The collapse of the USSR in 1991 was seen as the triumph of capitalism
over communism. The 40-year cold war was over and the West had won. That
perception, however, was as premature as it was misleading. The struggle of
world powers wasnt over. Today,
the struggle continues in a far more fundamental venue; on capitalisms home court in the arena of paper money.
The West, as Mao Tse-Tung once claimed, is not a paper tiger; unless,
of course, youre referring to
its paper money.
In 1991, communism was, in fact, collapsing. But capitalism,
unbeknownst to itself and others, was bankrupt after its costly decades-long
struggle with communism. Today, the former communist super-powers, Russia and
China, have re-emerged and are playing the high-hand of gold against England,
the US and the West and their now vulnerable paper currencies.
paper banknotes were the reason for the Wests
three hundred year global hegemony. Because of its ability to wage war on
credit and pass off its debt-based paper banknotes as money, England in the
18th and 19th centuries and, later, the US in the 20th
achieved a level of world power not seen since the Roman Empire.
In the 1900s, Russia and China escaped the Wests capitalist dominion by adopting communism, an
alternate economic paradigm, based on the theories of Karl Marx, Friedrich
Engels and Vladimir Lenin. Communism was, in fact, a potent and dysfunctional
amalgam of untested theories, unfounded hopes and totalitarian state
Ostensibly offering a more equitable distribution of wealth than the
bankers paradigm of
credit and debt, Marxism/Leninism was, in fact, a bloody and costly trap into
which Russia and China would both fall in their attempts to escape the Wests economic and political domination.
The Wests attempts to
subjugate Russia and China would, however, ultimately cost the West its
foundation of economic and political power, i.e. the ability to pass off
debt-based paper banknotes as money.
In capitalist economies, debt-based paper money possessed intrinsic
value because it was convertible to gold upon demand. Gold, in fact, was
sauce, the essential ingredient that transformed the
bankers debt-based banknotes into something other than
Since 1971, however, the Wests
paper banknotes are no longer convertible to gold. This is because after
WWII, the US, in its attempts to militarily subjugate Russia and China
overspent its massive gold reserves, forcing it to end the
gold-convertibility of the US dollar. As a result, all currencies in the
world formerly tied to the US dollar and hence to gold became fiat, i.e.
currencies who have value only because of government fiat, i.e. command.
After 1971, it was only a matter of time until the bankers
debt-based paper banknoteswithout
the convertibility to goldwould
become increasingly unstable and ultimately worthless; and, today, in 2013,
the former has happened and the latter is underway.
The value of todays
paper money is determined solely by currency speculators placing leveraged
bets in the hopes of achieving short-term gains. Once the gold-convertibility
of paper money ended, modern currencies became paper coupons with
expiration dates written in invisible ink.
Today, the West and its bankers are desperately hoping that no one
will notice, hoping thereby to prevent a hyperinflationary collapse of paper
money should confidence in fiat paper money evaporate.
Russia and China, however, are preparing for that very day. Russia and
China are stockpiling gold as fast as they can in anticipation of a coming
currency crisis triggered by the Wests
increasingly suspect paper money.
For the former communist powers, Russia and China, its payback time; but for England and the US, its blowback time
unforeseen and unwanted effect, result, or set of repercussions
THE EAST IS GOLD WITH A RED TINGE
On February 6, 2013, in China Gold Imports from Hong Kong
Climb to record on Wealth, Bloomberg New
Exports of gold to Hong Kong from China more than tripled to 310,861
kilograms in 2012 from about 95,529 kilograms a year earlier, according to
Bloomberg calculations. Shipments were 29,718 kilograms in December, up from
28,978 kilograms in November.
