Wednesday, March 01, 2017

COTW: Too Sexy For Money

Many times US Person has had to deny he is a goldbug, but the arguments against a fiat money system by those who are, he finds persuasive.  What he actually supports is a system of publicly owned state banks organized into regional reserve centers who collectively, through a committee headed by a presidential appointee, would set monetary policy to replace the privately controlled Federal Reserve system.  In any event, what follows is a chart showing one of the mechanisms the Federal Reserve uses to protect the current fiat system.  When the United States unhooked the dollar from its official gold peg of $35/oz in 1971, central banks feared an insatiable run on gold that would cause its price to explode.  Consequently they began dumping reserves of physical gold on the market and created a number of paper gold investments (gold leasing, gold derivatives, etc.)  In short, gold became too valuable to be used as money.  The IMF estimated in 2008 that 40-50% of gold price moves were related to related to the dollar.

That trend reversed in 2009 indicating that gold is once again undervalued in the market.  Many arrogant investors think gold is an outdated relic unworthy of serious consideration as a source of wealth.  US Person advises you to think again.  If gold is so worthless, why do central bankers spend so much time, effort and dollars manipulating the market?  The chart below shows the strong negative correlation between gold price and dollar value.  Gold is the other money.  If the global, digitized fiat money system ever fails (it came close in 2008-09) you will be glad you have gold in your pocket.