the truth in plain view
No rules for the rulers is tyranny for the subjects.
Freedom for politicians is enslavement for citizens.” --
the perplexities, confusion and distresses
in America arise not from defects in the
constitution or confederation, nor from want
of honor or virtue, as much from downright
ignorance of the nature of coin, credit, and
circulation." -- John Adams
Gold is the Currency of Capitalism
…sound reasons to own gold
When it comes to the accumulation of physical gold -
stay the course!
Unless you are of the opinion that there is
some way, or some how a return to fiscal
responsibility within Government
continue to accumulate physical gold.
I have not changed my
long term position on the US dollar.
Continue to invest in dollar denominated
asset products, and over time you will
certainly beggar yourself.
After nearly a decade
of putzing around with bail-outs, bail-ins,
quantitative easing, too big to fail, too
big to prosecute it is clear that nothing is
working. The global economy is anemic
while Military Keynesianism is on the rise.
I am not sure what is coming next, whether
it will be hyper-inflation or
As a growing number of people lose confidence in fiat currency as a
store of value; physical gold and silver
will become scarce and demand for the
currency metals will continue to accelerate.
I firmly believe there is a growing
recognition that physical gold is the only
tier-one asset worthy of “top-tier”
Gold is one of the world’s most
misunderstood assets. There are many reasons
for this unfortunate situation, but one
stands out. Gold exists in an
environment in which there are many powerful
forces fiercely hostile to it. Most
notable among these are Neo-Mercantilist
governments and the myriad of vested
interests that feed directly or indirectly
from the public purse.
Here is a basic primer highlighting only a
few of the essential features of gold that
everyone should know. By evaluating
them, it is possible to determine whether
gold’s usefulness could be of value to you,
just as it already is of value to countless
millions of people around the world.
Everyone Should Know About Gold
1. Gold is a Unique Commodity
Gold is special, a unique commodity because
it is the
commodity produced for accumulation; all
other commodities are produced and consumed.
all of the gold mined throughout history
still exists in aboveground stocks.
Nevertheless, gold remains rare and sought
2. Gold is Universal Money
This observation about monetary demand means
that gold is money. In other words, gold is
hoarded because its greatest usefulness
arises from those attributes that make it
Gold’s advantages as money are
numerous. Perhaps most important in our
present age marked by the perennial
inflation of national currencies, gold is
money that cannot be debased by creating it
‘out of thin air’ by government fiat.
Another important factor in gold’s
favor is the mountain of debt and tottering
tower of financial derivatives that overhang
the world economy. Gold is the only
money that is not contingent upon anyone’s
promise, an attribute that explains why gold
is called “sound money”.
3. Gold Preserves Purchasing Power
Gold preserves purchasing power,
but there’s another way to describe this
essential feature of gold. Do not view
gold’s price to be rising and falling.
Rather, recognize instead that the
purchasing power of the dollar is rising and
falling. This conclusion can be made clear
by looking at the price of goods and
services in terms of dollars as well as
True Value of Gold is Determined by The Market
Unless of course you are talking
about "paper" gold. Physical gold’s
value comes from its usefulness, not from
central banks. It is important to
understand that the market gives gold its
value, though central banks would have you
believe otherwise. Central banks tell you
what they want you to hear. They would
like you to think that they control gold’s
price, as that perception makes it easier
for them to bolster the demand for the
dollar. But the reality is quite
different. The market determines
gold’s price, just like it determines the
price of a Picasso or a loaf of bread.
Central banks do intervene in the gold
market – just like they intervene in many
other markets. The reason for their
attempts to manage the gold price is simple.
By keeping the gold price low, central banks
make the dollar look better. With their
interventions central banks are trying to
make the dollar look worthy of being the
world’s reserve currency when in fact it is
demand is a barometer that measures whether a national currency
is being managed well (i.e., no inflation).
So by trying to keep the gold price low,
central banks artificially make the demand
for dollars higher than it would otherwise
be. Intervention is also consistent with the
statist philosophy of many governments these
days, namely, that they will usurp whatever
power is needed to try maintaining the
status quo that preserves the privileged
position politicians enjoy at the expense of
Though central banks do not control the gold
market, they can influence gold’s price.
