This is almost a template for the anti-gold 'hit pieces' that have appeared almost every year since 1999, put out by the gold bogeys.
I wonder what people will be saying ten years and five or six more iterations of QE from now?
Who Needs Gold When We Have Greenspan?
By Floyd Norris
May 04, 1999
Is gold on its way to becoming just another commodity? The people who run the world's financial system are doing their best to secure that fate for the metal that once was viewed as the only ''real'' money.
The process of removing the glitter from gold has been a gradual but inexorable one, and is one of the most telling counters to the argument that national governments are less important in this era of globalization. Much of the world is now quite happy to accept the idea that a greenback backed by Alan Greenspan is just as good as one backed by gold. (And if they are not happy, send in the drones. The bombings will continue until they are giddy with joy. - Jesse)
"I want to say one word to you. Just one word. Derivatives."
Certainly gold's reputation as a store of value has eroded. At the peak of the gold frenzy in 1980, an ounce of gold cost $873, precisely that day's level of the Dow Jones industrial average. Now the Dow is at 11,014.69, about 38 times higher than the $287.60 price of gold. (and today the Dow is 12, 830 and gold is $1,730. - Jesse)
Actually, that measurement understates the amount by which stocks have outperformed gold. If you had owned stocks all those years, you would have received substantial dividends. If you owned a lot of gold, you got no dividends but did have to pay storage fees for the stuff. (And if you do business with Wall Street you may be paying storage fees on gold that is not even there. - Jesse)
That is, in fact, how the central bankers of the world look at gold these days. Michel Camdessus, the managing director of the International Monetary Fund, said last week he expected the fund to sell gold for the first time in two decades. (And how many more times have they said this in the past twelve years? Jesse) The Clinton Administration is pushing for such sales by the I.M.F. to help finance a laudable program to forgive debts owed by very poor countries.
The money received from the gold sales is to be invested in Government securities that will provide income, and that income will pay off the loans. The implicit assumption is that gold, which does not pay interest, is a lousy investment.
A couple of weeks ago, the Swiss electorate voted to begin untying the Swiss franc from its gold backing. The Swiss central bank could begin selling gold as early as next year. Once again, the argument was that selling gold was a way to find easy money for good deeds. To those who still view gold as the only real money, having the Swiss defect is a bit like discovering that Rome is embracing Protestantism. It is the last place that should happen.
But it is happening, and it seems likely that more central banks -- like the Australian and Dutch banks -- will join those that have already begun selling gold.
The argument against retaining gold is that its day is past. Once it was useful as a hedge against inflation that would hold its value when paper currencies did not. Now financial markets have their own sophisticated ways, using exotic derivative securities, to hedge against inflation. (Gold bad, CDS good. Nice trade...if the government is backstopping your enormous losses. - Jesse)
We have taken the risk out of trading (for ourselves).
Once gold served as protection for investors against governments that debased their currencies. Now there is plenty of debasing going on -- the Brazilian real is down 27 percent this year -- but the lesson people have drawn is to believe in the dollar. There is growing support for the idea that all of Latin America should adopt the dollar as a currency.
Dollarization, as that idea is called, amounts to a sort of a gold standard without gold. There would be a universal money whose value was based not on gold in the vaults, but on the wisdom of Mr. Greenspan and his successors at the Federal Reserve. (In cyberspace, no one can hear you screaming - Jesse) Few fear that one of those successors might resemble G. William Miller, the Fed chairman in the late 1970's who seemed to have no idea how to slow inflation.
If the demonetization of gold continues, the price is likely to keep falling as central-bank sales more than offset any increase in demand from jewelers or industrial users. That could change if it turns out that central bankers are not the geniuses they are now deemed to be. But for now, the world believes in Mr. Greenspan and sees little need for gold. (And now you can sleep well and believe in Timmy and Ben. Got gold, bitchez? - Jesse)
Money For Nothing Exclusive Clip - "Maestro" from Liberty Street Films on Vimeo.