The Role of Gold in the Future of the Global Economy
The bear market in the U.S. Dollar is obviously accelerating with each passing day, prices are moving up across the board as the freshly created money increasingly pours into the market for hard assets such as commodities.
Indeed, at the extreme end of possibilities, most of today’s prognosticators believe in one of two potential outcomes:
- The dollar collapses into complete oblivion, the United States dis-integrates, anarchy takes hold and society as we know it ceases, bringing about a dark age of chaos and upheaval.
- Everything stays about the same, the markets recover in the near future, the economy begins recovery by 2009, and people continue to go further and further into debt; all remains well in the Goldilocks economy, where consequences never befall those who are irresponsible.
My research into these matters indicates that neither of these scenarios are likely, though it wouldn’t hurt to be prepared, at all times, for the first scenario, in case the system does end up coming apart.
During the course of my studies I have come across a brilliant solution, which, after another 30% slide in the dollar, the U.S. Dollar resumes its role as the reserve currency for the planet Earth, but with a modernized and revitalized Gold Certificate Ratio to regulate it, instead of edict-driven interest rate fluctuations.
This Gold Certificate Ratio is not the same as the direct Gold Convertability that we hear about our great grandfathers using in the early 20th century.
Instead of fixing the price of gold to a set rate, or price range, the modernized Gold Certificate Ratio merely employs Gold to balance the balance sheet of the United States.
In the early 1980’s, Gold shot up to $887.50 then fell for over a decade to $248. The $887.50 level is precisely the point at which the Gold held in reserves of United States Treasury balanced out the U.S. Current Account.
At this point of balance, the common stock of United States (U.S. Dollar) was again seen as a viable investment, so the world’s central banks and wealthy elite re-vested into the dollar.
The same thing is on its way to happening in the current generation. Given the level of the U.S. Current Account Deficit, Jim Sinclair believes that we will see gold move to a minimum price objective of $1,650 and the U.S. Dollar Index (USDX) would move to .52.
At this point, it would become imperative for the monetary powers of the Federal Reserve to hold the balance sheet at a state of equilibrium, ensuring prosperity and stability for, at the very least, several generations into the future.
Aside from a 3% M3 growth allowance, to keep up with population growth, any amount of new monetary liquidity created (as measured by the M3 money supply figure) will have to be balanced by the value of gold in the reserves of the U.S. Treasury.
So if the Fed creates 5% more money in a year, the value of Gold will have to rise by 2% (5% minus 3%) or they will have to buy an equivalent amount of gold to hold in reserve.
This being the case, all monetary creation will quickly be balanced out, by either gold purchases or a rise in the price of Gold. This new policy will facilitate international trade and restore confidence in the financial status of the United States.
Sinclair estimates that, due to a peak in a crop cycle, which is likely to effect the price of food crops; we will see the peak in the gold price by February of the year 2011.
The following is a compilation of Jim Sinclair’s from writings going back from 2003 to present.
Connecting the Golden Dots
source: Jim Sinclair’s Mine Set
It makes the following points:
1. The answer is looking you right in the face if you have the eyes to see it.
2. One needs only to connect the dots to understand what is happening behind the scenes regarding gold price drama.
3. We take for granted that there must be a buyer on the other side of the gold hedges but never ask ourselves who that buyer or buyers are. For every short in any arrangement there has to be a long.
4. By reading the last article written below you will begin to see a pattern forming.
5. This pattern is nothing short of brilliant.
6. A pattern is the connection of the various dots.
7. All these dots point to a single corporate source.
8. That corporate source is an immensely wealthy entity which is not a gold producer nor in any way in the gold business.
9. When major producers deliver against their short of gold hedges it will represent sales by the producers at the largest possible discount; that sale price being between $300 and $400.
10. Gold is now and has been in many ways accumulated by just those that you point your finger at as anti-gold entities and people.
11. By studying the Ashanti case study you will see how the long side of a derivative can be settled in common shares with the losing entity ending up in control of the company and therefore the production.
12 This influence as a product of derivatives will control world production and hold the largest gold position
Therefore when gold reaches whatever its high side potential is the size of the position precludes any liquidation. By the following method gold will trade closely (within $50 to $200) around the figure it was trading at when the installation of a new Revitalized and Modernized Federal Reserve Gold Certificate ratio occurs.
13. This will not represent gold convertibility.
14. This will not be as the previous entity of the same name connects to automatic increases or decreases of interest rates.
