Silver, the Canary in the Gold Mine was my talk at a Gold Standard
Institute symposium in Canberra, Australia in November 2008. The topic could well describe
today’s gold and silver markets.
Today,
both silver and gold are achieving record highs but silver’s
accelerating price indicates silver may indeed be the canary in the gold mine,
the leading indicator for gold’s long-awaited explosive move upwards, a
move the Fed and major bullion banks have colluded since the 1980s to
prevent.
WHEN ELEPHANTS FLY, IT WILL BE TOO LATE TO
BUY
In 1979,
the price of silver accelerated along with the price of gold. Silver had
spent 1977 and 1978 hovering between $4 and $5 but in 1979 silver began to
move upwards—as did gold.
In late
January, silver moved to $5.94. Six months later, silver tripled, trading in
the $16-$18 range before beginning a meteoric ascent in December, doubling
from $17 to $34 , rising 33% on the first trading day in 1980 and peaking
January 21st in intraday trading at over $50 per ounce, almost a
1,000 % rise in a year.
Silver
(black): gold (red)
http://news.silverseek.com/SilverSeek/1174871399.php
On
January 21st, gold also peaked at $850. The simultaneous top of
both gold and silver is all the more metaphysically
coincidental because the factors driving the two metals were far
different, i.e. the gold price was being driven by inflation while the Hunt
Bros.’ squeeze attempting to corner the silver market was responsible
for the spectacular ascent of silver.
Now,
three decades later, a similar scenario is about to unfold, albeit with a
different ending. The current decade will not only repeat what happened in
the 1970s but it will bring to its inevitable end that which was set in
motion in 1971.
The end
of paper money is now in sight.
1970s REDUX
History does not repeat itself, but it does rhyme.
Mark Twain
On August
15, 1971 President Nixon announced that the US would no longer convert US
dollars to gold. For the first time in history, money was no longer gold or
silver or convertible to either. On that day, because of Nixon’s
actions all money everywhere became but government issued coupons with unknown
expiration dates.
The
reason behind Nixon’s extraordinary action was that US gold reserves
had been virtually emptied by US overseas military spending. The massive outflow
of US dollars needed to maintain America’s global military presence had
far outweighed any corresponding inflow from America’s significant
positive balance of trade.
By 1971,
it was clear the US owed more far gold than it possessed. The closing of the
gold window by Nixon constituted the largest monetary default in history.
Now, thirty years later, the final consequences of that default are
unfolding.
After
1971, governments everywhere borrowed, printed and spent even more money as
gold no longer was a constraint on the global money supply. Additionally,
gold was no longer exchanged in order to rectify global trade imbalances.
It was
Milton Friedman—the monetary poster boy of the right—who advised
Nixon to cut all ties between the dollar and gold. Friedman, like
Keynes—the monetary poster boy of the left—was a strong believer
in fiat money and Friedman advised Nixon that floating exchange rates would
balance global trade flows. Friedman was wrong.
The 1971
cutting of ties between money and gold instead led to increasingly unbalanced
trade flows, rapid increases in government debt, and by the late 1970s,
increasingly high rates of inflation.
In
January 1978, US inflation measured 6.84 %. In January 1979, it was 9.28 %
and by January 1980 inflation had risen to 13.91 %. Gold, the traditional
refuge from monetary inflation, rose accordingly. In 1978, the average gold
price was $193.40. In 1979, it was $306; and in January 1980, gold spiked to
$850 with inflation peaking two months later at 14.76 % in March.
In August
1979, President Jimmy Carter appointed Paul Volker to head the Fed hoping to
control inflation. Volker’s aggressive rate increases brought down both
inflation and the price of gold (note: Volker was also responsible for the
demonetization of gold in 1971).
Today,
aggressive rate increases to prevent high inflation are almost impossible. As
inflation moves higher—and irrespective of distorted US figures, it is
already doing so—higher Fed rates would end the Fed’s
liquidity-driven recovery and cause payments on the now astronomical US debt
to rise to unsustainable levels.
