It seems likely. The costs to lease gold are kept low as the banks leasing it are doing so in order to encourage buying forward and the use of derivatives which weakens the gold price. It is a modern day cabal to make the paper seem stronger. One of the greatest economic changes was the free market economic growth of Poland, Hungary and Czechoslovakia. This is financed by massive western European investment and is shown by the 5% growth rate of Poland. Soon these countries could become economic powers and could rival Germany and they did in times gone by. In order to effect his and do the Euro currency, European paper money had to be shored. Downward pressure on gold was necessary. Derivatives were used to put puts on gold price to offset the forward buys which kept sellers coming in one direction. Shorts were held open for years. The net effect was to put a bank financed overhang into the gold market and make European and US paper seem solid. The truth? Since the US is technically bankrupt and the European economies are heavily in debt the debt crisis could force the true worth of the paper to be seen. First devaluation then debt default, then there are two alternatives, inflation or price controls. Inflation will be followed by hyper inflation and true devaluation. Gold should soar during that period then drop. But it will hold its value in a devaluation. During the 1930's it was the most in demand commodity.
So finally yes if the lease rate rises the banks are calling in their gold. Why? To support their paper with real money!
People of liberal bent like to rant about the usefulness of gold or its lack thereof. I would agree, but the same thing can be said about any commodity. People use gold for money. That is its use. If you use political paper it's hard to see if they are not fooling you about how much is out there. In Canada its 20 phony dollars for every real one on deposit. It was considered in the 19 century, a period of high growth, that 4 to one was the realistic standard. Any more was considered to be risky and inflationary.
The only reason to use gold is to index the money supply. The US did for a while and then realized they could fuel growth by printing more money and selling all their gold. They did this and lied to everyone about what was in Fort Knox. It was empty. Canada, on the other hand one of the worlds biggest gold sellers to support its bankrupt government still has lots left.
Should we let governments print all that money? It is worth only what is out there to buy. If the money is too much then what is left to buy rises in price until it sucks up all the money. Hitler understood this and would not let his ministers print any more money unless the true production index had actually risen in real terms. That is hard to figure with things like technical items that command value but the index can be tied to man hours too.
If the yanks were let do that they would just lie about the index in some way. We see that in unemployment and cost of living indexes.
A cost of living index cannot be used to figure the money supply as it has a component of inflation in it already.
If you take the real inflation rate and compound it since 1934 you would get a factor of about 25. But factor salaries you have to double compound it to account for the increased tax rate or government load.
There was no income tax or sales tax in 1934. So it make the 500 to 750 dollars you would have earned then you have to earn that plus the taxes you pay. The sales tax and income tax accounts for 55% of your income. So today you would have to earn $41,666.00 US to make what a poor labourer earned in 1934. And a gold miner in Kirkland Lake made 10 dollars a day in 1934.
So gold should be (35 X 25)/.45 to equal what is was then. Or $1,944.00 per Troy ounce!
the factor is (historical cost X 25)/ .45
Take a 5 cent cup of coffee. You get $2.77. A bit high. Try a man's suit at $10.00 you get $555.00. A car at $750 (model A) you get 42K.
The factor of truth is in there somewhere. One thing is for sure. You cannot by any stretch of the imagination tell me that America with its terrific debt load and low productivity can peg gold at its present price for long.
mailto:echarter@vianet.on.ca
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