I told you about an interesting article by Ambrose Evans-Pritchard in the
Daily Telegraph on Jan. 1. Yesterday, Evans-Pritchard reported that one of the
European central banks had broken ranks and had started to buy modest amounts of
gold.This could prove to be one of the most dramatic items of financial news in
decades.
Historically, gold has proved the most reliable long-term store of monetary
value. As such it accounted, until recently, for a major part of the reserves of
most central banks.
However, the discipline imposed by gold was too tough for the major democracies
that had engaged in profligate financial policies at home to appeal for votes.
This led to a depreciation of their currencies against gold, which was
politically embarrassing.
Led by America, the governments of the major democracies agreed some years ago
that something had to be done to stifle the effect of the light shone by the
monetary torch of gold that made clear to the public the irresponsible finances
of their governments.
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The result was an agreement by governments to sell-off the gold element of their
central bank reserves in order to drive down the price of gold and burn all
private holders of "real" money.
This was stated publicly as an international policy to de-monetize gold. In
reality, it was to de-politicize gold.
The central bank sales were co-coordinated through the IMF and carried out on a
massive scale over a period of time. The aim was to wreck the credibility of
gold as a store of monetary value.
Apparently, the American government was very coy about selling off the gold
wealth of American citizens that had been accumulated over decades. It is said
that the American government sales of gold were placed into the market via the
Germans. If true, this act alone speaks volumes as to the morality of such
action.
There is still gold in Fort Knox, but it no longer belongs to Americans. Such is
the world we live in.
[Editor's Note: The government is manipulating inflation data.
Read this free
report.]
For some years this strategy of selling gold worked, and the currencies of most
major democracies continued to drop in value, quietly robbing the holders of
their currency. As the currencies were quoted largely against each other and the
price of gold fell, the currency depreciation went largely unnoticed.
The central bankers strategy was not merely to bring down the price of gold, but
to destroy gold credibility as a monetary asset.
IMF sales of gold were designed to cause the maximum fluctuation in the price of
gold. Indeed, the price of gold fluctuated, quite wildly at times, and its
credibility was reduced as a store of wealth, at least amongst those who were
prepared to believe their governments and mass media.
The whole neat, multi-government con worked well until some non-democratic
nations started to pile up large dollar reserves, which they watched depreciate
before their eyes. This troubled some of them.
Take for instance China, with some $700 billion of dollar assets. China lost 8.3
percent or some $58 billion dollars in 2006 alone, relative to other currencies
(based on the dollar trade weighted index). In the past 5 years China lost about
one quarter of the value of its dollar holdings.
However, against gold, China lost a whopping 18 percent, or some $126 billion
dollars worth of reserves in 2006. This is more than the total reserves of many
of the world's richest nations. Over the past five years, China has lost more
than half its dollar assets, measured against gold.
No wonder Treasury Secretary Henry Paulson had to visit China many times in 2006
and had to take Fed Chairman Bernanke with him in December 2006.
The Chinese are sick of the depreciation of their dollar assets and may start to
diversify. The major factor holding them back is access to the vast American
consumer market for their exports.
This problem has been faced by every central bank and indeed individual domestic
holder of dollars and international holder of Eurodollars.
People, including central banks and corporations, have lost a great deal and
have sought to diversify out of dollars into the euro. This has placed further
massive downward pressure on the dollar.
The problem is that the holders of dollars who sold dollars, to avoid
depreciation, and invested in euros have seen strong profits. But these have
been on paper only.
As the euro has risen greatly in price, the essential export products of
Euroland (the EU, less the UK, Denmark and Sweden) have been priced out of many
of their lucrative worldwide markets. The countries and exporting companies of
Euroland are suffering badly.
In addition, the relatively strong euro has resulted in great price increases in
Euroland, making the euro very unpopular at grass roots, which are now beginning
to trade "illegally" in their old (pre-Euro) currencies like the French franc
and Italian lira.
The governments of France, Italy, Greece and Spain have openly criticized the
euro. Things have become so bad that some of their politicians have called for
their governments to withdraw from the euro.
In short, the euro, which was founded solely on politics, is being threatened
from within. We have long forecast this situation, but are somewhat surprised
that it has happened so quickly.
[Editor's Note:
Sir John
Templeton: Avoid U.S. dollars!]
Just think to yourself. If people sell dollars out of fear of depreciation and
buy euros, which they now see as threatened by total collapse, where else can
they go, in size, but into gold?
Evans-Pritchard reports on rumors that the central bank of Italy has decided to
break the ranks not only of the (anti-gold) IMF, but also of their part owned,
far stricter European Central Bank (ECB) and buy "modest" amounts of gold!
If true, this should strike our readers as a shattering event for the
financial world that we have known for the past decade or so.
For, if a major central bank (doubtless authorized by its government) has
decided to cut and run from both the U.S. dollar and from the euro and go for
gold, how long before others follow?
We believe that the stage is now set for a stampede not just out of dollars
into euros, which is bad enough, but into gold.
Such a stampede would threaten many world markets and cause grave financial,
economic, and political concern worldwide.
With this set against, let's say, an American / Israeli pre-emptive attack on
Iran in 2007/8, we see gold now set for an explosion in price.
It will be an explosion that will benefit our readers who will have accumulated
gold over for some time.
However, unlike central banks, our private readers' main concern will be how to
hold onto their gold in the face of government confiscation!
Editor's Notes:
