Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

Gold Seeker Weekly Wrap-Up: Gold and Silver Fall About 2% on the Week
By: Chris Mullen, Gold Seeker Report

COT Gold, Silver and US Dollar Index Report - October 20, 2017
By: GoldSeek.com

Ira Epstein's Metals Video 10 20 2017
By: Ira Epstein

Possibly the Most Important Thing About Gold You’ll Read All Year
By: Marin Katusa

Why central banks disagree with Gary North about gold
By: Chris Powell

Silver Stocks Comatose
By: Adam Hamilton, CPA

GoldSeek Radio Nugget: Harry S. Dent Jr. and Chris Waltzek
By: radio.GoldSeek.com

Leveraging Gold and Silver
By: James Turk

The Productivity Myth
By: Alasdair Macleod

Calm Before The Storm
By: Peter Schiff

 
Search

GoldSeek Web

 
The Great Gold Redemption



-- Posted Thursday, 2 May 2013 | | Disqus

The most puzzling part of the investment business is seeing how the vast and largely economically illiterate masses interpret any given piece of news. Take the recent gold selloff: many large players were motivated to sell by news that Cyprus will have to liquidate its gold stockpiles to pay off acute debt obligations. But just a moment's reflection shows this reaction to be knee-jerk.


The real story behind Cyprus' deal has much more profound ramifications - and they are positive for gold.

The Right Lens

The reaction to Cyprus' forced gold sale re-affirms my belief that most Western investors remain in a state of extreme anxiety. This leaves no room for the kind of nuanced analysis that leads to wise long-term investment decisions.

The important point is not that Cyprus has to sell €400 million worth of its gold reserves, but rather the circumstances of the sale and the potential buyers that will emerge.

Gold Demanded, Not Divested

After all, this isn't a strategic investment decision by the Central Bank of Cyprus to divest itself of the yellow metal. In fact, local officials have gone on record saying any gold liquidation is a last resort. Cyprus wants to keep its gold - as has every nation in the West since the fiat money system started breaking down in the mid-2000s.

The only reason a gold sale is being proposed is that Cyprus finds itself at the height of its sovereign debt collapse. It has a long line of creditors but scant capital to pay them back. Gold is among the island nation's only liquid assets available to be repossessed. This is, in fact, a ringing endorsement of the enduring value of gold when a banking system disintegrates.

Won't Hit the Market

Still, some may be concerned about the price effects of gold sales by sovereigns. After all, Cyprus is just the tip of the iceberg. Lower down, the iceberg contains many European nations that are well-stocked with gold but that have debts orders of magnitude more hefty than Cyprus, e.g. Italy, France, Portugal, and Spain.

Again, when viewed correctly, this reality is at worst neutral for gold investors.

When a sovereign is forced to sell its gold, the reason is to pay other sovereign creditors. With regard to the spot price and global marketplace for the metal, that sale is "off the books." It merely cancels some IOUs, and the gold is shifted between central banks. It is not that this transaction has no market effects, but at the end of the day, the impact on gold's trading price is minimal.

Redemption

While Cyprus' payments to its European creditors is unlikely to change the fundamental landscape for gold, it represents a coming trend that will reshape everything we take for granted.

A legacy of its former wealth, the developed world is gold-rich and capital-poor. Emerging markets are in the opposite position. As I have long explained, we are undergoing a prolonged foreclosure by the emerging markets (centered on China) on the developed world (centered on the US). Greece, Cyprus, Ireland, Iceland... these are the marginal cases that are the first movements in what will be a global realignment of the remaining Western capital to the East.

China and its cohorts have a pile of IOUs, and the Western nations have a pile of gold. As push comes to shove and the ongoing Eastern shift into hard assets translates into spiking interest rates and runaway asset prices in the West, the Western governments' reserves will quickly become illiquid; in other words, they'll be about as desirable as Greek government bonds are today. If history is any indicator, Eastern governments may continue to offer lifelines - but they will demand collateral that can't be devalued. As Western governments inevitably continue their profligacy, the loans will be called and the gold stockpiles will board ships across the Pacific.

Renaissance

This entire process of breakdown and redemption will serve as a first-hand lesson in the enduring value of the yellow metal. And, at its conclusion, the nations with the capital will also be the ones with large gold stockpiles. 

This bodes well for the price of gold. As bullion moves from weak hands to strong, the odds of Cypriot gold seeing the light of day again in our lifetimes are slim. Wealthy creditor nations have the resources to protect their gold. Bankrupt debtor nations do not.

It also bodes well for the re-monetization of the precious metals. Larger gold reserves will give Eastern nations the confidence they need to finally abandon the US dollar-based reserve system and put their currencies on a sounder footing.

Cyprus, Greece, et al. might be foreign countries, but their problems are exactly the same as those facing the US. The key difference is that the US is in a unique position to prolong and exacerbate its debt situation until it faces the largest sovereign debt collapse in human history. With the US dollar at the center of the global money system, I expect that this will shake confidence in fiat currencies for generations to come.

The Long View

Fair-weather investors in gold jump at the first sign of turbulence because they do not have a clear concept of the monetary transformation that is taking place. They see other gold investors as greater fools who they must beat to the safety of US dollars when the music stops. Fortunately for those who know better, these momentary panics allow us to buy their gold at steep discounts.

Many of you are aware of this already. Our phones at Euro Pacific Precious Metals have been ringing off the hooks, especially given our new products on offer.

So the fools sell on news of Cyprus, while the rest of us see it as the kickoff of a historic Great Redemption of gold from West to East.

 

Peter Schiff is CEO of Euro Pacific Precious Metals, a gold and silver dealer selling reputable, well-known bullion coins and bars at competitive prices. 

Click here for a free subscription to Peter Schiff's Gold Letter, a monthly newsletter featuring the latest gold and silver market analysis from Peter Schiff, Casey Research, and other leading experts. 

And now, investors can stay up-to-the-minute on precious metals news and Peter's latest thoughts by visiting Peter Schiff's Official Gold Blog.


-- Posted Thursday, 2 May 2013 | Digg This Article | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2017



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.