Gold: Hedging or triggering the next crisis – Economic News

The author of the book and New York Times bestseller “The Death of Money” (2014), James Rickards, is regarded as a critical gold market expert and advocate of a reintroduction of the gold standard. For years, he has been warning of an imminent global economic crisis. “Should a gold buying panic break out, it would certainly not stop at the capital markets,” he predicts, as the financial news portal “Finanzen.net” reported a few days ago.

Gold is the “least understood asset class in the world,” says US financial author and gold speculator James Rickards. This is what he writes in his book “Der Weg ins Verderben”, as German media have recently reported. The US gold expert warns: “The next financial crisis can even be triggered by the precious metal itself.

The author of the book and New York Times bestseller “The Death of Money” (2014), James Rickards, is regarded as a critical gold market expert and advocate of a reintroduction of the gold standard. For years, he has been warning of an imminent global economic crisis. “Should a gold buying panic break out, it would certainly not stop at the capital markets,” he predicts, as the financial news portal “Finanzen.net” reported a few days ago.

Gold is not a commodity, but in principle money, says precious metal expert Rickards. “Even the IMF, which officially demonstrated gold in 1974 (i.e. decoupled from currencies, editor’s note) holds 2800 tons of it,” he writes in his book “Der Weg ins Verderben” (“Road to Ruin”, 2016; published in 2017 in German by FinanzBuch Verlag). Because: “Central banks and finance ministries hold neither copper nor aluminium or steel stocks – but they hold gold. The central banks know that gold is money; they just don’t want you and me to know that.”

 

Confusion over gold

Whoever deals with the precious metal gold is often confused “about the essence of gold.” Since it is “traded in a schizophrenic way. At certain times gold is traded like a commodity and then reacts like any other commodity to inflation, deflation and fluctuations in real interest rates. In other times, gold is traded like a currency.

Gold is ultimately limited, and there are often supply bottlenecks. Even legally prescribed deadlines are not always met when ordering and delivering the precious metal. “In view of the current tense situation in the physical gold market, this rule is constantly ignored, as many traders have difficulties delivering within 28 days,” Rickards continues. “The gold in the vaults of the central banks of the West, the IMF and the BIS is part of the outstanding stock available for lease in the market. Once a bank trading precious metals has acquired a legal right to a certain amount of gold through a leasing agreement, this gold is used to sell it forward, in (…) ‘unallocated’ form.”.

 

“If a ton of German gold is leased …”

In his book, the US gold market expert describes why not all the world’s gold is intended for precious metal trading. Because there is “an important difference between the current stock and the total stock”, as “Finanzen.net” comments. “While the total inventory describes all the physical gold available in the world, the outstanding inventory represents the gold available for immediate delivery. The dramatic thing about it is that this global gold stock is declining.

“Most of this gold is hoarded in private safes or worn as jewellery,” writes Rickards in his book. “It is not readily available for trade. (…) One tonne of German gold held at the Federal Reserve Bank of New York and leased to Goldman Sachs in London through the BIS can be used to support forward sales of over ten tonnes of gold to the market. Each buyer of a portion of these ten tonnes of gold believes he owns gold; however, only one tonne of gold is available to support the ten tonnes of gold sold. And even this one tonne of gold is leased and may be taken off the market by the lessor under certain circumstances.”

The leasing business is “mainly conducted in New York and London, where commercial law is clear and legal precedents give the parties to a transaction great confidence in the enforceability of contracts. This means that the repatriation of gold to Germany reduces the amount of gold in circulation.”

 

This is how gold could trigger the coming financial crisis

For years, Rickards has warned in his books that “increasingly probable” supply bottlenecks in the gold sector could cause a nationwide “delivery failure in the market”. If many investors – including a lot of “paper-gold owners” – “demand physical gold, the price of gold is likely to skyrocket as a result,” he fears.

This would result in a chain reaction on the international markets. Intermediaries would now try to “buy the increasingly scarce physical gold”. Even state and private institutions that were previously not interested in the shiny precious metal would suddenly include gold in their portfolios, “which will further exacerbate price pressure. The end result: “Gold exchanges will stop trading. (…) And all those who still have no gold will no longer be able to get it at all – for no money in the world.” Ultimately, this would have a profound impact on the rest of the financial and capital markets. “The financial system will be lucky if a gold panic is limited to gold and does not spread to the capital markets.”

According to Indian media reports, Rickard’s book “The Way to Ruin” is based on an idea first articulated by the Indian economist Arvind Kumar in the Indian newspaper “Daily News and Analysis”. The economist from the Indira Gandhi Research Institute in Mumbai has warned for years that a combination of negative interest rates and cashless currency would be one of the targets of the global financial elite to destroy people’s savings worldwide. In previous Sputnik interviews, cash proponents such as Thorsten Schulte and gold experts such as Dimitri Speck have warned against such a scenario.