• 3 hours Where Will Gold Go From Here?
  • 19 hours COVID-19 Is Fueling A Pastic Waste Crisis
  • 1 day Gold Output Set To Decline
  • 2 days Uber And Lyft Look To Go Electric
  • 3 days COVID-19 Is Crushing Palladium Demand
  • 4 days This ‘Once-Boring’ Tech Company Is Now Super Hot
  • 5 days Will Air-Based Protein Be Our Future Food?
  • 5 days Google Pledges To Go Carbon-Free By 2030
  • 6 days A New Twist In The TikTok Saga
  • 6 days Gold Inches Closer To $2,000
  • 7 days Delivery Drones Are Coming Sooner Than You Think
  • 7 days Traders See More Volatility Ahead For Commodities
  • 8 days How COVID-19 Is Transforming The World's Sovereign Wealth Funds
  • 8 days Electric Vehicle Demand Set To Outpace Battery Metal Production
  • 9 days Copper Continues To Outperform
  • 10 days The Jury Is In: ESG Is A Megatrend Now Worth $250B
  • 10 days Today’s Young Adults Aren’t Leaving the Nest
  • 11 days Positive Economic News Could Be Bad For Gold
  • 12 days Why The S&P 500 Snubbed The Most Valuable Car Company In The World
  • 12 days Gen Z And Millennials Are Fueling An ESG Boom
Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

John Browne

John Browne

John Browne is the Senior Economic Consultant for Euro Pacific Capital, Inc. Mr. Brown is a distinguished former member of Britain's Parliament who served on…

Contact Author

  1. Home
  2. Markets
  3. Other

Price Gap Portends Gold Price Boom

Most consider the New York market 'spot' price for an accurate indication of the true price. However, investors now buying buy physical or 'fabricated' gold, are paying a premium of between $20 and $30 per ounce. When these gaps existed in the past, major increases in the price of gold were imminent.

For much of the 20th Century, gold continuously defied global government efforts to restrain its price. The premium currently in place may be evidence of the latest round of such policies.

In 1934, President Roosevelt devalued the U.S. dollar by some 75 percent by raising the official price of gold from $20 to $35 an ounce. This opened the door to the first great wave of inflation of the 20th Century. Following World War II, national governments, particularly the American Treasury, held the vast bulk of the free world's gold. The official $35 price was maintained, almost by official dictate.

However, in the 1960's, a 'free' market gradually developed that traded gold at a premium to the official $35 price. In response, the London Gold Pool, a central bankers' gentlemen's agreement led by the Bank of England and the New York Fed, was established to hold the so-called 'free' market price of gold "to more appropriate levels" ... to "avoid unnecessary and disturbing fluctuations in price" which could erode "public confidence in the existing international monetary structure." The agreement lasted until 1968. Thereafter, the price of gold was set solely by the free market.

As the inflationary financing of the Vietnam War began to filter into the international economy, private investors and nations with trade surpluses began to buy gold to protect their wealth. The 'free' market price began to soar above $35 an ounce. Far from reducing the demand for gold, as many esteemed Keynesian economists had predicted, this free market price increased the demand for gold.

Surplus nations demanded gold from the American Treasury at the official price. Experiencing a serious run on the national official gold reserves, President Nixon broke the U.S. dollar gold exchange link in August 1971. It unleashed a wave of competitive international currency devaluations and the second great inflation of the 20th Century. Subsequently, the U.S. dollar was devalued further, by some 20 percent, as gold officially was revalued to $42 an ounce.

However, led by America, the central banks then made a determined attempt, through the IMF, to "demonetize" gold. Central banks agreed not to fix their exchange rates against gold and agreed 'voluntarily' to the removal of their obligation to conduct transactions between themselves at the official price.

In addition, the IMF was persuaded to 'distribute' some 153 million ounces of gold into the market and to minor nations. This had the perverse effect of greatly increasing the interest in owning gold.

An even stronger 'free' market began to operate alongside the official price. As inflation continued to clime, so did gold. In the early 1980's the free market price reached $850 an ounce, while the official price remained at $42 an ounce.

In 1999, the Central Bank Gold Agreement (CBGA), also known as the Washington Gold Agreement, led to the coordinated sales of central bank gold via the IMF. Clearly designed to depress the free market price, it is widely believed that the IMF sales were timed to magnify volatility in the free market price in order to destroy gold's perceived worth as a 'store of value'. The CBGA was renewed on September 27, 2004, for a further five years.

More recently, market dealers have become increasingly aware of a covert official 'blessing' for large naked short positions opened by major 'bullion' banks. These bets are designed to force down the free market price of gold.

In the mainstream investment community, gold has been consistently scorned as an investment. Many respected analysts have even suggested that gold's allure is wholly based on perception and that the metal lacks intrinsic value. And yet, in terms of U.S. dollars, gold returned about 5.8 percent in 2008, following a 31.4 percent return in 2007. Thus far in the 21st Century, gold has delivered an average annual return of some 16.3 percent.

Despite the powerful attempts of governments to eradicate gold's role in monetary affairs, the free market price has risen continuously. Today, although the possibility of global depression act as a head wind, the existence of an "above market" premium for fabricated gold, may foretell a major threat to the credibility of paper currencies, a major U.S. dollar devaluation and a consequent strong rise in the price of gold in the months ahead.

For a more in-depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar, read Peter Schiff's just released book "The Little Book of Bull Moves in Bear Markets." Click here to order your copy now.

For a look back at how Peter predicted our current problems read the 2007 bestseller "Crash Proof: How to Profit from the Coming Economic Collapse." Click here to order a copy today.

More importantly, don't wait for reality to set in. Protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com. Download Euro Pacific's free Special Report, "The Powerful Case for Investing in Foreign Securities" at www.researchreportone.com. Subscribe to our free, on-line investment newsletter, "The Global Investor" at http://www.europac.net/newsletter/newsletter.asp.

 

Back to homepage

Leave a comment

Leave a comment