Money Flow Trading Method along with Risk Management

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Greyerz – The Road To $18,160 Gold And The Wisdom Of Jesse Livermore
July 07, 2019

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As the world edges closer to the next crisis, today the man who has become legendary for his predictions on QE and historic moves in currencies spoke with King World News about $18,160 gold and the wisdom of Jesse Livermore.

The Wisdom Of Jesse Livermore
July 7 (King World News) – Egon von Greyerz: “Lemmings have a herd mentality. But following the crowd, can have grave consequences like falling off a cliff and drowning in the ocean. Many investors have the same instinct. They follow the crowd and buy or sell when other people do. This probably won’t end in the same disaster as for the lemmings, but following the crowd virtually never leads to a successful long term investment performance.

The biggest investment profits are normally made by investing long term. But the key is to buy when an investment is undervalued and unloved. That reduces the risk substantially and thus the potential return.
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Extremely important when investing is to be patient and wait for the right opportunity. As Jesse Livermore said:

“It was never my thinking that made the big money for me, it was my sitting.”

I have probably been following the gold market for longer than most people still being active today. When gold went from $35 in 1971, to $850 in 1980, I owned only a little physical gold. I also owned some Australian mining stocks since the bank where I worked in Geneva was advised at the time by Adolf Lundin. Adolf was a legendary Swedish resource investor who lived in Geneva. Sadly, he died too early in 2006, but his sons have continued to expand the Lundin Group to one of the most successful businesses in the resource sector in the world.

So back in 1969 I made my first investment in mining stocks based on Adolf Lundin’s recommendations. I remember Adolf phoning in the middle of the night in Europe from Australia with the latest hot tip. At the time there was a boom in mining stocks. The most infamous company was nickel miner called Poseidon which rose dramatically and later collapsed. Then, when Nixon closed the gold window in August 1971, a spectacular bull market in precious metals started and a bear market in paper money which lasted until January 1980…

Listen to the greatest Egon von Greyerz audio interview ever

by CLICKING HERE OR ON THE IMAGE BELOW.

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I Believed The World Economy Would Have Very Serious Problems
After the 1980 peak, as gold and the gold mining stocks started falling, I was involved in corporate life and stopped following the resource sector. But then in the 1990s, I started analyzing global financial and economic risk and came to the conclusion that the world economy at some point would have very serious problems. At the time I considered that the two most likely areas that would cause this were derivatives and debt.

We Then Aggressively Moved Into Gold
I was looking at how best to protect against these risks and gold was the obvious solution. But gold at the time was totally out of fashion and central banks around the world had been reducing their holdings. From the January 1980 high of $850, gold crashed to just over $300 in 1982. Thereafter gold traded between $300 and $500. Central bank selling pushed gold down to a bottom in 1999 at $250. Finally, at the end of 2001 gold seemed to have stabilized around the $300 pivot point. We then decided that risk seemed right with gold totally unloved and undervalued. So we decided to make physical gold our primary investment in early 2002 when the price was around $300, or in pounds, £200 per ounce. At the time we were based in the UK.

So when we entered our physical gold investment in 2002, I had certainly been “sitting” for a very long time. Gold started the current bull market in 1971 at $35, made a temporary top in 1980 at $850 and then spent 20 years correcting. But the gold bull certainly hadn’t finished, central banks saw to that. They continued their irresponsible monetary policy, leading to a chronic credit expansion, debasement of currencies and thereby permanently underwriting the gold price.

Inflation-Adjusted Gold Price
Looking at gold on an inflation adjusted basis, 2000 was the lowest point since 1971 when the price was $35 per ounce (based on Shadow Government Statistics inflation calculation).

The gold chart below, adjusted for real inflation, shows this amazing insurance can be bought today at an all-time historical low. Gold priced currently at $1,400 is cheaper than in 2000 at $280, cheaper than in 1970 when gold was $35 or in 1780 when gold was traded in London at £4 per ounce.

Gold’s 1980 High Today Equals A Staggering $18,160 Inflation-Adjusted

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$18,160 Gold
What the above chart also shows is that the peak price for gold in 1980 at $850, today would be $18,160 adjusted for inflation. There is no reason why gold wouldn’t reach that level in the next few years, especially as the gold paper market implodes.

Since we bought gold in 2002 we have been “sitting.” We didn’t buy gold for speculation and we didn’t buy gold for participating in a price move. Instead, we bought gold for long term capital appreciation in real terms and most importantly for wealth preservation purposes against an extremely precarious world economy and financial system.

As Ralph Waldo Emerson said:

“the desire of gold is not for gold.

it is for the means of freedom and benefit”

Once we owned the best insurance you can buy, our intention was to keep this cover indefinitely.
It is the best kept secret in the world that you can buy an investment with the following attributes:

1. The best insurance against financial and economic risk
2. The ultimate wealth preservation asset
3. Holds its value in real terms through the ages
4. Has a stable intrinsic value
5. Is totally liquid
6. Is a medium of exchange and the only money that has survived in history,
7. Has no liability or debt attached to it,
8. Has a high potential of substantial capital appreciation

It is the opportunity of a lifetime to acquire insurance that is also a superb investment, or an investment which is also the ultimate insurance, and all this at the lowest price ever in real terms.

