Massive U.S. Dollar Devaluation Against Gold During
Gold & Silver Dec 19, 2008 - 04:08 PM
Federal Reserve estimates that in the past year losses in real
estate, stocks and mortgages have sucked out some $7.2 trillion of
wealth from the U.S. economy. Some are now putting the figure at
$20 trillion. A massive recession is starting and will likely
spread throughout much of the world. These forces have exerted
their classic strong downward pressure on the price of gold.
In addition, the $700 billion TARP fund to salvage the American
financial system, and large amounts spent by other governments to
protect their own banks, has greatly reduced the fear of a
financial breakdown. As a result, the financial panic insurance
value of gold was largely eroded, adding further downward price
2008 was a volatile year for gold. Prices have gyrated quite
violently between the $700's and $1,000, or by some 25 to 30
percent. This volatility alone acts as a depressing influence on
gold prices as it discourages the belief that gold is a credible
The world's major governments long have sought to eradicate
gold as a monetary measure in order to remove the last vestiges of
monetary discipline and to clear the field for massive government
over-spending and inflation.
In 1968, the London Gold Poll was abolished. In 1978,
America forced a further move, via the IMF, to write gold out of
the international money supply. In August 1971, President Nixon
broke the U.S. dollar-gold exchange link.
In September 1999, the United States, while being careful to
keep its own gold stocks intact, led other major nations, in the
first of two so-called 'Central Bank Gold Agreements' to flood the
gold market with sales of gold.
In 1999, the central banks held some 33,000 tonnes, or one
quarter of all mined gold. The effect of government gold sales was
potentially very bearish for gold.
Gold market observers, who have studied the pattern of IMF
gold sales, allege that the sales are timed to cause the maximum
volatility in the price of gold, to discourage investment.
More recently, there are allegations that the Government has
allowed certain institutions to engage in massive naked short
selling of gold and silver. This has caused distortions in the
gold price that do not reflect genuine market pressures. In short,
they amount to market manipulation.
A fair conclusion is that gold is cheap and that its present
price does not truly reflect market conditions.
On December 16th, the Fed announced, as we have long
forecast, a further cut in interest rates to between zero and 0.25
percent. It also announced 'unlimited' support to buy assets from
The amount of debt and new money injected into the economy
should progressively raise inflation alarm bells. The fire of
future inflation is being stoked alarmingly, but the recessive
forces of deleveraging are concealing it temporarily.
The Fed looks desperate. This could lead to feelings of
panic and upward pressure on the gold price.
Investors should also especially be concerned as to who will
repay these massive debts. The conventional answer of politicians
is "taxpayers". But this is a serious understatement. Any
depreciation of the U.S. dollar means that every American citizen
and every single holder of U.S. dollars throughout the world will
suffer from monetary loss and a severely reduced standard of
In 1934, facing a depression President Roosevelt first
confiscated gold from every American. Then, he unilaterally
devalued the U.S. dollar by 75 percent against gold.
At a stroke, FDR wiped out 75 percent of the dollar
denominated debt of the U.S. Treasury.
As both President-Elect Obama and Fed chairman Bernanke are
students of FDR, we face the real possibility of a massive
devaluation of the U.S. dollar against gold in 2009.
For a more in depth analysis of our financial problems and
the inherent dangers they pose for the U.S. economy and U.S.
dollar denominated investments, read Peter Schiff's new book For
an updated look at his investment strategy order a copy of his
just released book " The Little Book of Bull Moves in Bear Markets
Click here to order your copy now .
For a look back at how Peter predicted our current problems
read the 2007 bestseller " Crash Proof: How to Profit from the
Coming Economic Collapse ."
Click here to order a copy today .
By John Browne
Euro Pacific Capital
More importantly make sure to protect your wealth and
preserve your purchasing power before it's too late. Discover the
best way to buy gold at
www.goldyoucanfold.com , download my free research report on
the powerful case for investing in foreign equities available at
www.researchreportone.com , and subscribe to my free, on-line
investment newsletter at
John Browne is the Senior Market Strategist for Euro Pacific
Capital, Inc. Mr. Brown is a distinguished former member of
Britain's Parliament who served on the Treasury Select Committee,
as Chairman of the Conservative Small Business Committee, and as a
close associate of then-Prime Minister Margaret Thatcher. Among
his many notable assignments, John served as a principal advisor
to Mrs. Thatcher's government on issues related to the Soviet
Union, and was the first to convince Thatcher of the growing
stature of then Agriculture Minister Mikhail Gorbachev. As a
partial result of Brown's advocacy, Thatcher famously pronounced
that Gorbachev was a man the West "could do business with." A
graduate of the Royal Military Academy Sandhurst, Britain's
version of West Point and retired British army major, John served
as a pilot, parachutist, and communications specialist in the
elite Grenadiers of the Royal Guard.