Tuesday, September 4, 2012

Why Gold Is Going Much Higher

I believe it’s going a lot higher…it’s going to have a parabolic spike, caused by some event or some loss of confidence…a US dollar crisis would be a perfect example. That will cause gold to go through the roof, and then everybody will want to own it…I don’t think we’re even close to that yet…Gold will probably have a much greater run than some of the other hard assets–because it’s also a currency  - Frank Giustra, mining industry entrepreneur (one of the "architects" of Goldcorp)
That quote is from an incredible interview with Frank Giustra.  Well worth hearing:   LINK

My business partner was having a discussion about the current fiscal/financial situation in this country with an old friend of his.  I think his friend was trying to get his thought process around the scope of the problem and how to fix it.  His friend was trying to work out the math on the Federal budget deficit - well, essentially all of the numbers as they are presented by the Government.  He is also trying to understand why gold would be a large piece of the "solution puzzle."  What I sensed in his thought process was a high degree of "hope" and a misunderstanding of the numbers as presented by the Government.

But "balancing" the Federal budget isn't a matter of just cutting back on medicare and social security.  I don't know exactly which areas of the various Government websites that my partner's friend was getting his numbers from and I don't know to what degree he understands that the numbers are highly massaged and misleading.

You could cut all entitlements to zero and the Government still doesn't have a balanced budget.  You could cut all defense spending to zero and the budget isn't balanced.  The reported budget isn't even the true budget.  The cost of the FNM/FRE bailout is not included in the reported budget.  There's a lot of defense spending that is not included.   How about the highly underfunded status of the Federal pension system?  The reason it's underfunded is that the Government plays games with the contributions in order to "shave" expenses from the budget.  If the Federal pension were properly funded each year the budget deficit would be significantly wider.  Suffice it to say that that the Government is mathematically insolvent and the solution will not be found in working within the system as it currently exists.  There needs to be a huge "reset" of everything.  The "reset" process can occur in several ways, all of which will entail a substantial decline in the standard of living for the 99.5%'ers.

With regard to gold, gold isn't an investment.  Gold is a currency.  It's only an investment to the extent that its value as a currency is cheap relative to all other currencies.  The only value behind any paper fiat currency is the "faith" that the issuing Government will maintain supply of the currency relative to the wealth and economic output of the issuing country.  We're well beyond that ability now in every currency.  Right now the only "value" of the U.S. dollar is the Government's ability to print more currency in order to avoid default on the Government debt.

At some point the gold standard will be restored to the global economic system.  I don't know which country will force the issue and I don't know when.  But in order to create the financial "reset" that will be required to restructure and discharge inter-Governmental debt obligations, the value of gold will have to be reset to a much higher level in current dollar/euro/yen/yuan terms.  Much higher.  Ron Paul wrote a brief essay addressing this issue.  The essay summarizes how the dollar engineered into a pure fiat currency and was enabled to remain the world's reserve currency:  LINK  The only idea in this essay with which I disagree is the notion that it's not too late to save the U.S. dollar's status as the world's reserve currency.  There's been too much damage and our country has crossed the Rubicon of dollar destruction.

Whether or not the public ever jumps on this bandwagon and gets it before the reset occurs is irrelevant.  The public participation in driving a bull market is only relevant to the extent that it provides the buyer of last resort for the insiders and smart money to dump (greater fool dynamic).  That will not be required in this situation because it will be the Governments which determine the reset price, not the markets.

Look at just the U.S.  The U.S. supposedly owns 8100 tonnes of gold.  However, there is a question of to what degree the U.S. gold has been encumbered by financial transactions like swaps and leases. The Fed surreptitiously admitted that it uses the Treasury gold for swaps.  It is also likely that it has been largely leased out.  We don't know for sure and the Fed won't let anyone see the real books and records on this.  GATA has been waging a legal battle to force the Fed to release all of its records related to its management of the U.S. gold reserve but so far the Fed has prevailed in curiously maintaining the secrecy regarding the truth about the American taxpayer's gold.  And it is indeed curious...

But let's assume that the U.S. gold is intact.  And let's assume that the world were to resort to the old gold standard which required the value of any country's gold to represent 40% of the country's reserves.  In order for the U.S. to "monetize" its $16 trillion of on-balance-sheet debt, the price of gold would have to be reset to $23,500/oz.  That's just the direct U.S. Treasury debt and that doesn't include all the other non-direct, non-current debt obligations. It doesn't include the $7 trillion FNM/FRE debt guarantees.  And it doesn't address the private sector debt load in this country.

Now assume the U.S. gold is partially or fully encumbered by hypothecation transactions.  You can see where this is going.  The public will never understand this and the Government is doing its best to make sure this doesn't happen.

The bottom line is that the world is going to have to engage in a global "reset" in order to restructure and solve the massive global debt problem.  This will either be done peacefully using gold as the measuring standard for wealth or it will be done through war.  If you think I'm wrong, just look at the numbers presented in this article:  LINK


  1. I'm getting tired of waiting. Civilization needs to #&%@ or get off the pot.

    1. Everything in it's own time sir. Enjoy this life and follow your heart for by knowing our course we are blessed with the future already.

