With gold production working at full capacity, combined with the massive outstanding paper gold position, increased demand for physical gold can only be satisfied at much higher prices, which we are likely to see in the next few months.
If the paper gold market continues to sell off while physical acquisition continues to accelerate, this is a strong warning about the economic recovery and a leading indicator that could set the stage for a new bull market in precious metals.
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On September 18th, the London office of Deutsche Bank one of the most respected banks in the world, and a bellwether of elite opinion published a Global Markets Research paper entitled Gold: Adjusting for Zero.
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In addition to all of these tax issues, the U.S. in the early 1930s was on a gold standard where paper currency was legally convertible into gold.
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The recent paper losses on gold are unlikely to have a big impact on the universities.
At the outset of the Great Depression people distrusted banks but trusted paper currency and gold.
WSJ: Arthur B. Laffer: Taxes, Depression, and Our Current Troubles
The increase in the demand for paper currency and gold not only had a quantity effect on the money supply but it also put upward pressure on the price of gold, which meant that dollar prices of all goods and services had to fall for the relative price of gold to rise.
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This was then placed in a pencil and used to scribble on paper imprinted with broken gold stripes.
Ideally, you could trade your fiat paper currencies for these gold-linked currencies at any bank that offers foreign exchange services.
The US government then attempted to pay this last bond at a fraction of the face value and not in gold but paper.
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The move to fiat money (paper not backed by gold) created the huge expansion in global money supply that the pessimists had predicted.
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At first, they might seem like mostly a precious metals investment product, a speculative vehicle, sort of like trading paper shares in a gold ETF.
One morning, as Roosevelt ate eggs in bed, he and Secretary of the Treasury Henry Morgenthau decided to change the ratio between gold and paper dollars.
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They dabble in conspiracy theories and talk of the collapse of civilisation and the need for investors to sell all paper assets, buy gold and retreat to Idaho.
Commercial banks would put up gold or commercial paper and get cash in return.
Your money used to be backed by real things like gold and commercial paper.
It is this expectation of global paper currency debasement which makes gold an attractive long-term investment.
Nations would settle international payment deficits and surpluses in gold rather than paper-based currencies.
There was a flight from paper money into gold, jewellery, ghetto blasters and even condensed milk.
By the end of next year, I would like to see the introduction of gold-linked paper currencies.
It is this expectation of paper currency debasement which makes gold an attractive long-term investment for us.
Thus, there might be times when they are reluctant to take paper currency when exiting their gold investment.
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There is abundant empirical evidence that the world economy will create many more jobs with its currencies convertible into gold than with paper money.
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However, euros are paper and to increase the gold supply you have to go to much greater lengths than switch on a printing press.
Those banknotes from the New York Fed or the Philadelphia Fed or the other ten banks had to be backed by solid collateral: gold and commercial paper.
Last summer, when it seemed that the ads about turning your paper IRA into a solid gold IRA hit a fever pitch, gold began to go vertical.
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The United States outgrew it as early as 1810 or so, as dozens and then hundreds of commercial banks began issuing gold-linked paper banknotes as an alternative to metal coins.
Because it is impossible to manufacture and traditionally difficult to extract and process from the ground, gold served as a stable peg for coinage and paper money issuance--but no nation operates on a "gold standard" today, as most abandoned it during the 20th century after major powers suspended it periodically during times of costly military adventures during the 19th century.
And that crisis in the value of paper money makes physical possession of gold a no brainer.
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Now with gold over valued, silver coins disappeared from circulation and gold coins (and paper money) dominated the currency.
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