Gold Real Money in a World of Fiat CurrencyCommodities / Gold and Silver 2011 Apr 02, 2011 - 10:02 AM GMT
Since the Masters of the System have decided to arbitrarily "move the goalposts" to suit themselves by printing money in unlimited quantities, fixing interest rates at artificially low levels, and backstopping the bond market etc, it is incumbent on us as investors to find a fixed point of reference and safe anchorage, the better to weather the financial storms that their crassly irresponsible policies are bringing upon us. That fixed point of reference is gold. As gold is real money it is aloof from the mess and mayhem that now exists in the world of fiat and which is rapidly getting worse - and here it is necessary to make a crucially important point, which is that at this time in world history you have to completely reorder your thinking with respect with gold.
STOP nervously going online or picking up the newspaper to check the price of gold against fiat - it is IRRELEVANT. The question you have to ask yourself is this - do you want to preserve your real wealth or not? - because if you do you are going to have to transfer your assets out of fiat and into tangibles, the King of which is gold. If gold is the King then silver may fairly be called the Queen - these two precious metals are like the sun and the moon, and are rapidly becoming the two leading lights in the investment firmament, which is a fair analogy - and you will recall that the Incas, who worshipped the sun, were big fans of gold.
The situation is gravely serious, for we talking about more than speculative gain here, although we will obviously go for that. Much more seriously we are talking about financial survival and possibly even physical survival. You will all have read the ridiculous predictions about the world population ballooning to about 11 billion people by 2040 or so. That is not going to happen because the life support systems and resource supplies of this planet will buckle and fail long before the population can reach such horrifying levels, leading to mass famine, wars and widespread panic and desperation, and we are already seeing signs of it with rapidly rising food prices leading to social unrest and revolutions. If you thought that the last century was bad what with 2 World Wars, the Cold War and nukes being used on cities etc, wait till you see what happens during this century - which will probably end up being known as the "Century of The Cull" - compared to what is coming the last century will seem like a golden age. From an evolutionary standpoint this is of course necessary, as the bloated human population, which is wrecking the planet, needs to be dramatically cut back into line with what is sustainable. As mankind has shown no mercy whatsoever in its ever increasing exploitation of the natural world by doing such things as chopping down the rainforests and fishing out the seas and and is bringing global ecosystems to the verge of collapse, it can likewise expect no mercy from either God or gaia.
Right now the Masters of the System, driven as ever by short-term personal gain, and unable to face the consequences of their earlier actions, are steering the world towards a hyperinflationary abyss, and unfortunately the momentum in this direction has now become unstoppable. Up until quite recently it was thought that it was primarily the US that was headed in this direction, but it would appear from their actions - and from the price of gold in their currencies - that many other nations are keen to follow the example of the US, kind of like the old Tom Lehrer song We will all go together when we go. You can tell how old this song is not just from the attire and demeanour of Tom Lehrer, but from the fact that he refers to "3 billion hunks of well done steak", which would now have to be revised to 7 billion, i.e. the world population has more than doubled since he sang this song.
Given the gravity of the situation and the widespread fraud and plain theft that we can expect to follow as a matter of course, it is of the utmost importance that those investors wanting to buy gold and silver aim for physical possession of these metals or at the least have them stored with a reputable depository that is out of reach of government thieves and other brigands who are likely to call looking for it when TSHTF. Under no circumstances trust ETFs as gold and silver investments - a classic line from them in the future might be "We're awfully sorry - we really did have the gold, but we loaned it out to the Treasury". In this respect the stocks of the better gold and silver mining companies are regarded as a much safer place to park funds.
The growing appreciation by investors of the increasing worthlessness of fiat is what has caused them to pile into not just gold and silver, but commodities in general, the bullmarket in which has been energized even further by the growing leveraged dollar carry trade. Back in the 1970's when investors sought protection from the ravages of inflation they also went for collectibles such as paintings and stamps, but in the more brutal world we are headed towards such investments are going to be regarded as foppish and impractical - paintings can be slashed with a knife or a sword, stamps can be burnt and instantly become worthless - it's a lot harder to destroy gold. While the oil price will also rise, particularly if the Mid East really gets out of hand, you can't go storing barrels of oil in your back yard because of their bulk and the fire risk, so for private investors it has to be gold or silver.
