By Bob Livingston
If gold had no value as money, as the money advisors and government men say, governments wouldn’t buy it. But governments are currently stockpiling gold right and left. They have been accumulating gold for years.
As reported by Zerohedge.com on January 24, global central banks have been hording gold for more than a decade. China made large gold purchases in December. Poland and Hungary made massive gold purchases last year. Russia has been accumulating gold since 2005, and broke its own gold-buying record in 2018. Turkey also bought more gold than ever last year.
Venezuela’s socialist government is in a state of collapse. Hoping to stave off collapse and maintain his tenuous grasp on power for a little longer, President Nicolas Maduro sought to withdraw $1.2 billion of Venezuela’s gold reserves from the Bank of England. But the Bank of England has blocked the withdrawal.
According to media reports, top U.S. officials urged the British government to cut off Maduro’s access to his country’s assets and instead steer them toward opposition leader Juan Guaido.
I tell you about this not to discuss the deep state politics involved in this U.S.-backed coup against a legitimately-elected leader, but to show how this confirms some universal truths.
I have studied the history of money since President Nixon took the U.S. off the gold standard, and I can relate you with confidence that hyperinflated currency destroys the purchasing power of everything you’ve worked for — both savings accounts and Social Security.
That is why I recommend you preserve your labor, your savings and retirement with gold and silver in your possession. Precious metals don’t pay interest, you say? This is conventional thinking backed by the paper money myth.
Gold and silver are the only real money in existence. They are real money as well as intrinsic wealth. Moreover, gold and silver appreciate in purchasing power as paper money depreciates. That is your real interest. All understanding of hard money has been lost down the memory hole of the fiat paper world money regime.
First of all, gold is wealth. Venezuela’s currency has collapsed. It’s experiencing inflation at an unfathomable rate of 1.3 million percent. Since his paper money is worthless, Maduro looked to his country’s gold reserves to prop up his economy.
Second, the world’s central banks are a cabal that seek control of all the world’s wealth. Libya’s government was destroyed and its leader sodomized with a bayonet because it sought to establish its own bank outside the bankster system and let its people trade in gold. Now the world’s central banksters are working together to take out Maduro and set up a puppet government in oil-rich Venezuela.
Third, gold in the hands of the people is a threat to reckless politicians and reckless government. Gold is a barter system outside of and independent of government created “money.”
An effort to control and track all spending — for information, tax collection and in order to implement negative interest rates — is what’s behind the war on cash by global governments. The money creators don’t want us spending money they don’t know about and can’t control and track.
Politicians and their backers only like gold when they have it or the government — at least an acceptable government — has it.
Admittedly, the money creators have done a job on the American people. In one generation they erased the memory of gold and silver as money. Corresponding to this, they created the most irresponsible dependent people in history. All one has to do to make a perfect scam is to make his potential enemy a part of the scam. The American people are party to American democracy. They have no memory of the American republic.
Gold is more than yellow metal. It carries with it a state of mind, an independent spirit. People who accumulate gold and silver coins usually distrust politicians. These are earth people. They have an extra sense about human nature. They still have knowledge that America was once a republic and men were once free.
Governments can create modern money (credit) to infinity, but governments cannot create 1 ounce of gold.
Gold survives governments, politicians and our lifetime. It survives, crashes, booms and busts.
Let me tell you a story told to me by a friend who worked for the U.S. government processing Vietnamese refugees who wanted to come to America when the U.S. pulled out at the end of the war.
The refugees were fleeing with just what they could carry. Some, thinking they were smart, had raided their own bank accounts and had suitcases full of South Vietnamese currency (dong). It was worthless. When my friend told them that, they were crushed. Their life’s work was in their hands and it was nothing more than a pile of useless paper.
The ones who were really smart had swapped their currency for gold and silver. They still had their wealth when they came to America.
So we accumulate gold and silver for a store of wealth, for emergency, and perhaps for retirement. We accumulate gold and silver for privacy and the passing of estate to posterity.
But more importantly, we take a lesson from Venezuela. We keep our gold in our possession. That’s the only way to be sure our gold is truly ours. In 1933 the Congress, spearheaded by Franklin Delano Roosevelt, passed the Emergency Banking Relief Act, which instituted a banking holiday. While the banks were shut down the Federal government rifled the safe deposit boxes of Americans. This should serve as a reminder to keep your valuables in a safe location in or near your home rather than in a safe deposit box.
For another threat, consider that the USA Patriot Act allows the government to seize any bank account for “probable cause” of being linked to any type of crime. Who determines that probable cause? The same government that gets to seize it, of course.
I am often asked if the government could once again choose to confiscate gold from individuals. The clear answer is: yes, if the government knows you have it. They can make up a reason and the people will believe what they are told. I think that the ETFS were set up to confiscate. This is the perfect scheme for a huge cache of gold for the government to take all at once. It’s too tempting when things get really bad with paper money.