15. This will be attached to a measure total liquidity.
16. Should liquidity rise the price must also rise to meet the liquidity level so as to balance to some degree the balance sheet of the USA.
17. In all likelihood the Fed and the Treasury will never have to do anything as the market will speculate via some listed vehicle on the rise and fall of liquidity and therefore the gold price. The US dollar will end its bear market the day this mechanism is put in place, most likely at USDX .5200
18. The bottom line answer to the question, “WHAT COMES NEXT” is there will be nothing to do but enjoy your profits as gold will not crash after reaching its maximum but trade closely around it according to liquidity increases or decreases.
Those that know this have been the major buyers on every reaction as the community panics. The gold shares, most certainly juniors that are not the target for control that TODAY are being thrown out the window, will enjoy a level of prosperity that they never even dreamed of.
Please keep in mind as you read this that it was written as early as 2003 and as recently as last week.
What Comes Next:
Here is where the circumstances change. I doubt you will have a repeat of 1980 wherein gold began its return to commodity valuation and declined in stages from $887.50 to $248.
You have to realize that in the age of Authoritarian Free Enterprise, a PPT and a more active Exchange Stabilization Fund, circumstances will change.
If you, as I do, assume all major markets are creations of the unseen dirty hand, it follows that when gold reaches the characteristic mentioned above that the unseen hand would have most all the capital there is to have. That capital due to the nature of the beasts will be paper assets. The time will have come to protect that value.
Gold has always functioned primarily as a CONTROL item and convertibility is simply impossible. It is too inefficient to settle world trade without causing serious difficulties regardless of the price.
Gold would again function as a control item in the US dollar in the form of a revitalized, modernized Federal Reserve Gold Certificate Ratio tied to a measure of international liquidity as measured by the ounces of gold held by the USA times the price of gold equaling the market value of the international central bank’s holding of US Treasuries. In the 1930 this item was tied to an automatic adjustment of interest rates practical then and totally impractical now.
It stands to reason that those with most of the US dollars would wish to start a dollar bull market to profit even more. Control over desires is not a virtue at the Bilderberger Hotel.
Further explanation of the construction and function of the Federal Reserve Gold Certificate Ratio can be found in the following missives:
More on the Federal Reserve Gold Certificate Total Value Ratio
(Originally posted Wednesday, May 28, 2003, 6:05:00 PM EST)
Author: Jim Sinclair
Q: Regarding the “Federal Reserve Gold Certificate Total Value Ratio” discussed recently on your web site.
If I understand you right, the US government is to rescue the dollar by promising to limit their issuance of dollars based on the amount of Treasury gold.
This is supposed to be some form of limited, modified gold standard. They never allow an audit of the physical gold said to be on hand. Even if the number of bars were counted, how would we know whom it really belonged to? Doesn’t this make any such revived “gold standard” rescue attempt meaningless?
A: No it does not because there never will be an audit and 98% of the world will take whatever the Treasury says as gospel. Look at yesterday’s rally in equities because each of those buyers believed what the government is saying.
Q: Whatever the ratio of dollars to gold which they promise to adhere to, what is to prevent them from later incrementally changing that ratio as has been done in the past? Doesn’t this make any such revived “gold standard” rescue attempt meaningless?
A: Yes, that is possible. But a rescue for the dollar most likely in these terms will come if the two tax cuts, a war, the rebuilding of Iraq by US companies, and the spending of all allocated funds fails to deliver the economic conditions required for reelection of the present administration.
Q: If I understand you correctly, there would be no actual re-deemability of US dollars for gold. This is like a mortgage, which cannot be foreclosed. Doesn’t this make any such revived “gold standard” rescue attempt meaningless?
A: That is correct. It is a balance sheet fix for a balance sheet problem and will work for some time if adopted.
Q: In short, how is this smoke and mirrors gold standard going to add any credibility to the dollar since it will depend entirely on confidence in the US government, which is exactly what has caused the problem?
A: Smoke and mirrors are what cause markets to occur. I comment on what I see coming. Nobody wants to hear me pontificate on what I think is correct. I am here to tell you what I see coming, not what I think should be coming.
If a modernized Federal Reserve Gold Certificate Ratio is adopted, gold will trade $100 above and below the gold price of that day, be it $1000, $1650 or some other price. The US Treasury will not have to do anything, as derivatives will first be listed to wager on this change thereby changing the gold price itself.
Like a company coming out of bankruptcy with a balance sheet balanced and some mechanism to permanently control that situation, the US dollar as the common share of USA Inc. will enter a long-term bull market.
