Egon von Greyerz: TWO RESETS Likely That Lead
To A Physical Gold Price At Unthinkable Heights
Egon says the first reset will be fake and not
solve anything, which is why Egon says we’ll likely see a second reset. Here’s
what it means for gold…“THE VALUE OF THE DOLLAR HAS
NO GUARANTEE WHATSOEVER”
The statement above is of course totally accurate for a country
running budget and trade deficits for over half a century with a total debt,
including unfunded liabilities, in the hundreds of trillions of dollars.
It could have been said today, but it actually dates back to
August 1971 when the People’s Daily in China declared the beginning of the end
for the monetary system of the capitalist world.
This prescient statement certainly has Cassandra
characteristics. Cassandra was the princess of Troy who was given the gift to
make prophecies that were true but no one believed. The Chinese government saw
already 48 years ago that Nixon’s decision to end the gold backing of the
dollar would be the end of the dollar and the Western monetary system. No one
believed their prophecy at the time. But they are being proven right.
THE CHINESE PREDICTED THE
DOLLAR FALL
Starting my working life in a Swiss Bank in Geneva two years
before Nixon’s fatal decision, I have experience of that fall of the dollar
that the Chinese predicted. In 1970, there were 4.30 Swiss francs to the
dollar. Today you get just under one Franc for one US$. That is a catastrophic
collapse of 77% of the world’s reserve currency in almost 50 years. If we look at
the graph of the dollar against the Swiss franc below, we can see that this
currency pair has been in a long consolidation at the bottom since 1987.
The next leg down in the dollar is not far away and the target
over the next few years could be anywhere between 0.40 and 0.00 Swiss francs.
This means a further fall of 60% to 100% could take place, making the dollar
worthless. This confirms Voltaire’s statement that “all currencies eventually reach
their intrinsic value of ZERO”. We know that this move to zero
is virtually guaranteed measured against gold. But more surprising is that it
could also happen against the Swiss currency. The Swiss banking system and the
Swiss National Bank also have serious problems, so eventually the franc is
likely to reach almost zero against gold too. But the dollar will win that
race.
CHINA PREDICTED IN 1971 “THE
DECLINE OF THE CAPITALIST SYSTEM”
The People’s Daily is the most influential and authoritative
newspaper in China. It has been the official voice of the central government of
the People’s Republic of China for the last 71 years.
The paper declared in 1971 when Nixon closed the gold
window: “These
unpopular measures reflect the seriousness of the US economic crisis and the
decay and decline of the entire capitalist system.”
The paper further stated that the measures “mark the collapse of
capitalist monetary system with the US dollar as its prop” and that “Nixon’s
new economic policy cannot extricate the US from financial and economic
crisis.” The article predicted instead that the measures would
intensify the crisis.
Nixon declared in 1971: “The
time has now come for a new economic policy in the United States. Its targets
are unemployment, inflation, and international speculation. And this is how we
are going to attack those targets……. The time has come for decisive
action – action that will break the vicious circle of spiralling prices and
costs.”
NIXON’S FATAL DECISION
The Chinese understood already in 1971 that Nixon’s decision
would have disastrous consequences, contrary to what Nixon declared. So
here we are today with galloping inflation (including asset prices), collapsing
currencies and exploding debts. All the things that Nixon said he would
prevent.
Nixon stated further in his speech: “We must protect the position of the
American dollar as a pillar of monetary stability around the world……..I am
determined that the American dollar must never again be a hostage in the hands
of international speculators.”
Little did he understand that his decision would have the
opposite effect. Without
gold backing, the dollar was not in the hands of speculators but instead in the
hands of the US government and the Federal Reserve. And that is why the dollar
has, since 1971, lost 97% against real money, which is gold, 57% against the
DMark/Euro and 77% against the Swiss Franc.
CHINESE WISDOM VS WESTERN
MADNESS
The wise Chinese predicted all this 48 years ago. Virtually no
one in the West had a clue that Nixon’s catastrophic decision would be the
beginning of the end for the US and Western economy and currencies and before
that create the mother of all bubbles.
The 1971 article in the People’s Daily also saw the consequences
of the US actions for the rest of the world: “The policy is meant to fleece the American working
people and to shift the worsening of the US financial and monetary as economic
crisis onto other countries.”
This is of course what has happened. The disastrous US monetary
policies has spread like the pest to most countries in the world with exploding
debts, falling currencies and massive inflation.
“The United States has forced other countries into accepting the
primacy of the dollar and used power politics to maintain its privileged
position”, said the People’s Daily in 1971.
In the meantime, the dollar’s real value has been undermined by
the erosion of US gold reserves “brought
on by the US imperialist policy of aggression and war.”
IS THE US GOLD GONE?
To suspend the convertibility “will
eventually bring unprecedented destructive blows to the faith in the dollar,
because this is tantamount to an open admission by the US government to the
whole world that the
value of the dollar has no guarantee whatsoever.”
