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The ONLY Variable That Matters To The Price Of Gold - Jeff Nielson (27/9/2017)

The ONLY Variable That Matters To The Price Of Gold - Jeff Nielson (27/9/2017)
By Jeff Nielson 4 months ago 10560 Views 8 comments

September 27, 2017

There are all sorts of positive fundamentals when it comes to the price of gold. There are the positive supply/demand fundamentals. The gold market is in a supply deficit. Mine reserves are at a 30-year low . The price of gold is below what is necessary to sustain the gold mining industry .

There are the positive geopolitical fundamentals. The world’s two most-unstable leaders – Kim Jong-un and Donald Trump – have been constantly trading threats and insults. And both of these people have nuclear weapons at their disposal. There is the endless “War on Terror”.

There are the positive economic fundamentals. Western real estate bubbles in major urban centers are at never-before-seen levels of insanity. Western markets are generally also at bubble levels, with U.S. markets representing bubbles on steroids . Western governments are bankrupt.

In relative terms, none of these fundamentals count .

There is one more important fundamental for the price of gold. Not only is it the most important fundamental, but it involves a variable which dwarfs all other fundamentals in magnitude -- combined.

Regular readers have heard many times before that gold (and silver) is “a monetary metal” . The definition is simple. Gold is money. Therefore the price of gold must change proportionate to changes in the supply of other forms of “money” (i.e. currency).

This is not a theory. It is a function of simple arithmetic. An elementary numerical example will illustrate this principle.

Suppose (in the entire world) there was a total of 10 oz’s of gold. Suppose also (in this hypothetical world) that there was a total of only $10,000 U.S. dollars. And in this hypothetical world, the price of gold is $1,000/oz.

Let us suppose the supply of U.S. dollars increases by a factor of five, and thus there are now $50,000 USD’s. What happens to the price of gold? All other things being equal, the price of gold must increase by a factor of five (in this case, to $5,000/oz), to keep our hypothetical world in equilibrium.

Now let’s return to the real world. What happened in the real world? The supply of U.S. dollars did increase by a factor of five. This was the most reckless money-printing binge since Germany’s hyperinflation during the 1920’s . Regular readers know this monetary orgy as “the Bernanke Helicopter Drop”.

Over a span of 50 years from 1920 through 1970 (while we still had a gold standard), the supply of U.S. dollars was virtually unchanged. In five years, 2009 – 13, B.S. Bernanke quintupled the U.S. money supply .

Did the price of gold quintuple? No, not even close. At the time that Bernanke began his money-printing orgy, the price of gold was roughly $800/oz. That was right after, the price had been driven roughly 30% lower by the banking crime syndicate. And even before that point, the price of gold wasn’t close to reflecting its full value.

At a minimum, the Bernanke Helicopter Drop should have propelled gold to $4,000/oz (USD), concurrent with that money-printing. Arguably, the price should have gone much higher than that. In actual fact, as we all know, the price never even reached $2,000/oz: less than half of the absolute minimum price.

That should have been the base price for gold in 2013: $4,000/oz USD. The supply of U.S. dollars has never shrunk. Forget about “tapering”. It never happened.

How do we know? B.S. Bernanke told us so. From 2009 – 13, virtually every week Bernanke boasted about “the wealth effect” from his money-printing: how U.S. stock markets were being pumped higher and higher and higher.

Obviously if quintupling the supply of U.S. dollars pushed U.S. markets up to their bubble levels, then withdrawing dollars would cause those markets to fall from their all-time highs. What have we seen? Instead, the bubbles have gotten bigger and bigger and bigger .

Obviously the U.S. money supply hasn’t shrunk, it has continued to grow. Bernanke and the Fed lied when they claimed they were reducing the supply of U.S. dollars. And as we also all know, the Federal Reserve absolutely refuses to allow any outside auditing.

Nobody knows what are on its books, we only know what the Fed-heads claim is on their books. And what they claim is not remotely plausible.