Remember, there is a vast difference in the thinking of the people who own gold and the people who don’t. The people who own gold don’t trust the system as others do. They are not likely to give up their gold easily. Many who held it in their possession in 1933 kept it secret and therefore kept it. So the government mostly got only the gold held in the banks in safety deposit boxes.
Buy gold; just don’t tell anyone you have it — especially the government.
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Gold and Inflation
Gold is a “Crisis Hedge” not an Inflation hedge
In times of uncertainty investors turn to Gold as a hedge against unforeseen disasters since physical gold is one of the few investments that is not simultaneously an asset and someone else’s liability. In other words it is a real asset not just an IOU.
With inflation adjusted prices reaching levels we haven’t seen since the 1980 peak, there is talk once again of Gold as an “Inflation Hedge”. But how well does it really work?
For those who argue that Gold is an inflation hedge all they have to do is look at the chart at the right and they will see that it is not a perfect (or even imperfect) inflation hedge.
Simply put if Gold were truly a perfect inflation hedge the red line in the chart would be perfectly flat. But instead there are significant spikes.
If gold were an inflation barometer why did the inflation adjusted price of gold fall from over $2400 in 1980 to $364 in 2001? Over that time period 21 years, it lost over 80% of its value. At the same time the CPI index went from 82.4 to 177.07 i.e. prices more than doubled.
Historically, gold and money have been pretty much synonymous so pure Gold was immune to inflation. But that didn’t stop currency inflation. In the early days kings discovered that they could “extend” their money supply by adding just a bit of lead to the melting pot. Unfortunately, as the percentage of lead increased the value of the coins decreased causing the first cases of inflation. (And also creating the habit of biting coins to see how soft they were and thus how much lead they contained).
Need a few more Gold coins? Just throw a little lead in the melting pot… no one will notice…
Egyptian Pharaohs issued the earliest gold coins, around 2700 B.C. But they were primarily as gifts for friends and not for commerce (i.e. more like medals or commemorative coins).
It wasn’t until (560-546 B.C.), that King Croesus of ancient Lydia began issuing Gold coins for general circulation. (Incidentally after 2500 years, the saying “rich as King Croesus” is still floating around.
Incidentally, every country that has employed fair Gold coinage has prospered while those that inflated their coinage with “base” metals failed.
One example is Spain. During the time that Spain was issuing their famous “pieces of eight” it was a world “superpower” but lost that status as it debased its currency.
Gold in the U.S.
Gold circulated as currency unofficially in the U.S. since the beginning… using coins minted in other countries like the Spanish “Pieces of Eight”. But the U.S. did not have its own gold coinage.
It wasn’t until the Coinage Act of 1792 established official U. S. monetary units based on a world Gold price of $19.39 per Troy ounce. Congress changed the gold specification of money in 1834 and again in 1837 when it was set at $20.67 per ounce.
From 1805- 1837 no $10 Gold coins were minted.
The U.S. had periods of high inflation during both the Revolutionary and Civil wars because they were not on a “gold standard” and issued “Greenbacks” instead.
In an effort to curtail inflation at the end of the civil war in 1879, the U.S. government made the “greenbacks” that they had issued during the Civil War convertible into gold putting us on a de facto gold standard.
Finally, in 1900 the government officially adopted the gold standard once again.
By 1914 most countries in the world were on a Gold standard.
This Gold exchange rate was maintained by a complex system of transferring Gold from New York to London. Creating a system of checks and balances that should have prevented the onset of inflation.
This worked fairly well until other countries began abandoning their Gold standard to finance the First World War. The U. S. entered the war late and was able to maintain its gold standard.
However because other countries currencies “floated” against the dollar the true value of the dollar also floated and inflation still occurred (basically other countries were able to export their inflation to the U.S.).
Remember at that time people spent gold and silver coins. Even though the price of Gold was fixed other prices weren’t fixed and so the amount of goods people could buy with their Gold could still fluctuate.
Note: Now we are exporting some of our inflation to China as they send us goods and buy our debt.
See that in the graph the nominal price of Gold from 1913-1931 is flat but the inflation adjusted price is not. This is because the price of gold was fixed by the government. Once gold was allowed to float freely in the 1970’s, if Gold perfectly hedged inflation the inflation adjusted price of gold would be flat.
Notice in the chart “Cumulative Inflation by decade“ below that from 1913 through 1920 inflation (as measured by the CPI) had increased by almost 98% (in other words in 7 years prices had almost doubled) but the price of Gold remained flat (by Government decree).
Over the next 10 years deflation set in as the roaring 20’s unfolded and the US economy boomed and Europe suffered the after-effects of WWI.
