The latest downward move has been prompted, at least in part, by Cyprus selling off its gold to meet its debt obligations. And also, perhaps, by Goldman Sachs revising downwards its estimate of where the gold price is going to be at the end of the year.
As a goldbug, obviously this troubles me. But not a lot. Like many true believers of the Austrian school (Margaret Thatcher was one of us, I suspect), I see this more than anything as a tremendous buying opportunity. I'm thinking this especially having read the fascinating new report from The Real Asset Company, which argues gold could go at least as high as $6,000. (Over four times its current price)
You'll say: "Well obviously they've got an interest in talking up the gold price." But they don't actually. On the occasions I've rung to ask them about where they think gold's going, they say: "We haven't a clue." As far as their business model is concerned it doesn't matter which way gold goes, because their money is made on a percentage of each trade, rather than the gold price itself.
So why, if they have no view on gold, are they yet hinting at this dramatic rise? Because, they argue, both history and market fundamentals show that it cannot be otherwise.
What's happening to fiat currency, they note, is much the same as what successive Roman emperors did to the denarius - debasing it to the point of near worthlessness. They quote The Collapse of Complex Societies by US anthropologist Joseph Tainter, which argues that monetary collapse was one of the main reasons for the Fall of the Roman Empire.
"By debasing currency, increasing taxes and imposing stringent regulations on the lives of individuals, the Empire was, for a time able to survive. It did so however by vastly increasing its own costliness and in doing so decreased the marginal return it could offer its population. These costs drained the peasantry so thoroughly that population could not recover from outbreaks of plague, producing lands were abandoned and the ability of the state to support itself deteriorated."Gold analyst and trader Andy Smith made the same point at the Dubai Precious Metals Conference earlier this month. At root, he argues, it's all down to government overspending. He quotes Tainter's point that currency debasement was a politically expedient measure adopted because "those who lived off the treasury were more numerous than those paying into it." And Gibbon, noting that "a large portion of public and private wealth was consecrated to the specious demands of charity."
So, nihil sub sole novum.
Then there are the BRICs busily building up their gold reserves even as we in the declining old world economies reduce ours, with a view, it is suggested, to establishing one day their own new gold-backed reserve currency.
You can agree or disagree with this analysis but it makes fascinating reading. Personally I'm in this one for the long haul and as soon as I get a bit of extra money, I'm going to buy gold bullion. And silver bullion, come to that. (I would do Bitcoin too, but I fear I may be a bit late on that one).
For me, the only serious question is not "Will gold and silver go up a lot?" - they will. Rather, it has to do with how we're going to be able to keep our winnings on this one way-bet. The confiscation of savings in Cyprus, and recent talk in Germany of funding future bail outs with a wealth tax on the assets of "the rich" are auguries of things to come.
I like the advice given at the end of the report by Jim Rickards (author of Currency Wars: The Next Global Crisis).
The trick is to ride the gold wave higher and then pivot from gold to land before the windfall profit tax becomes law.Nice theory. Except as gold owners discovered after FDR's notorious 1933 Executive Order 6102, it's easier said than done.
Which is why if you don't have physical possession of it, you don't have it, someone else does, and given that all the metrics used as talking points for the last market crash have been reinflated by the Fed and are showing even more stretch marks this time around, it should be no surprise that the PTB are attacking the last game in town, the PMs.
They do so the usual way... through the 'paper trade' not the physical trade, but they are buying it there as well. They are simply protecting their control of the game while it last and all the metrics show the same pattern of near collapse as was shown in Rome as the debasement process hit the fast lane of hypocrisy and fraud. The insanity is near breaking point as all the central banks have been busy getting everyone unto the same rug so they can pull it out simultaneously worldwide... or at least in the West and all associated nations, which is pretty much everyone. All games come to an end and the past due date on ours is showing rather badly like milk that should have been thrown out days ago, just because the container looks full as it sits in the refrigerator, doesn't mean it's still safe to drink, rather the opposite, all kinds of artificial coloring agents have been added to keep up appearances.
It really is folly, but the PMs are just a transitional device themselves, as a means to an end, not the ends themselves. Revolutions come and go, but the PMs can continue because the economic system remains in place even if in a fractured state, but if cataclysmic activity occurs, then they too are worthless and left behind in the search for the basics like clean food and water which are always in short supply when the supply/demand curve gets thrown out the window.
Everything is being debased and has been for a long time, just a question of which tribe is on top at the time.