3 Minute Gold News
A Quick Read for Busy People
An interview synopsis of Jim Rickards, New York Times bestselling author of The New Case for Gold, The Death of Money, Currency Wars and The Road to Ruin, with Alex Stanczyk from The Gold Chronicles October 2018 vidcast.
Jim is the Editor of Strategic Intelligence, Chief Global Strategist for Meraglim Inc., former general counsel for Long Term Capital Management, and a consultant to the U.S. Intelligence community and U.S. Department of Defense.
by: Elaine Diane Taylor
IMF Liquidity Under Stress
Great Powers and Gold
Jim has been concerned about China and cyber warfare, and credits Amazon for digging out that Chinese companies have been embedding microchips smaller than a grain of rice into motherboards used in American industry and Department of Defense systems at the factory level.
China makes 70% of the world’s mobile phones and almost 90% of the world’s PCs.
In 2010 it was discovered in the NASDAQ operating system there was a line of code that could at the minimum monitor the system and at the worst shut it down. It was put forward that it could be Russia or China.
Full spectrum warfare is a combination of kinetic, financial and cyber warfare.
An objective of warfare is to wreck critical infrastructure.
Cyber warfare can reach that objective while being less expensive and with less casualties than kinetic warfare.
Cyber financial warfare is a type of financial warfare.
Around 2003 Jim warned about China, saying what if they took $50 – 100 million and started a hedge fund in disguise in one of the places where hedge funds are usually formed, like the Cayman Islands or British Virgin Islands.
What if they had a network of these hedge funds and it wasn’t apparent that it was a Chinese network.
What if they did a lot of trades over time that were both long and short the same stocks, just to build trust and gain credit lines. And then one day on a signal from Beijing, they started to flood the market with sell orders – sell Apple, sell Facebook, sell Google.
Doing this they could take the market down and destroy trillions of dollars of the wealth of Americans. And they could do it on a day the market is already down to multiply the effect.
Now what if you didn’t need a hedge fund to do this?
What if you could hack your way into the order entry system of a major bank and mimic their orders, which would have the same effect of spooking the market. It would be eventually discovered, but perhaps too late.
The extent that the financial infrastructure in the US is vulnerable to a financial cyber attack makes a strong case for having some physical assets, and to not own everything in the cyber world.
This could be land, gold, fine art and some cash.
Those things are all physical so you can’t hack them.
As Alex points out, gold is really the only asset that is truly uncorrelated. Everything else needs a functioning market in order to work.
IMF GLOBAL STABILITY REPORT
From the International Monetary Fund (IMF) Global Stability Report :
Medium-term financial stability risks remain elevated, driven by high non–financial sector leverage in advanced economies and rising external borrowing in emerging markets. Although the global banking system is stronger than before the crisis, it is exposed to highly indebted borrowers as well as to opaque and illiquid assets and foreign currency rollover risks.
“Liquidity under stress” is almost an oxymoron. There is no liquidity when a market is under stress.
“…financial markets seem to behave quite differently in periods of stress than under normal conditions,
measures of liquidity that tend to work well most of the time may no longer be meaningful in turbulent markets.”
Over 90% of trading on the stock market is now automated. There is no human there using common sense and making judgements. We’re not only automated as bids and orders and matching systems, but the decision itself to put in the order is automated based on scanners, and things like when the Federal Reserve releases the minutes of their meetings.
People read the minutes, but the computers read it instantaneously, counting if they use certain words like “patience” or “normalization”, and what differences there are from the last set of minutes.
The computer processes the info in a nanosecond and is programmed to buy and sell based on that.
There are no human decision makers behind the buy or sell orders. There’s no human mediation in between the buy and sell order – it’s fully automated.
Warren Buffet’s company is holding a record $115 billion in cash. He’s not going to talk about markets crashing because that’s not in his interest, and even if he talks about it privately he doesn’t know when it will happen any more than anyone else.
But he knows that the market crashes from time to time, and when it does, the person who has the cash can scoop up some great bargains.
That’s the world we live in.
On October 15, 2014, there was a flash crash in the New York Treasury Department. Other crashes had happened before that, but there were reasons for them. In this case it just happened and came out of nowhere.
On May 16, 2010, the Dow Jones dropped 1,000 points in two or three minutes. It bounced back, but tha also came out of nowhere and had no reason for it. In January 2015 the euro crashed against the Swiss franc by 20% in 30 minutes.
The IMF talks about what would happen if a crash like that happened and the market didn’t bounce right back.
What if it keeps going?
Behind the day-to-day happenings there is no liquidity.
Who can stand up to that and turn the crash around?
The answer is no one.
Central banks around the world could step in but they’re not in the shape they were in 2008.