Expect,
then, that gold will move far higher before the Fed is finally forced, if
ever, to raise rates. This long-delayed reaction
will cause gold to move even higher as a slowing US economy would more than
offset any potential rise in the US dollar until the US dollar crashed; and,
in such an event, gold would be the only safe haven left standing.
The
reason why gold is not rising as rapidly as silver as in the 1970s is because
since the 1980s the Fed has focused on keeping the price of gold low à
la Gibson’s paradox; and, as a consequence, instead of rising equally
with silver, gold is lagging and silver is leading.
Silver,
however, is clearly the canary in the gold mine and as the below chart shows,
silver has now broken out.
http://jessescrossroadscafe.blogspot.com/
Such a
breakout of silver indicates gold could soon follow. This time gold’s
explosive rise would again be fueled by rising inflation and an unexpected
variant of the Hunt Bros. silver squeeze in the 1970s.
Inflation
is already here. Excessive central bank liquidity and loose monetary policies
since 2008/2009 have unleashed global inflationary pressures that cannot
easily be controlled.
Just as
inflation drove gold to a high in 1980, it will do so again today, three
decades after Nixon literally pulled the gold out from under the
world’s monetary foundation. Inflation is now about to finish what
Nixon started, the end of fiat money is in sight.
Increasingly
consumed by inflation, today’s paper currencies will worthlessly
inflate ad infinitum and disappear
like cotton candy into monetary oblivion like all fiat currencies. This time
is no different. Gold and silver will again soar and, as in the 1970s, a
short squeeze will again be a factor.
Unlike
the 1970s, however, it will not be silver that is squeezed. This time it will
be the bullion banks who have colluded with central banks to keep prices of
gold and silver low; for as silver and gold rise, at a certain point the
bullion banks will be forced to cover their enormous short positions (see
below) driving gold and silver higher.
CAPITALISM’S COMING CAULDRON
THE PARADIGM SHIFTS
The
collapse of paper money will make the 2008 collapse of financial markets seem
like the prelude it is. Capitalism, i.e. economies based on the substitution
of debt-based capital for gold, is possible only when capital, i.e. paper
money issued by a central bank, is itself tied to the precious metal. In
1971, that changed.
It was
the removal of gold from capitalism’s monetary foundation that sent
capitalism’s endgame into motion. Thirty years later, it is reaching
its destined end. What will also end is the vast inequities the system
encouraged and abetted.
Nobel
winner Joseph Stiglitz recently observed that the
top 1 % in the US now receives 25 % of America’s income and controls 40
% of its wealth. This is to be expected as capitalism rewards those closest
to the spigots of credit, i.e. bankers, and those who employ them.
All
others are but temporary winners as over time the house cannot be
beat—at least not until the house burns down. However, the fire has
been lit—the house itself did it in 1971—and the banker’s
house of cards has been burning ever since. Paper
burns, gold and silver don’t.
Last week,
I received an email from an 8th grade middle-school student. His
school project was to interview an expert on his chosen subject, the 2008
financial collapse. He discovered that most experts had not foreseen the
collapse. As I had, he approached me for some answers.
On my TV
show, http://www.youtube.com/user/SchoonWorks#p/a/u/0/S2vUXrmt1tU, I provided some insights about
the collapse and our present circumstances. The student was sincere and
intelligent and his generation will be among those who will have to deal with
the coming economic rendering. They will also be among those who will help rebuild
this country.
On February 8th, the title of my
blog was “Severe Earth Changes Coming”. On February 19th, a 6.3
earthquake struck New Zealand. On March 11th, a massive 9.0 earthquake
devastated Japan and was followed by a 7.4 quake on April 8th. These are only
the beginning. More changes are on the way.
Humanity is in the midst of a momentous paradigm
shift. Governments will fall, natural disasters will increase and the present
world will pass away, paving the way for the better world that is to come.
Buy gold,
buy silver, have faith.
Darryl Robert Schoon
www.survivethecrisis.com
www.drschoon.com
Check his Blog
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