Exposing the madness wehind current economic thought

Friday, March 8, 2013

Most governments own a lot less gold than they actually report


Gold is the numéraire of economic calculation. Its total supply is not determined by central bank decree, and increases at a rate of between 1-2% per year. It is money, because unlike commodities such as oil or corn it is not consumed. It is accumulated, and all the gold mined throughout history still exists in its aboveground stock. I recently completed a study for the GoldMoney Foundation noting how the aboveground stock grows around the same annual rate as world population and new wealth creation, which are factors explaining why gold preserves purchasing power over long periods of time.

This means that it is a perfect barometer of the health of national currencies. In present-day context, a rapidly rising gold price – coupled with backwardation in the gold futures market - would be an unmistakable sign that the fiat US dollar was approaching death. Therefore the US government and its close allies have an obvious interest in preventing a rapid rise in the gold price (and that of silver, given silver's monetary dimension). They can't stop gold from rising completely, but they can slow its ascent by leasing central bank gold into the market. Which is what they've been doing for the last 20 years. I call it a managed retreat, but at any time it could turn into a rout.

The general population have no idea about this, because the banks and governments involved have gone to great lengths to conceal their tracks. We owe the Gold Anti-Trust Action Committee (GATA) a great debt for the work they've done over the last 15 years in shining a light on this murky area of market intervention as central bank policy, which itself is a result of decisions made behind closed doors. Any government decisions made in secret are anathema to a free society.

Why is this important for the average investor to understand? Because in many cases, as citizens of countries with governments involved in this scheme, their gold is being leased into the market without their permission. Once a government's gold is removed from the vault in this way, it is not likely to be returned. So most governments own a lot less gold than they actually report. And secondly, because people are being deceived as to gold and silver's status as money, and true worth as long-term preservers of wealth.