There we have it, China’s ability to analyse the world around
them, and the weakness of the US and Western policies, has enabled them to
create the second biggest economy in the world or on a Purchasing Power Parity
(PPP), the number one economy. China’s GDP was $100 billion in 1971 and is
today over $12 trillion or on a PPP basis $23 trillion.
But this rapid growth has not happened without major risk. China
is today in a precarious position with total debt having grown from $2 trillion
to $40 trillion since 2000. As long as China can avoid a disorderly debt
collapse and a revolution, it is likely to be the number one economy in the
world on any measure in coming years. But the next few years will be tumultuous
for both China, the US and the rest of the world as the world economy suffers
from the coming economic downturn or collapse.
MARKETS
My views on long term market developments in the next few years
have not altered for a very long time.
We will see a much lower dollar, collapsing stock and bond
markets and much higher gold and silver prices. It
won’t all happen at once. Bonds could easily pause their long term uptrend for
a while before moving up strongly again.
Short term, the dollar looks weak and will soon resume its
strong long term downtrend. So
time to get out of dollars before it falls dramatically and the US implements
exchange controls.
US stocks are now at a decision point. By far the most likely is
that the downtrend which started in the autumn of 2018 will soon resume in
earnest with a big drop next. The much less likely alternative is a final
hurrah to new highs before the collapse. Other stock markets will follow the
same pattern.
Gold and the other precious metals are on the way to new highs.
There are two different paths for gold. One, which is favoured by some market
experts, is a reset orchestrated by the IMF and the World Bank leading to a
gold backed SDR. That would involve gold trading ceasing for a limited time,
starting one weekend. When the market opens again, gold will be revalued to a
much higher level which in US dollar terms could be $5,000, $10,000 or higher.
The other alternative is that market demand and pressures make
gold rise very fast to new highs, and way beyond that, in the next few years.
This would be a disorderly reset.
Since I would have no faith in the first official reset which
will be fake and not solve any of the world’s problems, we are likely to see
the second reset in
any case. At that
point the gold paper market will go to zero and the physical gold market to
unthinkable heights.
In either case, the last chance of getting hold of gold at low
prices, or at all, is now. Gold is unlikely to wait for a bigger number of
investors to get in at these prices. So now is the time to get on the Gold
Wagon before it is too late.
GOLD IS WEALTH PRESERVATION –
NOT INVESTMENT OR SPECULATION
But remember that gold is acquired for wealth preservation
purposes and not for quick gains. Thus it must be held in physical form and
stored in safe jurisdictions, outside the financial system. Personally I think
confiscation is less likely this time with high taxation of the assets of the
wealthy much more likely. But if any country would confiscate gold, the US has
done it recently and could do it again. When Roosevelt confiscated gold for US
citizens in 1933, gold held by Americans outside of the US was not confiscated.
As I have shown recently, gold is now as cheap as in 1970 or
2000. So today is a unique opportunity to acquire gold at a price that is
unlikely to ever be seen again.
DE GAULLE CONVINCED NO US
GOLD LEFT
Tinker, tailor, soldier, sailor, rich man, poor man, beggar man, thief
This old nursery rhyme, or counting game, dating back from the
late 17th century, could be seen as a prediction of things to come. Many
people, from various backgrounds, could soon realise that they may become a
poor man, beggar man or thief within the next 5 to 10 years as the world
experiences a massive wealth destruction.
Tinker used to be someone who travelled around to mend pans and
utensils. The verb Tinker also means to tamper with or manipulate. No one
should be under the illusion that the powers that be in any way are tinkering
or repairing the world economy. No, the tinkering that is going on tells us
that we are now in the very final stages of the biggest manipulation or rigging
of the world economy, markets, gold, news, politics and people etc that the
world has ever experienced.
THE WORLD IS UNPREPARED FOR WHAT IS TO COME
Since this level of manipulation has never, ever occurred in
history, no one can predict the magnitude of the collapse that will take place.
Even worse, 99.99% of the world’s population is totally unprepared for what is
going to come. And even the minuscule minority who are predicting a cataclysmic
event will not evade the suffering that would follow.
No one knows where or how it will begin. It can start with a slow
decline in the economy and markets or there could be a sudden and sharp drop,
taking everyone by surprise. What is certain is that the consequences will be
devastating for the majority of people. Many will lose their jobs, social
security benefits, pensions, medical care and all the normal supports that they
have been used to.
Also, very few realise that the high standard of living in the
West in the last many decades has nothing to do with real economic growth or
productivity. Instead it is all based on debt and printed money to the extent
of at least $500 trillion including unfunded liabilities such as medical care
and pensions.
