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Gold has powered higher at an incredible and, for
many, unexpected rate going from FRN$1,658.75 in the 5 Aug PM London fix to
FRN$1,761.50 at 6am 9 Aug London time. The DOW:GOLD
ratio has plummeted to around 6.15. Hope you are strapped in because
turbulence is ahead!
I recently finished two weeks in London which ended with the GATA Gold Rush 2011 conference.
I was in the room during the taping of the Jim Sinclair interview. How right
has he been all along!
The flat I rented in London was about two tube stops from the Tottenham riots. Now I am in Athens headed to the islands
for an enjoyable two weeks. With all the turmoil I often wonder: Do the riots
follow me or do I follow the riots?
One common theme on RunToGold is to assess the
probability and gravity risks, analyze potential solutions or plans and then
take action with provident living
principles which may lead to survivalism
in the suburbs or some other form of life hedge.
UNITED STATES LOSES TRIPLE A RATING
In April Treasury Secretary Timothy Geithner was asked concerning the
risk of the U.S. losing its triple-A credit rating: Secretary Geithner
replied, “No risk of that.”
Then the politicians bickered about the debt ceiling and came to a
faux resolution. On 5 August 2011 the Wall Street Journal reported:
S&P removed for the first time the triple-A rating the U.S. has
held for 70 years, saying the budget deal recently brokered in Washington
didn’t do enough to address the gloomy outlook for America’s
finances. It downgraded long-term U.S. debt to AA+, a score that ranks below
more than a dozen governments’
Boom, Boom, Pow!
THE GREAT CREDIT CONTRACTION INTENSIFIES
In 2009 Mr. Sinclair said of my liquidity
pyramid: “A very
good, simple and clear representation of the problem lacking a practical
solution.” Before his interview at the GATA conference
I wanted to thank him for his gracious compliment. Regarding the liquidity
pyramid Mr. Sinclair remarked, “Perfect.”
PREPARATION, CONFIDENCE AND CALM
I have received a tremendous increase in comments and emails from
readers and friends. They all seem to want expert advice from someone who
knows what is going on. Why do you think I wrote hundreds of articles on Run To Gold? When the
time for performance comes the time for preparation has passed.
I really wish I could provide some advice for those ‘caught
between a rock and a hard place’ who are watching their pensions and
retirement accounts evaporate. But I am off swimming in the beautiful islands
of the Mediterranean Sea and do not have ready access to the phone.
Those darn crazy
gold bugs do not look so crazy now. How right was Mr. Sinclair when he called
$1,650 gold a decade
ago when it was around $265? Good thing his thin skin is gold-plated.
But I have already written about the evaporating Euro, how retirement
accounts could boost Treasuries and as I wrote in 18 January 2009 why and how
the Treasury bubble will burst:
As the yields on Treasury Bills approach 0% they have the return of
cash but do not have the benefits of cash as they may
be impregnated with counter-party risk or have decreased liquidity.
In other words, Treasury Bills and cash have the same benefit profile
but not the same safety and liquidity profile.
The Wall Street Journal reported
4 August 2011 that “Bank of New York Mellon Corp. on Thursday took
the extraordinary step of telling large clients it will charge them [0.13%]
to hold cash.”
Now the FRN$ moves one step closer to evaporating. Why pay 0.13% to hold FRN$ when
you can pay a 0.18%
storage fee to hold unencumbered allocated insured gold? Is it really wise or
prudent to save five basis points to be in a potentially worthless fiat
currency while being an unsecured creditor of an institution(s) that has
needed trillions in bailouts? Treasuries are not looking so risk-free are they?
CONCLUSION
What is happening is no real surprise to those who understand monetary
science and basic economic law. I laid out the case years ago in my
book The Great Credit Contraction. Those
persuaded have likely ensconced themselves within a financial forcefield of silver and gold.
As the storm rages and intensifies they feel no particular urgency or
panic. They are prepared for Winter and can remain
solvent much longer than the market can remain chaotic. After all, the melting
point for gold is 1,947.52 °F which may be its FRN$ after this latest up
leg.
For those who are new, I recommend Apmex for coins because of their A+ BBB rating and
low premiums and GoldMoney if you want a
third-party to store your metals.
Trace
Mayer
RuntoGold.com
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