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Gold - Look Out Below!

May 2, 2012

stock-panic.preview.jpgThe factors underpinning sky -high gold prices are spurious because currency is a medium of exchange, i.e. a coupon. It does not need to be "backed" by anything. As long as people are prepared to exchange real goods and services for these coupons, you want them.

by Henry Makow Ph.D.
(a update)

Many "Patriots" who own gold and silver must be frustrated these days. The metals are stuck in a narrow trading range and mining stocks are hitting new 52-week lows. Despite gold being only 10% from its all-time high, the multiples on gold stocks are contracting. It's a Chinese water torture.

I am not a financial adviser but I think mining stocks are a harbinger of a major sell-off in the metals in May or June. The catalyst will be the overthrow of the "austerity" program in Europe, new stimulus there and new doubts about the survival of the Euro. While austerity is bad, it will drive investors to seek refuge in the USD, resulting in a decline in the Euro and commodities, including precious metals.

When readers ask me if they should buy gold or silver, I say wait until you see inflation in the marketplace. We have had a steady rise in metal prices without a lot of inflation. The reason for this is the perception that the USD is worthless because the US debt is out of control. Another reason is "quantitative easing" but who knows how much money disappeared in the credit crunch?

These factors which underpin precious metal prices are spurious because currency is a medium of exchange, i.e. a coupon. It doesn't need to be "backed" by anything. ("The full faith and credit of the US government?" -- see what I mean!) 

As long as people are prepared to exchange real goods and services for these coupons, you want them. Only when they start losing value, should you buy precious metals. 

Given the state of the world economy,
we are more likely to see deflation than inflation. Cash will remain king.

A product is worth as much as someone else is willing to pay for it. I can see gold going down to $1400 or less and silver to $20. But I am no financial maven and may be a contrarian indicator for all I know. (Disclosure: I am short one gold stock.)  

Here is an explanation of money I posted in August 2011:

Imagine that you were charged a penny for every breath you took. After a month, this would amount to a lot of money. Wait! you would say. Nobody owns oxygen!

The same applies to money (currency.) Money is a medium of exchange. It has no intrinsic value, nor should it.

It is a coupon used to facilitate trade. Each product or service is worth so many coupons.

The economy is like a fire which needs a certain amount of oxygen to burn steadily. The job of the government is to provide this oxygen in terms of spending i.e. injecting coupons or lending interest free.

Just like oxygen, nobody can own a medium of exchange.

But the Illuminati bankers do own it. They create money in the form of a debt to them!  Anytime the government wants to stoke the fire, it must go further into debt.

Fiscal conservatives like Ron and Rand Paul, and the Tea Party,  perpetuate and legitimize this fraudulent and dysfunctional system by harping on the dangers of "debt."

The economy would collapse if the debt were repaid. There would be no money in circulation. We're not meant to repay it.

Half the US debt is owed to the Fed and should be repudiated since the money was created as a book entry. Why should taxpayers repay it with our sweat and blood?

Fiscal Conservatives are tying the hands of government and precipitating a depression.


In a banking crisis, people will seek refuge in paper currency,  especially the USD. This happened in 2008 and it may happen again.

Gold and silver are just shiny stones. They are much more expensive to produce than paper and that's why they are useless as a medium of exchange, i.e. coupon.

A gold bug sent me this:

"The financial crash will render worthless everything that is denominated in paper. Only real things will retain value, and the royalty of real things are gold and silver, for the simple reason that they are the most liquid, i.e. universally accepted."

I replied:

If "universally accepted" and "liquid" are the criteria , the US dollar is far better than either metals..." Remember digital dollars are liquidated or transferred at the move of a finger. Precious metals require Brink trucks.  

Gold-backed currency is absurd. There isn't nearly enough gold and silver to back money. In any case, no government could afford to acquire it. They are bankrupt, remember? 


The economy needs liquidity (i.e. an effective medium of exchange that stimulates productivity.) As long as this medium is created in the form of debt to a small private cabal, the economy will be severely constrained. We will have deflation - too many products chasing too little cash. Deflation is poison for gold.

We don't need bankers to create currency based on our government's credit. The government can do that itself and lend or spend it into existence.

We must demand debt-free currency creation or suffer the consequences. The politicians and mass media won't do this without pressure. They are chattels of the central bankers.

Gold will have its day again if attention switches back to the US debt, money-printing or inflation rears its ugly head.


Scruples - the game of moral dillemas

Comments for "Gold - Look Out Below!"