THERE ARE NO RESERVES
A rigged world economy based on debt has no foundations and no
reserves. The bubble can be expanded for a limited time by just issuing more
debt and this is what we have seen since the 2006-9 financial crisis. The fake
life support that the world economy has received in the last 10 years, in the
form of additional debt of $125 trillion, has inflated asset markets to the
extent that the rich are getting insanely richer and the poor are just landed
with more debt. But doubling
global debt in 10 years to $250 trillion has not just doubled risk. Instead,
risk has grown exponentially as the quality of the debt has deteriorated
catastrophically.
Global government debt is at record highs and at unsustainable
levels and so is corporate debt and personal debt. The problem is that there
are no reserves. To draw an analogy with people and longevity, very fat and
very thin people on average live shorter lives than the ones with moderate
overweight. Because the extra fat reserves protects you in periods of weakness
or disease. The same with the world economy, when the next crisis comes it will
become evident that the world has no reserves. The only way the world can deal with the
next debt crisis is by printing money and issuing more debt. But you can’t
solve a debt problem with more debt.
When the crisis soon hits the world, corporate profits will
suffer. Highly indebted companies will not meet their debt covenants,
especially as interest rates will also rise with inflation going up and bond
prices collapse. So companies will default on their debt. Same with the
property market. Commercial property will suffer as tenants can’t afford the
rents. Same with retail property which will collapse as spending comes down.
The West and especially the USA is over-shopped with retail space and most of
it at very high rents. As people lose their jobs and interest rates rise, the
housing market will collapse by 75% to 90%.
DAILY GOLD TRADING 850X DAILY MINE PRODUCTION
Of all the manipulated markets, gold might be the worst of them
all. Investment gold represents less than 0.5% of world financial assets. Why
then one might ask are daily
traded gross gold volumes over 2x the S&P 500 volumes.According
to the World Gold Council, gross traded daily gold volume is US$280 billion.
The daily S&P volume is $125 billion.
Annual gold mine production is $120 billion or $329 million per
day. So why is daily gold trading at $280 billion, 850x daily mine production
of gold? Who
shuffles paper gold back and forth to the extent of over 1/4 of $1 trillion on
a daily basis. It can’t be the investment market which is very small. It could
be speculators but not at that magnitude. Most likely is that the bullion banks
are trading massive amounts of gold to cover up for the major shortage of
physical gold and especially central bank gold. We know that bullion banks and
futures exchanges only have a fraction of physical gold to cover the
outstanding paper gold commitments.
SILK ROAD BUYS ALL MINE PRODUCTION
The official Central Bank gold reserves are around 32,000 tonnes.
This figure probably understates the holdings of many Eastern countries like
China. The gold buying of the Silk Road countries China, India, Turkey and
Russia is relentless. Since 2005 they have bought 33,000 tonnes. The buying
accelerated in 2008 and since then they have bought 29,000 tonnes. This means
that in the last 11 years, these Silk Road countries have bought virtually the
total gold production every year.
IS THERE ANY US GOLD LEFT?
Gold Reserves are supposed to be just what they are called,
Reserves to back the currency and the stability of the country. In spite of
that many countries like the USA, UK and Switzerland have reduced their
reserves significantly. Switzerland and the UK sold most of their gold at rock
bottom prices at the end of the 1990s. The US had 20,000 tonnes at the end of
the 1950s but then sold 12,000 tonnes between 1958 and 1971. Looking at the
chart below, the US
stopped selling gold after Nixon had closed the gold window in August 1971. One
might ask if they have actually stopped selling or if they have just stopped
reporting the sales? Until August 15, 1971, Sovereign
states could demand payment of debt owed by the US in gold. De Gaulle did this
for France and that is one importing reason why Nixon ceased the gold backing
of the dollar.
Virtually no
central bank in the world publishes a full physical audit of their physical
gold or any derivatives positions. The US has not done this since the 1950s. Same
in most other countries. Since gold is a major asset held by the state, there
should obviously be a detailed independent audit. The only reason why no
country undertakes or publishes an audit is clearly because they don’t have the
gold. A full audit of Western central bank gold would most probably reveal that
the majority of the gold is gone. Some banks might have paper gold but they
will never get the physical back since that has gone to China and India.
DE GAULLE WAS CERTAIN THERE IS NO US GOLD LEFT
Sources who were close to de Gaulle have informed me that he (de
Gaulle) was certain already in the late 1960s that the US had no gold left.
Obviously I have no proof but neither do I have any proof that the gold
actually exists. More about this subject in a later article.
The lack of audits and the massive trading of paper gold, does
point to the fact that there is something more sinister going on in the gold
market. This is all likely to be revealed when the real pressure on the dollar
starts and gold rises fast. At that time paper holders of gold will ask for
delivery and China and Russia will call the US bluff.
Before then, it is imperative to hold physical gold in a safe
jurisdiction and outside the financial system.
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GOLD IS NOW ON ITS WAY TO NEW HIGHS
Short term, the next up-leg in gold has started as I have
predicted for a while. This will be a long move to much higher levels. So
buying gold today around $1,300 for wealth preservation purposes will in a few
years be seen as a superb insurance and a bargain of a lifetime.
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