“Petro-Currencies” Replace Petro-Dollar

Petro-Dollars (courtesy Google Images)

Every so often, I propose a theory that’s new (to me, at least).  When I do, my initial presentation of that theory is often clumsy and incomplete.  This isn’t surprising.   If the theory offers a new insight, it takes time to learn how to explain it clearly.   However, over time, if the theory comes to seem valid, my presentations of that theory become more refined and easily understood. 

Today, I present another theory with language that’s at least clumsy (some might say, “half-baked”).   I don’t like to present texts that seem clumsy even to me, but I have to do so to not only to try explain the theory to my readers, but also to explain it to myself.  More, I must make the presentation because I know that some of my readers will make comments that will help me to better understand if the theory is probably true or probably false and thereby help me to make clearer presentations in the future.

In essence, I can’t seem to take this theory any further without help from my readers.

For today’s theory du jour, I propose that while the former global monetary system from A.D. 1971 to A.D. 2001 was based on the singular “Petro-Dollar,” in the past two years it’s been replaced by a new system based on several “petro-currencies”.  The fiat dollar is no longer the only currency that can purchase petroleum, but with the reemergence of the US as an oil exporting nation, the fiat dollar has gained some value as one of several “petro-currencies”. 

The emergence of the several “petro-currencies” might explain the last 20-month decline in the price of gold.

 

Those Who Won’t Learn From History . . . .

A poster for the 1896 Broadway melodrama The War of Wealth depicts a typical bank run in the Depression of A.D. 1893.. (Photo credit: Wikipedia)

In the 1890s, the American silver mining industry suffered from a major problem:  overproduction.

The silver glut caused such steep price declines that silver was sometimes selling for less than the cost of production.  The silver industry faced bankruptcy.

Therefore, the silver mining industry persuaded Congress to pass legislation to compel the U.S. Treasury to buy silver each month with the intent of coining that silver into millions of additional silver dollars.

It was presumed by silver mining industry that by creating an artificial demand for silver, the price of silver would increase and the mining companies would become profitable and spared bankruptcy.

Congress agreed (or was bribed to agree) with that presumption and enacted the Sherman Silver Purchase Act of A.D. 1890.  This Act mandated that the US Treasury purchase 4.5 million ounces of silver each month to be coined into silver dollars.

 

Gold Leasing & the April Plunge in Gold Prices

A picture from the gold vault of the Federal Reserve Bank of New York (Photo credit: Wikipedia)

Between Friday, April 12th and Monday, April 15th, the price of gold suddenly fell over $200 in the “April Plunge”.  That price decline was precipitated by some person or persons selling 300 tons of gold into the market in just one minute and was therefore the result of intentional manipulation.  The price decline was intended to cause those who own gold to panic, sell their gold at a reduced price, and abandon gold as an investment and as a hedge against the collapse of fiat currencies.

That price manipulation was made possible by “gold leasing”–an officially-approved accounting fraud.  ”Gold leasing” allows a major holder of gold (say, the Federal Reserve) to “lease,” say, 100 tons of its gold to third parties who then sell or lease that gold to others.  By means of “gold leasing,” the Federal Reserve can claim to still own that 100 tons of gold that has been leased–but not sold–to third parties  The pretext of ownership is maintained under the fiction  that those third parties will one day restore the physical gold they’ve leased from the Federal Reserve back to the Federal Reserve.

By means of the fraud that the Fed still owns the 100 tons of gold it has leased–when, in fact, that hold has been sold into the market–the same 100 tons of gold can be multiplied to show up on the nation’s and market’s books as 200 or more tons of gold.  By means of this leasing fraud, the apparent supply of gold is so increased that the price of gold is suppressed or even made to decline.

 

Desperate Times

Description: Newspaper clipping USA, Woodrow Wilson signs creation of the Federal Reserve. Source: Date: 24 December 1913 (Photo credit: Wikipedia)

Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal.  In one of his articles after the recent “April Plunge” in the price of gold, he wrote:

 

“I was the first to point out that the Federal Reserve was rigging all markets, not merely bond prices and interest rates, and that the Fed is rigging the bullion market in order to protect the US dollar’s exchange value, which is threatened by the Fed’s quantitative easing.”

