Tom Cullis here with the last installment on my discussion about
Let's get to it.
Here's what could happen with the dollar and gold in the
To look forward, we must look back - to Weimar, Germany.
If central bankers do what the Reichsbank did during the early
1920s and they continue to look at inflation and interest rates for
their cues as to what ails the markets and what should be done
about it the dollar will be destroyed.
More likely, however, is that even the academic monkeys pulling
these levers will demonstrate an ability to learn. They will,
slowly at first for sure but eventually with the expediency of
someone trying to save their own neck, come to the conclusion that
the only way to save their currency is to start listening to what
the gold market says.
If the price of gold leaps upwards they will have to tighten their
policy, if it dips they will have some leeway to loosen.
Why would the Chairman of a central bank start doing this? Why give
up some of their sovereignty and power to the market?
Because they will have to.
The market will be fighting about being forced to take losses and
try to push back. As we know, thanks to the power of the printing
press, the Fed and other CBs can't actually lose money nominally.
They can print it. So the only way for an average person to push
back is to fight the market power of each nominal dollar.
Everything comes back to the initial problem and question- who will
take these losses that already exist but have yet to be doled out?
Free-Gold is a realization that the best route for the individual
outside of the banking system is not only owning gold, but also in
holding gold for long periods of time. Central Banks will
eventually be backed into a corner that they cannot escape from.
The only recourse they will have will be a compromise between them
and the general public in the form of using the gold price to
strongly influence their policy.
The investment ramifications of Free-Gold verses other possible
outcomes, specifically a return to the gold standard, are subtle
but logical. The likelihood of the gold standard (
) returning without massive confiscation of personally held gold is
An attempt to return to the GS during a time of crisis would risk a
huge run of people changing their dollars for gold from the
government as it would be an absolute signal of the failure of the
Attempts to return without convertibility would signal weakness and
cause black market prices to spiral out of control. Realistically
the only feasible attempt that could be made would be first to
confiscate large enough sums of gold to handle the inevitable early
run once the plan was announced.
There is no such problem with Free-Gold. Attempts to confiscate
will cause a run on the dollar as the sacred gold price will be the
olive branch the government uses to try to coax the markets
confidence back. This makes public holdings of gold in the form of
ETFs (as long as the ETFs are actually holding gold) much more
secure under Free-Gold.
This is why ETFs who can verify their positions are my favorite
play with their relatively low cost of purchase and ownership. If
you do not feel comfortable with the verification of their gold
holdings pure, physical gold is the only route one can take under
this scenario. If you also come to believe that this process will
take several years the benefits of ETFs are slowly eroded by their
holding costs and again physical protection is the only way to