Monday, February 20, 2017

Today's System is the Exact Opposite of the Classical Gold Standard

What I am describing of course is a rigged system, and one that is perpetuated by central banks. Today’s rigged system is the exact opposite of what existed under under the classical Gold Standard. When Sir Isaac Newton invented the classical Gold Standard circa 1700, he established a basic rule for the Bank of England to follow, which was adopted by other central banks. By the end of the 19th century, the British Empire and the gold-backed British pound dominated commerce, but the several other central banks that existed at the time eventually accepted the Gold Standard and followed the rule. The United States did not have a central bank then, but the individual banks that issued dollar currency also followed Newton’s rule.

Because the purchasing power of gold remains essentially unchanged over long periods of time, Newton’s basic rule was straightforward and simple to follow. To maintain adherence to the Gold Standard, the central bank was tasked with managing the quantity and quality of the currency it issued so that the currency would circulate on par with gold. This objective gave substance to the slogan – abandoned in the 1960s when it no longer reflected the truth – that the dollar was as good as gold. They were considered to be equivalent, with the dollar and other national currencies deemed to be a money-substitute circulating in place of gold.

Beginning in the 20th century and particularly accelerating in the 1930s, central banks turned Newton’s rule on its head. Central banks started manipulating gold in a vain attempt to keep it equal to the diminishing purchasing power of the national currency they were managing. It was and still is a futile effort. The facts speak for themselves. Even though gold was supposedly “demonetised”, it still holds value. Gold is trading above $1,200 per ounce, not the $35 per ounce rate at which dollars could be redeemed for gold when President Nixon ended the last remnants of the Gold Standard in 1971.

This reality proves the point that we don’t need central banks to ‘manage’ our currency. The fact that gold preserves purchasing power over long periods of time even though it was”demonetized” proves that gold doesn’t need management. As I often say, central banking is the barbarous relic.

So based on past experience, we can expect downward pressure on precious metal prices for the rest of this week, with the low likely to occur Thursday morning US time when Comex options go off the board. But it is always important to watch how option expiry unfolds because one of these months – and it may be this month – option expiry will not follow historical patterns.

- Source, James Turk via King World News