In January, of 1980, I bought a new motorcycle. I lived in Phoenix at the time. In January, Phoenix is full of “snowbirds,” who come from northern climes, to bask in the warm weather and sun. Traffic can be really hellish during Phoenix winters, so I decided to buy a motorcycle, to get around quickly. Besides, bikes are fun. I have two now. I was whizzing around Phoenix, and having a ball. I stopped at a drug store at 20th and Thomas, locked the bike, and went in to buy something. A few minutes later, I came out, and the bike was gone. Stolen that fast! Thieves must have come up in a pickup, and a couple of them hoisted it up on the bed, and took off. I never saw it again. 1500 bucks down the drain. I still have the title.
What does this have to do with the price of gold? A lot, because there is an apt comparison here. My motorcycle is gone, but I still have the title, so if I wanted to do so, on a financial statement, I could show that I own that motorcycle. Here’s the title. Doesn’t that prove ownership? The fact that the motorcycle has long ago been either cut up, or serial numbers changed and re-sold, makes no difference, as I still have official ownership of that motorcycle.
Various governments around the world, claim to “own” 32,000 tons of gold. Most experts say this is in error by 50%, and that half of it is missing. Where did it go? It was leased, for probably 1% interest. In other words, the “title” to the gold is still on the books, even though the gold is gone. Since it is “leased,” it is still owned by those governments, technically. Just like I still “own” my motorcycle? Why do governments sell or lease gold? Because it “pays no interest.” The outfits which leased it, and are paying the governments 1% interest, are obligated to return the gold. Not in dollars, but ounces borrowed. If the borrowers can keep the price down, they can repay their loans at a much lower cost. Long ago, the borrowers sold the gold, and took the dollars they got for it, and probably invested it at maybe 5%. A 4% profit, unless gold goes up. If the price of gold goes up, because of the simple fact of their being a 50% shortfall between consumption and production, the borrowers are in trouble. How can they keep the price down, so they can repay their loans? By borrowing and selling more, as I mentioned in a column a couple of weeks ago, under the title of “Rag Babies,” (which can be obtained at the end of this, by clicking on other columns of mine). If there is a huge sale of carrots, because carrot producers had a banner year, the price of carrots will go down. Same with gold. One other way, is to manipulate the futures market, by selling non existent gold short and long, to keep the price down. Government will undoubtedly cooperate with the borrowers, to aid them in repayment, even if they actually have to sell more of theirs, to keep the price down. Government selling more to keep gold prices lower accomplishes making their paper money look great, and gold appearing to be stuck in the mud. Both are incorrect.
If a carrot grower sells all his carrots at a low price, because he produced too many, and then a sudden demand for carrots appears, the price for carrots will go way up, till the demand is met. “When the demand is met,” means that the price becomes so high, that either no one wants carrots at a high price, or more people start growing carrots. Gold can be compared in a similar manner. If the price goes up, more latent mines will re-open, supplying demand. Simultaneously, as gold goes up in dollars, the demand also goes up, a-la-the NASDAQ. The higher it goes, the more people want it. If something additional happens, to make gold even more in demand, perhaps from a war, or trillions of paper dollars flooding the world, causing everything to “go up,” and causing fear in consumer minds, they may want gold to protect themselves. Whatever the cause, the fact remains, that half of the claimed gold reserves are gone, and in individual hands, in the form of Gold Eagles, Mex 50’s, Krugerrands, Kilo bars, jewelry, or whatever. Governments do not have it. Only claims for it, even though it is long gone, a-la my motorcycle.
There’s no question but that governments are selling gold and leasing continually, and many nations have none left at all. I question whether America has any, other than storing it for others, or lease documents. England was selling theirs at 25 tons at a crack until last year, when public outcry stopped it. Selling and leasing gold, is a tightly guarded secret. If the sales were widely publicized, it would degrade the various fiat currencies. Gold is the avid enemy of paper money, and paper money is what makes the world go ’round, even though it is a total fraud. Dealings in pieces of paper with ink on them, for real, tangible items, is imperative, but not a legitimate value for value trade. When worthless scrip is used as a trading vehicle for valuable things, the system may collapse eventually. If collapse occurs, as it already has by 98%, we can hope the finale is gradual, not sudden. This is why I am in business, to take the gold out of borrowers’ and government’s hands, and to place it in yours and mine. So far, this is a gradual process, but its final results are inevitable. If you honestly believe that an unbacked piece of paper, with ink artistically imprimatured on it, has actual value, then keep them, and be happy. Or if you think the stock market with P/E/ ratios of 35 to 1 is healthy, go to it.
Either the gold will be replaced, or the leases will be forfeited. If the gold, all 16,000 tons of it, is replaced, by the time it is back in government vaults, its price could be in the thousands of dollars per ounce. With gold priced at thousands of dollars per ounce, there will be an economic debacle, the likes of which the world has never seen. If the leases are forgiven, and dollars accepted for the missing gold, governments will have to admit they have nothing of value to cover their haughty claims, and this could cause paper currencies to plummet, and prices of everything to rise quickly. The best thing governments can do, is to take repayment of the leases as a slow process, allowing the borrowers to manipulate, and buy on the cheap, so it isn’t too painful. It’s already painful, with gold at $325, because most of it was probably borrowed in the $250 area.
We then have the inflation situation, which could very well become alarming, due to the trillions of dollars in sheer waste, causing dollar presses and check printers to work night and day. None of the above, make owning or buying gold, a poor idea. Who knows what will happen tomorrow? No one really, but I am convinced that asset storage in non-tangibles is foolish, and gold happens to be a really compact way to store wealth, which is universally known, loved, and desired. Silver is the poor man’s gold it is said, but I believe it’s future is equally excellent, and possibly even brighter than gold.
Government claims about gold in their vaults, is as fraudulent as my motorcycle title, which places that bike in my garage. Neither existÂ…except on paper. Protect yourself.