Newt Gingrich
The
answer to this question is threefold
1. It depends on
him being elected to a position where he can put this into action.
2. It depends on
how serious he is on the matter.
3. It depends on
what his objective really is.
With
trust in governments dropping to a new low according to some polls, the words
of President Hoover come to mind,
“We
have gold because we cannot trust governments!”
And
why should they trust governments, when they look at a residual value of the
dollar at 15% of its value since the U.S. left the link to gold? It’s
this depreciation that is becoming more and more important. The importance of
the issue has risen in line with the globalization of the dollar, particularly
now that the U.S. is utterly dependent on the investment of foreign dollar
surpluses being reinvested back into the dollar and U.S. Treasuries. Unless
this is properly and effectively handled in time, there will be a day when
foreign investors say that enough is enough. At the moment, foreign
governments are working hard to neutralize the damage a dollar, lacking
credibility, will do. So it’s only a matter of time before a major
dollar financial accident takes place. The invigoration of gold in the
monetary system is long overdue, but now it is receiving some serious initial
attention. Hopefully, it is not just a political ploy to take the wind out of
Ron Paul’s campaign?
What
has happened by his raising the subject onto the political stage is that it
is no longer a side-lined academic issue. From now on as it follows the
fortunes of Gingrich and his success it will impact the gold price inside the
U.S. of A.
Why Gold’s Return to the Monetary
System Been Blocked?
Government
and bankers currently believe that gold places to great a restraint on them
and their management of the monetary system. They will not accept a lump of
metal at a fixed price limiting the money supply. The Gold Standard set a
dollar price to gold that did not change from $20 an ounce to $35 an ounce
until 1935. It held that level until 1971 when it was raised to $42 an ounce.
Since then like the proverbial ostrich with it head in the sand, the gold
price has been ignored in ‘official’ circles.
Today
central bankers and government favour paper money
as they use it to ‘maintain price stability’, to stimulate the
economy through the expansion of the money supply, to pay import bills with
freshly printed money, to increase money supply in line with global
international trade –in its role as the reserve currency. Indeed if it
had to pay for imports with gold, it would founder very quickly. The ability
to print money is the principal reason why gold is to be avoided in anything
like a repeat of the Gold Standard. With Gingrich’s promise of a Gold
Commission, will we see a serious attempt to return gold to the monetary
system? Let’s look at the last one.
The 1981 “Gold Commission”
Under
Treasury Secretary Donald Regan, the subject came up, but as you can see from
the following cutting from September 1981, the issue was not handled with a
view to using gold again. It was a token gesture to proponents of gold to
pacify them. Really it was just a sad mockery of the treatment of gold.
Thereafter the subject was not treated seriously at all. It was not until the
euro was created and limited gold sales were made by European central banks
to help the establishment of the euro as a credible currency, was the subject
of gold mentioned again.
In
the Washington Agreement and successive agreements thereafter, gold was
described as “an important
element of global monetary reserves.” It was at that point it ceased being
mocked as “a Barbarous Relic”.
The
Washington Agreement, despite its being an agreement to sell gold, was the
most significant event responsible for gold’s rising price. Once it
became clear that the European central banks, who were the signatories to the
agreements since the turn of the century, had lost their appetite for selling
gold as the price started to rocket from 2005 onwards, even central bankers
started to take gold seriously again.
The
silence from the developed world on the subject is deafening now. Will this
continue?
Politicians
are adept at feeling out the public by leading from the front and Newt
Gingrich is no fool. He has seen the public’s reaction to the bait he
threw out on the subject. Most Americans want to know that their dollar will
hold its value in the future. They’re fully aware that its current
value is 15% of 1971’s value and know that the Pension pay out they
will get when they finish their working life may not be sufficient to cover
their old age. So it’s turning out to be a good electioneering ploy at
least. But as the leader of the Republicans, can we really expect him to walk
this road?
Gov’t Raising Gold Prices?
As
one competent commentator projected, it will take a gold price of around
$45,000 to compensate for the loss of value in gold and for it to be at a
price that will allow the money supply to remain at present levels and for
some time, sufficient to supply global dollar monetary needs.
Yes,
it is a fact that if anything –like a return to a
‘workable’ gold standard—is to be contemplated then we will
have to see a very substantial
lifting of the gold price.
One
of the neat tricks the Roosevelt government pulled back in 1935 was to expand
the money supply by expanding its gold holdings quickly and massively. By not
altering the dollar exchange rate against other currencies but devaluing the
dollar by 75% against gold, the price of gold not only shot up in the dollar
but in all other currencies as well. The bullion banks were quick to
arbitrage the differential between the $20 exchange rate and the $35 price of
gold and sell as much as they could find the world over to the U.S. So the
U.S. bought in gold at $35 and boosted their gold reserves to around 26,000 tonnes. This was quite a coup and lifted the money supply
to levels that lifted the U.S. out of its depression –while pulling in
the developed world’s gold ahead of the Second World War.
In
the last few years we’ve seen a dramatic increase in the money supply
in the developed world, but as is always the case with potential out-of-control
inflation, money supply is increased this fast to fill the holes left by
plummeting asset values in government and banking hands. The process can
accelerate as the value of that money depreciates. This has and is happening
now. Can this continue ad infinitum?
Of
course not –even now emerging world central banks are buying annually,
more than the Central Banks of Europe did at their most vigorous via the
central bank gold agreements at 450 tonnes in 2011.
Make no mistake –this is not just a swing away from the bloated dollar
component of their reserves, but a counter to all currencies under the
control of governments. It’s more significantly an expression of
central bank worries about currencies.
It
will be recognized that this is not the gold price rising but the value of
currencies (against gold) falling.
Gold Confiscated Again?
The
second neat trick, before that, in 1933 under the gold standard, was to
remove the danger of gold price manipulation by private gold owners by
barring private ownership of gold. Thus gold became the sole domain of
government. This was a key factor in the successful operation of gold’s
role in the monetary system.
It
would have to be repeated in any future gold price dominated system, or would
it?
But
let’s get one thing very clear –there is no chance of a repeat of
the gold standard as it was in the past. Certain fundamental changes have
taken place to prevent that from happening, so we have to look at a
structurally-altered system for anything like the gold standard to work. Is
that possible?
Julian D.W. Phillips
for the Gold & Silver Forecasters
Global Gold Price (1
ounce)
|
|
Today
|
1 day ago
|
Franc
|
Sf1,558.97
|
Sf1,553.41
|
US
|
$1,698.22
|
$1,691.80
|
EU
|
1,269.22
|
€1,262.34
|
India
|
Rs.88,434.81
|
Rs.88,591.11
|
|