"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Wednesday, March 23, 2011

Why Central Banks of the West hate Gold

I wanted to post a very short set of comments to let some of the newer readers understand why many of us believe that there is a war being waged upon gold by the Central Banks of the West.

Let me start this off by quoting from none other than former Fed Chairman Alan Greenspan more than 40 years ago:

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. ... This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard

What the former Fed Chairman was then saying was that absent a gold standard or some device for restraining the unlimited creation of fiat money, there was nothing to restrain monetary officials from engaging in such activity that would ultimately set in motion a process of inflation, which is really just another name for the erosion of the purchasing power of a nation's currency by debasing it. Inflation was and is in essence, the transfer of wealth from one class to another.

Today we have the Fed engaging in the very process that Greenspan warned against back then. We also have the BOJ and the ECB effectively doing the same thing to an extent.

Unlike Silver, gold is the main metal that most analysts and commentators look to when attempting to decipher whether or not inflation is a serious problem. That means the reference point of gold has become a target for Central Banks which want the world to believe that they can create unlimited amounts of funny money with absolutely ZERO impact on inflation levels. In other words, that they can conjure up wealth and produce prosperity with the electronic equivalent of a printing press and produce no serious inflationary impact by so doing.

A rising gold debunks their hubristic assertions to the contrary for it stands as a silent witness testifying against them. This is the reason the yellow metal is despised by so many Central Banks. It mocks their policies and displays their folly for all the world to see. Central Bankers being the demigods that they are, will tolerate no rivals to their claims of economic omniscience. You see they have actually come to believe that it is their own wisdom and foresight which enables them to see through the fog that hinders and impedes our economic progress and that they are in a unique position to provide the rest of us with lasting prosperity. They attempt to do this by basically providing or withdrawing liquidity as they in their wisdom judge best and by the setting or manipulation of interest rates.

Those of us who believe that it is free market capitalism and the industry and efforts of mankind that produce wealth and prosperity would beg to differ but that is another story altogether. I would add that it is my opinion that the world would be better off without this plague of locusts that actually devour a nation's wealth but the fact is that they are here. 

While they are here gold will attempt to move in such a manner that is either blesses or curses their policies. Now we all would love to have our policies approved by the vote of the market but what about those times in which the market frowns on our course of action and refuses to smile upon it? Why this is but a simple matter - attack the messenger! If one can somehow manage to keep the price of gold under wrap so that it does not move sharply higher then one can attempt to make the claim that inflation is not a serious problem. The comments usually go something like this:

"Well Jerry, we are looking at the gold price and from what we can see, that while it is definitely higher, it is not soaring out of control. The market may be pricing in some gradual inflation but the action in the gold price is telling us that any fears of inflation getting out of control are definitely unwarranted. Besides, we all agree that some inflation is a good thing because the alternative is deflation and no one wants to see that".

Imagine Fed Chairman Ben Bernanke testifying before Congress saying that the current rise in prices of many goods is only "temporary" and "relatively modest" if the gold price were soaring beyond $1650 and higher! Do you think anyone would take anything that the Chairman said seriously? Copper can soar higher and most will not notice it. Even if it does, it is generally explained as a positive because we are told it is a sign of strong economic growth ahead. Crude oil and energy prices can rocket higher and that can be attributed to geopolitical unrest among oil producing nations. Food can rise sharply and everyone notices that but such things are often explained away by citing weather conditions, supply constraints, etc. but a rising gold price? How does one explain that away?

The only reason that gold has a sustained price rise is because of a lack of confidence in the monetary system. It does not rise sharply because of such things as jewelry demand or industrial demand - it rises when fear, distrust, doubt, suspicion and uncertainty over Central Bank policy reigns. It rises when REAL interest rates are negative and investors understand the insidious process of currency debauchment practiced by these monetary authorities is underway. It thus cries aloud and issues a warning to those who can hear it and what it shouts displeases many Central Bankers because they are among those who while they despise its message, are all too keenly able to hear that message.

Thus the messenger,the prophet, the oracle, must be silenced or at the very least, his message blunted, toned down, trivialized by whatever means possible. The mechanism employed to do just this is a subject for another time and place. Suffice it to say for now, without the efforts by the monetary officials of the West to discredit gold, it would be trading considerably higher. Even at that however, the ancient metal of kings refuses to go quietly and docilely into the night. It will yet have the final say.