The Fed is two years away from normalizing US interest rates back to where they have enough room to cut them in order to fix a recession.
Jim believes the Fed would stall out the economy long before they reached the 4% level they want. The Fed’s balance sheet is still at $4 trillion, up from $800 billion in 2008.
One reason it’s not coming down faster is because people aren’t refinancing mortgages early because rates are rising.
What the IMF is warning about is:
A: There’s no liquidity
B: If you needed liquidity and you turned to the central banks they don’t have the ability or freedom to help like they did in 2008. The Fed could keep printing, but at some point there’s a loss of confidence in the value of those U.S. dollars as the debt rises.
An investor needs true diversification. If you’re all in stocks then you should see that today stocks have become commodified – they all tend to go up and down together.
To be diversified you should have some stocks, some cash, some bonds, some land and some gold.
Gold has been called a flight to safety. A safe haven. What it is is another form of money, like the US dollar, the euro, the pound sterling, the yen or yuan.
Russia has tripled their gold reserves in the last 10 years.
China has tripled their gold reserves in the last 10 years.
That’s a lot of gold.
The total official physical gold in the world that’s owned by nations is 33,000 tonnes.
If China and Russia alone have acquired about 4,000 tonnes in the last 10 years, that’s more than 10% of all the official gold in the world.
The entire mining output of the world is a little over 2,000 tonnes per year.
Mining output is flatlining. So if you have a flat supply and an increasing demand where’s the gold coming from?
It’s coming from existing holders. That’s the tailwind keeping the gold price where it is.
The headwind for the price is the Fed raising interest rates and the ECB considering raising interest rates. Gold prices would normally be going down as interest rates rise.
Inflation has gone down a bit so there’s a mild bit of disinflation going on.
A strong US dollar means a lower US dollar price for gold.
Real interest rates going up compete with gold because gold doesn’t have a yield. That’s keeping the price from going up.
The central bank buying is keeping it from going down.
Very recently Poland announced that they were buying gold for their reserves. Even though they’re in the EU. The EU is all about paper money and no gold, and yet Poland is now buying physical gold for their reserves.
And now Hungary, which is not in the euro, just increased their gold reserves by a factor of 10.
All of the sudden the markets are taking notice – it’s not just Russia and China.
Gold might not be just a flight to safety or a safe haven. Maybe gold is just money.
As J.P. Morgan said in 1910, “Gold is money and nothing else.”
(From the 2016 article Calling the Banners:)
In a world where corporate and nation-state allegiances are breaking and forming, new technology is re-creating what is power and what is real and virtual. Debts in the old world are being called before new ones begin. Battle lines are not yet overtly drawn but certainly played out in ‘games’ being discussed behind closed doors. In this world gold is something of value that does not belong to a brand.
Gold at its elemental state does not belong to a house, nation or any other closed system.
Gold has no banner. It has no brand.
It takes no side.
This is exactly why it’s important to hold some as money when money brands go into crisis.
It’s the gold in itself that’s valuable.
If nations are buying some gold to diversify in a world of flat supply and increasing nervousness like the IMF’s report, you’re going to see a higher price for gold.
Gold has been trading in a very narrow range from $1,185 to $1,215 US per ounce for months.
So a $30 range centered around $1,200 per ounce – a 2.5% trading range.
When you see that pattern then it’s going to break out either up or down. Jim believes it will break on the upside because of the fundamental supply and demand we just talked about.
If the Fed pauses raising interest rates then gold won’t be competing with the dollar and the metal price will go up.
That’s what happened over the last week of October 19, 2018. Gold broke out on the upside.
As the market has bad days, as more information breaks out about Chinese intellectual property theft, the US clamps down more on China, the sanctions on Russia, plus the actions of central banks buying, this will all wake people up and they will get some for themselves.
It looks like gold will have a good run up into the end of this year and maybe more next year.
Alex points out that gold is money, but doesn’t have any counterparty risk like other forms of money. When a nation issues money the money relies on that nation. If that nation falls then their money becomes worthless. Even Bitcoin relies on a functioning internet. If the internet goes down then the Bitcoin is valueless and useless. Gold always retains its value.
GREAT POWERS AND GOLD
There’s never been a strong great power with a weak currency.
When the British Empire was at its height the pound sterling was at its height. When the US was at the height of its power at the end of World War II and the decades that followed, the US dollar was at the height of its power.
You really cannot talk about the future of the US dollar and the international monetary system without discussing US national security, and the future of the US as a great power.
A lot of the future of the international monetary system is well under way. It’s not guess work. It’s not things that will happen in ten years, they’re happening now.
They’re things that have already happened. We’re already down the path.
There used to be two schools of thought on the future of the US dollar:
- The dollar is the global reserve currency. Has been for a long time, is today, and always will be.
