Gold anticipates the not-so-obvious and often completely unforeseen economic developments better than any other investment I know of and these days it is telling us that all is not well with the world and that something major is brewing out there. Words: 918
In further edited excerpts the original article* Larry Edelson (www.uncommonwisdom.com) goes on to say:
What is Gold Picking Up On?
It’s the relationship between China and the U.S. and the implications of that relationship, not just for the Chinese yuan, but also for the U.S. dollar. Indeed, while you’ve been hearing for years that China’s currency is undervalued gold is telling you something different.
It’s telling you the other side of the story that:
a) if the yuan is undervalued, then the dollar must be overvalued, meaning the greenback will soon resume its sharp decline in value.
b) if the Chinese yuan is undervalued, then the dollar must be overvalued against that currency too meaning that the U.S. dollar will soon resume its sharp decline in value, especially against what is now the world’s second largest economy.
How Gold and the Dollar Were Irrevocably Separated
To be prepared for what’s coming you need to understand the historical progression of the relationship between gold and the dollar.
There wasn’t enough gold for sale to meet demand because investors around the world became jittery watching America’s financial position deteriorate. America’s balance sheet was in such terrible shape that the Treasury Secretary was forced to announce new bond offerings to help cover the worst budget deficit and national debt in the history of the U.S..
The official price of gold was $35 an ounce but climbing nevertheless. It seemed like everyone wanted the yellow metal. They were worried that the value of the U.S. dollar would plummet in international currency markets. In addition, everyone was hanging on to the gold they had, making the market even tighter.
Over the next few months, the buying pressure mounted, driving gold’s price up to $43.25, a gain of 23.5%. There were frequent rumors that the U.S. Treasury’s stockpiles of gold were dwindling – the squeeze was on.
Washington announced the so-called Treasury-Federal Reserve Accord, stipulating that the Treasury and the Federal Reserve act separately with respect to dollar policy and monetary policy. This agreement effectively handed Washington the ability to spend unlimited amounts of money, with the Fed backing up the check book.
The Bretton Woods Agreement on currencies was disbanded as Washington was spending so much money and the Fed was printing so much out of thin air that there simply wasn’t enough gold to go around. Period.
All ties between gold and the dollar were officially cut by President Richard Nixon. The price of gold skyrocketed from $43.25 an ounce to $850 over the next seven years, nearly a TWENTY-FOLD GAIN.
Now, compare our nation’s debts today with those in 1947, 1973 and 1980:
a) In 1947, the official national debt was $247 billion. The price of gold was $35.
b) In 1973, the official national debt was $469 billion. The price of gold was $43.25.
c) In 1980, the national debt was $930 billion. The price of gold reached $850 an ounce.
d) Today, our official national debt is a whopping $12.78 trillion.
i) 13 times greater than it was in 1980;
ii) 27 times larger than our 1973 national debt, which broke the back of the gold standard;
iii) 52 larger than our national debt in 1947.
May I remind you the above is just our nation’s debts. In addition, today, we also have more unfunded contingent liabilities than ever and more than any country in history, with our total outstanding debt and liabilities now exceeding $137 TRILLION.
Connecting the Dots to Today
– 1943: Gold jumps as the world worries about our $247 billion national debt.
– 1973: The gold standard is abolished by President Nixon as our national debt hits $469 billion and all over the world investors are redeeming their weakening dollars for gold.
– 1980: Gold skyrockets to $850 an ounce as our national debt hits nearly one trillion dollars.
– 2010: A trade war between China and the U.S. heats up dramatically. Treasury Secretary Geithner travels to Beijing and essentially begs China to boost the value of its currency to “rebalance the global economy.”
China has the biggest stash of U.S. dollars in the world that would effectively be sold to boost the value of the yuan and, as such, gold reacts by jumping in price and flashes buy signals because it knows that any revaluation higher in the yuan means mountains of dollars are going to be dumped, causing a massive dollar devaluation.
Listen to gold and what it’s telling you. I have absolutely no doubt that what’s going on between China and the U.S. … including Geithner’s visit to Beijing … is the next inevitable step in the demise of the dollar … and all about inflating away the U.S. debt problems.
*http://www.uncommonwisdomdaily.com/important-message-from-the-gold-market-9140?FIELD9=1 (Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. To view archives or subscribe, visit our site.)
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