Here is where Gold and Silver disconnect in direction. Silver goes up like a rocket and down like a rocket. Gold goes up like a rocket and stays there.
Gold and Dollar Market Summary
(Originally posted Thursday, June 09, 2005, 7:54:00 PM EST)
Author: Jim Sinclair
In five to ten years Henny Penny can fall from the sky! But let me give you an alternative scenario to the recent statements made at the Reuter’s Mining Summit about the dollar and its relationship to gold.
The Advent of and Application of a Modernized, Revitalized, Federal Reserve Gold Certificate Ratio.
How Gold Re-enters the US Dollar Equation.
1. The dollar again enters a full-blown bear market as a product of its deteriorating internal fundamentals.
2. The march into the new system of Authoritarian Free Enterprise continues as a result of all the measures being adopted and reinforced to combat terrorism – perceived or otherwise.
3. There comes a point in the dollar decline that the public will support draconian measures as they are reassured by eminent authority and political consensus that this is the correct system fix.
4. At this point, major wealth reassumes a long dollar position.
5. There are two key items in the draconian plans, the first of which is the significant reduction of Federal entitlement spending for the common benefit of all. This is intended to stabilize the US Federal Budget deficits and save the dollar, thereby creating jobs and improving the US and global economic system. That is the spin. Authoritarian Free Enterprise favors the authority of commerce and not the common good. This is when policy changes will occur, the deficits will come into balance and the US dollar will enter a bullish period.
6. In the second move, gold enters the picture. Gold convertibility is not what will occur and the Gold Community will not be pleased by the role gold will play. Gold is coming back into the system not at the pleasure of present gold advocates but at the pleasure of the masters of the global economy.
Gold will function as a control item for the US dollar. Convertibility is simply too automatic and too cumbersome for the barons of commerce. Gold’s role, however, as a barometer and control item will be seized in the form of a modernized, revitalized Federal Reserve Gold Certificate Ratio.
Gold will be tied to levels of international dollar liquidity measured by the outstanding US debt in the hands of non-US entities. This is another view of the cumulative affect of the US Current Account.
Assuming the unfortunate event that the price of gold closes any day at the end of the open outcry session of the COMEX (simply as a point of measure) 3% above the $518 – $529 price level it can be considered having moved out of a normal bull market into a run away market. That run away situation would be the signal that gold has assumed its traditional role in attempting to balance the international balance sheet of the USA.
That is another way to say that the value of the gold held by the US Treasury would be at a market price that would when computed be equal to the amount of US Treasuries held by non-US entities calculated at par or 100 cents to the dollar issue price. That situation would be the balanced position of assets versus liabilities for the US dollar internationally.
That price then is recognized internationally by central banks and all gold is revalued on their respective balance sheets to this market price. By this means, the US Current Account now becomes the means by which the US Treasury must increase their gold position if the price of gold times the gold held by the US Treasury (Gold Certificates) is below the level of value at par times all the US Federal paper held by non US entities.
This is modernized because it is not like the old Federal Reserve Gold Certificate Ratio that was tied directly to the cost of money. It is revitalized because it moves to maintain the balance of the international balance sheet of the USA Inc.
Such a condition for a corporation is conducive to acceptance of its common shares. Such a condition by a country is conducive to the value of its common share namely its own currency. Thus, the old outdated and impractical US Federal Gold Certificate Ratio becomes modernized and revitalized.
If the holdings of US Federal paper dropped internationally, the US Treasury could stand pat or sell gold.
There is no question that instruments of speculation would immediately appear, allowing the market to place bets on the state of the US current Account, marking the price of gold to the assumed level thereby relieving the US Treasury of having to do anything at all but watch as the market keeps the US international balance sheet in balance for them.
The gold people would be quite pleased with the price of gold and quite displeased when they recognize whom it protects. However, the system of Authoritarian Free enterprise with a sound US dollar controlled by gold – not convertible but as a control item of US creation of international liquidity – would guarantee the dollar’s viability for generations to come.
It would reinstate a one-alarm system and that alarm would be turned off immediately in the marketplace or by the US Treasury at will.
The action of the marketplace or by the US Treasury would – if liquidity were created – assure that the balance sheet of the USA was always in balance.
The fix as predicted as the Reuters Mining Summit. That can only happen for short to the problem is a balance sheet fix and not a fix that gold convertibility will have any place in.
