Gold: Could the last person to get their coat please turn the lights off?

Tuesday, Mar 30 2010 by

“The rise in Gold and Silver is purely a monetary phenomenon and is the early stage of an endeavour to move away from paper currencies,” Alan Greenspan 2009:

The below chart from Bank of Montreal (BM0) shows in simple terms why investors turn to Gold in times of Monetary excess/debasement – expressly here in terms of US Dollars. Those who believe that somehow it is ‘different this time’ (ie that in the context of 3500 years of the use of Gold & Silver as money, 21st Century investors will not seek out real money as a hedge against debasement or extreme deflationary/inflationary episodes), are, let’s be generous, not students of monetary history.Could the last person to get their coat please turn the lights off news story image The excellent chart reflects that as government debt builds, investors (and foreign Central Banks such as China) turn to Gold. That the Chinese government are catalysing (through television adverts and their own sovereign purchases) their public to go and buy physical Gold and Silver at their local bank (see photo below) further reflects the fact that Asians see Gold as money. Bear in mind that the Chinese word for ‘Bank’ also means ‘Silver Movement’. Whether it is SDRs that end up being backed by Precious Metals or some new currency unit, Asian creditors are pushing for formal commodity-backing for the new world currency order. Monetary history dictates that collapsed paper currency systems are always replaced by fully or partially-backed currency systems, demanded by the creditors left holding either depreciated or totally worthless paper.

The crux of Gold’s historical role relates to it’s status as the very unit on top of which the fractional reserve model blossoms (see the quote later from JPMorgan himself). Gold, almost uniquely custodied for nearly a century in New York and London, is the asset of last resort against which governments can borrow. Central Banks and Sovereign Wealth Funds alike are presently trying to remove Gold from the UK and US fractional reserve custodial centres (LBMA, NY Fed and COMEX), where many times the underlying have been sold on into the market. Hong Kong has recently built a large Bullion facility in HK airport to mop up the Custodial business for their neighbours in the future. Testimony from last week at the CFTC highlighted that the LBMA (the OTC market)…

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Edward Croft 1st Apr '10 1 of 1

Nice to see this article was picked up by GATA themselves.

For anyone who's interested in the worldwide fiat monetary system's flaws I highly recommend watching this 45 minute video by Paul Grignon Money as Debt. - it's animated and has a very strange soundtrack, but there's no better way to get a quick grasp on some of the fundamental issues facing the financial system. My pick for some Easter weekend viewing.

"We are absolutely without a permanent money system...  It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon."

Robert H. Hemphill, Credit Manager
Federal Reserve Bank of Atlanta, Georgia (1935)
In the foreword to a book by Irving Fisher, entitled 100% Money (1935)

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About Ned Naylor Leyland

Ned Naylor Leyland

Ned graduated with a BA (Hons) degree from the University of Bristol in 1998. He began his career in 2001 at Neilson Management, later moving to Smith & Williamson (formerly NCL Investments) in 2003 where he was an Investment Manager. Ned joined Cheviot in July 2008 and is Advising a specialist Precious Metals fund. more »

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