The purpose of thew thread is to keep a rolling conversation of my GLD/FRN type Gold /Dow market ratio concept.
If anyone wants to add to any nuances to it or suggestions please feel free.
It's just a concept of what could be implemented and not a prediction of what will happen.
The gold/ dow market concept I'm proposing is just that, a concept and not a prediction.
The reason that the Fed. or TPTB might decide to do so is to get gold way up in price and to get people to participate in the stock market more regularly and in a increasing way. At some point they will need for gold to be much higher.That future point in time isn't right now, as we can all atest to what we are seeing in it , for now.
The bottom line is that they want OPM's (other peoples money) in the market so they can try to take it away. That's how it works and we all know it. Volume is low and people don't trust the markets and there is a ton (trillions) of money sitting on the sideline as we all know.
People are out of the market for a reason. They don't trust it and TPTB and the big banks, period. They see a weak economy and few decent jobs. They see and feel inflation and know their money is getting weaker or a sense of it.
What if the Treasury and the Fed. at some point declare that the price of gold will be priced at a 2:1 ratio to the Dow. Not just 1:1, but double. A 10,000 Dow is $20K of Au/oz. for example.
When the market concept and psychology of how gold is going to become totally tied to the dow in the future is when people start buying gold at these lower prices now (and going forward) and also start getting back into the market as they know that their own participation in the Dow will drive their asset higher.
My thinking is that the Govt. at some point won't risk the USD getting to weak and they'll need to pump it's image back up and the confidence in it.
Remember, the bottom line is for them to get you back into the market and inflate the price of gold by you buying it and pumping the market up to keep the price of gold up. It's a vicious circle of greed and QE simply to keep the market higher to keep gold higher to etc. etc...
QE in the future will be wanted by everyone (ala Oliver Twist) as to keep the market and gold up.
The market will stay up or get larger from increased investor participation because of the gold connection and the higher gold price being seen as something everyone should own while it's still affordable. Gold has become actual money in a market sense is how they'll sell it. All of the added liquidity from additional QE makes the gold price rise in unison with the market. And the participation by regular investors and the Fed's continual and regular stimulus keeps the market higher artificially with newly created money that is supposedly backed by gold...somewhere. All they need to do is sell the concept and the psychology part of it.
The perception (that is the key thing here ) is that the USD is seen as actually backed by gold (ala GLD/FRN concept) and that the gold is actually valued high enough to backstop the huge US debt level.
As confidence in a gold backed dollar increases so will money towards our markets and our treasuries etc.
The increased money flow and the increase in the price of gold and the belief in the new gold backed system and market will allow the Fed. to expand it's balance sheet like crazy with barely a peep from anyone as they will all be blinded by the gold /dow market concept and the sheer numbers in terms of valuation.
This is when the frenzy really starts but it's going to be a controlled frenzy.
Jim Sinclair talks a lot about gold remaining at a high price as it's value increases in the future and then staying fairly high and consistent in price going forward. Gold will be used as a valuation tool in some way in the future by the U.S. and the Fed. All they need to do is declare it and be the first one to do so.
The above is my take on how that could happen and why they might need it to happen and how they could artificially put a floor under gold but keep the ceiling open. Our own participation in the market and the QE that will be necessary going forward almost guarantee's that the market climbs higher and higher and thus gold higher and higher at double the rate.
Who would really care what the debt level is if our money was pegged to gold and it in turn was pegged to the markets that in turn are being pumped up by the Fed. and also with global investor demand into that same market because of the gold angle?
It's all about the wealth effect and the belief in a system. A gold backed system that allows the market to dictate it's price based on the dow market participation could be just enough of a head game to induce the rabid participation of almost everyone.
It would be a self- fulfilling gold price discovery frenzy based on the free market concept.
The above also would be the prelude to the gold backed plastic debit/credit card I wrote about this week. They would go hand in hand after the establishment of the gold/dow relationship.
At that point everyone would believe in it and be ready for a change to a gold monetary system. What the world and U.S. would be getting is a huge version of the GLD/FRN scheme going on now where you'll never see the gold but you'll just have to trust it's there (Fort Knox?)
This has been stored in my mind for awhile and just went from my brain to my computer monitor in 20 minutes so I apologize for any fuzziness or confusion on the concept.
Anyone who wants to chime in and clean up the theory or frame it a bit differently or reshape it, be my guest.
CA Lawyer comes to mind as one who will dive into this possibly. His post earlier today prompted me to finally get this concept out of my head. The whole MBS thing seemed unlikely 6 months ago and yet their doing it and it will be huge in it's scope.
The thing I ask myself is basically this...why are the big banks all of the sudden starting to call for higher and higher gold prices when it seemed like forever that they wouldn't even acknowledge the possibility of gold really even being of any value monetarily?
Either we are being set up right now at these prices and the bubble pops at $2000 ( not what I believe) or they are telegraphing that gold will go there and go much higher as a means to start getting the market psychology going so that people will start to filter into gold in anticipation of it going higher. Participation and confidence are key. Gold has that effect on people, period.
One peep from the Fed. or Treasury about gold being tied to almost anything in the marketplace or the need for gold to be higher to backstop our monetary supply and the money will start pouring in and gold will go up with it.
Your comments and help in refining this is will be appreciated. I think it would probably be necessary for a entirely new index to replace the Dow in this instance and maybe the Dow, S&P and Nasdaq get combined together to form a super index of sorts. In any case, the ratio that the Fed./Treasury decided to use could even be larger.
The bigger the better for their debt and QE purposes going forward. Keeping the dollar cheap for purposes of buying our own debt won't matter anymore as the money supply will be greatly increased due to the ever increasing gold price. They'll be able to buy back and pay off debt with an unreal monetary supply. It's a perfect circle of sorts.
Some charts to mull over...