arb.

Snidley Whipsnae's picture

Nuinut, you are right of course, about the initial peg being overwhelmed by 'dollars for physical', and emptying the US gold coffers.

I was unfair to Rickards because I didn't include the other provisos of his scheme of a dollar/gold peg.

What Rickards said is that if the 'initial peg' is overwhelmed by gold purchases then the peg should be increased quickly until gold buys equal gold sales. In addition Rickards said that prior to introducing the 'sliding peg' that the dollar should be backed by gold at the ratio of about 40%. So that those wishing to have physical instead of paper could convert their paper. US Dollars were not backed 100% by gold, even when the US was on the gold standard. The US assumed that there would not be a 'rush on banks to redeem paper for gold', so the backing was ~ 40%.

It's possible that this type 'gold standard' is to be introduced. It would be interesting to find out what the peg would have to be set to cause inflows and outflows of gold to equal. If all dollars and dollar denominated assets in the world were backed 40% by gold the dollar/gold ratio would be very large... $50,000 oz?

One of the biggest problems to be overcome is that modern fiat currencies have nothing to be devalued against... and that is why we are seeing the 'remonetization' of PMs. Rickards scheme would solve this problem...and bankers/soverigns are getting increasingly desperate for a solution that allows them to survive.

nuinut's picture

A sliding peg is not a peg at all... to be increased until buys equal sales! What a crock. If he's not describing a peg Rickards shouldn't call it one.

Meanwhile Rickards adjusts ever closer to FOFOA, without ever acknowledging him, similar to others.

US cannot control this process... they have got themselves into a singularly awkward position regarding gold, having defaulted on their own gold obligations twice already. You seriously think ROW is gonna let the US tell them what their gold is worth? I don't.

One of the biggest problems to be overcome is that modern fiat currencies have nothing to be devalued against...

Of course they do... the goods and services they can be exchanged for, the only thing which GIVE them value to begin with.

I was unfair to Rickards...

Sounds to me like Rickards is being unfair expecting people to swallow his convoluted scenarios that allow the US and Wall St to skate on thru... notice how everyone's price targets for gold continuously move higher and their "gold standards" evade a proper definition? Could it be that they're just making it up as they go along?

Bendromeda Strain's picture

If you want to be fair, you should opine a little on FOFOA's declarations about the Euro. NOBODY has a handle on the sequence of events, not even the mythical Another. Why you would expect Rickard's to acknowledge an anonymous second tier blogger also eludes me. FOFOA himself admits he just digests and regurgitates the original Gold Trail writings. I get the whole guru thing, but it is the opposite of balls to take a swipe at men like Rickards, who are ostensibly wise, on the same team, and out there promoting under their own reputation

Rickards has been far more right than wrong so far, everything else is just speculation.

Motley Fool's picture

If you listen to Rickards latest interview he also now regurgitates the concepts on operation twist as put forth by Tyler many months ago.


Credit where credit is due. 

Bendromeda Strain's picture

Right. Someone hasn't been paying attention. Rickards was called out on ZH as far back as March over (no) QE3. If you want to accuse him of plagiarism now, do some due diligence.

Motley Fool's picture

I have a lot of respect for Rickards. I have been listening to him for a while; this phrasing and terminology is new afaik. Still, here is the link, listen for yourself. :)

tradewithdave's picture

If I am understanding "the plan" correctly, the post above is partially correct.  Your pocket money (your mortgage payment, car payment, groceries, etc. - say $5,000 per month) will come from an account that is not based on any form of fractional reserve currency.  This will be non-leveraged money thereby mitigating systemic risk. This is the first half of the currency that will be designed to satisfy the double coincidence of wants.

The second half of the currency, the one mentioned above that will have the "gold backing" will be the portion of the currency that is leveraged.  It will have a small percentage of gold backing and this will be your 401(k), pension and other time deposits that are essentially tied up... thereby mitigating systemic risk.  Penalties for withdrawl or liquidation will be huge and there will be extreme time constraints and requirements that must be met to get your money out of the system. 

Mr. Rickards is working overtime in the information, or possibly disinformation aspects of this campaign.  Keep in mind that his current employer was "previously" employed by George Soros.  In my opinion, he is carrying out a White House agenda.  Where is the leverage being relocated to?  This rebalancing with China via gold is being made possible by the Dodd-Frank workaround of the leverage via the non-regulated forex treatment of gold as a currency via the new HKMex and the new Pan-Asian gold exchange spot.  The Orientals will be hard at work driving up the value of the Occidental balance sheet before the deflationary event is dropped on their heads. 

How the banks, following their roll-up, get recapitalized in gold:

An open letter to Mr. Rickards:

The architecture of the new currency:




Snidley Whipsnae's picture

tradewithdave... Thanks for the links.

Smiddywesson's picture


"It's possible that this type 'gold standard' is to be introduced. It would be interesting to find out what the peg would have to be set to cause inflows and outflows of gold to equal. If all dollars and dollar denominated assets in the world were backed 40% by gold the dollar/gold ratio would be very large... $50,000 oz?

One of the biggest problems to be overcome is that modern fiat currencies have nothing to be devalued against... and that is why we are seeing the 'remonetization' of PMs. Rickards scheme would solve this problem...and bankers/soverigns are getting increasingly desperate for a solution that allows them to survive."

So much packed into these few lines.  I don't see any way out for the central banks than to do exactly as Snidley suggests.  Our society is too fragile for a generalized collapse, and TPTB do not intend to fade away with the old system.  A gold related system, with gold prices high enough to establish a stable banking system, to account for all the dollars out there, AND make their gold worth enought to dig them out of debt, is the only answer. That will only work if they are able to amass enough gold prior to a collapse.  Hence, kick the can. 


MsCreant's picture

I'ne listened to the Rickards interview. He stresses he is not calling for this to happen, but rather that he sees it as inevitable.

Snidley Whipsnae's picture

True MsCreant... I did not mean to imply that Rickards is offering up solutions...

He is merely pointing out possible destinations... based on where we are and the direction of our drift.

Bendromeda Strain's picture

Thank you

As Trade w/ Dave would oh so eloquently infer, I do not see Rickards as some disinfo, cointel plant. Folks are certainly more informed by exposing themselves to his offerings. Hedge accordingly, in all things.