Commodity Trade Mantra

Gold Price Holds While US Treasuries Dumped In Record Volumes

Gold Price Holds While US Treasuries Dumped In Record Volumes

Gold Price Holds While US Treasuries Dumped In Record Volumes

James West: If you’re one of the throwback gold enthusiasts likely to now number in the hundreds judging be mainstream media’s portrayal of “gold bugs”, you’re likely enjoying the apparent strength in the gold price currently evident. Observers and supporters in the standard by which all other currencies have historically been measured before their inevitable disappearance into the footnotes of history can draw from a short list of the fundamental reasons why a gold price resurgence is always its own inevitability, and today’s price action is yet another confirmation.

Bloomberg’s report yesterday of the wholesale abandonment of U.S. denominated debt is the outcome of one of the prime reasons gold will always survive as a monetary commodity, and fiat currencies never can; namely, the idea of scarcity. In the most basic rules of supply and demand, any item’s scarcity not only impacts its demand, but also the price which buyers are willing to pay. When the available pool of capital is dominated by buyers who are convinced that the value proposition inherent in fiat currencies is superior to gold, gold’s scarcity value neither increases nor decreases; it remains constant.

That’s because it is governed by the effort required to produce it to a monetary grade commodity standard,  i.e. the gold bar or coin or guaranteed purity and weight. While the process of exploration, discovery, production and refining are layers of difficulty in the procurement of gold coins and bars, the potentiality for these processes to even become part of the global inventory of gold is limited by the scarcity of occurrence of economic deposits of gold in the earth’s crust.

Gold is ranked 72nd out of 79 chemical elements that comprise the earth’s crust, making it somewhat of an anomaly for the occurrence of economic deposits of sufficient scale to justify the investment in the above mentioned processes.

Fiat currencies, on the other hand, require relatively little effort to procure, though the effort required to induce the population into accepting the value of fiat currencies is an aspect that is not statistically available. Suffice to say that any commodity whose procurement value rests below its value proposition marketing value can never retain its value over time.

Gold in demand, debt in decline
As a fundamentally delusional species, we are susceptible to the marketing tactics of our most ambitious brethren, to whom we constitute prey. That the massive capital pools only made possible by the predation of the banking and government class against the general population are viewed as legally amassed wealth is evidence of just such delusion. There will come a time in the future, assuming humanity’s survival, when advanced education will consist of a study of the larcenous, delusional and predatory nature of mankind presently, which will be presented of evidence of our backwardness.

If this seems elementary, my apologies. Its just that the rhetoric prevalent in the most popular financial drivel seems to regard such economic reality as a quaint attitude more appropriate to neanderthals, and discusses fiat currencies as if their permanent and final position at the leading edge of financial transactions as some sort of fait accompli. Such discourse discounts completely the unbroken historical record of fiat currencies (which are uniformly instruments of debt) failure, and the equally unbroken record of gold’s eventual and inevitable reversion to the basis against which such junk is measure.

One could say the gold price as measured in any given fiat currency is the degree to which the delusion of artificial and temporary value has become imbued in the popular consciousness.

But to get back to the point, central bankers the world over are beginning to shed treasuries and refrain from debt market participation because they are not convinced that the rhetoric supporting the viability of the fiat currency regime now underlying the world monetary system is sustainable. They see the Trump administration’s deteriorating credibility as a progressive deterioration in the creditworthiness of the United States of America.

And who can blame them?

If the president of your bank turns out to be a pathological liar, the time until you abandon all faith in his ability to protect your wealth is measured in fractions of a second, not in 4-year terms. That what takes a reasonably intelligent human being mere microseconds to process takes a financial institution exponentially longer to conclude should be another measure of the delusional mindset prevalent in the global economic order.

So while Trump undermines the credibility, and thereby, the creditworthiness of the world’s largest economy, gold shines through as these historical and fundamental realities become visible through the opaque layers of fabricated history promulgated by education and media alike. After all, they are determined and controlled by those who stand to benefit most from the collective hypnosis supporting the otherwise blatantly baffed out American dollar.

That is not to say that the current trend cannot and even will not be reversed. As we have witnessed time and again since the end of the last decade, the invocation of dollar and gold derivatives to further obfuscate the fundamental value propositions in each respective asset class has reliably induced a rebalancing of the prevalence of delusion in favour of U.S. debt. Nothing has occurred to undermine that primary aspect of the human character.

And so we continue to buy gold at discount prices, waiting for the re-assertion of reality to remind the next generation why gold is, and always has been, humanity’s benchmark store of value.

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