Tuesday, August 19, 2014

De Facto US Dollar Gold Standard For Over One Year

[This article was published by www.silverdoctors.com under the title "New Gold Window? The De Facto US Dollar Gold Standard"]
The one year gold price chart from www.kitco.com shows that the US has been on a de facto US dollar gold standard for over a year now. This means that the US dollar gold price has been "fixed" for all practical purposes at about $1,300. This is big news since President Nixon closed the "gold window" back in 1971. "Gold window" just means people and governments can exchange a fixed number of US dollars for each troy ounce of gold. Now after more than 40 years, a new "gold window" has been opened.

[Click on chart above to enlarge.]
Amazingly, none of the main stream or alternate news outlets has reported this fact, as far as I know.

I follow a number of financial news sites such as those in the links (Jim Sinclair's Mineset, Goldseek, Market Oracle, Dollar Collapse) as well as others such as www.zerohedge.com and www.silverdoctors.com. I have not seen any of the gold/silver/precious metals analysts and pundits report this important news.

In contrast, a consensus among many "gold bug" pundits seems to be that after some sort of dollar collapse or devaluation, a gold standard might be instituted in the future, say, for US dollars or perhaps Chinese yuan or Russian rubles. While this may be, what a strange situation. The presumed gold experts speak of a future gold standard, probably to help stabilize commerce after some expected, major financial crisis, while right under their noses, the US has already reinstituted a US dollar gold standard more than one year ago.

The chart above shows one year of price variation. However, the first signs of the new US gold standard actually appeared about 14 to 18 months ago. One wonders how all the experts missed the boat?

The establishment of this new "gold window" means that for now, the US dollar and all other fiat currencies pegged to it are in effect "backed by gold" and therefore relatively strong or at least stable regarding other "floating" fiat currencies in foreign exchange. Meanwhile, many analysts repeatedly predict a collapse or major fall in the US dollar, due to excessive dollar printing, debt, etc. But this has not happened and none of this matters in the real world as long as the US dollar is backed by gold -- tangible, real money. By the way, people talk about "dollars created out of thin air", but we hear much less often about the opposing factor: debt default where "dollars disappear into thin air".

How long will the present US dollar gold standard be enforced? We know from history that this particular instance of price fixing called "gold price manipulation" can be maintained as long as gold can be supplied to buyers at the fixed price which appears to be near $1,300. Once the price fixers run out of gold and cannot supply gold at the fixed price, the price manipulation which is the present US dollar gold standard will be terminated and the present "gold window" will have to be closed, resulting in a most probably dramatic rise in US dollar gold price. This price rise would represent a loss of purchasing power of the fiat US dollar currency, with gold maintaining its purchasing power as the real money and store of value that it is.

Does it matter why the US has reinstituted the US dollar gold standard? In some respects, you don't have to know why. Or the "why" doesn't matter. It means that while this new US dollar gold standard lasts, you can exchange fiat currency, which continually declines in purchasing power considering intervals as short as just a few years, for physical gold which is a good store of wealth (your savings). Some may speculate that actually the US and China have agreed to this new gold standard with China getting the gold it wants at close to the cost of mining production (a real bargain!) and the US getting support from China for the US dollar, namely that China will refrain from massive dumping of its US dollar denominated assets such as US Treasuries, which could cause a huge dollar collapse. Another rationale seems to be that the new US dollar gold standard was intended to offset pressure on the dollar due to excessive dollar printing and debt. Of course, all considerations involve the powers that be preserving their power positions.

Whatever the reason, the new gold standard is in place and nobody publically can state for how long (until the gold in the West runs out). So both large and small entities (anybody with savings which alas are few in today's world what with so many in net debt) can now get gold at "sale" prices (again, before the supply runs out).

This merits serious thought, since whenever governments fix prices (at or below real cost of the goods), the goods become scarce in short order. Right now, we see massive tonnage of gold leaving the West and flowing East to China, India and other countries. So supply is diminishing for this reason alone among many others. Also, the powers that be might decide to devalue the US dollar over night. This would not necessarily affect the purchasing power of real money -- gold or silver -- but a US dollar devaluation would immediately increase the fiat currency price of real money.

In sum, the present new US dollar gold standard will end perhaps abruptly when the last tons of gold are shipped from West to East and supply drops like a rock or when perhaps preemptively, the government devalues the US dollar. In either case, you don't have for ever to decide to protect whatever savings you might have by converting it to real money (physical gold or silver in your physical possession). Hopefully, you'll still have the chance to do this currency conversion (fiat paper to real money) when you read this paragraph. Cheers!

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