The Monetary Crisis XIV

Gold
jwr1947

"The Gods of the Copybook Headings1 by Rudyard Kipling Then the Gods of the Market tumbled, And their smooth-tongued wizards withdrew And the hearts of the meanest were humbled And began to believe it was true That All is not Gold that Glitters, And Two and Two make Four, And the Gods of the Copybook Headings Limped up to explain it once more. As it will be in the future, It was at the birth of Man. There are only four things certain Since Social Progress began: That the Dog returns to his Vomit And the Sow returns to her Mire, And the burnt Fool's bandaged finger Goes wabbling back to the Fire; And that after this is accomplished, And the brave new world begins, When all men are paid for existing And no man must pay for his sins, As surely as Water will wet us, As surely as Fire will burn, The Gods of the Copybook Headings With terror and slaughter return. The poem has been quoted in a remarkable web-site explaining the Gold price suppression (Gold price suppression is public record and public policy, not 'conspiracy theory'). I decided to analyze the thesis and consider it very realistic. First of all we know some historical facts such as: Up to 1971 representative money and the gold standard protected citizens from hyperinflation and other abuses of monetary policy, as were seen in some countries during the Great Depression. However, they were not without their problems and critics, and so were partially abandoned via the international adoption of the Bretton Woods System. That system eventually collapsed in 1971, at which time nearly all nations had switched to full fiat money2. Now the fiat money system is suffering a breakdown in the coming years understanding the monetary crisis may be crucial for individual economical survival. Just to understand what's happening I investigated one of these mysterious parameters which have not been explained in public, but seem to be quite important: gold, which has been referred to as a phantom in Kipling's poem.
1 Quoted in Gold price suppression is public record and public policy, not 'conspiracy theory' (from: Gold Anti-Trust Action Committee Inc. - Gata) 2 Wikipedia's Gold Standard

Gold
Gold was a common form of money due to its rarity, durability, divisibility, fungibility, and ease of identification, often in conjunction with silver. Silver was typically the main circulating medium, with gold as the metal of monetary reserve. I never cared much about money and gold, but it is a vital interest for economical survival to understand how monetary systems work and where their weakest points are concentrated. Until recently (19713) gold and silver have been used as monetary standard and although the central banks and politics assure the precious metals' role now has been eliminated in the fiat currency system it still seems to play a vital role. Advantages and disadvantages of the gold standard and the idea of a renewal of the gold standard have been listed in Wikipedia's Gold Standard. Right now I am more interested in the role gold is still playing in the fiat money system.

Gold Crashes
The gold-price declined at 10% at the 14 th of December. The crash may have been caused for several reasons4: Bankers removed assets from the Euro-zone towards the Dollar-zone, which lowered the Euro/dollar-exchange rate. A popular dollar results in a lower demand for gold. Banks are reducing their balances (including gold reserves) drastically. Banks have overloaded themselves with the worthless paper of over-indebted sovereigns. A quickly growing global recession suppresses the inflation-risks, which results in a lower gold-price.

Technical analysis of the charts prognosticates crashes due to surpasses of some critical limits 5. These announcements and calculations however can only be based on non-manipulated markets. For the precious metals we must accept the basic concept of distrust for the following reason6: All technical analysis of markets now is faulty if it fails to account for pervasive government intervention.

Paper gold
Therefore we must understand what is going on in this market. In fact the gold trading may be based on paper gold7: ... if we look at the physical market, the LBMA8, it trades 20 million ozs of gold per day on a net basis which is 22 billion dollars. Thats 5.4 Trillion dollars per year. That is half the size of the US economy. If you take the gross amount it is about one and a half times the US economy; that is not trading 100% backed metal; its trading on a fractional reserve basis. You cant trade that much gold, it doesnt exist in the world. So the people who are hedging
3 President Richard Nixon to end the direct convertibility of the dollar to gold on August 15, 1971, resulting in the system's breakdown (the "Nixon Shock"). 4 Herber Schlag fr Gold-Fans 5 Gold Experiences an Identity Crisis 6 GATA Special Issue of DGCmagazine, April 2010 7 GATA Special Issue of DGCmagazine, April 2010 8 London Bullion Market Association

these positions on the LBMA, its essentially paper hedging paper...9 Therefore we must ignore technical analysis and try to see through the mysterious wall of secrecy. Probably the LBMA uses the same multiplying trick for gold as for Fed's dollars. The multiplying factor (similar to the pyramid scheme) for the Fed's dollar is 3% real M1 10-money to 97% virtual money M3), generated electronically in computers as loans. If the same lever has been applied to gold the electronically amount of gold would be 1000x the physical amount available to the bankers11.

