The Next Phase of Gold's Meteoric Rise

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Includes: DGL, DGZ, DZZ, GDX, GDXJ, GLD, GLL, IAU, PHYS, SGOL, UBG, UGL
by: James West

Now that gold is muscling its way towards $2,000/ounce, the forces of ignorance embodied by post-secondary-accredited yet nonetheless clueless commentators are being given voice by government sponsored media outlets such as CNN. Tokyo Rose was the generic handle accorded to any of a dozen women who, during World War 2 broadcast programming designed to undermine the morale of American troops over the radio.

Coverage such as stories like “The Case Against Gold” on CNN Money are designed to undermine the determination of gold accumulators who are genuinely frightened about the purchasing power of their dollars as their government ‘quantitatively eases’ the economy back onto its feet. By continuously counterfeiting fiat currencies and flooding the markets with such ersatz lucre, the final rush towards economic collapse is momentarily cushioned.

But make no mistake. The acceleration of the rate at which gold increases – the average has been $87 per year since 2000, and in the last 365 days from today, that number is $317 – is an analogous signal that the rate of deterioration of the global economic system as a whole is itself accelerating proportionately. Contrary to the misguided tone in the CNN article suggesting now is not the time to get into gold, the correct sentiment should be that now is the time to put ALL of your liquid, dollar-denominated wealth into gold. All of it.

Here’s what is going to happen next:

  1. We’ve reached the brink where the next phase is hyper-inflation. This is where money can’t be printed fast enough to keep up with its devaluation. Governments will stop accepting, first and foremost, U.S. dollars for the settlement of international trade, and will look to their own currencies. This will have the effect of paralyzing the global flow of commodities and commodity-derived industry, which will further paralyze national economies, which will respond by printing yet more money, which will cause another devaluation in purchasing power, in this end-game spiral to the bottom of this hole we’ve dug.
  2. The first casualty of the collapse of the economic system will be civil order. Crimes against property will skyrocket roughly proportionate to the rate of currency devaluation as families find themselves cornered by lack of goods on the shelves in markets, and there is no choice but to steal from whomsoever is weaker.
  3. Finally governments desperate to restore order and re-establish a new global economy to facilitate the flow of goods again will sit down and negotiate the establishment of a new form of global currency that will essentially tie the amount of money one can print to the value of a country’s GDP, which at the end of the day, is the only realistic way to mark a currency’s value accurately. Gold at this point, will be re-embraced as the defacto standard by which currencies are valued, and should be able to hang onto that role as long as history is accurately recorded and taught.
  4. This will bring about an end to the meteoric rise of gold, and should see its price flatten out, if this scenario unfolds.

As to the exact dates of this scenario, it is impossible to predict, because the variables that will force the final capitulation economically are unknown, such as how much money will be issued before the diminishing of purchasing power surpasses the rate at which money is created, and when exactly any given food producing country will stop accepting currency from its trading partners.

In this scenario, less-developed and less-populated countries that are agriculturally self-sufficient will fare much better than over-populated, over-industrialized agriculturally import-dependent nations.

Countries like Peru, Argentina, Vietnam will continue to eat. Europe, China and most fittingly, the United States, will suffer most.

The current war of words between China and the United States over currency, and Japan’s present requirement to sell its own currency to push down the yen’s value, are also indicators of a broadening monetary crisis. Here are Tiny Tim Geithner and Barack Obama, neither of whom have a native macro-economic brain cell that functions properly, issuing threats to China about unfairly propping up the value of its currency while apparently ignorant about Japan’s violation of the free trade mantra supporting free-floating currency exchange rates.

It's truly astonishing that the hypocrisy of such policy remains under-reported in the mainstream financially media – clear evidence of the Tokyo Rose type of role that top tier financial programming has been roped into.

China holds all the cards here. If it decides the United States needs to be taught a lesson, it will just sell of some of its vast holding of Treasuries and force the United States into hyperinflation. The final days of the U.S. hegemonic empire are at last coming to a close, and the world, including clear-minded Americans, should sigh in relief when that day finally comes. Then we can get to work, as a unified world, to build a more realistic and equitable global economy.

Disclosure: Long Gold...I own a gold mine!