Dear CIGAS (Comrades In Golden Arms),
(Originally posted April 2006)
In answer to many inquiries, this time after gold has maximized its potential on the upside, it will not fall as it did in 1980. Actually it will stay within a range at the high level as now a fulcrum point wherein gold rises slightly above and slightly below due to the increase and decrease of “International Liquidity.” This is the Federal Reserve Gold Certificate Ratio, modernized and revitalized. That will be the point of the low in the US dollar decline, which I see at .5200
What you need to understand is the gold market is not the bastion of you and I, but of the establishment in the disguise of the buy side of the short of gold over the counter derivatives. This is what Chung Phat and Dr. No knew when I used to tell you about their activities in 2002 and beyond.
The buy side of the OTC short of gold derivative, which becomes the lender to the producer at the end of the day, takes stock in one manner or the other as the producer simply cannot pay the cash owed. Just have your accountants look at what I outlined to you yesterday. You will see I am absolutely CORRECT. Therefore, the OTC short of gold derivative grantor has always known that their play was not for the profit on the transaction, but to be the majority stockholders of the major gold producers. How can you really believe that they will wish the price of gold significantly lower when there is a tool out there to both hold gold up and stop a dollar debacle, all in one.
It will not cost the Fed or US Treasury anything at all because the market will trade gold as if there was to be a costly move, thereby removing the need to act. It is like the method the PPT uses to control the general equities via the equity indices.
Just review the case studies of any of the companies that have run into derivative problems and you will see exactly what I am telling you is already occurring where control of the producers by dilution as a result of losses on OTC short of gold derivatives are concerned. Simply look at the few reports on who was on the other side of the Ashanti situation, since as it was a clear giveaway. Now there is silence on which the creditors are as a product of the loss developed by the close of the OTC derivative short of gold.
As such you can forget the talk of any action that would, like in the 30s, make holding gold or gold profits illegal or taxed to death.[emphasis by me]
Let’s go back to late 2002 to review the Modernized and Revitalized Federal Reserve Gold Certificate Ratio and how it will hold gold at prices at and near $1650 while establishing the low in the US dollar, probably by late 2011.
Follow the dots
(Originally posted February 2008)
There is an axiomatic truth in defining society, “The Structure of Power is Pyramidal.” What that means is that as your position of power rises in human society there are less people with more power above you until you reach the top where there is but one person in control of all below.
That person and the first two levels below are unknown. Conspiracy theory comes from a less than perfect observation of what is simply natural. All food chains have a top dog, not top dogs.
Many inquired why I said 30 dollars lower that ABX would consolidate the gold field and not suffer from its short of gold position until much later on. The reason is simple. The highest level of the “Pyramid of Power” is the long side of those short sales, which are extremely close via agents to ABX.
In the final analysis ABX will have obtained all the production that can be achieved then it will be watered down as per the Ashanti case. I doubt any present stockholders will care because with gold trading at or above $1650 the price of ABX will be in the stratosphere. The then stockholders of ABX’s hit will be light compared to Ashanti.
The point I am trying to bring home to you clearly, directly and not between the lines is that those you blame for today’s most uncomfortable Western world economic conditions and the derivative disaster that is only starting are those that run these people and have long positions in most gold hedges. As unnamed international stockholders owning the majority of ABX shares, they will control ABX who in turn will control all the available gold production by acquisition.
That fact is by itself all you need to know in order to have the courage to step up to bat in every decline in the gold price is scale buying after having sold some on every Rhino horn. That is all you need to know in order to sit tight with your gold and gold share investments, knowing that just those in the highest position in the pyramid of power are those who have the largest position in physical gold and have a strategy in place and operations to control gold production going forward from 2011.
This is all you need to know in order to understand that gold will not collapse as was evident from 1980 to 2001.
I will review well ahead of time the mechanism that will assure gold remains trading in price around its final high, not significantly lower. It is not convertibility, nor the gold cover clause as previously structured. It is this that makes the business of precious metals and the companies therein excellent investments, even though today you are screaming bloody murder.
Remember when gold was just going through $300 and $400, you heard from me about Chung Phat and Dr. No? Well they are real people.
Check the honorary directorship of ABX then hunt all the boards they are presently serving on after which you will need oxygen.
This is just one of the many reasons that the present action in gold, today off about $30 from the top, is nothing but noise on the way to $1650 and probably above.
Of course those that believe TA is the sole determinant of the direction of anything will be screaming against gold this weekend. They forget that major interest can paint the charts of a market as tiny as gold with the greatest of ease.