Good article posted on Max Keiser's site.
Since 2001 when I sank 15% of my net worth into gold at $270 I have read
100s of arguments by writers who have taken great pains to explain why the
gold price will soon stop rising and enter a prolonged decline, Prechter
the most well known among them. As the price went from $300, to $400, to
$600, to $800, to $1,000 and on and on, one ersatz expert after another
delivered a creative and intricate forecast of a return to declining gold
prices as the price doubled and doubled again.
The first “gold is a bubble” articles started to appear in 2006 when gold
hit $600. A horde of deflation proponents appeared in 2008 and 2009 during
a brief period of actual deflation, but their ranks shrank to a tiny
clutch of zealots by the end of 2009. They commenced to double down in
2011, explaining that their forecast of collapsing gold prices was not
repudiated by events but merely delayed. An even larger and longer
decline, on a scale of the 20 year price fall from 1980 to 2001, was just
around the corner.
The motive of every author of every one of these articles can be summed up
as follows: “The price of gold is entirely too high considering I
neglected to buy any when it was cheaper.”
Meanwhile, goldbugs supplied equally ludicrous arguments, claiming their
theories of gold as the center of the money universe had been born out by
“The earth is the center of the universe! I know it because I can see the
sun rise in the east and set in the west!” said the priest whose income
and status depended on widespread belief of this fallacy. “Well, no,
there’s another explanation,” said Copernicus, “but you’re not going to
My argument has not changed since 2001. It’s not going to change because
the reasons why I bought gold then haven’t changed.
Central banks, semi-independent as they are of the legislatures of their
host countries, still represent national interests. Gold is the only
international currency that is not issued by a state. Thus it is the only
reserve currency that states will be able to agree on as an international
reserve currency in the future when trust in the Treasury dollar system is
gone. That is why central banks still hold 20% of all the gold ever
produced 40 years after gold redemption rights for international
liabilities officially ended, as insurance against the event of the
dissolution of that system. The gold price is the price of that insurance,
the insurance premium if you will.
Some day when the US gold window re-opens the gold price will be higher,
not lower, and it will be in the interest of the central banks of both
creditor and debtor nations for it to be so.
Gold prices won’t stop rising until a new global monetary system is in
place to replace the one that started to break down in 2001 and the gold
price started to rise. These days I have a hard time imagining any other
forcing function but war will bring this about.