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The
IMF gold has serious geo-political ramifications in the background because of
the nature of foreign exchange reserves, credit default swaps and gold. Wikipedia:
South
Korea and Japan are both home to large numbers of United States troops and
neither are going to invite a nuclear attack. The Kuomintang, which the
US backed, retreated to Taiwan when they lost power and China still asserts
their ownership over the tiny island and the US continues to honor their
agreement to defend Taiwan. Russia has been discharging dollars and
acquiring gold while Brazil is bucking the buck. Neither China nor
India have significant reported physical gold holdings; they need a hedge to
the major currency illusions. In my book The Great Credit Contraction
the liquidity pyramid represents the FRN$ will be the last major currency to
evaporate.
Buy "The Great Credit Contraction" eBook
The
Euro’s evaporation has increased and ultimately has only one outcome.
Sure, Germany wants to retain its voice on the world stage and is faced
with a Hobson’s choice of bailing out Greece and eventually the other
unproductive free-riding members of the Euro or let the Euro evaporate and
lose their relevance on the world stage because Germany only matters if
Europe as a whole matters.
CREDIT
DEFAULT SWAPS
But
the Damocles sword of credit default swaps, which is falling toward’s
Greece, can, ultimately, be measured only against gold because gold is
no-one’s liability. Just like the Chinese have feigned their
interest in acquiring gold; many sophisticated investors have feigned
ignorance of gold’s monetary role. Many sophisticated investors,
like George Soros who broke the Bank of England doubled his gold position in
Q1 2010, Paul Tudor of Tudor Investments, John Paulson, David Einhorn, Eric
Sprott, Jim Rogers, Peter Schiff, John Embry and many others are likewise
allocating their capital based on the premise that gold is a major world
currency.
Even
Janet Tavakoli, a former adjunct associate professor of derivatives at the
University of Chicago’s Graduate School of Business, and author of six
books on derivatives recently wrote:
U.S.
credit default swaps currently trade in euros. After all, if the U.S.
defaults, who will want payment in devalued U.S. dollars? The euro recently
weakened relative to the dollar, and market participants are calling for
contracts that require payment in gold. If they get their way, speculators on
the winning side of a price move will demand collateral paid in gold.
The
market can create an unlimited number of these contracts very rapidly. The
U.S. wouldn’t have to ever default to trigger a major disruption in the
gold market.
The
fiat currency and fractional reserve banking system is merely a confidence
game built on an illusion and fraud. Fiat currency is to be valued like
the common stock of a government and in gold. As such the current
system will end and holder’s of capital will demand to be shown the
money. Just ask Harry Reid about karma.
The
price of gold in evaporating currencies would not so much create a disruption
in the gold market as cause a serious loss of confidence in the current
system which would result in a tremendous increase in gold’s liquidity,
hopefully through use by individuals in ordinary daily activities like what
happened in Zimbabwe last year. After all, who really needs to use
fiat currency illusions and why?
In this case, we are seeing both China and India demanding to see the
IMF’s gold, the Damocles sword jitters and there is only one protection.
Assets with intrinsic value.
DISCLOSURES:
Long
physical gold, silver and platinum with no interest in the problematic
SLV, Streettracks Gold ETF Trust Shares or the platinum ETFs.
Trace Mayer
RuntoGold.com
Trace Mayer,
J.D., holds a degree in Accounting from Brigham Young University, a law
degree from California Western School of Law and studies the Austrian school
of economics. He works as an entrepreneur, investor, journalist and monetary
scientist. He is a strong advocate of the freedom of speech, a member of the
Society of Professional Journalists and the San Diego County Bar Association.
He has appeared on ABC, NBC, BNN, many radio shows and presented at many
investment conferences throughout the world.
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