Gold - Look Out Below!

May 2, 2012

The factors underpinning sky -high gold prices are spurious because currency is a medium of exchange, i.e. a coupon. It does not need to be "backed" by anything. As long as people are prepared to exchange real goods and services for these coupons, you want them.



by Henry Makow Ph.D.
(a henrymakow.com update)



Many "Patriots" who own gold and silver must be frustrated these days. The metals are stuck in a narrow trading range and mining stocks are hitting new 52-week lows. Despite gold being only 10% from its all-time high, the multiples on gold stocks are contracting. It's a Chinese water torture.

I am not a financial adviser but I think mining stocks are a harbinger of a major sell-off in the metals in May or June. The catalyst will be the overthrow of the "austerity" program in Europe, new stimulus there and new doubts about the survival of the Euro. While austerity is bad, it will drive investors to seek refuge in the USD, resulting in a decline in the Euro and commodities, including precious metals.

When readers ask me if they should buy gold or silver, I say wait until you see inflation in the marketplace. We have had a steady rise in metal prices without a lot of inflation. The reason for this is the perception that the USD is worthless because the US debt is out of control. Another reason is "quantitative easing" but who knows how much money disappeared in the credit crunch? 

These factors which underpin precious metal prices are spurious because currency is a medium of exchange, i.e. a coupon. It doesn't need to be "backed" by anything. ("The full faith and credit of the US government?" -- see what I mean!)  

As long as people are prepared to exchange real goods and services for these coupons, you want them. Only when they start losing value, should you buy precious metals.  

Given the state of the world economy, we are more likely to see deflation than inflation. Cash will remain king. 

A product is worth as much as someone else is willing to pay for it. I can see gold going down to $1400 or less and silver to $20. But I am no financial maven and may be a contrarian indicator for all I know. (Disclosure: I am short one gold stock.)   
 
AUSTERITY WILL CAUSE DEPRESSION

Here is an explanation of money I posted in August 2011:

 
Imagine that you were charged a penny for every breath you took. After a month, this would amount to a lot of money. Wait! you would say. Nobody owns oxygen!

The same applies to money (currency.) Money is a medium of exchange. It has no intrinsic value, nor should it.

It is a coupon used to facilitate trade. Each product or service is worth so many coupons. 

The economy is like a fire which needs a certain amount of oxygen to burn steadily. The job of the government is to provide this oxygen in terms of spending i.e. injecting coupons or lending interest free.

Just like oxygen, nobody can own a medium of exchange.

But the Illuminati bankers do own it. They create money in the form of a debt to them!  Anytime the government wants to stoke the fire, it must go further into debt.

Fiscal conservatives like Ron and Rand Paul, and the Tea Party,  perpetuate and legitimize this fraudulent and dysfunctional system by harping on the dangers of "debt." 

The economy would collapse if the debt were repaid. There would be no money in circulation. We're not meant to repay it.

Half the US debt is owed to the Fed and should be repudiated since the money was created as a book entry. Why should taxpayers repay it with our sweat and blood?

Fiscal Conservatives are tying the hands of government and precipitating a depression.



GOLD & SILVER HERESY


In a banking crisis, people will seek refuge in paper currency,  especially the USD. This happened in 2008 and it may happen again.

Gold and silver are just shiny stones. They are much more expensive to produce than paper and that's why they are useless as a medium of exchange, i.e. coupon.

A gold bug sent me this:

"The financial crash will render worthless everything that is denominated in paper. Only real things will retain value, and the royalty of real things are gold and silver, for the simple reason that they are the most liquid, i.e. universally accepted."

I replied:


If "universally accepted" and "liquid" are the criteria , the US dollar is far better than either metals..." Remember digital dollars are liquidated or transferred at the move of a finger. Precious metals require Brink trucks.   

Gold-backed currency is absurd. There isn't nearly enough gold and silver to back money. In any case, no government could afford to acquire it. They are bankrupt, remember?  


CONCLUSION

The economy needs liquidity (i.e. an effective medium of exchange that stimulates productivity.) As long as this medium is created in the form of debt to a small private cabal, the economy will be severely constrained. We will have deflation - too many products chasing too little cash. Deflation is poison for gold.

We don't need bankers to create currency based on our government's credit. The government can do that itself and lend or spend it into existence. 

We must demand debt-free currency creation or suffer the consequences. The politicians and mass media won't do this without pressure. They are chattels of the central bankers.

Gold will have its day again if attention switches back to the US debt, money-printing or inflation rears its ugly head.

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