Gold
As an independent currency, a currency to which investors can resort when they are dissatisfied with government currencies, gold carries the enormous power to discipline governments, to call them to account for their inflation of the money supply and to warn the world against it. Because gold is the vehicle of escape from the central bank system, the manipulation of the gold market is the manipulation that makes possible all other market manipulation by government12. Gold played a central role in the international monetary system until the collapse of the Bretton Woods system of fixed exchange rates in 1973. Since then, the role of gold has been gradually reduced. However, it is still an important asset in the reserve holdings of a number of countries, and the IMF remains one of the largest official holders of gold in the world. Consistent with the new income model for the Fund 13 agreed in April 2008, on September 18, 2009, the IMF Executive Board approved gold sales strictly limited to 403.3 metric tons, representing one eighth of the Fund's total holdings of gold at that time. Resources linked to these gold sales will also help boost the Fund's concessional lending capacity. The approved sales program was completed in late December 201014. Before 2010, many European nations were net sellers of gold, which some of them had come to view as an antiquated asset. "That," says Harvard's Mr. Rogoff, "turned out to be not such a good idea."15 Now if buying gold suddenly is good for today's bankrupt governments why should it be bad for individual investors? The IMF-gold is being lent to bullion banks as a fundamental tool of the gold price suppression scheme which has been documented by GATA since its founding more than ten years ago16. The Second Amendment to the Articles of Agreement in April 1978 fundamentally changed the role of gold in the international monetary system by eliminating the use of gold as the common denominator of the post-World War II exchange rate system and as the basis of the value of the Special Drawing Right (SDR). It also abolished the official price of gold and ended the obligatory use of gold in transactions between the IMF and its member countries. It furthermore required that the IMF, when dealing in gold, avoid managing its price or establishing a fixed price17. Let me see: Avoid is just an advice, not a command.

9 10 11 12 13 14 15 16 17

Adrian Douglas, GATA Dollar bills, lend to the US-government are only 3% Web of Debt - Ellen Brown - 1 of 5quoted in Web of Debt Gold price suppression is public record and public policy, not 'conspiracy theory' (from: Gold Anti-Trust Action Committee Inc. - Gata) The fund's misuse of bullion reserves Source: Gold in the IMF All That Glitters...Will Not Solve Europe's Debt Woes Is the IMFs Gold Really There? Source: Gold in the IMF

Zhou Xiaochuan, China's powerful central banker, now suggests to replace the dollar with "a super-sovereign reserve currency managed by a global institution such as the IMF". Before anyone gives any credence to the notion of having the IMF take on the task of issuing a new global currency, however, we need to remember that the original Bretton Woods system worked precisely because the dollar was convertible into gold at a fixed price. And gold is real money. Convertible gold however cannot be used to do the multiplying trick, which will only work for computer-gold inside a database. The problem with central banking has been mainly the old problem of power --- it corrupts18. By manipulating the value of money, central banking controls the value of all labor, services, and real goods, and yet it is conducted almost entirely in secret.. The truth as GATA sees it is this: Gold is the secret knowledge of the financial universe, but it is becoming an open secret. That is GATA's work -- to break the secret open, to show how the gold price has been suppressed by central bank creation of imaginary gold in amounts to match and thus help conceal the vast inflation of the world's money supply. In order to do this the gold must be located inside a computer database in analogy to the Fed's dollar backed up by a minor amount of physical gold.

The European Union refused their members to use their gold reserves when they launched a common currency. The euro treaty prohibits the countries from financing government operations by selling gold held by central bankswhich is where most European nations have their reserves. The gold is mainly there to protect the euro.19 But how is this protection supposed to work if it cannot be used? For one thing, there's a risk that trying to sell the gold or use it as collateral for a loan could be seen in the market as a sign of desperation.

For euro-zone nations, similar hurdles apply to the idea of using official gold as collateral to borrow at cheaper rates than investors are currently offering. But Europe could in theory transfer some gold held by member statesor the European Central Bank, which has its own bullionout of reserves and use it to partially back a bond issue, according to Ms. Dempster. An additional hurdle for governments when it comes to gold markets is an accord known as the Central Bank Gold Agreement, which is signed by many European nations and, like the euro treaty, limits gold sales by governments, according to the gold council. Video: Fiat Money IS Gold Manipulation

Fiat Gold
All these details, which normally would be hidden for ordinary people, reveal a corrupted monetary conspiracy, depending on a manipulated gold-price. Manipulation of the gold-price in analogy to dollars is based on leveled paper-gold resources, which merely are based on minute traces of physical gold. That's why paper gold cannot be compared with physical gold. Paper gold merely represents virtual generated gold in a computer account. In analogy to fiat money it has no intrinsic value and as fiat gold it is to be considered as a just another fiat currency. They name it gold, but it consists of bits and bytes...
18 Gold price suppression is public record and public policy, not 'conspiracy theory' (from: Gold Anti-Trust Action Committee Inc. - Gata) 19 according to Natalie Dempster, the gold council's director of government affairs.

Shocked
And yes, having recognized the paper-gold as worthless as fiat money I began to believe it was true That All is not Gold that Glitters. Kipling was right. In fact there are only four things certain and I felt my burnt Fool's bandaged finger going wabbling back to the monetary fire, where the Gods of the Copybook Headings with global terror and monetary slaughter return. It is worse than I ever expected. OK, let's accept the Federal Reserve System is based on virtual computer values expanded out of only 3% of real M1-money. That's a US-problem, which needs to be solved by the people who invented it. The deepest problem is not the virtual dollar, which is going to produce the next bubble, No the real problem arises from virtual paper-gold, used to manipulate the gold-price. The only way to prove this thesis is a suitable number of citizens, who may take a handful of fiat money to check how much physical gold is available in the market. I am not going to sell any of my physical gold for any price they offer and wait until the monetary markets have stabilized or.. (which as an alternative probably will be happening first) the Gods of the Copybook Headings with global terror and monetary slaughter return.