Milton said (May 4, 2012):

Your article Gold-Look Out Below fails to mention a criminal tactic called naked short selling, which is illegal in Germany. The powers that be put an incredible amount of non existent gold on the market on Feb 29, 2012 and knocked the price of gold down $100/oz. You must mention this in your article. Putting money into the US Dollar long term makes no sense at all. Unbacked paper currency not backed by gold or silver has never succeeded in the history of the universe. It always eventually fails.

Adam said (May 4, 2012):

Sorry to see you are catching flack for having a different perspective...again.

The value of the dollar is inherently designed to devalue over time (inflation). It could be sustained indefinitely if the PTB wanted it to (by controlling currency supply to match production) but that isn't the goal. By intent, the dollar will eventually be replaced with a global currency along with global government -- Novus Ordo Seclorum. And, why is it so hard to understand that the same people who manipulate currency also have cornered the market in precious metals? Also, have we forgotten that people in the 1930s had to surrender their gold? Can't that happen again?

Furthermore, gold and silver are nice for a balanced portfolio; but, most of us survive month to month. When you pay broker mark-ups to buy it and then you have to go to the broker again to convert it back into cash so you can pay for stuff it's not such a good value then. You usually can't (except for barter) use metals to pay bills and buy groceries -- unless you have face value coins and then face value is all it is good for.

David said (May 4, 2012):

The US dollar and the debt fiat system that we operate under is fundamentally threatened by scarcity of energy resources relative to the volume of money that must be created to sustain the system. This is placing an upward pressure on the prices of crude as time goes on (notwithstanding short term naked purchases and sales). Pimco’s Bill Gross says that the Crude price is the new Discount Rate, and he is right. There is a massive sucking sound as money leaves the economy under this scarcity, and is the reason that interest rates must remain at zero – because the FED no longer has control of money flows and the cost of money to the economy – the crude price does. Energy Scarcity and its price escalation is undermining the value proposition of all western financial assets as time goes on – this is the driver of all commodity price appreciation, including gold.

You also have to realise that Gold will never again be used as an exchange mechanism in our modern time (as you have rightly pointed out) – it is and always has been a reserve asset – this will however not prevent it from going higher in price. It is the asset of last resort to balance the books of the treasury, and when this matures to once again bring financial stability – its price will be many, many multiples of its current level.

Recent downside volatility in Gold and Silver is nothing but FED short term manipulation of the future market to allow JPM and other client banks to clear their shorts and go long for the coming war with Iran/China/Russia, which will be used to reset the gold price to a level such that it performs as a balance sheet fix for the USD. That Level currently sits at somewhere between $12K and $14K per ounce in gold across the 261 MOzt held by the treasury, but this is a moving window as each year progresses. If this reset takes another 5 years, then expect the combination of war costs and social security/medicare etal to push this figure to multiples of this number.

These views are held widely by a number of respected financial commentators including James Sinclair and James Rickards amongst others.

Adam said (May 4, 2012):

You weaken the main message of your site when you have articles like this one on gold. It makes you look like you just want to be contrarian for kicks, rather than have a site to disseminate truth. Your opining about something in connection to gold without looking at and studying the history. Just study the history: read When Money Dies, read The Extraordinary Popular Delusions and the Madness of crowds and study what occurred with John Law in France.


Thanks to people like you Adam, my puts are making money.


Andrew said (May 3, 2012):

Just looking at a chart, both metals are due and beginning a correction. If it happens, 1400 is too high for gold, and $20 is minimum for silver perhaps lower. Just based on the chart alone.

Annutama Devi Dasi said (May 3, 2012):

When the economy crashes I might possibly trade dairy products from my cow for gold, but I certainly won't trade for Federal Reserve notes. The problem is that there aren't small enough gold coins to trade for everyday items like cheese. So silver makes more sense.

In our community we're exploring ideas that will facilitate trade without using Federal Reserve notes. We're realizing that the best investments a person can make are: knowledge of practical skills (bee keeping, blacksmithing, growing food, home dairying, preserving food, training animals, making medicine,fixing things etc.); developing a community with your neighbors, having a source of water that is not dependent on the outside and a good attitude. These are all more important than any form of money.

Let's face it, there's a good chance that the economy will collapse and that petroleum products with either be unaffordable or unavailable. If you use your imagination, the lack of petroleum could lead to a huge change in our lifestyles. We're not waiting for it to happen to make changes in our lifestyle, but rather already trying to live locally as much as possible and having loads of fun. This week we hope to get our ox cart fixed and start giving our neighbors rides as well as get Makani helping us with the gardening--hauling compost.