Returning to our central theme in this update which is to change your thinking so that you regard gold as real money and fiat as the instrinsically worthless rubbish that it really is, you can start to view gold as a constant plus, or constant +. Constant because whatever happens in the crazy world of fiat, gold retains forever its intrinsic value. The plus refers to the all important fact that as fiat approaches its nemesis, exponentially increasing sums of money are going to be directed at buying gold by those seeking safe haven for capital. Since the supply of gold is finite, and relatively very limited compared to most other investments, it will mean that those wanting to gain possession are going to have to bid the price up and up and up. Classic principles of supply and demand dictate that in such a situation the price will go through the roof, meaning that gold should rise enormously in price compared to just about everything else - the relatively orderly advance we have seen up to now will morph into an accelerating parabolic arc. This is what we mean by constant +, and the price won't be coming down in a hurry either - not until the fiat money system blows itself to smithereens and is totally discredited, as happened in Zimbabwe. At this time we can expect some kind of gold standard to be reintroduced and the irresponsible opportunists who brought about this collapse will likely have fled to haciendas in Argentina or some other far flung place.
In the light of the accelerating global monetary crisis we are going to take a more liberal approach as we review the charts for gold, and are not going to go into paroxisms because of a slight break of a trendline, for example. Keeping in mind that gold is real money and that the currencies are essentially rubbish we will now review the charts.
Starting with the 4-year chart for gold we can see that after completing a rare high level Head-and-Shoulders continuation pattern, gold has essentially been in a steady uptrend above its rising 200-day moving average, with any approach to this average marking a buying opportunity. Some writers have tried to claim that a bearish Rising Wedge is forming in gold, but have taken the top line of the Wedge as starting from the early 2008 high. This is technically inaccurate because you cannot draw the top line of a new uptrend from the peak of a prior uptrend. If there is a bearish Wedge forming, the top line of it would be drawn from the Nov 09 peak, but similar to today you could have claimed that a bearish Wedge was forming after the price peaked in June of last year, as shown on the 2-year gold chart, but it never came to pass.
At this point there is one scenario we should note where gold could drop sharply against the dollar over an intermediate timeframe. We know that public opinion on the dollar is very bearish and also that dollar carry trade speculators are highly leveraged at this time - if they were to become unsettled at the prospect of rising rates in the US, which at some point is likely to be forced on the Fed, they might scramble to close out their positions and drive a temporary dollar spike, kind of like 2008, but this time round PM stocks are unlikely to get dumped as in 2008 because the hedge funds are now short the sector, instead of heavily long as they were in 2008. The key point to note here though is that even if speculators switch back into the dollar temporarily and drive it higher, that won't stop gold rising in other currencies - on the contrary it could rise even faster - and it won't stop the relentless global expansion of the money supply.
Even against the Swiss Franc, considered to be the "Rolls Royce" of fiat, gold has been marching steadily higher and looks to be a buy after the recent consolidation, and it has of course been rising even more strongly against most other major currencies, a dramatic example being that of the shoddy British Pound.
This collection of charts by the National Inflation Association of the US is required reading for all of you - don't just skim read this - TAKE THE TIME to really take this on board. Not only do these startling charts reveal the groundwork that has been laid in the US for hyperinflation, but they also strip out the intentional distortions of the massaged CPI figures to reveal the true upside potential for gold and silver (and other commodities).
So there you have it. Buy as much physical gold as you can lay your hands on, make sure it's safely stashed out of reach of bandits. Avoid paper gold and silver and ETF scams. Gold shares in the better producers or near producers should do really well and be good investments. In general get out of fiat of all kinds, especially currencies and bonds/Treasuries etc which are garbage - and when you've done that, QUIT WORRYING and get on with your life.
Readers in California are advised to remain on a heightened state of alert and preparedness for a possible major earthquake, as set out in the article An important message for readers in California. Tectonic plates in 3 of the 4 quadrants of the Pacific Basin have made major moves over the past year, Chile, then New Zealand and most recently Japan, which is increasing the chances that the 4th quadrant, the NE quadrant, will move soon.
While this Gold Market update may appear to be gloomy and negative (not about gold but about the world in general), it is only intended to be realistic. Remember that by hoping for the best and being prepared for the worst, you will be much better placed to ride out rough times than the "ignorance is bliss" crowd, which happens to comprise the majority of the population. Furthermore, being prepared for the worst does not imply sinking into a state of negative apathy. No matter how bad it gets there are always things you can do to improve the lives and circumstances of the community around you and those who are prepared to face things as they are and take the necessary steps to protect themselves and those closest to them will have the strength and resolve to do just that.
By Clive Maund
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© 2011 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
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