This report was originally published by Brandon Smith at Alt-Market.com
It is generally well known in economic circles and in the general public that precious metals, including gold, tend to be the go-to investment during times of fiscal uncertainty. There is a good reason for this. Precious metals have foundation qualities that provide trade stability; these include inherent rarity (rather than artificially engineered rarity such as that associated with cryptocurrencies), tangibility (you can hold gold in your hand, and it is relatively difficult to destroy accidentally), and precious metals are easy to trade. Unless you are attempting to make transactions overseas, or in denominations of billions of dollars, precious metals are the most versatile, tangible trading platform in existence.
There are some limitations to metals, but the most commonly parroted criticisms of gold are in most cases incorrect. For example, consider the argument that the limited quantities of gold and silver stifle liquidity and create a trade environment where almost no one has currency to trade because so few people can get their hands on precious metals. This is a naive notion built upon a logical fallacy.
Gold backed paper currencies existed for centuries in tandem with the metals trade. Liquidity was rarely an issue, and when such events did occur, they were short lived. In fact, the last great liquidity crisis occurred in 1914, the same year the Federal Reserve began operations and the same year that WWI started. This crisis was, as always, practically fabricated by central banks around the globe. Benjamin Strong, the head of the New York Fed in 1914 and an agent of the JP Morgan syndicate, had interfered with the normal operations of gold flows into the U.S. and thus sabotaged the natural functions of the gold standard.
Central banks in Germany, France and England also applied influence to disrupt currency and gold flows, causing a global panic. This engineered disruption seemed to take place through conscious co-operation between central banks. Does any of this sound familiar?
For those who are interested, the history of the 1914 liquidity crisis is outlined in detail in the book ‘Lords Of Finance: The Bankers Who Broke The World’, by Liaquat Ahamed.
When gold and currency are tied together, gold prices tend to remain rather stable, as they are often set by the national treasury. In 1914, the price of gold was $20 per ounce and had maintained that approximate value for decades. To give some perspective on value, in 1914 the average house cost $3,500, or 175 ounces of gold.
But what happens when gold and national currencies become disjointed from each other? Take a look at the hyperinflationary crisis in Weimar Germany. The price of gold per ounce went from 170 marks to 87 trillion marks within five years! Over that same five year period, gold value in Germany had increased at almost TWICE the rate of inflation, indicating that gold not only kept up with the devaluing mark, but made anyone holding gold rather rich in the process.
This is a very important fact. The common argument against gold is that the metal is not really a wealth creating investment, but merely protects your buying power. As the Weimar crisis shows, this is not always the case. In some circumstances, often during times of economic disaster, precious metals can in fact generate more wealth than what you put into them.
Then there is the issue of government interference in gold markets and trade during crisis. As the Great Depression in the U.S. began to take hold, investors turned aggressively to gold and silver as a means to offset the crashing values of most other assets. In a highly controversial move in 1933, President Roosevelt outlawed the private ownership of gold bullion and set the price of gold at $35 per ounce.
Keynesian economists like Ben Bernanke often try to assert that the gold standard was the reason why interest rates had to be hiked as the depression was escalating, and that this was the cause of a greater crash. They are only half correct. Increased rates did indeed cause a larger and more prolonged crisis, but this had little to do with the gold standard.
Clearly, in 2008 the U.S. and most of the world was NOT on a gold standard, yet we suffered a very similar collapse in credit and equities as happened in the Great Depression. Also, there is no gold standard forcing the Federal Reserve to raise interest rates today, yet they are doing so despite escalating negative indicators in the real economy.
Whether or not this will cause an even more violent economic catastrophe remains to be seen, but Jerome Powell, the new Fed Chairman himself, warned in 2012 that this is exactly what could happen. Jerome Powell has stated in no uncertain terms that rate hikes will continue under his watch in 2018.
Central banks were the core institutions to blame for the Great Depression, not the gold standard, considering the fact that central banks did NOT follow a true classical gold standard exchange internationally, and instead tried to establish a global basket exchange system of multiple currencies and gold in what they called the “gold exchange standard”.