  1. Thanks Dan. I like the editorials. Keep em coming.

  2. Dan, you are a treasure to all of us who want to play the game, have a fundamental understanding of what is going on, but are technically limited. Your articulate, eloquent and comprehensive explanation of market and economic phenomena allows many of us to intellectually understand things which were only understood on a gut level. Thank you so much.


  3. Dan, excellent post and you make the case as to why the central banks would want to discredit gold.

    But would you say that the banks would go so far as attempt to manipulate the price of gold lower? Are they actively selling paper and/or physical gold now to keep the price down?

    I understand they did it in the past to defend the gold standard and the London gold pool. But the gold standard is long gone. Is there evidence that they are doing it today?


  4. Dittos to the above posts. Great description of the situation, Dan.

    Based on my understanding of the depths of corruption that exists in the Central Banks and governments, when they lose control (gold rockets and fiat burns), they will enlist the help of those that live in perpetual welfare, the envious unprepared and the agitated citizenry by demonizing the selfish, rich gold and silver hoarders that ruined everything.

    After that PR lie is in place and gobbled up by the sheeple, they will enact dubious laws that violate the Constitution (further than it already is violated) and essentially confiscate precious metals and related shares through an extremely high tax designed to return pm's back to their rightful owners... the glorious elite.

    If that doesn't work completely, they will nationalize the mines.

    Wait, excuse me... it must have just been a bad dream.

  5. You da man Dan! You're a blessing to us all, a modern day Braveheart. The metals are getting ready to really lay it down here in one of the biggest rallies ever and I'm just loving this silver train! Can you start doing an analysis of Silver Wheaton? This is the bellweather of the whole sector in my belief, just amazing potential here. What do you think of some potential upside projections? Silver has a feeling to me that I think is once in a lifetime, driven by pure overwhelming physical demand. What an incredible time this is where this market is driven by "physical delivery" vigilantes as this is the only way to demand accountability. How fraudulent when we have the monetary masters using fiat via surrogate institutions to attempt to control the price with their paper machinations? How amazing that such a minute percentage of the population knows of this? We've got to somehow get the word out. I look forward to your thoughts.

    - Noah

  6. Actually, ditto the first two posts. Didn't see the third that was posted as I was pecking away. Not sure what to make of it.

    "Banks would go so far as to attempt to manipulate gold and silver"? Surely, you jest.

    "Is there evidence?" Again, you jest... right?

  7. a few historical links to back up your comments:


    and of course:


  8. @ Larry

    Going back to 1971 when Nixon ended gold standard, whom did he blame it on during that infamous Sunday speech? That's right, the evil "speculators". So your bad dream will, unfortunately, turn out to be true as I know for sure they'll blame the evil gold/silver bugs again.

  9. Dan as far as I know this is your most "outed" blog yet. Done with letting us read between the lines?

    I'm thankful that a few of you in the trading business really want capitalism to work in the way it was designed...it should reward effort and not reward simple taking advantage of position/power to end-run the system.

    This is an article I will share with friends for it doesn't sound like someone with an agenda beyond following conscience.

    Thanks again

  10. Dan: Sorry to "spam" you but you have to watch this. I made this back in January and it addresses many of the same points,


  11. Great essay Dan. The quote by Greenspan makes one think he works for GATA

    many thanks

  12. Greenspan was right about the real effect of fiat (political) money, that is before he took the job of being in charge of the printing presses.

    Inflation of the currency is theft of private wealth by dilution and is made even worse by an income tax levied on the increase in nominal dollars.

    My own government, which was brought into life so its citizens could "enjoy the blessings of liberty" is now at war with me over my own private wealth. One my few options is to remove my wealth from its grasp by taking it out of dollars and keeping it in other forms, such as gold and silver.

  13. So Dan, if effect, I can theorize from this that the only good banker is an extremely dead one?

  14. Tiger-Cat;

    No, that would be an incorrect theorization. There is a vast difference between stating that Central Banking is a plague on a society and advocating killing of bankers. Why not begin a process of educating the public to the dangers of a Central Bank and then work to change things? Andrew Jackon and Thomas Jefferson are excellent guides to this subject. both rid the nation of the influence of these bankers.

