25-Year Chronology of Gold

August 9, 1999

Gold only seems to have lost its luster because prices on gold have gone down for 18 years. It is understanding why gold has gone down for 20 years that changes the tune of the gold story quite dramatically and may make it the only smart choice for one's money at the top of this historical, unprecedented equity bubble. Here is gold's true story.

  • Saudi Arabia, Europe, and the Far East believe in gold and always have.
     
  • Saudi controls 60% of the world-oil supply.
     
  • In 1971, President Nixon removed the dollar from the gold standard. Had he not done that the US would have been left goldless.
     
  • President Nixon took that unprecedented step to protect the dollar from severe devaluation, but he defaulted all US debt at that time, as it was guaranteed by gold for dollars.
     
  • In 1976, at the IMF (International Monetary Fund) Jamaica Accords, gold was demonitized in order to keep the price of dollar denominated gold cheaper.
     
  • This cheaper dollar against gold enabled the Saudi's to purchase gold with their profits in oil sales so they would have lasting value for their depleting oil reserves.
     
  • Saudi's believe that once their oil is gone they don't want dollars rather gold.
     
  • Saudi's have taken the long view on gold and continue to accumulate physical gold with their oil profits.
     
  • Today Saudi is in fear that the dollar will again default on gold contracts on the COMEX (NY Gold Exchange) and on the LBMA (London Bullion Market Association) as they did in 1971.
     
  • This fear of delivery of gold on contract to the Saudi's is the alleged yet non-public reason why the Bank of England publicly pre-announced a gold auction that effectively drove the price of gold from $292 to $253 recently. The Bank of England was the provider of last resort of physical gold to an unknown bullion bank member of the LBMA who owed physical gold to an unknown party (Saudi?).
     
  • IMF and Swiss gold sales are intended to free up additional physical gold in large quantity in order to continue honoring gold contracts to the Saudis.
     
  • The LBMA was founded in 1988 in order to handle inter-country oil for gold contracts.
     
  • Recently Frank Venerasso and Bill Murphy discovered and announced that in the COMEX and LBMA the Bullion Banks are short up to 14,000 metric tons of gold, which is a little less than 50% of the gold contained in the Central Bank vaults around the world.
     
  • The CFTC, a governmental Commodity investigative body, is currently investigating the gold market bullion banks for market manipulation for suppressing the price of gold on COMEX and the LBMA.
     
  • The short position in gold is so large that the only known guarantor of physical gold is the Bank of England had to undergo severe embarrassment world-wide in order to save a few of the LBMA bullion banks. They continue under sever political pressure today.
     
  • If COMEX gold future prices were to rise above $300 it is quite likely that several very large bullion banks would go into receivership.
     
  • Physical gold of any large quantity is in such short supply that the Euro may be the only form of accepted payment for some of these gold-short contracts.
     
  • Were that to happen, the dollar would be instantly devalued against the Euro and gold. Gold would likely rise to over $3,000 per ounce (making gold rise more than the 500% that the stock market rose in the last ten years per this morning's report).
     
  • COMEX and LBMA futures trading in 'paper' gold would cease to function as no physical gold would be available to honor any contract.
     
  • Confidence in the dollar would be lost if COMEX and the LBMA failed.
     
  • The Euro would become the World's default reserve monetary currency (Euro is 15% backed by gold at $290 gold, at $3,000 gold it would be over 90% backed).
     
  • Hedge funds who are into swaps, spreads, swoptions, and other forms of derivatives are coming under closer scrutiny recently because Long Term Capital Management (LTCM) and now the Tiger fund had or or having massive redemptions. Each of these were allegedly short gold to the amount of over 300 metric tons each. It is believed that the LTCM was allowed to pay dollars in order to get out from under their gold-short contracts.
     

From my viewpoint, this is what is playing out in the world of hedge funds, bullion, and Central Banks. What is really going on is that the Euro is in the throes of replacing the dollar as the world's reserve currency. It all centers around gold continuing to play a prominent role in international oil trades.

Another factor worthy of thought is that when gold went from $35 in 1971 to $852 in January of 1980 before the G-7 nations managed to get it back under control, that represented a 20 times rise in the price of gold - far greater than the 500% rise in the stock markets in the last 10 years.

What makes the situation worse for the dollar today is that it is not backed by gold, the hedge funds have and are seriously jeopardizing world currencies with gone-awry computer currency models, and nobody, absolutely nobody, suspects that this is really what is going on.

U.S. ranks third in world gold production with 240 tons per year