Importantly, their influence is diminishing,
thanks in part to price fixing
investigations. Central banks had been
dishoarding much of the gold in their
vaults, so they hold a relatively small part
of the above-ground gold stock. After
the Second World War, about 68% of the
above-ground gold stock was in the vaults of
central banks. That number went down to
about 10%, but that has now reversed as
banks have ceased to be net sellers of
physical gold and instead are turning into
5. Buy Physical Gold and not Paper
bullion investments are extremely portable,
liquid, and easy to store. And if things do
go from bad to worse, the portability of
gold could become very important. It
is certainly prudent to buy physical gold
when one looks at the critical problems
facing the dollar and other brands of paper
money. Physical gold offers a simple, yet
effectie means to diversify and therefore
hedge the risks inherent in national
currencies. Remember: I am talking about
physical gold and not paper! There is
a huge difference between owning physical
gold and another piece of paper from someone
that promises to send you the gold.
6. Above-Ground Gold Stock
Because gold is accumulated and not
consumed, gold’s supply is its aboveground
stock. This fact changes everything in terms
of how to analyze gold.
The price of gold is still a function of
supply and demand, but the supply that
matters is not the relatively modest amount
mined each year, which history shows only
increases the above-ground stock year after
year by less than two percent per annum.
Rather, gold’s supply is the total weight
accumulated in its above-ground stock for
the simple reason that a gram of gold mined
today is no different from a gram of gold
mined by the Romans two-thousand years ago.
In other words, gold in the above-ground
stock is perfectly substitutable for newly
In the short-term gold’s supply is
relatively unchanged because new mine
production cannot be meaningfully increased
quickly. As a consequence, gold’s price is
principally a function of demand.
While it is common to hear that the price of
gold is determined by jewelry demand, that
belief is misguided. Just like wet
streets do not cause rain, the price of gold
does not depend upon jewelry demand.
The important point is not the form gold
takes when it is fabricated, but rather, the
use to which it is put. Most jewelry
is high-carat gold acquired because of
gold’s monetary characteristics, not for
reasons of adornment.
Therefore, the price of gold – or more
precisely because it is money – gold’s rate
of exchange to national currencies depends
upon monetary demand, or what some people
mistakenly call its investment demand.
It cannot possibly be otherwise, given that
gold’s supply is its above-ground stock and
80% of this amount is held for monetary
reasons, and not for
fashion, adornment or other factors.
7. Gold as a US Dollar Alternative
The US dollar is in trouble because it is
being debased – it is being inflated by
newly created dollars that are used to fund
the growing federal government budget
deficits and other public and private debt.
This insidious inflation erodes the
purchasing power of the dollar month after
month. Consequently, more people are
turning to gold as their preferred money.
used to be that the dollar was “as good as
gold”. The dollar achieved that distinction
because it was formally defined as a weight
of gold under the rule-based system known as
the gold standard. Under that system,
which ended in August 1971, gold and dollars
were interchangeable and essentially the
same. But no more, to the detriment of
those who hold dollars. By some
estimates, the dollar has lost more than 90%
of its purchasing power.
Despite the dreadful deterioration the
dollar has suffered, it continues to
circulate as a global currency - the world's
Reserve Currency! Those same
inexorable forces that create a hostile
environment for gold are at the same time
promoting and propagandizing the dollar to
talk-up its demand. The Federal
Reserve’s pro-dollar, anti-gold propaganda
is aimed to maintain the illusion that the
dollar is reliable money.
Consequently, in contrast to their
interdependent and complimentary role under
the gold standard, gold and the dollar have
become competitors. In fact, gold is
the dollar’s only serious competitor.
They compete for holders, and it is their
relative demand that determines their rate
of exchange, or what we call the ‘price’ of
The relative demand for gold and dollars
also explains the importance of dollar
interest rates, which need to be raised from
time to time to entice people to accept the
risk of holding dollars instead of gold.