In the article, Bloomberg News also noted the growing relationship
between Chinas wealth and the
ownership of gold:
Chinas urban per
capita disposable income rose 12.6 percent in nominal terms in 2012 to 24,565
yuan, the National Bureau of Statistics said on Jan. 18. Per capital rural
net income increased 13.5 percent in nominal terms, and 10.7 percent in real
Not only is China buying record amounts of gold, Russia is buying even
more. On February 11thin Putin Turns Black Gold Into
Bullion as Russia Outbuys World, Bloomberg
News reported that Russias
President Putin is investing Russians
oil income in gold bullion at a record rate:
When Vladimir Putin says the U.S. is endangering the global economy by
abusing its dollar monopoly, hes
not just talking. Hes
betting on it.... His central bank has added 570 metric tons of the metal in
the past decade, a quarter more than runner-up China, according to IMF data
compiled by Bloomberg. The added gold is also almost triple the weight of the
Statue of Liberty.
China, the worlds
number one producer of gold, and Russia, the worlds
fourth largest producer, also no longer allow domestically-mined gold to be sold
outside their countries. This means Russia and China are accumulating gold
both by buying and mining it in record amounts.
GEOPOLITICS AND THE PRICE OF GOLD
Money and power are two sides of the same coin and both are at the
center of todays gold market.
With growing demand for gold from both China and Russia, it would be assumed
that prices should be rising as supplies of gold are becoming increasingly
Sandeep Jaitly is the author of the Gold Basis Service, a
subscription-only commentary on developments in the gold and silver bases and
the implications about future movements for prices. In
his February newsletter, Jaitly referred to an earlier statement from January
The bases/co-bases across all maturities for both gold and silver are
falling/rising indicating substantial demand for physical bullion that is not
being adequately accommodated. February gold has entered backwardation as of
last week. As a consequence of the fall/rise in the bases/co-bases,
volatility of bullion against fiat is likely to increase. The opportunity to
exchange gold for silver should be taken if the gold/silver ratio rises
substantially (above 55.)
Sandeep Jaitlys observations
about gold and silver have been remarkably consistent over the past year.
Demand for both gold and silver have been constant while supplies of both
metals have been pressured leading to indications that an upswing movement in
prices can be expected and the accumulation of both metals is encouraged.
In the past year, however, gold and silver have not performed in
accordance with such expectations. I believe this temporary anomaly is
attributable to two factors: (1) the increasing determination of Western
central and bullion banks to prevent another almost-vertical price movement
in gold as happened in July/August of 2011 when gold rose 27% in only 60
days; and (2) the current Chinese strategy to purchase gold at the lowest
price points possible.
On February 11th when gold collapsed to a low of $1642,
Takoa de Silva of Bull Market Thinking
asked a trader who runs a market-making desk in Londons gold market to explain the drop in gold.
Commenting on todays
collapse he said, Im not that worried about the sell-off today, its just the logical thing. I was surprised they
waited so long [to take it down], because many opportunities to push it to
that level existed before
it finally happened, and thats
good for the market. This is actually a blessing. We are still not at the
lows of January at $1625
but at the
moment this is probably as far as its
going to go [$1642]. Theres
good support here.
He further added that, This
is actually the typical reaction of the Chinese New Year, because the shorts,
they know there will be no physical demand for a couple of days, there wont be support there, and so they are smart. This is
smart money just pushing it to the extremes. For me this is an opportunity to
get something cheap in for the mid-term. But you cant fight the trend at the moment in terms of whats in the air for the Fed-speak etc., but the
long-term money stays and sits.
The statement, the opportunity to get something cheap
describes Chinas buying
strategy perfectly. Both China and Russia want to buy the Wests gold at the lowest possible price and they will do
so accordingly. All investors should do the same.
In my current youtube video, Bankers, England and Israel, I explain the
role of England and bankers in the creation of the state of Israel. As stated
previously, money and power are two sides of the same coin. The creation of
the state of Israel is no exception.
Sandeep Jaitlys observations
about the gold and silver markets are correct. The accumulation of both
metals is encouraged. Regarding the continuing struggle between gold and
paper money, precious metal investors have already put their money where
their beliefs areand they should
keep it there.
Buy gold, buy silver, have faith.