  15. I am pretty sure all these central bankers own physical gold. What better way to set up your retirement than beat the price down with other peoples money and buy in cheap?

    Cynical? Yeah.

  16. Threats to bankers, whether it is meant literally or not, will bring the bad dream I mentioned above sooner and with more ferocity than can be imagined... and for easily justified reasons. The currency war being waged will not be won by guns and bombs, but intelligence. The media would have a field day if one sign in a million proposes violence against the elite ruling class. Re: Tea Party being demonized.

    The best way to achieve justice with the Central banking cartel is to take delivery, as Dan so succinctly points out in the header of JSMineset. They can only fold paper so many times before it shreds.

  17. Rui - Yes, I feel this will come to pass in the 'Great Transition', but I remain optimistic. There will be much pain to all of us as the world shifts on it's economic axis and (hopefully) bring an end to the Central Bank and Western Elite cartel gets flipped and loses their grip on free enterprise. That, and there are many ways to trade real assets that don't involve dollars. I'm a proponent of a gold/silver backed currency. Maybe mix in a few commodities like oil, and trust will be restored... eventually.

    Greenspan quote: What makes this man so dubious and hypocritical is, by his own comment quoted in Dan's post, he knew the truth about statism and the gold standard yet he cast aside his knowledge and his ethics when he opted to manipulate the dollar and create (or ignore) asset bubbles for political expediency... or worse.

    In my way of thinking, in doing what he did, he would have been more honest if he was a 'true believer' in Keynes economic approach and made policy accordingly. He would have been wrong, but more honest.

  18. Let me introduce a new concept to the discussion, please. I am new to post comments but am not new to the concepts.

    The concept and new term is what I call "mixflation." Allow me to explain. It's not inflation, it's not deflation. Those concepts imply some type of homogeneity in prices, which is NOT the case. Indeed, this is THE problem with Keynesian economics...that somehow we can reduce economic calculation to a few aggregate concepts, like inflation, deflation, unemployment, GDP, money supply, etc. The concepts, while mathematically useful for shill academics, do NOT describe the real world. The real world is marked by non-homogenous, non-linear dynamics.

    We are not in a period of pure inflation, nor are we in a time of pure deflation. Bernanke, the academic "expert" talks about these things as if they are distinct things, as if our economy goes in sync one way or the other. Unfortunately, I see most other people, including this discussion, surrounding a inflation versus deflation discussion with gold as some sort of market proxy vote. It's not, IMHO--these things are NOT MUTUALLY EXCLUSIVE.

    We actually have "mixflation." Just as the academics were baffled by simultaneous recession and price inflation in the 70's/early 80's (which they thought impossible before this), they had to create a new concept called "stagflation" to describe what was happening in some sort of way. I introduce the concept of "mixflation" to describe current events where we have MASSIVE deflation in some segments and MASSIVE inflation in other segments. These changes are real in terms of the monetary base chasing each segment as well as the price reflection.

  19. kudos to you, TraderDan. Market forces will win. It is the way of freedom, and Gold is God's money.

  20. Dan,

    Coherent, very well written.

    We are blessed with JS, Harvey, Dan, Turd, Murphy, et al, all willing to share, educate and provide leadership.

    David Morgan: Several years ago, I subscribed to his newsletter (my bad). One day, a new stock showed up in his model portfolio: slick web-site, but, nothing (and I mean NOTHING) else. Was supposed to be the "next big thing" in China. Morgan pumped this micro-loser for several months until the share price topped, dropped off the table and they closed-up shop! No explanation from Morgan, no-nothing. The stock then disappeared from his model portfolio. Blatant.

    Luckily, I had talked with a Vancouver broker who (after I explained the company managers) and after he looked at their web-site and chart, told me to ride the pump up to $X.XX and get out!! Great advice. Within a week after I sold, this sham crashed and went out of business. So much for Morgan. What a joke.

  21. "I understand they did it in the past to defend the gold standard and the London gold pool. But the gold standard is long gone. Is there evidence that they are doing it today?


    Lots of it. A long read but you'll enjoy it:



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