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Kong Sez

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The Barbarous Relic

Gold !

Kong Sez:

    And now, Time magazine has just run an article on Gold. When you see the media suddenly interested in what was called a "Barbarous Relic," as a top economist (Keynes) named it years ago, and everyone picked up on it, especially big banking interests, and said "Cash was Trash"...along with the "Barbarous Relic," this is a Sign of The Times we are not far from our financial ruin.

    Keynesians believe in inflating a country's way out of trouble; Austrian economists feel the market should be allowed to find itself. By not using the latter, but the former, is why the world is in such financial trouble—it will only get worse. Ron Paul is of the Austrian thought.

    It has taken years to get faith restored that "Gold is a store of value!" The problem, as regular readers of ChembioUpdate Web Site over the years know, is that most—practically all peoples living today on Planet Earth—do not know how to use Gold when the time comes.

    The U.S. Government had plans to implement Gold usage again, if everything went down at the turn of the century by having the American military be paid in Gold coins and possibly other weighted bullions. They would spread the "currency" throughout the country by spending the gold in exchange for goods and services. The citizenry would gradually learn what Gold is and its buying power. However, bankers object to this because they cannot play the games with money as they do with digits, zeros and ones, and inflate the currency when Gold is in use. Furthermore, Gold serves as an indicator as to the health of the economy when the country is on and uses the Gold as a standard.

    Even economic historian, Dr. Gary North, Ph.D., was amazed at the Time running this article. This is what he has to say:

Can This Be Happening?
A Pro-Gold Article in a Major Outlet
Of The Mainstream Media
Gary North
Nov. 2, 2009

This is simply amazing. Time has run what is basically a pro-gold article on gold as part of a central bank's portfolio as a replacement of dollars. The article is here.

It begins well. "Gold, that barbarous relic, is having a thoroughly modern moment in the spotlight." It ends well. "Gold is looking less barbarous than the alternatives."

What is going on here? A loss of faith. This has taken since 1933 to accomplish. The article targets 1971, not 1933.

And for the first time since 1971, when U.S. President Richard Nixon unilaterally yanked the world off the gold standard, gold is also attracting interest from a crowd that usually doesn't pay it much heed: the world's central bankers.

What's going on? Part of it is the fact that "gold's gyrations are the Dow Jones index of anxiety," as this magazine put it three decades ago amid the last big gold fever. When investors are scared -- about inflation, about political turmoil, about financial breakdown -- they return to the soft, shiny metal that has for millennia served as a store of value. When things calm down, as they did after the gold price peaked in 1980 at $850, demand for gold subsides and the price declines. (See pictures of modern day gold prospectors.)

But there is more to gold's current boom than just a flight to safety. The metal is showing signs of a more sustained run at respectability. So while its price will at some point stop going up (and start going down), don't count on another descent into seeming irrelevance, as occurred in the 1980s and '90s. That's because of changes in the mechanics of investing in gold and the weaknesses of the current gold-free international monetary system.

The article then points out that there are digital ways to invest today. You don't need to take delivery of physical gold. This is correct. The gold market is broadening. This is a big deal. Why? Because this market was a thin market. Now newcomers are entering. This bids up the price of gold.

This process is in the early stages.

It used to be that to buy gold you had to actually buy gold. In 2003, I went to Manhattan's 47th Street jewelry district to purchase a few hundred dollars in gold coins. When informed that I had to pay cash, I left and never made it back. Dumb move, I know, but indicative of the less-than-investor-friendly ways of the business.

He did not know where to buy gold coins. Fact: hardly anyone does. Except for Investment Rarities, they are still mom-and-pop operations.

Now you can invest in an ETF or an Amex-listed firm like CEF or GTU.

One could buy stock in gold-mining companies, but that added a layer of volatility and risk. Since 2004, however, it's been possible -- through exchange-traded funds (ETFs) -- to effectively own gold without the hassle of actually owning it. Gold is now something you can hold in a portfolio, like any financial asset. Lots of investors have chosen to do so. The SPDR Gold Shares ETF has assets of $40 billion, and similar ETFs around the world have another $10 billion. Then he offers a warning -- a warning based on the price of gold under price controls: the pseudo gold standard known as the gold exchange standard. It ended on August 15, 1971.

The price of gold in dollars has more than quadrupled since the end of the long gold bear market in April 2001, but over the long run the return has averaged about 2% a year, says George Milling-Stanley, managing director for government affairs at the World Gold Council in New York. (That compares with about 8% for stocks.) It's less a ticket to riches than what Milling-Stanley calls an "insurance policy." Many of the commodity investors who have recently piled into gold are looking for big gains, not insurance, and their involvement may guarantee that gold's price will be driven too high and then crash.

Then he added this: "But waiting in the wings is another set of market players who are likely to have more staying power: the central bankers."

That will make a huge difference. He does not say this, but this reverses three decades of central bank policy. They are going public with their purchases. They have always announced gold sales and have remained silent about gold purchases.

He traces the history of the post-1971 monetary system. It placed the dollar at the center. Now the center is breaking down.

"Gold is the one currency a central bank can't print," says Martin Murenbeeld, a veteran gold watcher who is chief economist for Canadian money-management firm DundeeWealth. Gold's big attraction as a pillar of the global monetary system is that it isn't beholden to national politics. The downside is that its supply increases fitfully, with no regard for the state of the world economy.

That's why John Maynard Keynes called the gold standard a "barbarous relic," and why you won't find anyone outside the goldbug fringe calling for a full return to the gold standard now. But a partial return, in which central banks hold gold as a hedge against financial turmoil (the Bank of India just bought $6.7 billion of the stuff from the International Monetary Fund) and gold begins to play a role in the pricing of oil and other important monetary tasks, may well be in the cards. Gold is looking less barbarous than the alternatives.

It's not just Time that is shifting public opinion. It is beginning to happen in Great Britain, too. Click here. My view: The public will never see any of the IMF's gold. The public will have to buy gold from existing holders or producers.

Central banks buy gold. They do not buy silver. This has placed a floor under gold.

An article like this is a trial balloon. It tests the opinion of the readers. The readers are middle class and maybe upper middle class.

I think this balloon will fly.

We are at the beginning of a log change of opinion. This is a white flag in the Establishment's war on gold. It is a temporary truce. The war is not over. But the defenders of fiat money have begun to move into defensive mode.

I have waited to see this since 1963. It sure feels good.

Kong Sez:

    Folks! The Yellow Stuff is Disappearing...Get Some of the "barbarous relic," If You Can.

    Dr. "B" reminds us: "Gold and Silver is the money of the Bible."

[Ben Bernanke Shrank The Dollar!]

And While I'm At It, I will Explode Gold To The Moon!

[Gold Bars]


    Incidently...Dr. "B" cautions me, and I am passing it on to you. "Get a hand–cranked grain mill!" By now folks, you know why:

[Grain Mill]

When Violence Strikes, Women Are Always A Target

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