Monday, March 2, 2009
The next part of the war
The war against gold, whether thought of as conspiracy or simply a group of unorganized people and organizations trying to maintain a lucrative status quo, is a serious war. This is particularly true for the United States, as it is the reserve currency of the world. If the U.S. Dollar is replaced by another global currency, particularly one backed by gold, it could crash in value overnight by 50% or more.
Now that gold is on the radar of institutional and retail investors, albeit still at the early stages for the retail side, the war will escalate against gold. This will happen predominantly via fraud. Paper gold, such as the GLD ETF and others like it around the globe, can actually be used to swindle people quite easily.
Offshore gold accounts also offer opportunity for fraud, as a recent example attests (not the first).
Now come reports of significant coin counterfeiting out of China (also, not a new phenomenon).
Between these stories and what I suspect will be massive fraud exposed someday soon in the GLD and SLV ETFs, there are fewer and fewer options available to retail investors. I also noticed a curious and abrupt end to the shortages in retail gold and silver coins with 2009 minted versions. Call me a paranoid skeptic, I know, but I think I'll be trying to find 2008 or older coins for my next physical gold order. Diversification is also important. Capital controls are also ratcheting tighter and even Swiss banking secrecy is under attack.
In the end, we have to be nimble sheep to stay ahead of the herd as more and more options are taken away. Don't be faked out, like most of the herd will be, when fraudulent gold scams come to light. You see, a GLD ETF scandal could drop the price of paper gold by a few hundred dollars in a day, and yet, it would only be another head fake on the road to a 1:1 (or less) Dow to Gold ratio.
Remember the end game: central bankers and their governments around the world all hold lots of gold. When things get really bad, expect their gold to be mysteriously re-valued. With the stroke of a pen, central bankers and their governments can make their gold worth a lot more pieces of paper fiat money. It happened in the last depression and it will happen during this one.