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Having spent my career and most of my life in the City of Gold, it’s no wonder the yellow metal has retained its fascination for me. This was almost ordained. In January 1980, my first month as a trainee financial reporter at Johannesburg newspaper The Citizen, the gold price hit a record $850 – a level it took almost three decades to regain. John Maynard Keynes condemned the metal as a “barbarous relic”, one without a place in the modern financial system. Yet it just won’t lie down. In this fascinating article sent to us by gold supporter, trader and author Nick Barisheff, he argues why Keynes – and many others – are wrong. Barisheff’s latest book’s title is $10,000 Gold: Why Gold’s Inevitable Rise Is the Investor’s Safe Haven. With everyone seeking sensible answers, his theories deserve consideration. – AH
By Nick Barisheff*
On December 23, 2013, the Federal Reserve will celebrate its 100th birthday. Undoubtedly, there will be many articles forthcoming about the Fed between now and that infamous date, and I expect most, like this, will be highly critical.
I know many feel overwhelmed by the economic forces that have essentially taken full control of our markets since 2008, but I am here to remind you that the light shines much brighter today than it did when I first began seriously exploring this subject several decades ago.
During what I believe are the final years of the US dollar’s rule as the world’s de facto reserve currency, desperation is confirming what only a few years ago would have been dismissed as conspiracy theories of the lunatic fringe. Desperate acts, like the bailouts of 2008 and the attempts at crushing the gold market in 2013, have opened a window into the dark world of central banking and the most ubiquitous propaganda campaign in history against sound money practices.
Today we can come to understand the deception of fiat currency, and we can protect our wealth through precious metals ownership at a great discount to its true value. We can regain economic sovereignty by changing the way we think about money, and by acting on that knowledge.
Governments have tried to alter our reality to the point that we accept that central banks and, most notably, the Federal Reserve, have the right to create currency out of thin air while the rest of the population exchanges blood, sweat, thought and emotion for that same currency. This wouldn’t seem fair to a Neanderthal, yet today most of us accept it as the norm.
@alechogg Couldnt these same arguments and stats be used to explain why gold is a bubble about to burst?
— Dickon Jayes (@DJayes) November 18, 2013
Many have joined the banking matrix, even though it has nothing to do with common sense.
I chose the controversial title of $10,000 Gold (for my latest book) only after watching the 2011 debt-ceiling fiasco, because it was clear then that there would never be a serious attempt at reducing debt until the entire system implodes. The October 2013 debt-ceiling debate, which accomplished nothing other than removing the debt-ceiling limit for the next three months, further confirmed that only financial disaster would bring a new system. Washington’s decision makers lack the understanding and political will to avert such a disaster. I sincerely doubt that the Fed will ever voluntarily taper its quantitative easing program. My view is shared by many in the gold community, but by very few mainstream financial commentators.
The main thesis of the book is that gold will continue rising because several exponential, long-term and irreversible trends will continue forcing the need for greater and greater government debt, and government debt is the main driver of the price of gold, as we can see in the chart below. For the past decade, debt and the gold price have shared a conspicuously close relationship.
These trends—the rising and aging population, dwindling natural resources, outsourcing and movement away from the US dollar—continue to develop. We began work on BMG’s first fund in 1998, at a time when gold was trading below $300 an ounce. We wanted to offer the public the opportunity to own uncompromised bullion.
We expected the product that took four years to complete would be welcomed with open arms, especially following the modern experience of ‘tulip mania,’ the dot.com bust.
Instead we found investors’ eyes glazed over when we spoke about gold. They repeated some familiar mantras: “Gold doesn’t earn interest”; “Gold is a barbarous relic”; and my favourite, “You can’t eat gold.” When did they last eat a cash salad? It was then that we realized our job would involve a major education campaign to counter decades of fiat propaganda, perpetuated by a banking industry that has grown in power for 300 years.
It soon became clear that gold was the sworn enemy of this new economic reality, where a chicken was a horse because the government said it was.
Gold is an economic threat to the central banker’s crown jewel, the right to create currency out of thin air. It is truth to the lie that paper currency is ultimately worth more than its intrinsic value, which Voltaire appraised as zero. It is also a threat to the entire matrix that government and banks would prefer we not question.
We encourage our clients and readers to break the spell of fiat thinking by thinking in ounces of gold rather than fiat paper such as dollars. There is no faster way to break the central bankers’ spell than by owning gold and by evaluating all investments in gold ounces rather than in paper dollars. Gold ownership seems to have the magic ability to break this spell.
We use examples like this one from my book to show the effectiveness of this change of perspective. For example, a compact car would have cost 66 ounces of gold in 1971, the year President Nixon closed the gold window, and 10 ounces of gold in 2012. How’s that for maintaining purchasing power? In fact, gold has maintained purchasing power—and therefore protected wealth—better than any asset class in history.
This becomes even more obvious when we look at the loss of purchasing power of the US dollar since 1913. Since that time, the dollar has lost about 96 percent of its purchasing power when measured against gold.
To make the point clearer, the table above shows price levels dating back to end of the Revolutionary War. We can see that despite wars and even stock market crashes, the dollar held its value exceptionally well while the United States remained on some form of a gold standard. The exponential loss of purchasing power began to accelerate right around the time of the Fed’s inception. A dollar in 1913 had roughly the same purchasing power it had in 1783.
* Nick Barisheff is the founder, president and CEO of Bullion Management Group Inc, an Associate Member of the London Bullion Market Association (LBMA).
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