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Secret World of Gold

A popular meme in the Panic of 2020 asks, if gold is such a bellwether, why has its price not greatly increased?

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of this site. This site does not give financial, investment or medical advice.

Submitted by Steve Brown…

A popular meme in the Panic of 2020 asks, if gold is such a bellwether, why has its price not greatly increased?  …and indeed, gone down. The reason why is at the heart of why Modern Monetary Theory — now forcibly embraced — is doomed to fail.

But first, a few ground rules. If the government of Venezuela needs dollars how does it pay for them?  Gold.  How does Sudan trade for arms with Israel and the United Arab Emirates? Gold.  How do Central Banks and their dealers profit from their gold? By the gold carry trade.  Despite denial by paper traders, MMT Keynesian’s, and hypocrisy from central bankers, physical gold is the solid foundation of real finance.

The Chicago Butter & Egg Board also known as the CME or Chicago Mercantile Exchange, claims that their gold futures, “Serve as an alternative to investing in gold bullion, coins, and mining stocks”. That’s a lie. That’s like saying buying apples is an alternative to buying oranges. The CME also says gold contracts will be physically delivered… also a lie, being a half-truth at best.  The CME then says that their futures, “Offer ongoing trading opportunities, since gold prices respond quickly to political and economic events” and that’s a lie too, because the bullion banks manipulate the gold market to their advantage.

In other words, the US paper gold trade is built on lies. So how can a US gold market built on lies be considered a bellwether? It’s not. As we have seen since 1971, the true financial bellwether is oil where the decline in oil price is proportional to the depth of a recession.

Now in the present panic, whether the US Treasury has considered revaluing US gold holdings to true market value is one great unknown. (The Treasury values gold at $42.22 US per ounce.) But if the Treasury did mark gold to market, that could provide the $4.25Tn (and more) that the Treasury’s leveraged bail of Wall Street calls for this time (ie CARES $425Bn x 10).  Of course such a discussion about revaluing gold to save the system is not a discussion the central government wants people to have, highlighting the historic and continuing importance of gold as the world’s only monetary medium with true intrinsic value.

With regard to the bail-out, for the US Treasury to revalue gold to a figure near or above its true market value is the same trick that FDR played in 1934. Thus, instead of relying on the Keynesian cut-out known as Modern Monetary Theory the federal government could use a real asset to bail-out the once-again failed US economic system for all the “money” it needs.  However this new bail-out leads to embarrassing revelations, the first being that the United States no longer has a ‘real’ economy, so using a real asset to bail it out poses great risk to owners of the monetary system.

Another embarrassment is the manner in which an authoritarian communist regime handled this crisis in comparison to the “free market”{1} United States, which has blundered so far… and that is not meant to be an ideological or rhetorical statement. China weathered the panic not because it is a communist country, but because China produces goods, because China has industry, has spare capacity, and a large manufacturing base while possessing no debt except the debt of debtor nations it owns like the United States. The United States has no such luxury.

In contrast to the relatively small amount of capital China just injected into its economy, the United States criminally colludes with Wall Street to inject trillions more in aid of its failed industries.  The US will inject at least 10T USD in made-up currency into its economy in a move that is certain to allow US Oligarchs to eventually thieve the assets that they failed to thieve after the collapse of 2008-2009.

But this time Elites face a number of issues. In the real gold market, which I have written about before, real physical gold (not paper) underwrites many of the most important sovereign financial transactions globally.  However, Switzerland’s gold pharaohs have just quit refining and shipping. That’s a big deal. Whether Elites can get a grip will be important going forward, where Central Bank and bullion bank manipulation of the (physical) gold market is presently endangered. Suffice to say that Elites must keep the price of gold suppressed for the near future and should they fail, a much larger financial contagion will replicate the biological contagion.

Another great dilemma is the maintenance of the US dollar as world reserve currency in a new era of limitless MMT monetary expansion. As world reserve currency, the rest of the world lends while the United States lavishly spends. But in this new era that may no longer hold true. It will take just one major player to pull its cards and call tilt. That could be Saudi Arabia decoupling oil sales from the $ US. Or China cashing in its US debt for other assets. Or foreign investors deciding that negative bond rates in the US do not appeal.  Or that mom & pop US investors and for that matter pension funds — which have been continually conned by the ponzi called Wall Street — finally figure out the theory of insanity  (to whomsoever the quote may truly be attributed).

Another challenge going forward is whether MMT truly works. MMT states that money needs no intrinsic value other than the public trust placed in it. {2} Another fallacy is that while the MMT digital press infinitely digitizes dollars, goods and services will be made infinitely available commensurately.  That’s a very flawed idea and another fallacy of MMT.  {3} MMT is about to be tested. MMT will fail.

Finally, in either positive or misguided American style, Americans apparently believe that this bail-out will reinflate the bubble that burst and make the world rosy again, just like the last bail-out did.  But like the contagion itself, there is no guarantee. This panic has a long way to run. And while the future is unknown, what can be known is that failed leadership, failed industries, a failed economy and a failed financial system are not the consequences of any contagion… but a foundation for its consequence.

{1} Free market here is defined as the freedom to consolidate, merge, conglomerate, and monopolize while engaging in anti-competitive business and financial practices

{2} According to MMT, gold is simply a commodity with no monetary function. But no central bank or sovereign state agrees with that fallacy.

{3} In light of MMT and this bail-out imagine Biden asking Bernie where the “money” for universal healthcare would come from!

NB:  This article is intended to be a tribute to the late Andrew Gause

Follow Steve Brown on twitter:  @newsypaperz


The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of this site. This site does not give financial, investment or medical advice.

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March 30, 2020

“In light of MMT and this bail-out imagine Biden asking Bernie where the “money” for universal healthcare would come from!”

From the same place the six TRILLION dollars are coming from for the big corporate BAILOUT, where else?

Francis Lee
Francis Lee
March 30, 2020

Gold, and other precious metals have been around for 5000 years and they are not going away anytime soon. The gold standard was – temporarily – abolished in 1971 when Nixon made gold non-convertible with US$s. A pure fiat or paper standard was imposed upon the world and all the financial instability and problems started from that date. The dollar standard enables the US to pay for its imports by simply printing more paper dollars. Before Nixon’s actions nations were in receipt of dollar surpluses as a result of running trade surpluses with the US. Prior to 1971 they could… Read more »

March 30, 2020

“That’s like saying buying apples is an alternative to buying oranges,” – author. That’s a bad example re gold futures v real gold. When the gold etfs are an unknown quantity, in 2016 it was estimated, though not certain, the ratio was an insane 550 etfs to 1 oz of gold. Good luck cashing that out. A better example is a paper airplane v a real one, I think.

a guy from Ukraine
a guy from Ukraine
April 7, 2020

Gold is a barbaric relic the central banksters would lead us to believe – impractical and fetching no revenue. Now there is none to be found anywhere. “Out-of-stock” no matter where you are looking here in Ukraine while only some of the people are trying to trade their stacks of Federal Reserve legal tender notes they consider by mistake to be the US dollars for yellow metal. How ironic. Many of those same people who once survived the collapse of the Soviet Union losing their all paper assets denominated in Roubles are doomed to relive the horrors of the past… Read more »

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