  2. I think at the current time, gold can be considered an investment. In the future it will buy more bread, tractors, horses, whatever than the same amount will buy now. That said, I have gold for wealth preservation, not investment.

  3. We are always on a gold standard, even though governments would train you to interpret that standard accourding to their own best interests. The Fed would have you interpret the international financial and monetary system as being on a "debt standard", with gold priced in debt (i.e. dollars).
    That interpretation may be the "con of centuries" and yet debt-holders are coerced to believe it.
    But gold is not priced in debt, rather debt-dollars are priced in gold. As they lose credibility it takes more dollars to acquire the metal, not the other way around. If the sovereign banks would trade all their gold for carts of apples, we'd be on the apple standard, or if they traded all their (traditional but worthless) gold for SDR's we'd be on the SDR standard. But they are not. They are hoarding gold like never before in our lifetime. Thus the ubiquitous gold standard reveals itself, in action.
    When your friend's friend, and all his friends, finally realize that the debt standard of the fiat currencies is, as you said, well past the rubicon of solvency, then the confidence in the debt standard will crumble.
    People will stop honoring their debts, and won't give a flying fuck about their FICO scores.
    In the coming reset, your FICO score is a number on a piece of burning paper. All that will matter is what assets you truly possess, unencumbered, and because gold will be the monetary asset, it will be prized above all others for the purpose of commerce and trade. True, we don't know what black swan will tip the scales, but you can but a standing army will be in the streets ready to take down any anti-American who refuses to honor the debt of banks, the true masters over the military industrial complex, and the politicians and the corporatist state.

  4. I found TFMetals interview with Jim Willie a lot more interesting and much more informative than Mr. Guistras interview. check it out! www.tfmetalsreport.com/podcast/4153/holiday-treat-grilled-jackass

    1. "The years teach much which the days never know."- Ralph Waldo Emerson

      I don't know where I'd be without being all of a sudden blessed with a "red pill" perspective a number of years ago, without the commentary of guys like Jim Willie, Dave, etc., etc., etc. or without my conviction to exist with truthful integrity to the best of my ability. I am so grateful for what all these guys, including our host here, provide and that each of us are not alone in our awareness of what is transpiring around us. Best wishes and luck to all out there and continued thanks for everything Dave.

    2. well and rightly spoken. the fact that Jim Willie is an expatriate in Costa Rica (or wherever he is) shows that there's a cost for speaking the "golden truth". meanwhile I'm glad we have Dave here in D'never.

  5. Excellent interview with Frank Giustra. Nice find, thanks for sharing, Dave (heck, I even went so far as to order a book recommended by Mr Giustra called The Four Agreements; am interested to see what it contains).

  6. The Turd interviewing Jim Willie is always a treat, looking forward to hearing the interview with Frank Giustra as well. Keep up the good work Dave

  7. Thanks for the feedback everyone. I appreciate it!

    Metals won't go straight up, and the Fed/Govt/Wall St. will fight it every step of the way, but I think we've started the next cycle to new highs.

  8. Swiss Criminal Investigation into Barclays’ GoldenKey fail Moving Forward

    It’s a sordid tangle of relationships involving the America offices of BarCap, with executives like Kelsey Burr and John Parker playing the central role of evil banksters. Burr magically left the bank last year around the time Rebourg showed Barclays a slew of internal emails detailing his alleged role in the fraud. Berr and Parker built products called SIV-lite that would raise capital, borrow money in the short-term commercial paper debt market, and then invest all of this money in higher interest rate bearing products like mortgage-backed securities. The criminal claim tries to show, among other things, Barclays created these SIV’s to off-load their toxic mortgage products at the beginning of the financial crisis and sell them to unsuspecting investors via hedge funds they were friendly with. It’s a tale that highlight how every firm from raters to auditors involved in these high finance products somehow played a role to cheat main street investors.

    “The Swiss judge has done a deep dive into the evidence and charges could be brought within a month,” said a person involved in Swiss criminal investigation.

    The Swiss judge had to sort through multiple offshore entities BarCap set up within the GoldenKey transaction. Finding criminal liability is tough because the complexity of financial products like GoldenKey, which are very difficult to understand even for a specialized judge familiar with financial instruments, have been structured in order to make sure that all the potential legal liability was outsourced to some external managers, like Avendis Capital, or domiciled in different bankruptcy remote jurisdictions.

    Now thanks to Rebourg’s case the Swiss judge is looking at email evidence that shows a level of arrogance and RICO like behavior by Barclays. One such email written in 2007 by a Barclays executive who was talking about the bank arranging GoldenKey says “…we can always strong-arm S&P if they become difficult over the CIO position as we use them day in day out for rating so many of our deals.”

    Then investors in AEFI fund found out one of the partners of BDO was member of the board of Barclays Switzerland branch and figured some favoritism towards Barclays was at play.

    Rebourg told me last year, “The attitude of Barclays’ employee, under Bob Diamond tenure, has been one of reckless brinkmanship. Convinced that they were above the law, they have repeatedly plucked clients and investors alike without fear of the law.”


  9. Silver Delivery Problems Expected: GATA, Sept. 4, 2012