 This morning gold price shot over £900 for the first time ever in its history. Something we thought was coming in our article “Irony Free Students and Falling Petrol Prices” posted on November 11.
We wrote:
“In terms of Sterling, gold has been forming an interesting inverted 'head and shoulders' trading pattern since may, which is usually a good bullish sign. We broke the neckline with the move at the start of this month...a good argument could be made for another fast leg up to the £950-976 area. Which would put us within easy reach of a 4 figure print - the first time ever the gold quoted in Sterling uses 000nds rather than 00rds.”
We posted this chart:
 
November 11 2010: December 6 2010:
 Gold is screaming a message to the world right now, but few seem to be listening. The previous Federal Reserve chairman, Alan Greenspan, back in September was surprisingly candid about the price of gold:
“If all currencies are moving up or down together, the question is: relative to what? Gold is the canary in the coal-mine. It signals problems with respect to currency markets. Central banks should pay attention to it.”
Greenspan said this back when gold was trading at $1250 and £810 -today its over $1400, that canary is certainly showing signs of ill health and is currently on life support in intensive care.
The loudest message that gold is trying to tell the world in all countries is that a collapse in the confidence in governments is higher now than it has been for decades.
Paper money only has value as long as the people using it have faith that it has any value, it has no intrinsic value to speak off. It might seem strange that the world can base an entire monetary system on “faith” alone and expect a stable outcome. Once that faith is lost and it can disappear at an alarming rate - just go and ask someone who lives in Zimbabwe, it never comes back.
This is when people turn back to what over millennia free people have used as money, gold. People put their trust back into something that is ‘real’ and which has a proven track record over thousands of years and guarantees to preserve their purchasing power.
ALL paper currencies (including bonds, which are merely a promise to pay at a future date in that currency) come to an end (the average life expectancy for a paper currency is about 75 years). The higher gold goes, the more it is telling you that the market has lost the faith in the Government and the political system that surrounds it. The real message it is sending right now is, therefore, quite a sobering thought.
Alan Greenspan, who departed horrifically from his Ayn Rand roots as Fed Chairman, seems to be finding them again. But back before he became the ‘dollar debaser in chief’, he published a very interesting article in 1966 titled “Gold and Economic Freedom”. It’s certainly well worth the read if you’ve got a spare 5 minutes. If nothing else it shows you how quickly people that end up in power can dump their principals.
He wrote:
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value...The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.”
Pretty amazing to think that just 25 years later he was in charge of world reserve currency and busy debasing it every-which-way. It’s worth repeating one line Greenspan wrote, “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation”. In other words what he’s saying is, when the central bankers of the world are printing fiat currency, the ONLY way for the citizenry to protect themselves is to buy gold.
It would seem that China have heard the message of gold loud and clear. They’ve increased their gold imports by 5x in the first 10 months of the year. This from a country that is the largest producer of gold in the world. Read “The Golden Way is the Only Way in Becoming a Real Superpower” for more information on China and gold.
The canary in the coal mine is looking faint and Gold is trying to tell you something. Are you listening?
Tom Paterson
Chief Economist
Tom is the Chief Economist at Gold Made Simple, one of the worlds leading gold bullion ownership and trading services. Tom previously worked as a Broker on a Futures and Options desk at a main brokerage in Canary Wharf and was responsible for the production of “The Economissed” , a research paper tracking Macro themes and trade ideas.
Tom is a keen student of the Austrian School of Economics – or as he refers to it 'real' economics – and feels very passionate about the lessons that can be gained by all that understand its guiding principals.
Please Note: The articles that are published on our website are provided for background information only. GoldMadeSimple.com cannot offer you investment advice. Any investment you make is at your own risk. Information provided on our website may be out of date at the time of reading and we would recommend that you verify all details elsewhere before making your investment.
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