It’s one thing for people like the Gold Anti-Trust Action Committee (GATA) to claim that the gold and silver markets are rigged. It’s another thing entirely to have a former Assistant Secretary of the Treasury to make similar claims.  Mr. Roberts’ credentials add much credence to the market rigging claims.

 

“With the Fed adding to the supply of dollars faster than the demand for dollars is increasing, the price or exchange value of the dollar is set up to fall.”

 

Friday, the (Almost) 13th

For those who believe in gold, this last Friday (April 12^th) had a “Friday the 13^th” demeanor.  The price of gold was slashed by a jaw-dropping $84 in one day.  That might be a record.

The fact that gold fell dramatically is not of as much concern as the fact that there’s no consensus as to why gold fell.  If we don’t know the “why” gold fell on Friday, there’s no way of telling what will happen this Monday (April 15^th) or on into that week.

Will the price of gold go up, down or sideways?  Friday was disconcerting.  But without a “why,” Monday and the remainder of this next week could be frightening.

 

Gold Fundamentals

Reverse of the American Buffalo gold coins (Photo credit: Wikipedia)

After eleven years of up, up, up, gold has been down, sideways, or down since it peaked at $1,900 in August of A.D. 2011.  Last week, we saw several consecutive days of gold falling between $10 and $24 per day.  On Thursday, gold fell below $1,550 and left many wondering how low gold can go.  Confidence in gold was badly shaken.

Société Générale S.A. is a French multinational bank headquartered in Paris.  It’s France’s second largest bank and the no. 8 bank in the European zone.   So it didn’t help to restore confidence in gold when Kitco News posted an article entitled “Societe Generale Sees Gold Under $1,400 By Year-End”

$1,400 gold!  Two weeks ago, I would’ve dismissed such predictions as silly.  But, last week, I began to wonder if maybe $1,400 gold was possible.

According to that article,

 

Jeff Berwick: US Economy Headed for Collapse

“This is the most dangerous time in human history for capital.”

video    00:09:49

 

Five Key Investment Criteria

Reverse of the American Buffalo gold coins (Photo credit: Wikipedia)

The Financial Trend Forecaster recently published an article entitled “The Five Key Investment Criteria”. The article was intended to help people decide which kinds of investments (stocks, bonds, commodities)—or even specific investments (GM, IBM or ABG)—should or should not be included in their portfolios.

The article explained,

“Safety is a major concern for two reasons:”

Safety is a “major concern” because we live in “interesting times” when our economy is fragile and prone to greater recession and/or depression.  Most investments—especially paper stocks and paper bonds—are vulnerable to losing value (purchasing power) until our economy truly begins to make a genuine “recovery”.

 

Germany Repatriates Gold from NY Federal Reserve

German Gold Euro 2005 (Photo credit: Wikipedia)

Germany reportedly stores about 1,700 tons of gold in the New York Federal Reserve Bank.  Germany recently announced that it would repatriate some of that gold back onto German soil at the rate of about 50 tons per year.

Some commentators believe the repatriation of German gold is one of the most important events in recent financial history.

For example,

According to Jim Sinclair, “Germany’s repatriation of her gold is a salvo fired at the concept that the USA has all the gold it claims and all the gold it stores for others. If true, this event is the most important gold development since Charles De Gaulle [demanded gold for US dollars in the late 1960s].

According to Bill Murphy, “Let’s say the GATA camp is only partly correct about the gold loans, gold swapped, and gold no longer there [in Ft Knox and the NY Federal Reserve vaults]. If other central banks, or the investment world, believes GATA is correct, it could set off a panic.  Numerous central banks could call in their gold loans. Where would the gold come from?”

 

“Market manipulation” meets Basel III

Wall Street (Photo credit: Wikipedia)

“The manipulation of markets in the hope of manipulating people’s perspectives simply will not work to prevent further drops into the negative spiral . . . .  Manipulation is the sign of madness amongst governments suffering from egomania during a downward spiral. . . .” Jim Sinclair

 

If you follow the price of gold, you’ve almost certainly seen daily price charts that occasionally include a “waterfall event” where the price of gold suddenly plummets in a vertical fall that is both dramatic and hard to believe.

If there’d only been one of these waterfall events, it would be a remarkable and inexplicable phenomenon (somewhat like a “flash crash”).  But we’ve seen several such “waterfalls” in the last year and, by their mere frequency, we know they are not “inexplicable” but are instead the result of overt manipulation of prices in the gold market.