October 21, 2011
“We figured you should take the monetary base and divide it by official gold holdings. That would give you the price in terms of monetary inflation that it would be worth today. Coincidentally, after we came up with that theory we went back and looked at what they used to use, the formula for arriving at the Bretton Woods dollar exchange value with gold at $35 and it was the same formula. So if you were to divide base money by official gold holdings today, after QE2, you would come up with a price just north of $10,000 an ounce.”
When asked how he sees this playing out, Brodsky responded, “At some point the Fed will have to formally devalue the dollar vs gold and I think all central banks, economies and treasury ministries will have to fall in line with that. The way this would be accomplished might look very similar to the way they have been targeting interest rates through the Fed funds market ...
“We may go into a weekend and if confidence continues to erode to the point where global trade really falls off a cliff and commercial exchange drops dramatically because fewer people have confidence in the currencies they are receiving, then I could see the Fed or the Treasury opens the drawer and they take out plan B.
(read ..G20 Secret Debt Solution? Germany Expands Eurozone Rescue Fund ~ March 2010 Germany Considers Central Bank Gold Reserves for European Monetary Fund)
This would mean they say, ‘Ok, on Monday the Fed would be tendering all gold at $10,000 an ounce,’ or some number that would cover that debt. So if the debt is $53 trillion and the monetary base is not quite $3 trillion, then they would come up with a number where bank assets or loans would be covered and that would be the magnitude of the devaluation.
They tender for gold, using this example, at $10,000 an ounce. The proclamation itself would not be inflationary, but the act of purchasing private sector gold at $10,000 an ounce would demand they print a bunch of money and that would be inflationary. That is how the system would be de-levered.
That would have good ramifications, even though it’s highly inflationary and it devalues the dollar dramatically, it would have politically expedient benefits to debt holders. So we see that as being the end game.”
This is why it is absolutely critical to own physical gold and silver. When the monetary system is rebooted and gold is revalued, you don’t want to be left holding fiat money.
October 21, 2011
Gold prices are mixed today as markets remain on edge due to increasing divisions amongst European leaders on how to solve the intractable euro-zone debt crisis. There continues to be very strong demand for physical bullion globally and support is strong at the $1,600 level due to this demand.
The sharp fall of copper yesterday, by 6%, is an indication that the US, Chinese and indeed global economy is very fragile and may soon begin to contract.
Physical demand in Asia, mainly India and China, has entered the traditional peak season with Indian festivals and the increasingly important Chinese New Year.
This is reflected in premiums in Asia which remain good. There are reports of massive physical buying out of China on gold’s fall close to $1,600 yesterday. The most active Shanghai gold futures traded at a premium of more than $10 over spot prices earlier today. The contract stood at 335.22 yuan a gram, or $1,634 an ounce, at a premium of $3.
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Premiums in Hanoi, Hong Kong, Singapore and Mumbai remain robust on continuing physical demand.