Mike P said (May 3, 2012):

In any case, anyone buying now is late coming to the party. A lot of the profit, if not all from this rise, has been realized. Despite the past, Gold and silver are not going to be money again. The dollar will eventually collapse, but it will be replaced by a fiat world currency, probably entirely computer based. Without their use as money, gold and silver are not worth what they are trading for at present. Despite what the gold bugs have been led to believe, gold and silver are not the safe long term investments they think. They go up and down just like anything else.

If you are a nimble and alert trader, willing to get in and out and astute enough to realize when, then by all means trade gold, T-Bonds, coffee futures, or whatever turns your fancy. However, most of the people buying gold now are going to get their clocks cleaned, just like those who bought in during the frenzy of 1979-1980. They held on past the top, when in all the excitement they thought they had their hands on the "new money." By the time they finally realized it wasn't coming back, they had lost their shirts.

Stick to your guns, Henry. You are not wrong --- maybe a hair too early --- but not wrong.

Robert said (May 3, 2012):

Whatever people are willing to accept universally in exchange for goods and services is money. In other words, confidence is all it takes to establish a money medium.

The idea that people should be economically paralyzed until somebody digs some yellow metal out of the ground is patently idiotic.

Wade said (May 3, 2012):

I am very confused by your article today on gold (5/3/12).

Fact: The dollar has lost over 95% of it's purchasing power since 1913.

Fact: The dollar is in process of losing it's status as the world reserve currency.
IE: Russia, China, India, Iran etc.

Fact: Gold has always (for thousands of years) adjusted to the inflation of paper currency,
and always eventually will adjust.

Fact: If gold were to be adjusted today to 1982 dollars, the price of gold would be more than
$7,000.00 an ounce.

Fact: Real inflation in 2012 will be close to 16%. Core inflation numbers put out by our government
do not include food or fuel, and are therefore fraudulent and irrelevant.

Fact: The German Weimer Republic went down a similar road that this nation is now traveling, and the result
was hyperinflation.

Fact: You have a very good idea about printing debt free money. However, Lincoln and JFK both tried that and
were both shot in the head.

Fact: Conservatively speaking, 95% of the American people do not know what you are talking about when
you say "we need to print debt free money".

Fact: At least 95% of the American people do not know what in the world you are talking about when you
truthfully say that the debt we owe to The Federal Reserve system should repudiated because the
debt was created as a "book entry".

Based on the above facts it seems a mathematical certainty that the death of the dollar is in our future.
This event will, of course, bring down all dollar denominated paper investments.

I believe a small window of time may eventually present itself. During this short time those owning physical gold
and silver will have great opportunities. In the end we know we are headed for a debit and credit
account system where gold, silver, and paper currencies, will all be worthless. All "money" will be in each person's

A few of us know what the end of the road looks like. Just how we will be getting there and when we will get there
are mysterious questions.


Matt said (May 3, 2012):

I’m surprised you neglected to consider the numerous references in the Old and New testaments to silver and gold. It was real money in biblical times and a measure of wealth and prosperity. In Roman times, a day’s worth of hard labor was paid in a silver denarius. Gold and silver were precious and valuable thousands of years ago. I’m sure, without government intervention, gold and silver would naturally return to their former use as money today.

We can’t know for sure if we will see deflation before the inevitable hyper-inflation kicks in. That’s why it would probably be wise for most your readers to slowly accumulate physical gold and silver. That way they can take advantage of any future price declines instead of “blowing their wad” now. But if the deflation never comes, then at least they will have some on hand that will retain their purchasing power while their dollars in the bank erode in value.

Eliezer said (May 3, 2012):

Rising prices are no more a cause of inflation than debt constitutes wealth. To the contrary, interest on the national debt held by Private Banks like the Federal Reserve, & infusions or contractions of credit and finance capital (expansion & contraction) are the root causes of deflation - a deflation in the purchasing power of labor, wages and capital like savings and pensions.

All "Inflation" means, is more currency will buy less, due to a loss or a deflation in purchasing power of a given currency. Money must be issued into circulation as production requires, more or less.

So, whereas gold or silver need not be used as currency to facilitate value for value exchanges, precious metals will always constitute the most pure form of real money & intrinsic wealth, just as salt once did for the Romans. Remember "a man is worth his salt," also meaning, a man's labor is worth its wage or "salary?"

