All That Glitters


Countries print unsubstantiated paper money to lower the value of their currency and stimulate exports. Other country’s currencies rise in relative value, which affects their own ability to export pushing them to print more of their own money. And so it goes with currency wars. Without the accountability of a quantifiable and measureable hard-asset base for valuation, the cycle continues unabated.

Stock market manipulation has diverted attention away from the world’s economic problems. When inflation is high, governments are obligated to raise interest rates, which then slows the economy, which can lead to recession if the economy is not healthy. Quantitative easing (QE) plus market manipulation hides the problem. Inflation, which is the inevitable result of race-to-the-bottom currency wars, has been redirected to create record-setting stock market valuations.

Historically, gold has been used by investors as a hedge against inflation. For the past three years, the price of gold has been manipulated. Bank stocks go up; gold goes down. Bank stocks go down; gold goes down. Oil stocks go up; gold goes down. Oil stocks go down; gold goes down. QE starts; gold goes down. QE stops; gold goes down. The contradictory explanations proffered by the financial services industry are ridiculous, yet confidently presented.

Aggressive gold purchases by China, Russia and India have outstripped the actual supply of gold being produced by 150% – that is, 400 tons per month of demand versus 260 tons per month of supply. This can only mean that world inventories of gold kept in ETF reserves, bank reserves and country vaults (in particular, the U.S.) must be in massive, and very illegitimate, decline.

Well over a year ago, Germany requested that their 300 tons of gold being held in U.S. Fed vaults in New York be repatriated. They have received only 5 tons to date. Switzerland recently voted against increasing their gold reserves to 20% from 7%, which would have required purchasing the equivalent of one half year of the entire world’s production of gold. The population was originally in favour of the proposal, but the Swiss National Bank mounted an aggressive campaign against it, which unbelievably included a ban on all Paypal donations directed toward causes aligned with the yes vote.

Conspiracy theories regarding the empty (gold-less) vaults at the Federal Reserve in New York are gaining momentum. Another conspiracy theory taking root is in regard to the datestamp reference on the gold bars themselves (each bar is numbered). Bars made in 1960 are showing up on the open market, indicating that old and dusty inventory, i.e. scrape-the-bottom-of-the-barrel reserves, are being tapped. The message here, of course, is that even though the well is running dry, the global economy cannot be given any reason to believe that demand is not being met.

As the hard-asset of gold moves from west to east, banks, governments and everyone in the financial services sector are well-motivated to tell the same rose-coloured story of all being well. Unfortunately, after three years of orchestrated deception, the western stock of gold is severely depleted. The Federal Reserve began this charade in the hope that the QE program would get the economy back on its feet before anyone noticed. But their double-down strategy took too long and failed to produce the robust economy needed to hide the carnage. Time is running out.

What will it take for a correction to happen?

A simple failure to meet delivery will disrupt the system. Germany is motivated to be content with a 5 ton delivery because, as Europe’s financial saviour, they need stability to reign. But Switzerland, France and others are queuing up to demand their gold back from the Fed as well. And please understand that this isn’t new gold; this is balance sheet gold that is supposedly being held for them in inventory in U.S. vaults. They will not be pleased if their gold has disappeared.

The government would like us to believe that inflation is stable and manageable at their target of 2% or so. This is impossible. A far more likely scenario is that the printing rampage has masked the deep state of deflation already upon us. The stock market manipulation has gone on for far too long and, inevitably, the landing will not be pretty.