Finally, in 1929 the system could not stand the internal stresses and the stock market crashed ushering in the Great depression.
In 1933, President Franklin Roosevelt realized that the U.S. could not maintain the pretense that Gold was still worth only $20.67 per ounce (because at that price Foreign governments would have bought all our gold). So he perpetrated one of the greatest frauds ever on the American public.
Rather than simply repricing Gold at it’s real price and allowing the citizens to be richer, he forced U.S. citizens to sell their Gold at the official price of $20.67 and once he had collected all the Gold into government coffers, he adjusted the price to its real price of $35 per Troy ounce. Thus the government made a handsome 69.33% profit in a few months (equivalent to a 69% tax on Gold owners). Imagine paying a 69% tax sometime!
This effectively, increased the money supply and “legitimized” the inflation that had silently been occurring behind the scenes as prices increased but gold values did not. In hindsight, this increase in the money supply may have been the key factor in the emergence from the Depression.
Notice that inflation from 1913 to 1930 was up about 64% … is it any coincidence that FDR raised the Gold price 69%?
NO! That one time adjustment just brought the gold price in line with inflation (plus a 5% bonus for the government). But that didn’t solve the problem permanently. It just postponed it. By 1970 inflation was up 306% and gold was still officially $35 an ounce. Once again the price of gold needed adjusting.
But this time there was no gold in the hands of private citizens for the government to steal. This put the government in a bind because although US citizens could not own gold, foreign governments could continue to present their foreign exchange tickets at the “gold window” and the US was obligated to pay up in Gold! And that is exactly what France decided to do.
So in 1971 President Nixon ended the US gold standard pretense. At that point the price of gold bullion was allowed to float freely and find its own level.
This time rather than take all the Gold from the people (since they had none) the Government raised money by allowing the people to buy Gold back at the new higher free market prices. Thus the government was able to profit once again from the gold FDR stole from its citizens.
Government gold sales had a tempering effect on gold prices for a while as the government liquidated it’s “excess” gold bullion. But by the late 1970’s the government had stopped its gold sales and the price really took off.
Many felt that this rise was in response to inflation fears (and partly it was) but partially it was pent up demand and fear, as we will see in a moment inflation doesn’t necessarily translate into higher gold prices. But fear of any sort usually does translate into higher gold prices.
In 1980 the price of Gold peaked and the annual inflation rate declined but cumulative inflation climbed steadily upward. As we can see from the chart above, in 1980, cumulative inflation since 1913 was 780% and by the year 2000 cumulative inflation was 1675%.
If gold were a true inflation hedge, gold would have climbed with it. But rather than keeping up with inflation the price of Gold fell from the peak of $850 per ounce down to under $300 in 2001 losing 65% of its value.
But in inflation adjusted dollars the scene is even worse. The 1980 peak in current inflation adjusted dollars was over $2337 and by 2001 it fell to $351 losing a whopping 85% of its inflation adjusted value!
So even though inflation rose… gold fell… because the fear level was low (and possibly because governments worldwide manipulated the price).
Inflation was slow and steady but not enough to cause fear. So Gold was not a very good inflation hedge!
So why did Gold rise in the new millennium?
Partially because it is a commodity like all other commodities and demand has picked up from China (perhaps they got tired of the gold manipulation game).
But mostly because fear reentered the market. And the more fear there is over defaults, inflation, etc. the higher the gold price climbs. So although Gold isn’t a perfect inflation hedge in the short run it is a very good crisis hedge. When paper can’t be trusted, Gold will always retain some value.
What type of fear triggers gold to rise?
- Fear of inflation or that paper assets will return to their intrinsic value (i.e. zero)
- Fear that governments like Greece, Ireland, Iceland, Portugal and yes even the United States will not be able to pay their debts.
- Fear that the EU will disband
- Fear of stock market collapse or instability.
- Fear that the housing market will collapse.
- Fear of War or Terrorism
- Fear of Banking Collapse or Corporate Bankruptcy
- Fear of almost anything
Yes, there is plenty of fear in the market these days to fuel the price of gold.
In addition to Fear… Chinese demand may be driving up the price of Gold. See: Why (and How) China is Boosting the Price of Gold for more information. Another way to measure prices is in terms of another commodity. See Oil vs. Gold to get an idea of how much gold is worth in terms of barrels of oil or how much oil is worth in terms of gold.
- Where is Gold Headed?
- Is There a Correlation Between Inflation and the Stock Market?
- What is the Real Inflation Adjusted Stock Price?
- Stock Market vs. Gold
- Why Buy Gold?
- The Case of the Disappearing Gold
- 2 Types of Money
- What are “Foreign Exchange Reserves”?
- Why Gold is a Good Investment for Inflationary Times
- Gold and the Federal Reserve
- Civil Liberties Rest Upon Sound Money