Add to this the unnecessary interest rate hikes as deflation was pummeling assets, and you have a perfect recipe for calamity. Even Ben Bernanke, in a 2002 speech to honor Milton Friedman, openly admitted that the Fed was the root cause of the prolonged economic carnage during the Great Depression:
“In short, according to Friedman and Schwartz, because of institutional changes and misguided doctrines, the banking panics of the Great Contraction were much more severe and widespread than would have normally occurred during a downturn.
Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”
The use of gold prohibition had mixed results. Obviously, it did not stop the freight train of the Great Depression. In fact it probably exacerbated difficulties in trade and savings. Black markets took over and precious metals were still highly sought after.
As far as the crash of 2008 is concerned (a crash which is still ongoing today), we all know what happened with gold markets. In the lead up to the crash, from 2004 to 2008, gold doubled in value. Then, after the initial crash from 2008 to 2012, it doubled again.
Despite predictions by mainstream economic naysayers, gold has not collapsed back down to pre-crash levels. In fact, gold has remained one of the most effective investment performers for years.
The question is, what happens next? Setting aside gold confiscation as a factor (a factor which I believe would be impossible to enforce in today’s markets), we can see that massive fiat stimulus as a means to artificially support a deflationary fiscal system, as well as central bank intervention in general, leads to collapse and a flight to hard assets like gold. Even with rising interest rates and the potential for a spike in the dollar index, if the rest of the economy is in steep decline, investors and others will still turn towards precious metals.
As I have mentioned in previous articles, the initial reaction of gold prices to faster interest rate hikes may be negative. That said, I do not believe gold will drop as dramatically as mainstream economists expect. Once higher interest rates kill the stock market bubble as well as the renewed housing and credit bubble, gold will skyrocket as one of the only asset classes with tangible real world value.
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Gold is just another commodity and will behave the same as all other commodities in any future economic situations.
yup, just like most other “stuff” that we will need when the bell rings, it will make U.S. rich. anybody with PM’s, guns, ammo, food, arrable land, equipment to farm or ranch, fuel, oil, water,……if you got STUFF, you will be rich…..on the other hand, SOME commodities will crash in value….steel? where you gonna sell that when the bell rings? pork bellies?…..how will you get them to market? y’all better give some serious thought to what will be worth ANYthing, when it all goes to sh t.
“In a highly controversial move in 1933, President Roosevelt outlawed the private ownership of gold bullion and set the price of gold at $35 per ounce.”
This was the basis for a JOBS program to spur the mining industry, and the US Govt bought ALL of the gold. The same thing is happening in Russia and China today. Even better in Russia and China the gold is that is being mined is paid for in Roubles and Yuan …… and far below world market prices.
So in effect, both countries are profiting from the gold mining sector based upon ARTIFICIAL costs of capital, labor, and market prices. 🙂
“gold will skyrocket as one of the only asset classes with tangible real world value.”
If I were to go to my local fuel supplier and offer a 1/10 oz gold coin as payment and I asked for change, what do you think would happen?
How is the value of gold established?
The same way our paper money is.
All of us here know our paper money is BS.
Gold and silver have industrial uses and that is
a tangible value they really have.
you askin’ me?….i would chop it in half, and let you keep half of it for that 5 gallons……shoulda had a few silver coins for the fuel…..then you woont had that problem…..or better yet, why don’t you offer me a couple cases of chilli, or peanut butter……cause money(FRN’s) won’t be worth……you ARE talkin’ about the end, i assume?
There is a unlimited supply of paper gold and silver. Who knows what will happen this time around. Unless people start taking possession i don’t see much of a change.
Even worse, at the start gold/silver will drop like a rock when they cover just like during the last crash.
gold drops during a stock-market crash because people sell it FIRST, to make their margin calls….but MY hunch is THIS time will be different…..because it WILL be different….paper gold aint gold AT ALL.
Yes, gold barring a nuclear attack and the subsequent contamination of the metal, it should hold a value. Just as it has for thousands of years. But as anything of value, it will be subject to the need and want of it by others. Simply as a mechanism for exchange, that would imply some sense of worth across broad areas of both location and just what people needed. Initially in any collapse, it would have a zero value. Personally, I’d not trade a can of beans for its weight in any so-called precious metal until things got back on some sort of civilized even keel.
here’s my number, in case you come across any of it you want to get rid of on the cheap…1 800 328 7448……or, 800 eat sh t……LMAO! i’ll be buyin’ all i can git my hands on…….as long as you got the password to get on the property….”hey randy, i got plenty of ammo and food for everybody in my group, and extra for your group too”.
