A False Requiem for Gold and Silver

There are so many people who just wish gold and silver would be recognized for what they are – shiny pieces of dirt – and stop attributing so much false value to them. And they’re some arguably pretty respectable people. Jeffrey Currie, head of commodities at Goldman Sachs, could be said to be the ‘ringleader’. His very public campaign to exert his influence to manipulate investor sentiment downward has been a success for Goldman Sachs, even while the SEC conveniently turns a blind eye to such blatant market manipulation.

Increasingly, investor disdain for gold is spread by the heavy bias in mainstream financial media toward anti-gold coverage as opposed to pro-gold coverage, which is limited to independent and fringe publications.

Is it perhaps time to concede, among the metal monetarists out there, that gold and silver, could in fact, be made obsolete by a combined social and cultural psychological revolt against the idea of gold and silver’s intrinsic value? Is it not conceivable that the lunacy inherent in the idea of any metals being precious be on par with the lunacy of suggesting the earth is flat?

I, for one, am beginning to wonder. The human capacity for willful disbelief, exemplified by circumstances such as Malaysian Airways Flight MH 370, where the bereaved relatives refused to accept that the plane and all aboard were lost, extends to the financial realm. Human beings tend to align their most heartfelt beliefs alongside their interests. He who has no gold cares not for its price.

Human beings are also terminally horrible students of history.

Stock memes of gold and silver monetarists such as “Every fiat currency in the history of mankind has failed,” and “gold has been the ultimate store of value for 5,000 years” are meaningless to a generation immersed in Justin Bieber’s behaviour and Rob Ford’s antics. That deficiency, too, extends to the financial realm, where portfolio managers who are proven right by eschewing gold for technology stocks in 5 year windows smugly dismiss gold’s relevance.

Let’s face it: gold and silver investors have hardly had any cause for celebration lately. At least, that is the case if you adhere to the performance short-sightedness that is apparently in vogue this generation.

If one were to take the longer view – say, ten year increments – then a gold bullion investor would still be a happy, if not a little nervous, investor. Ten years ago today the price of gold was right around the $400 per ounce mark. $100,000 spent on gold then would today be worth over $300,000, a return of 300%. The S&P 500 in the same time frame has appreciated by roughly 80%. The Dow Jones, ~57%.

So, while there is a strong desire among the engineered and synthetic asset vendors of today to convince us that gold and silver are outmoded monetary forms, and are in fact, obsolete, history both in the near term, and in the long term, do not support this.

In fact, the only time gold has under performed all other asset classes, is in relatively small historic windows where the price was controlled either by government decree, such as was the case with the Bretton Woods agreement that kept gold priced at between $35 and $40 from 1944 until 1971. Richard Nixon terminated the U.S. Dollar’s relationship to the gold price then, and that set the stage for the United States to fabricate as much money as it deemed required. A brilliant move, in retrospect, considering how it is that very act that made it possible for the United States dollar to achieve its status as the default unit of trade globally.

From the perspective of global economic competition, the United States was apparently the first to perceive that flooding the monetary system with its particular unit of national currency, while using that flood of capital to purchase any and every form of real asset on the planet, was indeed the way to go.

China, although slow to catch on, has caught on, and understands that the only defence against such a dominant unit of monetary trade is to devalue their own, thus attracting the manufacturing needs of every nation on earth. And their dollars, yen, pounds, rubles, pesos, soles, etc.

So while the economic war is conducted in fiat currencies, the gold price – kept low through the machinations of derivative gold instruments having no physical relationship to gold only theoretical – continues to appear weak even while all of the world’s production is consumed in its entirety year after year.

The singers of the requiem for gold and silver today are those who seek to suppress its price while accumulating it is my bet.

Catalysts for a Gold and Silver Price Explosion to the Upside

While it is true that the prices of gold and silver have yet to respond to the growing crisis in the Ukraine and Russia, the interference in gold markets by gold derivative purveyors and the distortive effects of rampant U.S. dollar, Yuan and Yen proliferation have resulted in a latency effect in gold’s normal responsiveness to geopolitical crises. That latency masks growing upside pressure as a result of such crises, and enhances the explosive potential of gold to the upside, should the crisis erupt into all out military conflict.

Taking the longer view, given the increasing population relative to the decreasing production of gold worldwide, the value of gold is increasing, regardless of the current price.

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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