|
Everything that makes any sense tells me that
gold’s run is over. The spot price of gold closed at $1788.90 which is
$11.00 from its all time high. The Gold ETF GLD closed at 173.94 which is
$1.19 from its all time high. The charts are screaming sell and gold keeps
shrugging it off and rising in price.
There
are sermons from every brilliant economist that we need to return to the gold
standard as if that will cure our economic woes. They tell us a return to the
gold standard will restore a strong dollar and also restore our economic
stability. These prognostications beg the question if the gold standard,
which was abandoned on August 15th 1971, was the backbone of
the strong dollar, why did the dollar continue to rise in value throughout
the 1980’s? In case you didn’t do the math Monday was the 40th birthday
of the floating exchange rate system of the deleveraging of the dollar from
gold. So Happy Birthday to our devalued dollar!
The
fact is that money is simply a medium of exchange. It’s the new age
form of barter and indeed it is very effective. It is a universally accepted
form of value that facilitates trade amongst people. If I want a car but only
have sheep to barter, the car dealer might not want to make that trade. Using
paper currency makes it possible for society to exchange goods in a fair and
agreeable way for all parties. I read in a recent letter of Martin Armstrong
that there are still tribes in Africa that use cattle as money.
My mind
understands oil. While OPEC would make plenty of money if oil were $70.00 a
barrel, they really need oil to be $85.00 a barrel because that extra $15.00
a barrel is needed to keep the populations of the OPEC countries placated.
The people that are rioting in the Middle East are not doing it for sport and
they are not rioting for democracy. They are rioting because they are hungry.
The fact is that the U.S. dollar is the world’s reserve currency. All
commodities trade in US dollars whether it is oil, gold, cotton or food.
Therefore a weak dollar means more expensive food. We all see it here at
home. Coffee that was $3.00 a pound is now $6.00 a pound. Milk is almost
$5.00 a gallon. Imagine how this is impacting countries that are ruled by
petty despots. So these rulers have taken to using the age old method of the
carrot and the stick. First they shoot into the rioting crowds with rubber
bullets (we hope) and then they bribe them with a stipend and give them just
enough money to eat and take care of their family.
My mind
understands the inverse relationship between the dollar and the 30 year
Treasury bond. As the dollar gets stronger the bonds grow less valuable and
as the dollar gets weaker people seek the safe haven of the US Treasury as it
gets stronger.
What,
however, I cannot get into my brain is the refusal of gold to even slow down.
While the CME raised the margin requirements on gold by 22%, yet gold barely
skipped a beat. In fairness it did sell off for two days but then it was back
to business as usual, up $25.00 a day. Yesterday it closed at $1788.90 which
is $11.00 from its all time high. The Gold ETF GLD closed at 173.94 which is
$1.19 from its all time high.
It is
obvious that the powers that be are not enjoying the rally in the gold
market. The CME, perhaps under pressure from government officials acted to
raise margin requirements on the gold futures contract by 22%. Back in April,
the CME, under the same pressure from the Feds acted to raise margin
requirements (the good faith deposit that a buyer or seller needs to post
against a futures position) on silver not once but five times. This action
resulted in silver plummeting from $49+ to just under $33, or over 32% in
just 5 days. Gold’s response was that it hardly took notice.
So what
is driving this relentless move up? Global currencies continue to be debased.
As Daniel Webster said to the Senate in 1833 “We are in danger of being
overwhelmed with irredeemable paper, mere paper, representing not gold nor
silver; no sir, representing nothing but broken promises, bad faith, bankrupt
corporations, cheated creditors and a ruined people.” Mind you he said
that in 1833. Does it ring a bell? Voltaire said back in 1729 “Paper
money eventually returns to its intrinsic value – Zero.”
Until
now currency debasement was confined to one government or region. Never
before in history has there ever been a simultaneous creation of unlimited
amounts of fiat money.
The
consumer confidence index is at an all time low, as the massive amounts of
debt have led people to tighten their pocket books which under normal
circumstances would be prudent and healthy but in today’s world this is
exactly what we don’t need. Moreover, this is not confined to our
country as the debt in the Western world has led to a global slowdown.
These
last twenty years have been based on an unprecedented worldwide creation of
debt. Now it is time for the piper to be paid. Exceptional things never last
since the natural order of things can only be tampered with for a very
limited amount of time. We have now coming to the end and the consequences
will felt in all aspects of society for a very long time.
Gold is
just telling us that the U.S. government is getting everything wrong!
I remain
long GLD, SGOL, PHYS, SLV, PSLV, AGQ, ABX and SLW.
|
