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Fed To Prompt Currency Crash and Return to Gold Standard

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Published : February 27th, 2013
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Category : Market Analysis

Today’s AM fix was USD 1,608.50, EUR 1,228.80 and GBP 1,062.28 per ounce.
Yesterday’s AM fix was USD 1,597.25, EUR 1,219.65 and GBP 1,052.07 per ounce.

Silver is trading at $29.13/oz, €22.32/oz and £19.33/oz. Platinum is trading at $1,611.00/oz, palladium at $736.00/oz and rhodium at $1,200/oz.

Gold climbed $19.30 or 1.3% yesterday in New York and closed at $1,613.90/oz. Silver surged to as high as $29.456 and ended with a gain of 1.2%.

Cross Currency Table – (Bloomberg)

Gold’s 1.3% gain yesterday was its biggest one-day gain in three months, as Federal Reserve Chairman Ben Bernanke's defense of U.S. debt monetisation confirmed bullion's inflation hedging appeal.

‘Helicopter Bernanke’ confirmed the Fed’s ultra dovish monetary policies are to continue which supported gold as a hedge against central banks' cash printing.

Gold is trading flat today near a one and a half week high hit yesterday as Federal Reserve Chairman Ben Bernanke defended the U.S.  ultra loose monetary policy.

The selloff in gold ETFs in February underscores the weakness in gold sentiment among retail investors that has been prominent recently. 

Our trading desk has never been so busy – on the sell side - as weak hands and lack of conviction buyers have engaged in panic selling.

However, the sell off’s genesis was again hedge fund and bank paper players on the COMEX many of whom still have large concentrated short positions.

Total Known ETF Holdings of Gold – (Bloomberg)

February is set to be the weakest month in terms of gold ETF outflows thus far, and the decline is set to exceed the 2.3 million ounces liquidated back in January 2011.

Total known gold holdings held by exchange traded funds worldwide include the SPDR, ETF Securities, ZKB, iShares, Swiss & Global, Central Fund, Credit Suisse, Source, New Gold, Sprott Gold, Deutsche Bank, Central Goldtrust, Claymore (now iShares), and Goldist.

It is important to note that despite the significant decline in gold holdings in January 2011, gold bottomed at $1,313/oz on January 27, 2011 and then embarked on its nearly 50% increase or $600 increase to record nominal highs above $1,900/oz.

World powers and Iran ended two-days of talks over the Islamic Republic’s disputed nuclear program with a pledge to hold further discussions at both technical and political levels, an Iranian official said.

The officials adjourned without an announcement on a proposal by the U.S. and its partners to ease some banking, petrochemical and gold sanctions if Iran curbs its atomic activities.

Gold in USD (February 2010 To Today) - Support At $1,540/oz to $1,550/oz Level – (Bloomberg)

Jim Grant, astute monetary economist and respected author of the Interest Rate Observer said in a Bloomberg interview overnight that the dollar would crash and  a new Gold Standard would be the end result of the U.S. Federal Reserve’s irresponsibilities.

Although the interviewer said that Grant’s remarks were inflammatory Grant said that it is important to examine our monetary affairs over the sweep of time.

“Over 100 years ago the U.S. Fed was founded and in 1944 at Bretton Woods they decided there would be no more Gold Standard but rather a U.S. dollar that was backed by gold. If you fast forward to the present we now have a full blown PhD standard where the former heads of Economic Departments are running federal institutions. Central Banks across the world are waging an all out struggle against the price mechanism which is going against Adam Smith’s invisible hand.”

A guest host said that no one in academia is calling for a Gold Standard and suggested it would result in a deflationary period for the U.S.

Grant disagreed and said that the Gold Standard is the only answer as it was monetary system good practice for the 100 years ending in 1914, whereas everything else since has been a “try out”.

Grant says that he expects more quantitative easing from the U. S. Fed, and likens their single mindedness to a doctor prescribing to a patient that is clearly overmedicated.

He notes, credit in the world is an infinite sum of numerous simultaneous equations. He notes that if humans knew how to allocate credit than the USSR would have been a success. Socialists unions over manipulating credit don’t work.

Therefore, just as central banks are continually try to print their way out of our current global debt crisis their manipulation is not working.

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Mark O'Byrne is executive and research director of which he founded in 2003. GoldCore have become one of the leading gold brokers in the world and have over 4,000 clients in over 40 countries and with over $200 million in assets under management and storage.We offer mass affluent, HNW, UHNW and institutional investors including family offices, gold, silver, platinum and palladium bullion in London, Zurich, Singapore, Hong Kong, Dubai and Perth.
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Grant, pimping for a return to the gold standard, stated that "it is important to examine our monetary affairs over the sweep of time." How true that be. i guess he missed the depression of 1807-1814. The one from 1837-1844 also got by him. He somehow also missed the one that went from 1873-1879. Oh yeah, the one from 1893-1898 also somehow slipped from memory. And i guess that the one that began in 1929 does not count, for though Yanquidoodlestan was still on the gold standard, you cannot count it because the Fed had already been created.

Grant, like all true believers, sees only what he wants to see.
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There will always be booms and busts, gold standard or not. That's not the issue. In "the sweep of time," a currency backed by gold tends to retain its purchasing power, while a currency on the PhD standard has done exactly one thing in all historical examples: loose all of its purchasing power (eventually, over the sweep of time). And the PhD's have avoided busts? Please......Nasdaq 2000; Mortgage feces 2007-8 (oh, we're still in that one, five years running now......seems more like a depression than the so-called "great recession")......nice work, PhD's.
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Thanks for your response finespecimen and welcome to the forum.

i did not make the claim that paper does not lose its value. My comment had to do with no matter what we choose to represent money, it has always been subject to depreciation due to the irresponsible management of our fiscal affairs. There is absolutely nothing special about gold in this regard and history is replete with examples where gold has been devalued. However, contrary to what you claimed, the only paper currencies to become valueless have all been in nations that had no bond market. As well, let me point out that gold does not always maintain its purchasing power. As capital flows move from private to public, gold goes down in value and when the capital flows are reversed, gold gains in value. Gold is no steady Eddie, as the gold perma bulls would like for us to believe.

Booms and busts aside, must not one wonder why it is (if gold is the very best representation for money) that not even one nation still remains on the gold standard? i suspect the answer will not be that no nation could stand so much success.
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I agree: instead of accumulating gold, I'd rather have faith in our monetary authorities stewardship, as well as the health of the bond market. I think you would agree that the extent of current debt monetization program in the US and worldwide is worrisome at the very least (probably the understatement of the 21st century). Gold is clearly reasserting itself in the global monetary regime in these times of great fraud and deception, but the emergence of good leadership by monetary authorities could reverse that trend.

Many would say it's too late for that now....
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I agree: instead of accumulating gold, I'd rather have faith in our monetary authorities stewardship, as well as the health of the bond market. I think you would agree that the extent of current debt monetization program in the US and worldwide is worris  Read more
finespecimen - 3/8/2013 at 3:02 PM GMT
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