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August 18, 2008

How Low Will Gold Go?
by Alex Wallenwein

That's a silly question.

Gold doesn't go anywhere. What "goes" up or down are the dollar figures we have all been trained to attach to it - but we all know, for a fact, how illusory those are.

Today, a "dollar" is primarily an accounting unit. Nothing more than a concept, an idea - and a very fleeting one at that. It is created just like that, and it can be destroyed just like that, and it's the same thing with all other fiat currencies.

Currencies are pure legal fictions. They are treated by the law as property, but just like corporations aren't really "persons" they are not property themselves. Today, it is literally impossible for you to hold "a dollar" in your hand. All you can hold is either a piece of paper that says it is a federal reserve note and that carries the legend "dollar" next to a number imprinted on it, or you can hold a piece of gold or silver in your hand that states it is "worth" so-and-so many dollars - and you KNOW that the number is way off.

In times like these, the accounting unit, i.e., the mental concept of what an ounce of gold is "worth" to most people (and at which price they are willing to exchange it for something else) is said to be less than 800 of those ideas, those afterthoughts, we call "dollars."

So what? Who cares?

At this point, one of the largest dealers in American Silver Eagles coins is sold out, there is talk of rushes on precious metals dealers in London, and in Saigon, Vietnam, several access roads to large gold dealers experienced traffic jams, all from retail investors. Yet, the rigged COMEX-generated "price" of gold and silver is falling.

Jim Turk of GoldMoney reports (click on 'Founder's Commentary) that there still is no shortage of large LBMA bars of gold and silver, but that may not last long. What does that tell you?

The actual price of gold is far higher than the illusion the major exchanges create for you.

So much for the non-existent tangible property aspect of what a "dollar" is. Now, let's go back to the collective price-illusion we attach to gold. Our real question is: "How low can the illusory price of gold go while there are serious supply bottlenecks that are popping up all over the place?

The price-illusion of gold and other metals (let's call it the "i-price" for brevity's sake) is manufactured mainly at the New York Commodities Exchange. There, willing trader-sheep are presenting themselves for their voluntary fleecing every day. They place bets on the i-price of gold while knowing full well that, if worse comes to worst and their winning bets cannot be filled one day, they have to go to court for a dollar-settlement on their claim. I wonder what a dollar will be worth relative to real goods and services in those days?

The only reason the i-price of gold is falling is this fact - that virtually nobody takes delivery of the gold they contract for at the exchange. If everyone took delivery on their contract at expiration, there would not be any gold left to play with. The i-price of gold would have to rise to a multiple of what it is today, until it coincides with the "a-price" - the actual price that normal laws of supply and demand would dictate.

To keep a potentially endless article very short, the answer to the question of "how low will gold go?" is a thundering "IT DOESN'T MATTER. GO GET YOURSELF SOME - NOW!"

It absolutely matters not how low the price goes. You are lucky if you can find any gold or silver at these prices, so if you can find some, buy it. The lower it goes, the better for you.

Now, since large bars are still available, would it not make sense to buy some while they are, at these incredible i-prices? I think it would.

Sooner or later, even the mutual fund managers who buy and sell contracts instead of storing metal will figure this out. Until then, happy buying!

Got gold?

Alex Wallenwein
Editor, Publisher
The Euro vs Dollar Monitor

Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is your golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

Copyright © 2003-2008 Alex Wallenwein

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