New GEAB Just Out…..The Decade 2010 â€“ 2020
Newest GEAB NÂ°41 Is Available!
The Decade 2010 â€“ 2020:
Knockout Victory By Gold Over The Dollar
- GEAB NÂ°41 (January 16, 2010) -
We have often reminded readers in different GEAB issues that gold constitutes both a medium/long term investment intended to protect oneâ€™s capital against the risk of a loss in value of paper currencies and financial assets, and an eventual means of payment in the event of a very serious monetary crisis. In these two cases the choice of placing a portion of oneâ€™s assets in gold is a response to anticipating events and risks in the coming years (and not the coming weeks or months). For this GEAB NÂ°41, a special edition at the beginning of a new decade, it seems opportune to LEAP/E2020 to put forward its anticipations on goldâ€™s progress for 2010 â€“ 2020, completing what the team wrote in issue NÂ°34 of the GEAB in April 2009. This view of the decade is even more legitimate since we consider our analysis constitutes an aid for both individual investors as well as for the heads of central banks and institutions in charge of maintaining the value of a large amount of assets in the medium and long term (for example, pension, sovereign and insurance funds). Indeed for the first time in almost 40 years (since the ending of Dollar convertibility to gold in 1971), the interests of the worldâ€™s central banks and individual investors, once again, converge on gold: value is no longer at all guaranteed by the Dollar as an international reserve currency and, as long as the latter has no globally recognised successor, gold remains the only asset capable of maintaining this value.
We already took a look at the paradox of the gold market in the GEAB NÂ°34, showing that if the market for the yellow metal seemed to be well controlled by the Fed and the large central banks to prevent any significant appreciation in the gold price, nevertheless, because of the global systemic crisis, the structural collapse of United Statesâ€™ influence (and thus the Fed) and the related breaking up of the international monetary system inherited from 1971, gold was a safe investment in times of great uncertainty. As a reminder, since the publication date of the GEAB NÂ°34 gold has gained more than 30% in US Dollars and more than 23% in Euros. In addition it has gained more than 100% in US Dollars and more than 85% in Euros since our first recommendation to diversify out of other investments in favour of physical gold (up to a third of assets) given in 2006.
. the development of a Â« paper gold market Â» swamping the physical gold market in a sea of fictitious contracts which are essentially pledges on gold which in reality doesnâ€™t exist (or, which amounts to the same, is repeatedly used for different contracts)
. the falsifying of the levels of actual physical gold reserves, especially those of the United States, which have not been subject to independent audit for decades
. the communication tactic, via major economic and financial media, of systematically suggesting that investment in gold is out of date, reserved for old people who only swear by gold in the same way as they would tell stories of forgotten wars, or by gold bugs whom the precious metal turns mad.
As the whole world has been able to see over the course of these last forty years, and until recently, this strategy worked extremely well, even leading a number of other countries, United Kingdom in the first place (1), to divest themselves of their gold reserves at rock bottom prices. This story thus shows very clearly the necessity for decision-makers, either to have a strong personal ability to anticipate events, or to have access to such quality anticipation. In this case, the bill for not anticipating events will reach at least ten billion USD.
But if the market, organised in such a way to permit gold to be held at a distance from the international monetary system for forty years, has continued to function, what is it that has changed and made this strong rise in the gold price possible? It is the overturning of a factor essential to world order, due to the growing impact of the systemic crisis and the entry into the phase of worldwide geopolitical dislocation: the US Federal Reserve no longer has the means to battle against the old enemy of US Dollar hegemony which gold represents. This loss of ability is, of course, a complex phenomenon, consisting of many facets which we analyse in this GEAB edition.
(1) In 1999, Gordon Brown, then Chancellor of the Exchequer, was the architect of this huge economic-financial mistake which has cost, at current prices, more than 10 billion USD in lost opportunity to the British treasury. The article in The Timesof the 12/28/2009, provides a rare example of an advantageous comparision for France vis-Ã -vis Great Britain due to its decision at the time to not follow the Â« economic and financial fashion Â» dictated by Washington. That said, British taxpayers can console themselves by bearing in mind that if there had been another ten billion in their coffers, their government would have just given it to the banks over the course of these last months. And, to raise their spirits, they ought to know that The Times forgot to state that Nicolas Sarkozy, then French Finance Minister, organised a sale of a smaller amount of French gold also on ideological grounds (Source: Boursorama, 12/30/2009). No comment!
(2) We wish to remind our readers that this sort of scenario, presented here as a yearly chronicle of the decade to come, doesnâ€™t pretend to be a detailed description of future events. Its main purpose is to make more understandable, more lively the trends identified during the work of anticipation. These chronicles of the future are, so to speak, a pictured version of the fundamental analyses described elsewhere.
(3) Â« The painful dawn Â» because giving birth to a new world order can only be painful, like all birth, even if what follows is clearly positive.
(4) Â« The tragic twilight Â» because if this is the route which is followed, it will have all the characteristics of a tragedy, i. e. a sad ending and the awareness by all the participants in the story that it will finish very badly.