So says James Rickards in edited excerpts from an interview* with Valentin Schmid (theepochtimes.com) entitled Interview with Jim Rickards: Gold Set for Massive Rally.
[The following is presented by Lorimer Wilson, editor of www.munKNEE.com and www.FinancialArticleSummariesToday.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Rickards goes on to say in further edited excerpts from the interview:
To restore confidence you have two means:
- You either flood the world with liquidity from the International Monetary Fund in the form of Special Drawing Rights [SDRs, a form of money issued by the IMF], or
- we return to a gold standard.
The flooding of the market with SDRs would be highly inflationary so that, by itself, would drive gold to a higher level. If they go back to a gold standard they will have to take a non-deflationary price.
People say there is not enough gold in the world. The answer is there is always enough gold in the world. It’s just a question of the price. Now, at $1,300 an ounce, there is not enough gold to support world trade and finance, but at $10,000 per ounce, there is enough gold. It’s not about gold, it’s about the price.
If you go back to a gold standard you have to avoid the blunder that England made in 1925 by going back to the gold standard at the wrong price..[That] proved to be highly deflationary, and contributed to the Great Depression.
I’ve done the math on that and the non-deflationary price for a gold standard today is about $9,000 per ounce…based on supporting the paper money supply with gold…using M1 (paper notes, coins, and checking accounts) as the monetary base, with a 40 percent backing. If you were to use M2 (M1 plus savings accounts and money market funds) with a 100 percent backing, that would be $40,000 per ounce… [That] wouldn’t mean gold would be worth any more (in real terms); it would just mean the dollar has collapsed…[that] you get more dollars for the ounce. Let’s call that the three- to five-year forecast.
For the year ahead, those fundamentals are unlikely to play out…but the technicals can…based on the decline in floating supply.[2 factors were at play last year, namely:]
1. [The removal of] 500 tons from the GLD (Spider Gold Trust ETF) warehouse by the bullion banks. That was a massive physical overhang removed from the market…
The gold sits in a warehouse and is only available to authorized participants. If you look at the list of authorized participants and look at the list of bullion banks, they are pretty much the same: Goldman Sachs, Citigroup, JPMorgan, Morgan Stanley, Deutsche Bank, HSBC, etcetera, [and] those banks have the ability to buy up shares, take the shares, cash them in, and get physical gold. [That’s what they were doing last year] and they were sending that gold to Shanghai to support trading and leasing on the Shanghai gold exchange. So when you take 500 tons and dump it on the market, that’s about 20 percent of the annual mining supply. It’s a massive physical injection.
2. The other factor is just outright manipulation, which is very visible in Comex future prices. I’ve seen some statistical analysis that demonstrates market manipulation beyond the shadow of a doubt.
So the point is that between central bank manipulation through Comex futures and bullion banks dumping the physical, and by cleaning out the GLD warehouse, and also the Comex warehouse for that matter, there is a massive amount of gold that came on the market over and above normal supply trends, putting massive selling pressure on the Comex.
That was a bad combination, but the problem is that it’s not sustainable. You can’t loot the warehouse twice. Once you take all the gold out, you can’t take it out again. JPMorgan’s vault is low, Comex’s vault is low, the GLD’s vault is low…
Where is gold going?
…One of the big movements right now is gold moving from places like UBS, Credit Suisse, and Deutsche Bank to private storage such as G4S, ViaMAT, and Brink’s. That doesn’t increase the supply of gold at all. What it does do is it decreases the floating supply available for trading.
If I have my gold at UBS, UBS typically has the right of rehypothecation but if I take my gold and move it over to ViaMAT, it’s just sitting there and it’s not being traded or rehypothecated so, if I move gold from UBS to ViaMAT, there’s no more or less gold in the world. I’m still the owner, and it’s the same amount of gold.
From a market perspective, however, the floating supply has decreased [and] the biggest player in that is China. China is buying thousands of tons of gold secretly through deception and using military intelligence assets, covert operations, etcetera…
Why will gold rally?
You don’t need to buy all the gold, you just need to buy the floating supply…but the gold purchased by the Chinese will not see the light of day again for the next 300 years, and is not available for trading…[As such,] with the gold going from West to East, and from GLD to China, the total amount of gold is unchanged, but the floating supply is declining rapidly.[Given the above, that] means that the paper gold that sits on top of the floating supply is becoming more and more unstable and vulnerable to a short squeeze, because there is not enough physical gold to support it and that’s likely to collapse at one point and lead to a short squeeze and heavy buying.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.theepochtimes.com/n3/494029-interview-with-jim-rickards-gold-set-for-massive-rally/ – Copyright © 2000-2014 (James Rickards is the author of the national bestseller “Currency Wars” and the forthcoming book “The Death of Money.”)
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