Paper currency is an abstraction or representation of value, not value itself. Gold is simply a means or measure by which one may discipline the currency. And whereas neither gold nor silver need be used AS a legal tender, they can quite easily co-exist as a measure of money.

In 1879, author of Progress & Poverty Henry George, ascertained the cause of an emergent poverty in the midst of an apparent progress. He noted when wages and interest on saved capital are low, rents, which today would include Corporate Profits, will be high. Not much has changed.

Andrew said (May 3, 2012):

Just a heads-up that Clive Maund is predicting gold and silver will soon go through the roof with the imminent US Dollar BREAKDOWN [see final comment in RED at bottom]:

originally published April 26th, 2012

After our glorious success shorting silver and the sector generally just before the plunge last September, made even better by our closing out the positions right at the bottom, which resulted in one subscriber retiring at the age of 48 and another buying a supercar for his wife, pickings have been thin. Further opportunities on the downside have been too limited and risky for us to do much, while on the other hand the outlook has not been bullish enough for us to really pile in in a big way - until right now, that is.

We have observed for weeks now how gold has been marking out a suspected Head-and-Shoulders continuation pattern, and silver a Head-and-Shoulders bottom, but have remained wary because of the fear of another 2008 style collapse, but that now looks like it is not going to happen.....

"The European Stabilization Mechanism Treaty due to pass in July this year will take care of whatever money is required by Spain or any other Euroland nations for effective bailout. It starts with $700 billion in capitalization and has an open call for additional capital infusion with no limit placed on these calls and no further agreements required....

"Gold and silver will go through the roof, and they are definitely well positioned to commence a major uptrend imminently. PM stocks are still in a weak position, but that could change rapidly despite the overhanging supply problem, if gold and silver take off strongly higher soon. A key factor is the dollar, which is very close to breaking down from its uptrend in force from last August (dollar index), and now looking more likely to do so after the action of recent days.

Tate said (May 3, 2012):

Regarding the recent gold "look out below" article.

Are you serious? Gold will DROP in price? Gold is arch-enemy #1 of the globalists so that is my first reason for liking gold. And it isn't going to go down so long as debt-based currency systems prevail in the world. But silver is even better because it is both a storage of value and also an industrial metal with 1/10th the amount of above ground supply that was in existence 50-years ago. Look out above!

Stephen Quayle said (May 3, 2012):


JB said (May 3, 2012):

One factor to consider - according to Forbes magazine of 1/29/2012 the Chinese have massively increased their buying of gold. My guess is that they are not uninformed of long term plans for the world.

also - in terms of people waiting to see what happens with inflation before making the decision to buy silver... it does not seem to be a meaningful yardstick because regardless of what happens in the short term, we have no way of knowing what the elite plan to ultimately do.

The inflation could be interim and then reverse according to the twists and turns of their agenda- or the dollar could fail virtually overnight and people lose their purchasing power so quickly that they cannot then make the move to buy silver. It seems to me that its all down to what their ultimate master plan is. I think the only reasonable course is for people to make an educated guess, follow their intuition and hope the universe is smiling on them.


Mike said (May 2, 2012):

A couple of quotes from the Protocols (#20) relevant to this topic:


36. How clear is the undeveloped power of thought of the purely brute brains of the GOYIM, as expressed in the fact that they have been borrowing from us with payment of interest without ever thinking that all the same these very moneys plus an addition for payment of interest must be got by them from their own State pockets in order to settle up with us. What could have been simpler than to take the money they wanted from their own people?

Gold is not the answer according to the people who actually run our monetary systems. It is simply a commodity that they manipulate like all others. Presently it is at a high price, which makes investing in it dangerous, although it might go a little higher for a while. You are gambling that you can recognize the top (if it hasn't already occurred) and get out in time. It won't rise indefinitely.

If you want to know how this world really works, read the Protocols. They are only about 84 pages long and they explain everything, which explains why those who are the descendants of their writers are so anxious that you not read them.

Andrew said (May 2, 2012):

Five (5) years ago gold was selling at $650/oz -- Date range 5 years

Today selling for 1650/oz.

Not too shabby.

Robert said (May 2, 2012):

Whatever people are willing to accept universally in exchange for goods and services is money. In other words, confidence is all it takes to establish a money medium.

The idea that people should be economically paralyzed until somebody digs some yellow metal out of the ground is patently idiotic.

Henry Makow received his Ph.D. in English Literature from the University of Toronto in 1982. He welcomes your comments at