The U.S. market bubbles keep expanding, ergo the U.S. money supply keeps expanding. There is no other possibility. Yet the price of gold isn’t at $6,000/oz. It isn’t at $4,000/oz. It isn’t at $2,000/oz. It has been falling for most of the last six years.

During those six years, no one in the mainstream media (and very few in the Alternative Media) has made any mention of the gigantic disconnect with U.S. money-printing and the price of gold. The reason why the mainstream media propaganda machine has ignored this fundamental is obvious. Their job is to suppress the price of gold.

Why have practically no commentators in the Alternative Media been banging the drum on this subject? Ignorance. Sadly, few of these gold “experts” have a correct understanding of gold market fundamentals. They dwell on trivia.

Look at what we see around us today. These self-proclaimed experts debate whether or not the price of gold should rise above $1,300/oz. They point to North Korea. They point to incremental changes in demand for some of the major gold-consuming nations. Irrelevant.

The fact is that thanks to the success of the banking crime syndicate in discouraging the buying of (real) gold in the Western world, total gold demand hasn’t increased by that much. The largest, single incremental change was the switch by central banks from being net-sellers to net-buyers of gold. That was a very significant change, but it has flattened out and there is no indication that this will change further over the short term.

The fact is that (despite all the rhetoric) there is very little chance of any actual hostilities between the United States and North Korea. Discounted for this small probability, this is not a major driver of the price of gold.

The most ludicrous influence – and distraction – to the price of gold has been U.S. interest rates. High interest rates are a negative driver for the price of gold. The reasoning goes like this.

If savers can obtain a positive interest rate on their savings then they have an incentive to hold paper instead of gold. What is a “positive interest rate” in this context? If the interest rate on their savings is higher than the rate of inflation, then that is a positive interest rate.

If the savings rate is lower than the rate of inflation, savers lose money by putting it in the bank, and they are much better off holding gold instead.

Are current interest rates high? No, they are the lowest rates in history. This is despite the fact that B.S. Bernanke and all the other central bank liars promised to immediately normalize interest rates in 2009 – meaning in the range of 3% - 5%.

Today, after nearly nine years, the U.S. interest rate is at 1%. Meanwhile, real U.S. inflation has hovered between 4 – 8%, according to John Williams of Shadowstats. U.S. interest rates would have to rise by at least another 3%, just to begin to be a negative driver for the price of gold.

Current interest rates are a mildly positive driver for the price of gold. Otherwise, for the last nine years, everything said and done by the Federal Reserve with respect to U.S. interest rates has been totally irrelevant to the gold market.

If we combine every other variable that influences the price of gold, even put together they don’t come close to equaling the impact of the Bernanke Helicopter Drop. The U.S. dollar is now worthless.

It is backed by nothing. It has been diluted more than any other major currency going back a hundred years. The U.S. government is bankrupt. The U.S. dollar is currently being phased out as reserve currency – meaning the demand for U.S. dollars is shrinking to a fraction of previous levels.

What is the price of gold (or any hard asset), denominated in a worthless currency? The price is infinite. What is the current price for gold, denominated in worthless U.S. dollars? $1,300. The Crime of the Millennium.

For those readers who are still not convinced, just listen to Bernanke’s own words.

U.S. dollars have value only to the extent that they are strictly limited in supply.

- B.S. Bernanke, November 21, 2002

Strictly limited in supply.

According to the former Chairman of the Federal Reserve, the Bernanke Helicopter Drop rendered the U.S. dollar worthless. That is why the Federal Reserve has falsified more recent versions of the chart above – to hide the dollar’s worthlessness. The phony chart produced by the Federal Reserve today bears no resemblance to what has actually happened to the U.S. dollar.

The U.S. government, the Federal Reserve, and the mainstream media pretend that the U.S. dollar still has value. They pretend that the price of gold should be at $1,300/oz (or less).

Ignore the trivia. Ignore the liars and idiots in the media. Ignore the Federal Reserve and all of its utterly pointless “meetings” about the U.S.’s irrelevant interest rates. Follow the money. It leads up – way, way up.