Just like it did the last time. Go up. It does it every time.
Sgt.
Here is the concern I have about gold and silver:
Where am I going to sell it? Right now I buy and sell at a place called Houston Numismatic Exchange. Here is the web site:
ht tp://www.hnex.com/
But if I cant sell it there, then where? It would not be wise to advertise on craigslist or the classifieds or facebook. That would just get you robbed.
If i needed to sell $100,000 in gold and silver, there may not be a buyer for it.
Selco comments on gold and silver. He said at the beginning of the war, people traded for it, but as it progressed then only wanted food and physical products that were worth having.
i don’t see the collapse lasting more than a few months. here in america, we will git things done, and come out stronger as a nation…..after a few tens of millions die off, of coarse. better be awake to the dumb masses sellin’ their gold for too little….it’s your chance to get rich……what MOST forget, is that there WILL be the other side of this collapse, the rebuilding….there WILL be good days ahead, but we got to go through hell first.
If you’ve been buying gold, or at the very least, tracking the spot price, you’ll notice a big leap in the spot floor since around November of last year.
If I’m remembering right, in both November and December, gold spot ran to $1360 only to be pounded back down to $1240. In both January and February of this year, gold spot once again ran back up to $1360, but could only be pounded down to $1320. So far this month, gold spot has run to roughly $1340 and retreated back to $1320.
This means they need to throw increasingly larger and larger amounts of paper gold (without even a single gram of gold to back it) into the market to get less and less price suppression effect.
Then there’s the physical market, which has nothing to do with the paper market UNLESS you are buying your physical gold from someone that is selling gold based off spot price. That means you’re acquiring physical gold at fire sale prices, because the price in the physical market, where people take real delivery of real gold, is roughly 2X spot. A long as I can keep acquiring physical gold at this deep discount, I’ll do it; I don’t care if it’s 1/10 or 1/20 of an ounce at a time.
My thought on gold is that it is going to blast through both $1360 and $1375 in the same day very shortly. When that happens, you could see a big run that resets floor at a level substantially higher than the current $1320. That could come as soon as March 26, when the RMB oil contracts start trading.
Two things to watch for on the RMB contract that will signal big runs in both gold and silver: Saudi Arabia and Mexico settling and standing for delivery on physical gold, which means they’ll take payment in RMB and convert to gold bullion for physical delivery. Saudi Arabia means good-bye petro-dollar and an immediate spike in the price of crude and its distillates, which include gasoline.
Mexico is the big one because it will mean that Mexico no longer needs to sell its silver bullion to the US for fiyat dollars to service dollar denominated debt. Silver would go parabolic after gold goes parabolic. Look at production numbers. Mexico can pull 200m ounces of silver out of the round without straining a pair of balls. The US has to go balls to the wall to pull 40m ounces out of the ground annually. What’s going to happen to all those silver Eagles, bars, and rounds should Mexico decide to stop flushing its silver bullion down the toilet? It’s going to dry up rapidly, which translates to parabolic prices.
Insightful post but I must disagree with you when you state: “Saudi Arabia means good-bye petro-dollar …”
The “petro-dollar” is stronger now than ever for TWO reasons. First, the Saudi Ruler and the surrounding vassal states that produce much of the oil from the Middle East NEED the USA to protect them from Iran so they will continue to sell their oil in dollar terms; even if they convert their deliveries to China immediately to gold.
Second, the US is producing more than ten million barrels per day and that production is expected to rise because TRUMP has unleashed the oil industry in the United States. The USA is projected to be the NO 1 oil & gas producer in the world by the IEA within a few years.