But remember, only real (i.e., inflation
adjusted) interest rates matter. Nominal
interest rates are not important. For
example, if dollar interest rates are 10%
and the inflation rate is 10%, real interest
rates are zero, and low or negative real
interest rates are bullish for gold.
Become a Participant in the Business
Section 19 of America's founding monetary
legislation, the Coinage Act of 1792,
prescribed the death penalty for any
official who fraudulently debased the
In ancient times, the Roman Solidus
circulated far and wide. The Solidus
was a tangible thing, a gold coin struck by
the Byzantine Empire. Between Waterloo
and the Great Depression, the pound sterling
ruled the roost. But it was
convertible into gold— slip your bank notes
through a teller's window and the Bank of
England would return the appropriate number
of gold sovereigns. Today, the US
Dollar is faith-based. There's nothing
behind it but Congress - a Congress that is
becoming more whim-based than interested in
the Rule of Law.
most of this country's history, the dollar
was exchangeable into gold or silver.
"Sound" money was the kind that rang when
you dropped it on a counter. For a long
time, the rate of exchange was an ounce of
gold for $20.67. Following the Roosevelt
devaluation of 1933, the rate of exchange
became an ounce of gold for $35. After 1933,
only foreign governments and central banks
were privileged to swap unwanted paper for
gold, and most of these official
institutions refrained from asking (after
1946, it seemed inadvisable to antagonize
the very superpower that was standing
between them and the Soviet Union). By
the late 1960s, however, some of these
overseas dollar holders, notably France,
began to clamor for gold. They were
well-advised to do so, dollars being in
demonstrable surplus. President Richard
Nixon solved that problem in August 1971 by
suspending convertibility altogether. From
that day to this, a Federal Reserve "note"
is nothing more than a dodgy IOU.
To understand what is a issue, it may help
to understand the system we left behind.
A proper gold standard was a well-oiled
machine. The metal actually moved and,
so moving, checked what are politely known
today as "imbalances." Say a certain
baseball-loving North American country were
running a persistent trade deficit. Under
the monetary system we don't have and which
only a few are yet even talking about
instituting, the deficit country would remit
to its creditors not pieces of easily
duplicable paper but scarce gold bars.
Gold was money—is, in fact, still money—and
the loss would set in train a series of
painful but necessary adjustments in the
country that had been watching baseball
instead of making things to sell. Interest
rates would rise in that deficit country.
Its prices would fall, its credit would be
curtailed, its exports would increase and
its imports decrease. At length, the deficit
country would be restored to something like
competitive trim. The gold would come
sailing back to where it started. As
it is today, dollars are piled higher and
higher in the vaults of America's Asian
creditors. There is no adjustment mechanism,
only recriminations and the first suggestion
that, from the creditors' point of view,
enough is enough.
So in 1971, the last remnants of the gold
standard were erased. And a good
thing, too, say the daft Keynesian economists. The
high starched collar of a gold standard
prolonged the Great Depression, they charge;
it would likely have deepened our Great
Recession, too. Virtue's the thing for
prosperity, they mumble; in times of trouble,
give us the Federal Reserve's scheme of
money conjuring. There are many
troubles with this out-dated notion. For one thing,
there is no single gold standard. The
version in place in the 1920s, known as the
gold-exchange standard, was almost as deeply
flawed as the post-1971 paper-dollar system.
As for the Great Recession, the Fed's method
in itself a leading cause of our troubles.
Constrained by the discipline of a
convertible currency, the U.S. would have
had to undergo the unpleasant, but necessary
process described above to cure its trade
deficit. But that process of
correction would have saved America from the
near-death financial experience of 2008.
Under a properly functioning gold standard,
the U.S. would not have been able to borrow
itself to into pending default.
For what it is worth, it is sobering to
realize that out of the thousands of brands
of fiat currency ever printed throughout
history, each and every one has wound up at
zero-worth. Gold on the other hand has
always had a bid and has always been
considered a source of wealth.
Is it rational to hold a medium of exchange (US dollar)
that has lost 95% of its value since 1913?
Larry Myles Reports