Jeff Nielson is co-founder and managing partner of Bullion Bulls Canada; a website which provides precious metals commentary, economic analysis, and mining information to readers and investors. Jeff originally came to the precious metals sector as an investor around the middle of last decade, but with a background in economics and law, he soon decided this was where he wanted to make the focus of his career. His website is www.bullionbullscanada.com.


The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

LT 4 months ago at 5:38 PM
Why no mention of the paper gold market and how it is used to drive gold prices down. Price depends on demand and supply. As long as the COMEX can be used to create infinite supply of paper goldbonto the market, physical gold can never find its true price. The whole system is rigged! And I am sick of it. This government is as close to being totally corrupt as it can get.
Jeff Nielson 4 months ago at 10:41 AM
LT, the CONTROLLING of the gold market (by the banking crime syndicate) is a separate issue -- that I discuss frequently. Yes, these criminals are virtually omnipotent now when it comes to illegally suppressing gold (and silver) prices.

But these are physical commodities that require actual metal to satisfy demand. The gold and silver market are in PERMANENT supply deficits. They are (rapidly) burning through stockpiles accumulated over thousands of years.

When those available stockpiles are gone, these markets WILL default, and the banking crime syndicate's Game will be over. Period.
Robert Happek 4 months ago at 10:49 PM
Jeff keeps repeating (now for many years) that the US Dollar is worthless. If that were really true, than anything bought with US Dollars must be worthless as well, including gold.

There are many dealers (including Sprott) who are eager to sell gold for US Dollars. How is that possible ? Is gold really worthless ? Or is it that Jeff confuses "worthless" with "worth less" ? The Dollar is definitely worth less than a few decades ago. But as long as the Dollar buys almost anything, it can not be really worthless.
Jeff Nielson 4 months ago at 10:44 AM
How can the worthless U.S. dollar still be used to purchase goods and services? Currency manipulation.

http://www.bullionbullscanada.com/index.php/commentary/us-commentary/26658-the-world-of-currency-manipulation

The banking crime syndicate has been CRIMINALLY CONVICTED of manipulating all of the world's currencies. The U.S. dollar is constantly manipulated higher. Virtually all other currencies are manipulated lower.
Bill 4 months ago at 1:02 AM
The only way Gold and Silver will increase in value is when the Mining Company CEO's get a backbone and stop producing the Gold and or selling it until the price can come to a true value dictated by the market, not the Wall Street manipulator's. Unfortunately the CEO's seem content to continue to sell their product at highly reduced rates.
Julio 4 months ago at 12:44 PM
Not gonna happen, Bill. Only perhaps 1 in 100 of 'em understand the manipulation predicament described by LT above. The mining company C-suite denizens live a relatively splendid life -- so long as they don't 'cross' their bankers -- whose quasi-criminal behaviour is dark-legendary. The rule of law 'ship' sailed over the horizon a long time ago -- manned by 'look-away' regulators and 'bought' politicians. Miners may well rebound sharply post-systemic crash -- after which most retail shareholders will have perished from sheer exhaustion.
LT 4 months ago at 4:15 PM
My compliments to posts here. People are waking up. Hang in there. I believe truth and good triumph lies and evil. Just got to figure out how so many lies and so much evil ended up in Washington DC ( District of Criminals ) and in the central banks. Maybe just one answer.....men selling their souls for 20 pieces of silver as we saw in the Bible.
Jeff Nielson 4 months ago at 10:47 AM
Sorry Bill, but I have to agree with Julio. However I'll be a little more charitable.

These mining companies are in a tough position in that their SHAREHOLDERS don't understand (or believe in) the manipulation of these metals -- certainly the major institutional shareholders. This means that there is a real price to pay for these companies if they begin to openly embrace the manipulation scenario.

And yes, many of these companies do have their heads in the sand and refuse to accept/believe in the idea of manipulation themselves. The human mind tends to rebel at the idea of monstrous, permanent crime.

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