- The dollar is the global reserve currency. Has been for a long time, is today, and steps must be taken to keep it that way.
A strong dollar doesn’t mean a specific exchange rate, it means a stable dollar that continues to have its role as part of global reserves.
In order to keep it as the global reserve you have to work at it.
You have to have an attractive investment environment. You have to have a strong military and a stable fiscal policy.
You can’t be going broke, which the US unfortunately is.
The rebuttal used to be that there was nowhere to go for a global reserve currency other than the US dollar.
There really isn’t a good alternative reserve currency for world trade when it’s based on rule of law, liquidity, financial infrastructure and a large enough bond market. The Chinese may be growing a bond market but it’s not that big or that liquid, and there’s no rule of law and nothing to stop them from reneging on the bonds.
You need the infrastructure to have a bond market, and you need a bond market in order to be a reserve currency, otherwise there’s nothing to invest in.
That was the rebuttal before, but what has changed?
Is there another currency that can be the world reserve currency?
Here’s a game theory on a future monetary system based on a sovereign issued cryptocurrency, with a permissioned distributed ledger sponsored by China, Russia and the IMF, with a digital coin tied to the SDR for measure of value net of payments, and settled periodically in physical gold.
I could now get up, walk out of the room, and return in ten minutes with a new currency I just started.
With the software you could start a cryptocurrency in ten or fifteen minutes.
It could be the Putin coin or the Xi coin.
If you’re starting with a blank piece of paper then all the deficiencies that ruled out the yuan as a reserve currency don’t count.
What counts is just how good the new things is that you created.
This idea already exists in part and they’re working on the finishing touches.
Imagine a highly secure, highly encrypted distributed ledger maintained by China and Russia, with others like Turkey, Syria, North Korea, Venezuela, Brazil and Iran joining in.
They would have a new coin, even a baseball card – it doesn’t matter what the token is because they’re just keeping score.
And this new coin, the Putin coin or Xi coin, would be denominated in the IMF’s Special Drawing Rights (SDRs).
One Putin coin would be worth one SDR.
So, there’s your anchor.
You don’t have to talk about the dollar or the euro. They would all agree that one coin is worth one SDR.
Now, all of a sudden, you have a relatively stable global store of value maintained by the IMF.
They all start trading goods and services using this coin.
So it’s basically trading in SDRs as the world reserve currency, but they’re maintaining a private, encrypted distributed ledger to keep score.
Then periodically they figure out who owes a balance to whom and that party ships physical gold over to balance the trade. It would be a net settlement in a given period of time – a month, quarterly or yearly. This way the amount is much smaller than if they were using gold for each trade.
That would work.
But to do it you would need a lot of gold to start.
That’s what they’ve done.
All the countries mentioned above have been buying gold.
This has nothing to do with Bitcoin, Etherium, Ripple or any of the known coins.
This would be a new coin sponsored by Russia and China, anchored to the SDR and settled in gold.
Hey Treasury. Maybe you should buy some gold. (Hey Canada. You should buy some gold.)
Jim spoke with Paul Volcker and Kenneth Brown Jr., two of the five people who were the advisors and decision makers at Camp David in 1972 when the US went off the gold standard.
At that time the international trading nations could convert their US dollars for physical gold. But there was a run on Fort Knox so on August 15, 1971 President Nixon suspended the convertibility.
Both Volcker and Brown told Jim the same thing – Nixon thought the suspension of US dollars for gold was temporary.
Nixon didn’t think they were going off of the gold standard, they just wanted a time out.
They knew they were going to have to devalue the dollar. They knew they were going to have to reset Bretton Woods. That’s why they had the Smithsonian Conference the following December.
They thought they were going to go back to Bretton Woods with a devalued dollar.
(Bretton Woods: The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained its external exchange rates within 1 percent by tying its currency to gold and the ability of the IMF to bridge temporary imbalances of payments.)
And they never did go back.
Japan and Germany and others said, “To heck with it. We’re just going to floating exchange rates.” They decided to do their own thing and let the Americans figure it out.
There were some compromises and gold was revalued to $42 per ounce instead of $35 per ounce, which was a 20% devaluation for the US dollar.
And they never went back to the gold standard.
We’ve all been in the nightmarish world of floating exchange rates ever since.
We might now be back at the point where we need to do another reset.
Except going the other way.
Instead of devaluing the dollar the US might need to strengthen the dollar and buy some gold.
Nothing on this site is intended as individual investment advice. We’re all watching which way the wind is blowing.
Gold is at $1,232.40 U.S. per ounce. From Kitco News.
I’m currently in Kelowna, British Columbia close to the Gold Rush Trail. Working away.
I was out for a few months with a not-so-fun case of shingles. Who gets that? I’m never sick so it was weird, but I tell you, it’s a good way to step outside the snowglobe and view the world without constant input from media and others.
