LIVE Gold Prices $  | E-Mail Subscriptions | Update GoldSeek | GoldSeek Radio 

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

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

GoldSeek.com to Launch New Website
By: GoldSeek.com

Is Gold Price Action Warning Of Imminent Monetary Collapse Part 2?
By: Hubert Moolman

Gold and Silver Are Just Getting Started
By: Frank Holmes, US Funds

Silver Makes High Wave Candle at Target – Here’s What to Expect…
By: Clive Maund

Gold Blows Through Upside Resistance - The Chase Is On
By: Avi Gilburt

U.S. Mint To Reduce Gold & Silver Eagle Production Over The Next 12-18 Months
By: Steve St. Angelo, SRSrocco Report

Gold's sharp rise throws Financial Times into an erroneous sulk
By: Chris Powell, GATA

Precious Metals Update Video: Gold's unusual strength
By: Ira Epstein

Asian Metals Market Update: July-29-2020
By: Chintan Karnani, Insignia Consultants

Gold's rise is a 'mystery' because journalism always fails to pursue it
By: Chris Powell, GATA

 
Search

GoldSeek Web

 
Price Gap Portends Gold Price Boom

By: John Browne
Senior Market Strategist, Euro Pacific Capital, Inc.


-- Posted Thursday, 15 January 2009 | Digg This ArticleDigg It! | Source: GoldSeek.com

Most consider the New York market ‘spot’ price for an accurate indication of the true price.  However, investors now buying buy physical or ‘fabricated’ gold, are paying a premium of between $20 and $30 per ounce.  When these gaps existed in the past, major increases in the price of gold were imminent.

 

For much of the 20th Century, gold continuously defied global government efforts to restrain its price.  The premium currently in place may be evidence of the latest round of such policies. 

 

In 1934, President Roosevelt devalued the U.S. dollar by some 75 percent by raising the official price of gold from $20 to $35 an ounce.  This opened the door to the first great wave of inflation of the 20th Century. Following World War II, national governments, particularly the American Treasury, held the vast bulk of the free world’s gold.  The official $35 price was maintained, almost by official dictate.

 

However, in the 1960’s, a ‘free’ market gradually developed that traded gold at a premium to the official $35 price.  In response, the London Gold Pool, a central bankers’ gentlemen’s agreement led by the Bank of England and the New York Fed, was established to hold the so-called ‘free’ market price of gold “to more appropriate levels” … to “avoid unnecessary and disturbing fluctuations in price” which could erode “public confidence in the existing international monetary structure.”   The agreement lasted until 1968. Thereafter, the price of gold was set solely by the free market.  

 

As the inflationary financing of the Vietnam War began to filter into the international economy, private investors and nations with trade surpluses began to buy gold to protect their wealth.  The ‘free’ market price began to soar above $35 an ounce.  Far from reducing the demand for gold, as many esteemed Keynesian economists had predicted, this free market price increased the demand for gold.

 

Surplus nations demanded gold from the American Treasury at the official price. Experiencing a serious run on the national official gold reserves, President Nixon broke the U.S. dollar gold exchange link in August 1971.  It unleashed a wave of competitive international currency devaluations and the second great inflation of the 20th Century.  Subsequently, the U.S. dollar was devalued further, by some 20 percent, as gold officially was revalued to $42 an ounce.

 

However, led by America, the central banks then made a determined attempt, through the IMF, to “demonetize” gold.  Central banks agreed not to fix their exchange rates against gold and agreed ‘voluntarily’ to the removal of their obligation to conduct transactions between themselves at the official price.

 

In addition, the IMF was persuaded to ‘distribute’ some 153 million ounces of gold into the market and to minor nations.  This had the perverse effect of greatly increasing the interest in owning gold.

 

An even stronger ‘free’ market began to operate alongside the official price. As inflation continued to clime, so did gold.  In the early 1980’s the free market price reached $850 an ounce, while the official price remained at $42 an ounce.

 

In 1999, the Central Bank Gold Agreement (CBGA), also known as the Washington Gold Agreement, led to the coordinated sales of central bank gold via the IMF.  Clearly designed to depress the free market price, it is widely believed that the IMF sales were timed to magnify volatility in the free market price in order to destroy gold’s perceived worth as a ‘store of value’.  The CBGA was renewed on September 27, 2004, for a further five years.

 

More recently, market dealers have become increasingly aware of a covert official ‘blessing’ for large naked short positions opened by major ‘bullion’ banks.  These bets are designed to force down the free market price of gold.

 

In the mainstream investment community, gold has been consistently scorned as an investment.  Many respected analysts have even suggested that gold’s allure is wholly based on perception and that the metal lacks intrinsic value.  And yet, in terms of U.S. dollars, gold returned about 5.8 percent in 2008, following a 31.4 percent return in 2007.  Thus far in the 21st Century, gold has delivered an average annual return of some 16.3 percent.

 

Despite the powerful attempts of governments to eradicate gold’s role in monetary affairs, the free market price has risen continuously.  Today, although the possibility of global depression act as a head wind, the existence of an “above market” premium for fabricated gold, may foretell a major threat to the credibility of paper currencies, a major U.S. dollar devaluation and a consequent strong rise in the price of gold in the months ahead.

 

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar, read Peter Schiff's just released book "The Little Book of Bull Moves in Bear Markets." Click here to order your copy now.

 

For a look back at how Peter predicted our current problems read his 2007 bestseller "Crash Proof: How to Profit from the Coming Economic Collapse." Click here to order a copy today.

 

More importantly, don't wait for reality to set in. Protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com. Download Euro Pacific's free Special Report, "The Powerful Case for Investing in Foreign Securities" at www.researchreportone.com. Subscribe to our free, on-line investment newsletter, "The Global Investor" at http://www.europac.net/newsletter/newsletter.asp


-- Posted Thursday, 15 January 2009 | Digg This Article | Source: GoldSeek.com

- John Browne Senior Market Strategist, Euro Pacific Capital, Inc.


John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc. Working from the firm’s Boca Raton Office, Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with." A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

In addition to careers in British politics and the military, John has a significant background, spanning some 37 years, in finance and business. After graduating from the Harvard Business School, John joined the New York firm of Morgan Stanley & Co as an investment banker. He has also worked with such firms as Barclays Bank and Citigroup. During his career he has served on the boards of numerous banks and international corporations, with a special interest in venture capital. He is a frequent guest on CNBC's Kudlow & Co. and the former editor of NewsMax Media's Financial Intelligence Report and Moneynews.com.




 



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 - 2019



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


Map

The views contained here may not represent the views of GoldSeek.com, Gold Seek LLC, its affiliates or advertisers. GoldSeek.com, Gold Seek LLC 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, Gold Seek LLC, is strictly prohibited. In no event shall GoldSeek.com, Gold Seek LLC or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.