The Dangers of Permanent Gold Backwardation (III)

“By the early 1960s, the U.S. dollar’s fixed value against gold was considered to be overvalued. Increased domestic spending on Great Society programs and military spending on the Vietnam War gradually worsened the overvaluation of the dollar. In 1971 the United States informed the International Monetary Fund that it would no longer buy and sell gold to settle international transactions. This resulted in the 1973 decision of the European Community countries and the United States to introduce a joint float of European currencies against the U.S. dollar. Nevertheless, the U.S. dollar maintained its role as “international money.” The role of the International Monetary Fund became less well-defined but in principle turned into one of surveillance and support for currencies in maintaining a stable link with major currencies. 

The banking system is under enormous stress as witnessed by the risk of permanent gold backwardation: when all offers to sell gold for dollars are withdrawn regardless how high the bid price may go. On July 7, 2013, gold leasing ended when “GOFO” (the difference between the rate offered for future leases and the rate that applies to leases already in force) became negative. The gold basis (the difference between the nearby futures price and the spot price of gold) also became negative. This indicates a shortage of deliverable gold and gold hoarding. 

Just like in 1971, negative GOFO indicates the risk of permanent backwardation. Without restored confidence in international currencies, a chain-reaction leading to a barter economy commences, bringing serial bankruptcies, unprecedented unemployment, and shortages of food, fuel, and medicine. 

This would result in famine, pestilence, and a break-down of law and order. When the value of US Treasury paper erodes, no amount of bond buying by the US Federal Reserve will be able to stop the collapse of the fiat dollar. The monetary reserves of the world’s currencies will be extinguished, representing the largest destruction of fiduciary values in all history. Much depends on how the banking system will hold up while the new gold strategy is being implemented.” – Karen Hudes 

Photo Credit and Article by Every Investor, Fekete on QE and gold Professor Antal E. Fekete talks about the negative impact of QE on debtors, workers and entrepreneurs. 

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Christine Michelle Chadwick

Christine Michelle Chadwick

Counterintelligence Global Accounts, Internet Spyder 🕸 International Security, Rule of Law;
Honorary Ambassador, Senatus Consultum “Conscriptus Electus” - International

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