Perhaps now I can put two thoughts together again without maybe forgetting the first one. ;)
So what does one do when one is feeling great again? They go to the Gold Rush Trail to see the wild world and make music. Yes, they do. :)
The house party on Tuesday in Lillooet was about 30 musicians out in the middle of nowhere. My favourite place.
Jim Rickard’s Gold Chronicles was such a deep topic and it wore me out this week! Things I’ve been singing about and writing about since before I met Jim, or Mike Maloney or David Morgan and many others are coming about now. When I started I was all alone writing about falling empires and gold. I wrote about gold being a shield, and now Lynette Zang uses the same analogy it in her YouTube videos. I may be able to start singing in public about these things without odd looks. Who sings about economics? Who sings about changing geopolitics and media propaganda? They were too geeky. Short selling and fiat currency. Who sings about fiat soldiers and governments wagging the dog for war?
Right now I’m thinking about gaslighting. Social media adds to the persuasion factor and social pressure. There’s intense pressure to conform or be ridiculed and excluded. The election coming up in the States just ramps up the gaslighting, trying to tell people what to believe is reality. Don’t be worried I tell myself. I know my own reality. Only I know who I am. Only I say where I stand. And those who are like me will find me and I will find them. You will too.
All is well. ;)
Elaine Diane Taylor~
November 1, 2018
Made by my hand. Pure gold right from the rivers of the Gold Rush Trail in Canada. I care about the gold, ethically sourced from artisan miners, fair paid, unrefined and beautiful.
I care about the symbolism and science of gold. New tech. Medical. Enduring value. Precious. Beautiful.
Sorry it’s behind in the unveiling, but I have a feeling that the universe has the timing of all wonderfully in hand. Thank you for your interest.
Coins and Crowns
words and music Elaine Diane Taylor
from the album Coins and Crowns available on iTunes
Thank you to Jim Rickards for including me in his bestselling book The New Case for Gold.
A Terrible Breeze (North Korea and Nuclear War)
The news comes down
A little bluebird sings
Words of war
Fire and furious things
Of testing might
‘Til no patience knows
If keeping still
Still keeps you safe at home
It’s a terrible breeze
They speak of today
Of threats that used to live a world away
We all know wind
Can blow both ways
And a terrible breeze can blow it all away
A worldwide net
Sees our village grow
Until we all forget
What each one used to know
How a blind bird’s wings
Can reach the shore
And turn the wheel of peace and war
Village fools sinking down, down, down
Debt and gold wound in numbered shrouds
Deal of a life it’s bread and clowns
Can we afford another go around?
The news comes down.
It’s a terrible breeze. The news comes down.
words and music Elaine Diane Taylor
©2017 Elaine Art & Media SOCAN/ASCAP
Single available on iTunes
I am thrilled about the peace summit and new ways of thinking about the future.
No one wants to turn that wheel of peace and war.
Not Much of a Holiday (Greek Debt and Media Persuasion)
words and music Elaine Diane Taylor
© 2015 Intelligentsia Media, Inc. All rights reserved.
Single available on iTunes
The Greek bank holiday and long lines to get a few euros for the day. Debt deals behind closed doors. The media telling us what opinions to have. China building islands in the South China Sea and claiming all the international waves. More dealing to come. More standing in line for those who owe. Who owes? There’s a long line of nations in debt and this is far from done.
Preparing for the Fall live boutique album available on iTunes — featuring Wag the Dog, Black Swan Dive, American Pie and Gods of the Copybook Headings.
The Gods of the Copybook Headings
words by Rudyard Kipling and music by Elaine Diane Taylor
©2014 Intelligentsia Media Inc.
from the album Preparing for the Fall available on iTunes
The copybooks of the early 1900s gave us all the wisdom we need. The sayings that were copied are the truths, the gods, of our world. All the empires who followed the gods of the marketplace instead have fallen, and there’s terror and slaughter when the gods of the copybook headings return. The lyrics are by Rudyard Kipling. One of my gurus.
Another Week on Wall Street
words and music Elaine Diane Taylor
© 2013 Intelligentsia Media Inc. All rights reserved.
from the album Coins and Crowns available on iTunes
See the bankers wave their Wall Street wands and conjure piles of paper green. Naked short selling is like betting that your neighbour’s house will burn down. But in this scenario it happens to burn down. If the bankers win then we lose the whole world as we know it. I wrote this in 2009, with a lyric “A little grease (Greece) is floating out to sea, and little pigs (Portugal, Italy, Greece and Spain) are bobbing up and down, they’ll send a storm and we’ll see, when the tide goes out who’s naked on the beach“, and it’s coming on now. The world is changing as we know it.