The USA will not be accepting anything but dollars in exchange for its oil. The Petrodollar is here to stay for the foreseeable future despite all of the naysayers. 🙂
There’s a Reluctant Preppers/Rob Kirby video you may want to check out on the subject of US oil exports. It’s probably his best video ever, and it’s one of the best rants ever. About 56 minutes in length. Based on Kirby’s information, the US oil exports are nothing but a game of smoke and mirrors. The US is importing millions of barrels of Canadian shale oil at around a $30 discount to WTI. In lay terms, this discount is greater than the margin on a barrel of US oil, and that is what is allowing the US to become what is effectively a low margin oil exporter.
If Canada actually does what Kirby suggests, namely wake up and put an end to what is effectively a looting of Canada, the US goes poof as an oil exporter, and you’ll probably see a big implosion in the US oil industry.
If you can afford it, I would buy a couple dozen 14k gold link chains. They can be kept for presents if economic times improve. They can be cut and weighed for purchases during an economic collapse.
_
just remember, things will be mighty expensive AFTER the bell rings.
They will also turn your hands green. 🙂
It doesn’t matter to me what the dollar value of gold is.
Gold has historically been worth about the same in comparison to other products. When gold was $20 an ounce, you could buy a nice suit for that amount. Now you can still buy a nice suit for the price of an ounce of gold.
No one will need a new suit after the Bell rings. Just saying. 🙂
How much do gold sellers at coin shops charge above the spot price for a new one ounce US gold coin?
usually around 50 to 100$….my guy buys for spot….but it depends, sometimes everybody’s lookin’ for it…..sometimes NOBODY’s lookin’ for it, so prices can vary. the one ounce is the best way to invest in gold, in my opinion….put an ad out and maybe you can buy a lil UNDER spot from private individual…..but don’t get burned…..do a LOT of research….there’s fakes out there…..even at fort knox, from what I HEAR.
a cheap scale and vernier calipers should keep you out of trouble.
Alibaba will sell anyone tungsten gold coins. Same size and weight. Ring test will tell these but without a real coin of the same size to compare its very hard to tell. Shtf acid tests might be the best way to go. Just make sure to scratch deep.
I wouldn’t waste my time with coin shops. I buy fractional gold coins online, and I prefer Canadian because of the purity and anti-counterfeiting measures. When it comes to gold bullion coins, national flags do not matter, black lives do not matter, pink and purple polka dot lives do not matter. Only 9’s do; Canadian gold has 4 of them straight, US gold does not.
The important things to remember about gold are that you’re going to use it to acquire assets that build more wealth, and the price of those assets will continue to drop as gold rises in price? Why? It has everything to do with derivatives.
Globally, the on-books high end derivatives for banks is $5 quadrillion; for US banks, that same figure is $2.5 quadrillion. Those derivatives are first in line for order of settlement. That means banks will margin call you on your mortgage; they’ll want the whole nut in 72 hours, or they’ll take the keys and throw you out the door.
Lynette Zang does an excellent video on how the netting and compression process involved with derivatives is a pile of crap. End game on derivatives is that nothing is going to be netted against anything else, because everyone in that game is going to be counter-party on totally unrelated transactions where the other party is expecting to be paid in full.
Those parties expecting to be paid in full probably won’t be interested in residential or commercial real estate that the bank margin-called. They’re going to want payment in something that means something. Gold and silver meet that criteria. Asset prices have no choice but to fall off the cliff because banks will need to give them away in increasingly large amounts just to get a single ounce of gold or silver to pay off their bad derivatives and insurance bets
” … I prefer Canadian because of the purity and anti-counterfeiting measures. ”
I always did too for the same reasons and I also prefered Canadian also because Canadian coins could never be labeled “American Govt Property” like US Coins could; but I did read a story last year of a jewelry maker in Canada who ALWAYS bought his gold from the Canadian Mint, and discovered his 24 carat one ounce gold bar to be a counterfeit filled with tungsten when he got home with it.
He immediately returned it to the Canadian Mint and an investigation promptly ensued. Not a single word in the news since. Go figure. How does a counterfeit work its way into the Canadian Mint ??? 🙂
don’t forget eppe!
and keep his family in prayer as they move forward without him
Has eppe passed ??? 🙁
You ride your bike to the nearest store and all they have is one bag of potatoes. On your ride home a man offered you a thousand dollars in gold for the bag.