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If Prices are Collapsing, Then Why is GOLD GOING UP?

January 20, 2015 by Jay Taylor

Most people have been trained by the Keynesian propagandists to think of gold as just another commodity. Gold is not a commodity. It is money! And that is why, as anxiety increases now about the global monetary system, gold is on the rise even as commodities plummet.

KondratieffThe inverted pyramid shown on your left is a concept created by the brilliant monetary economist named John Exter, who was a mainstream economist, Harvard professor and a Federal Reserve Board member. He was also a member of the elite Rockefeller-directed Council on Foreign Relations. And he was a friend of the great Austrian economist Ludwig von Mises. Exter reportedly had a constant debate with von Mises on the issue of inflation or deflation. Exter believed that a fiat money system would end up in a massive deflation, while von Mises believed it would end up in hyperinflation. I think Ron Paul’s suggestion to me one time is correct—that the difference between these two views is more a matter of semantics than of reality, because in the end, the currency or the currency system are destroyed in either event.

When the monetary system expands through fractional reserve banking, prices rise and the items at the top of the inverted pyramid rise most dramatically. Items at the top are speculative, get-rich-quick items and items of luxury, not items required for sustaining life.

As the fiat money system, which is not disciplined by gold, expands to pathological levels—as is the case now—debts that have grown much more rapidly than income cannot at some point be repaid. When one default occurs it sets off a chain reaction of debt defaults. The margin clerk calls in the loans; we are seeing that now in the foreign currency markets, which are leveraged 100:1 following the SNB decision this past week not to peg the Swiss franc any longer to the euro. Suddenly in order to come up with margin, nonessential items at the top of the Exter pyramid are sold to generate cash. As fear spreads through the economy and as reality sets in and especially as perception of value at the top of the pyramid is lost, nonessential items at the top are sold and people build cash and buy what is perceived to be the safest store of value.

The counterfeiters at the Fed want desperately to keep you thinking the safest place to put your money is their treasury and currency. Which is why, as Alan Greenspan has explained, the government wants you to disregard gold as a store of value. As long as paper money rather than gold is perceived to be the safest place to put your money, then the senior currency, which at this point in history is the dollar, gains strength.

But ultimately the lies and distortions caused by government intervention can no longer be hidden. The dollar as the world’s reserve currency has been getting stronger because it has still been perceived as the safest place for people around the world to place their money. But a strange thing has been taking place since about mid December. While the dollar has continued to gain strength, gold has been gaining against the dollar.

Whether this is the beginning of the end of the post-Breton Woods system remains to be seen. It may not pay to bet totally against the dollar, because as Dr. McHugh points out, the U.S. still has the strongest military in the world. On the other hand, as Russia’s Putin pointed out, if the U.S. places sanctions against Russia (who along with his Chinese and Indian partners know that gold is the ultimate money), the sanctions will boomerang against the U.S. Whether growing market turmoil is what Mr. Putin was talking about or not is up for debate. But one thing that does seem rather certain for now is that gold, and even more so gold stocks, have started a significant move higher.

Regarding gold stocks, the fundamentals have been getting better by the day. Check out the following charts of Gold/Rogers Fund and Gold/Oil. With this, operating margins for gold mining companies should be on the rise and so should our gold stocks.

The Real Price of Gold is Rising Dramatically

You can see from the charts above that gold has over the past couple of months begun a huge run up in its purchasing power of commodities. An ounce of gold has risen from about 35% of the Rogers fund to 45%. That’s a 28.5% rise in just a few months. It is even more pronounced in terms of oil. Gold now buys 25 barrels of oil compared to 12.5 in the middle of last summer. In the past, including 2008-09 that has resulted in a substantial gain in the profits of gold miners. I expect the same should happen in 2015 and beyond.

Source: Jay Taylor Media