Monday, June 17, 2013
By Hugo Salinas Price
We are deceived when we consent to think about the “price of gold”. At the very outset of our thoughts regarding gold, we are wrong, just as astronomers prior to Copernicus were wrong in thinking about the solar system as geo-centric, with the Sun, Moon and planets describing perfect circles around Earth. Gold is - to follow the astronomical simile - the center of the monetary universe, and the planets - the currencies - circle the Sun, which represents gold.
The correct starting point is the price of a currency expressed in terms of gold, and not the other way around.
When the price of the dollar was fixed at $20.67 per ounce of gold, up to the time of FDR, the price of the dollar was $1/20.67 = .0483782 oz. of gold, or 4.84 hundredths of an ounce of gold.
When FDR “raised the price of gold” he actually lowered the price of the dollar: $1/35 = .028574 oz. of gold, or 2.86 hundredths of an ounce.
Thus, FDR lowered the price of the dollar from 4.84 hundredths, to 2.86 hundredths of an ounce.
This was done in the Depression of the 30’s, when FDR was anxious to get the unemployed back to work. The purpose of devaluing the dollar by lowering its price in gold was to cheapen labor costs (without telling Labor what he was doing!) and put more people to work by getting them to accept working for lower wages, without their understanding what was going on. Cheaper labor meant cheaper American products and more exports.
At 2.86 hundredths of an ounce, the price of the dollar was below market value, and gold became overvalued in terms of dollars.
It is a principle of economics that undervalued money is exported from the country where it circulates, and overvalued money flows into the country where it is overvalued.
In 1934, with the dollar at 2.86 hundredths of an ounce of gold, gold was overvalued on the world market, and for that reason enormous quantities of gold began to flow into the US from all corners of the world. At the outbreak of WWII, the gold stock of the USA was gigantic as a result of inflows of foreign-owned gold.
At a “price of gold” of $1388/oz, more or less where we are today, the price of the dollar is $1/1388 = .00072 oz. of gold.
Gold is leaving the USA and the West, which is dollar-centric, because at .00072 (7.2 ten-thousandths) of an ounce the price of the dollar is overvalued, and gold is undervalued. There will come a moment when the managers who control the price of the dollar in gold will find that they have run out of gold to sell, and are powerless to support the price of the dollar. That moment is approaching; before the dollar controllers run out of gold to sell, the world will devalue the dollar and there will be nothing that the US will able to do about it.
This is already happening in the countries of the East - the Middle East, India, Pakistan, China and Southeast Asia, where gold trades at premiums to the undervalued “price of gold” which the Anglo-American Axis insists on maintaining.
The premiums effectively devalue the dollar just enough to ensure that the gold travels from West to East. Russia, the remaining Western power not subject to the Anglo-American Axis, is also sweeping up gold. The Axis is auctioning off its gold to the highest bidders, and the highest bidders are taking it off the market.
When the Anglo-American Axis can no longer rig the gold auction and support the price of the dollar by selling gold, because they have none left to sell, then the rest of the world will bid for gold, not only against the US dollar, but against all other currencies. The prices of currencies will fall like stones, tending to a new world equilibrium, where the flows of gold seek to eliminate both under-valuations and over-valuations wherever they present themselves.
If no one nation or block of nations can manage to establish its currency as the world reserve currency and thus supplant the dollar, then, since no one currency will be supreme, supremacy will devolve to the legitimate monarch once again: gold will be the international monetary language of business once again, as it has always been. Thus, the price of gold will become extinct, as Professor Antal E. Fekete has predicted. All prices will be gold prices, or silver prices at various ratios around the world.
The pertinacity of the Anglo-American Axis in auctioning off all its gold, down to the last available ounce, shows the world that the Axis is betting everything it represents, on the ability of the dollar to dethrone gold: this is the Church excommunicating Galileo and insisting on the central position of Earth in the Solar System. A very big mistake!
Gold cannot possibly lose its central position as the pre-eminent money used by the world for thousands of years. The aggressive measures of the Anglo-American Axis with regard to gold are absurd and they will lead to total disaster both for the Axis, and for the world which has been forced to follow its lead for over forty years.
In the worst case, as the rest of the world devalues the dollar by purchasing all the gold available in the West, the partisans of the dollar may find themselves corralled into a devastating total war as a last desperate measure to support their outlandish pretention to supplant gold with a man-made fiat currency, the dollar. Once again, nemesis will follow hubris,with mankind as the tragic figure. In my view, the wise (always a small minority in all ages) will squirrel away some ounces against the day of the ignominious collapse of the Anglo-American Axis’ attempt to reorder the world’s monetary system around a paper and digital currency.
Read part II here