The Secret Manipulation Of Gold
Warren Buffett often says, “The best way to get rich is to not lose money.”
When people purchase consumer items such as a new car, use debt to finance things that shrink in value, or save U.S. dollars, they’re losing money.
Some people call it inflation, I call it devaluation.
Psychologically, the more Americans’ cash—and the things they buy with it—decline in value, the more they worry about money. Many begin to work harder or, even worse, go deeper into debt, purchasing more consumer items with sliding value. Unfortunately, many wind up with fewer and fewer dollars that continue to sink in value.
The reason I have more and more dollars is simply because I don’t hold onto them.
Instead, I do my best to keep my dollars moving into assets that are going up in value, not down.
In the late 1990s, when people were pouring money into the tech and dot-com stocks, my dollars moved into oil, gold, silver, and real estate, when prices were low. Today, because the dollar continues to drop in value, I keep moving my money into those same asset classes.
Today, I will share an easy way for you to start investing safely in commodities. Click here to see how.
And, I will share why I am very bullish on commodities investing, and always have been.
Let’s look at the history…
Gold Reserve Act of 1934
President Franklin Roosevelt—at the height of the Great Depression—essentially transferred gold from private hands to the U.S. Treasury by requiring the Federal Reserve and all private persons and entities to remit gold over the value of $100 to the government.
Roosevelt asked the American public to turn in their gold in 1933, for which they were paid $20.22 per ounce in paper money. He then raised the price of gold to $35 an ounce. In other words, for every $20.22 in gold that was turned in, the public was cheated out of about $15… a 58 percent heist.
If anyone was caught holding gold coins, the punishment was a $10,000 fine and 10 years in jail.
One reason for doing this was to get the public used to paper money as the sole currency of the world.
Another reason was to cover up the fact that the U.S. government had printed too many paper dollars and did not have enough gold in reserve to back them—in other words, the U.S. government was broke.
The Gold Reserve Act of 1934 created the Exchange Stabilization Fund in the Treasury Department and authorized the Exchange Stabilization Fund to trade in gold and related items on behalf of the Treasury Department.
In fact, if you go to the Treasury Department’s website today, and you look up the Exchange Stabilization Fund, you find that the Exchange Stabilization Fund has the authority, not only to intervene surreptitiously in the gold market, it has the authority to intervene surreptitiously on behalf of the U.S. government in any market in the world, not just U.S. markets but any market in the world.
In 1975, President Gerald Ford allowed the American public to own physical gold once again—only after Nixon had permanently severed the link between the dollar and gold.
As long as the U.S. dollar was backed by gold, it was difficult to print money.
Once the U.S. dollar was no longer backed by gold, the printing presses kicked into action, and never stopped.
Who cared about gold when those who controlled our government and our banks could now print money at will?
Gold vs the Dollar
Gold is a currency just like the dollar, the pound, the euro, and as a currency, it competes with government currencies and governments don’t like that. They don’t like competition with their currency because if one currency does well, people will flee the currency that doesn’t do well and go into the other currency—they don’t want to see a flight out of their currencies and into gold.
For one reason, physical gold is something that they cannot control, it’s outside of the central banking system. If people are using gold as money instead of dollars or euros or pounds or other government currencies, governments lose control over the public, they lose control over the economy, they lose power generally.
That is the threat that gold in the hands of ordinary people throughout the world being used as money again poses a threat to governments.
The economists Brodsky and Quaintance hypothesized eight years ago that central banks can use gold to reliquify themselves, to hedge themselves against devaluation of their own currencies.
But for the meantime, central banks use bullion banks to sell what’s called paper gold or imaginary gold on the futures markets to control the price. The problem with this is that the population who buys paper gold, 80% or 90% of the gold doesn’t exist and it’s just paper claims on financial institutions.
One flaw is that the futures market is supposed to be a delivery market every few months but, as a practical matter, futures are cash settled, they’re not settled by delivery of the commodity being traded.
So bullion banks trade the futures markets in gold and silver hence sold a lot of, not only futures contracts, but they have issued claims on what’s called unallocated gold. They give you a certificate that says, oh, we owe you this amount of gold and we’ll keep it for you. The problem is, they’ve sold more certificates than they’ve got gold in the vault.
Fractional Reserve System
Much of the global banking system runs on what is known as fractional reserve banking—a system that has been running the world for thousands of years. The following is a simple explanation of the system.
A thousand years ago, you are a shop owner. You have 10 gold coins. You need to travel a thousand miles, through rough country with the likelihood you’ll run into some bad people country, to buy goods for your store.
You go to a local “banker” who agrees to hold your 10 gold coins in his safe. The “banker” issues you a piece of paper saying that you have deposited 10 gold coins with him.
You then travel a thousand miles through rough country with only a piece of paper. Your gold coins are safe.
You then buy new merchandise for your store, give your piece of paper to the person who sold you the merchandise, and head home.
The person who sold you your merchandise goes to his “bank” and collects his gold.
After a while, both you and the person who sold you your merchandise realize that paper is much more convenient than gold coins. You both leave your gold with your bankers and use your bankers’ CDs, or certiﬁcates of deposit, as paper money.
People who need money go to your banker and ask for a “loan.” The banker lends out nine of your 10 gold coins. The one gold coin he holds in his vault is the “fractional reserve.” In this example, the fractional reserve is one coin, or 10 percent.
This is where it gets exciting…
We will get into what’s next tomorrow, with part 2 on the secret manipulation of gold…
But remember, commodities investing—investing in real assets—is crucial to holding and protecting your wealth.
As the dollar falls, gold rises.
Editor, Rich Dad Poor Dad Daily