October 07, 2011 – Forty-five years ago Alan Greenspan wrote: “In the absence of a gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.” That is becoming ever more apparent today despite the efforts of central banks around the globe to breathe some life back into their fiat currencies.
So how do we explain the lingering pullback in the price of gold bullion? It certainly cannot be that gold has somehow lost its luster as a safe haven. I believe it is merely in a holding pattern while investors rethink their strategies in the face of unprecedented structural changes in the global economy.
The first step for big investors is to maximize liquidity, and for the short term the dollar is as good as anything else. But that will be only temporary. The liquidity of physical gold rivals that of cash and in terms of wealth preservation there is no contest. No matter how great their distaste for gold may be, investors are rapidly realizing that it is the only game in town.
China is well aware of the growing mistrust of all paper assets and it is leveraging that sentiment in its five-year plan to dominate the global monetary system. When the Pan Asia Gold Exchange (PAGE) opens next year it will trade strictly in physical gold based on the renminbi. While western nations continue blindly following the fool’s gold of fiat money, China is taking steps to firmly link its currency to real gold.
The plain truth is that western economies have dug themselves in too deeply with deficit spending to put up much of a fight. “It will be a while before there’s serious consideration [in the west] for currency reform associated with a restructuring of the worldwide financial system,” Ron Paul says in End the Fed. “But the day is fast approaching when it won’t be out of choice but out of necessity that we will have to face this issue.”
We would all do well to heed that warning and to follow China’s lead. For us as individuals that means buy gold bullion while the price is right.
