When I asked Ben Bernanke whether or not gold was money, he took a long pause and answered with an explicit “NO.” I followed up by asking him why central banks hold gold if it’s not money. Again, after a pause, he simply answered: “It was tradition.”
The truth is that neither he nor I can dictate whether gold, or any other item, is money. It’s the market that has made this decision for thousands of years. I can’t make gold be money and Bernanke, even with all his central banking friends, can’t prevent gold from being money.
Tradition does play a role, and so far tradition says that gold is money. This is despite central bankers and advocates of tyrannical government constantly claiming otherwise. Sometimes, when out of positions of power, central bankers are willing to state the truth. For example, former Fed Chairman Alan Greenspan said in Nov. 2014: “Remember what we're looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.”
Individuals throughout human history have required that money be a tangible substance to convey confidence. Many times the power elites have connived to make paper a fiat money, thus allowing big government spenders to avoid any restraint on their spending desires to support a welfare/warfare state.
The orthodoxy of Keynesian planning promotes inflation in order to monetize government debt while conditioning the people to accept the system with false promises of an economic safety net and perfect security. The allure of these promises of prosperity and safety is more than the innocent can resist.
But the piper always gets paid. Wealth can be transferred from middle class victims to the elites, but even that comes to an end. The built in errors and debt inherent in a fiat monetary system always becomes unmanageable. Eventually more debt, more government spending, and more Federal Reserve monetary creation fail to help. When confidence is lost in the silly notion that wealth can be created out of thin air, without work and effort, the entire system collapses. The initial stage of that event is readily apparent.
When it’s fully recognized to everyone that a gigantic structural change will be needed, the stage becomes set for real monetary reform. The people have to realize that the Fed’s pieces of paper cannot be a substitute for gold.
Governments, bankers, industrialists, beneficiaries of the military industrial complex, and welfare recipients will never recant in their belief in fiat money. The source of their wealth and power depends on eliminating market forces that restrain their profligate ways. Taxes, inflation, and beneficial regulations are the tools used to impoverish the middle class in order to enrich themselves.
The attack on gold is incessant. The economic elites support the system and the politicians and the media never let up on the “horrors” of a system that is restrained by sound money.
More and more articles are now appearing that ridicule gold, and you can be sure that there are a lot more to come. This indicates that the anti-gold people are worried that the current paper system is in deep trouble.
Just recently The Huffington Post editorialized and ridiculed gold as money. It makes you wonder though. If gold was really not a threat to the fiat money system, as they claim, couldn’t they just ignore the subject altogether? Instead they spew out the vitriol attacking the supporters of the gold standard. HuffPo says: “Today, gold standard adherents consist mainly of cranks, crackpots, and devotees of the Austrian school of economics. And the years since the financial crash have devastated the intellectual underpinnings of the Austrian school.”
Don’t they only wish!
Exactly the opposite has occurred since the crisis. An explosion of interest in this school of thought has occurred along with a much closer scrutiny of the Federal Reserve. In fact, 80% of the American people now support the idea that the Federal Reserve ought to be audited along with a close scrutiny of the financial sector and their relationship with it.
Just wait and see what happens as the current fragile world economic system in the dollar reserve standard collapses. That is exactly what the world money managers fear. It keeps them awake at night.
They argue that it’s a waste of time and money to hedge against the fiat monetary system and argue for conventional investments in stocks and bonds. The record shows that even with gold at $1,100 per ounce, it has far outperformed the stock market over the past 15 years. Here is a chart of the price of gold since the Fed’s stock market bubble burst in 2000:
Gold increased from a price of $251.70 in August 1999 to the most recent price range of $1,100 in December of 2015. That’s a 340% increase!
Let’s compare that with the Dow Jones and Nasdaq. Here are those two charts for the same time period:
The Dow has increased a 48% (and that’s without calculating the loss of purchasing power through the Fed’s inflation). The Nasdaq has gone nowhere, over the same 15 year period.
So gold is up 340%, the Dow is up 48%, and the Nasdaq is even over 15 years. Is it any wonder that the establishment is skittish about the strong interest in gold?
Gold is real money and over time serves best to preserve wealth. Since the total elimination of the gold standard with the breakdown of Bretton Woods Agreement in 1971 there have been two huge movements in the dollar price of gold. From 1971 to 1980, gold went from $35 an ounce to $850 an ounce -- up 24 fold. From 1999 to 2011, the gold price went from $251 per ounce to $1800 --- increasing 7 fold. This represents two separate decades in recent history of strong movements in the gold price. As one would (and should) expect, retrenchments from these rapid gains to lower levels occurs.
Back in 1971, when the link of the dollar to gold at $35 an ounce was severed, anti-gold people claimed that if the fixed ratio was ever discontinued it would drive the price of gold down to $5 dollars an ounce. All such talks did nothing to prevent gold going to $850 an ounce within a decade. Boy, were they wrong!
Likewise in 1999 it seemed that no one wanted gold and the manipulators drove the price down to $251 per ounce. Little could they see that the next decade gold would soar to $1800. Overshooting in that type of market is not unusual and now we have gold back to $1100.
Once again, the anti-gold dreamers are declaring that gold is dead, that it’s a terrible investment, and the people interested in it are “cranks and crackpots”.
The handwriting is on the wall and the next explosion in the dollar price of gold is fast approaching. Conditions are set. The world economy is fragile and will soon implode. Furthermore, geopolitical conditions are precarious and could get out of control at any moment in numerous hotspots around the world.
Trends are predictable; timing is not. No one can claim they know the precise onset of these events. It could occur in a week, a month, or in a year. But it’s a safe bet to say that it’s not years into the future that we see an explosion in price of gold again.
The event will at a minimum see a sharp depreciation of the dollar to gold. Compared to the last two episodes of gold prices rising sharply, the most conservative estimate would be for gold to triple in price to greater than $3000 per ounce.
That’s not the most likely scenario in my opinion. If the process lasted for a decade, as it has on the other two occasions since the breakdown of Bretton Woods agreement, gold is much more likely to exceed a greater than fivefold increase to over $5000 per ounce. The bigger question then is whether or not the dollar standard collapses and all markets are roiled. Under such conditions, all bets are off on seeing a modest decade of adjustments in the dollar gold ratio as occurred in the 1970’s and in the first decade of this century.
If the “big event” arrives during the run-up of gold, and serious political and economic events occur, then gold could soar to unbelievable heights. If gold responds in a similar manner as in the 1970’s, starting at $1100, it could actually go up to $26,000. That’s not likely to happen. The need for true monetary reform would require revamping the entire system before then.
By the end of 2016, I suspect the haters of honest money, those “heroes” of authoritarian government” will be humbled. The goal then will be surviving the systematic attack on liberty. The ever expanding dictatorial powers of our government will be our biggest concern as poverty and martial law come to us as a consequence of too many Americans seeking safety and security. The willingness of people to sacrifice liberties, while believing in the promises made by the political elites, will be our biggest challenge.