Update for July 7, 2014 - Newsletter (Who Owns Your Portfolio? -3)
So why is the Fed literally tearing its monetary hair out over the gold issue? Isn’t this a “barbarous yellow relic” and which Lenin wanted to use to line public toilets with? In the US and the West generally, this is what the schools have effectively taught us, and officially this is how gold is regarded. However, the Chinese are immune to this sort of thinking and have traditionally regarded the metal as real wealth. It doesn’t matter the proverbial hill of beans if Washington regards the metal as “barbarous” or not. Its major creditor wants it and is buying up all it can get its hands on. So, what you say? So what if gold runs to $ 2000/oz., or higher? So what?
The “so what” is that the traditional buyers of gold will see this and wonder why it is rocketing upwards (gold traders being among the most informed people on the planet from what I have seen in my forty-five years plus of watching bullion). They will come to the conclusion that the old saying “Gold up, Dollar down” is still valid and will then dump USD holdings in such quantities that the stability of the USD will be called into question. When you are trying to force US Treasuries down the throats of the world, this is not exactly what you want to see! Therefore the Fed is literally jumping through hoops to find enough gold to sell to the Chinese.
And what happens when they cannot find enough to satisfy China’s demand without the price doing destabilising things to the dollar? Ah! That is the question I would love to see answered! In all probability there will be a gold call-in as there was back in 1933 when Roosevelt literally stole all he could get from the US public. Across the West there will be a growing alarm that gold call-ins will have to be done in all countries to support the dollar, as without this support there will be great instability across the globe. In an era of unprecedented debts, such instability is not what you want to witness. And then we see what? What happens when the Chinese keep coming back for more? I suspect the US has warned China that at this stage a deliberate destabilising of the current global economic infrastructure will be a cause for war. War: the last refuge of an economic scoundrel! This is not yet however.