We have been sitting with our gold position since 2002, and virtually all the investors we advise have also kept their gold since they acquired it. So when would we dispose of all or part of our gold and advise our investors to do the same? First, I doubt we would ever dispose of all our gold. Because gold is generational wealth and an asset that should always form the foundation of your wealth pyramid.
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Today…
Today, most of the clients we advise hold at least 25% of their financial assets in gold. Some hold a much bigger percentage. It must of course be pointed out that our clients believe strongly that wealth preservation is extremely important at a time when risk is greater than ever in the global financial system. But even if we will always hold some gold, there will be a time when gold becomes over-loved and overvalued. I don’t expect this to happen for quite a few years, whether it is in 5 or 10 years or even longer. At that time we will analyze the state of the world economy and financial system and decide if we should reduce our gold holdings and what we should do with the proceeds.
If the financial system still has major unresolved problems like massive debts and derivatives, then it will still not be the place to put your money. Only when debt and derivatives have imploded and the system is restructured will it be safe to put your money or assets there. Until then, if you can swap your gold for real assets like land, income producing property or sound businesses at bargain prices, this would be a serious opportunity. History is full of examples of people who used their gold to pick up absolute bargains in periods of economic distress and hyperinflation.
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When The Time Is Right…
When the time is right, investors with bigger gold holdings will be able to buy valuable assets with their gold for a fraction of what they cost before the crisis. Price reductions of 90-95% are not uncommon in these periods, especially if measured in gold grams or kilos. For people with smaller gold holdings, this will guarantee them the ability to continue to lead a decent life, as opposed to, for example, the Venezuelans who are now living in total misery.

But we must also remember that if you hold gold, it is extremely important to keep a low profile from a social and personal safety point of view. It will be essential not to flaunt your wealth like many people are doing today. You will also be able to help family and close friends. Remember that with bankrupt governments, there will be virtually no social security or pensions, so there will be many people who will need your assistance.

The inflation adjusted gold chart above is one method of illustrating the real value of gold. Another way is to adjust the gold price for the increase in US money supply. As the chart below shows, on that basis gold is as cheap today as it was in 2000 at $280 or in 1970 at $35. So whatever method we apply, it comes back to the fact that gold today is an absolute bargain.
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We Devised The Best And Safest Way To Acquire And Store Gold
As I explained at the beginning of the article, we bought gold in 2002 for ourselves and the people we advised at the time. For that purpose, we devised the best and safest way to acquire and hold physical gold. A few years later, in 2005, we opened it up for outside investors.
Some of these investors bought early and some bought at higher prices as gold was rising quickly to the $1,920 top in 2011. The good thing is that it doesn’t matter at what level you bought your gold in the last 17 years since gold will go to multiples of the current price. As I have already stated, it will be the ultimate form of wealth preservation and a superb investment over the next 5-10 years.

So some of us took our positions in gold 17 years ago and many others later. But since we are all holding gold for wealth protection reasons, we will be “sitting” for many years to come without any concern about the value of our gold holding. We know with absolute certainty that governments will continue to oblige by destroying the economy, spending money their countries can’t afford to spend, increasing deficits and debts, and totally debasing currencies until they are worthless. For those reasons we are holding gold and sleeping well at night…For those who would like to read more of Egon von Greyerz’s fantastic articles CLICK HERE.

Silver Finally Getting Ready To Launch Higher
READ THIS NEXT! The Price Of Silver Is Finally Ready To Launch Higher, Enjoy The Ride CLICK HERE TO READ
KWN has just released the powerful audio interview with Gerald Celente and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.

More articles to follow…

In the meantime, other important releases…

Gerald Celente On Friday’s Action In The Gold Market CLICK HERE TO READ
Gold & Silver Volatility, Serious Problems Underneath The Surface, Plus Another Bullish Gold CatalystCLICK HERE TO READ
Gold Pullback, First Time Ever, Monetary Madness, And What Has China WorriedCLICK HERE TO READ
A Truly Remarkable Read On The 4th Of JulyCLICK HERE TO READ
It’s Like Magic, Plus This Remarkable Chart Tells You All You Need To Know About The Gold Market CLICK HERE TO READ
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loveandpeace

I started this thread on December 3, 2016. It has been worthwhile as I was able to prove 100% some Forex traders can be taught how to become winning Forex traders.

However there also has been some discoveries of human nature. I do my best work when there is interaction between the teacher and the trader. I cannot even on two hands count how often I asked readers to register and post. I also learned something given away for FREE is worthless to the person getting the FREE information.

So from here on in until I stop posting on this thread regularly, I have no time to answer questions or prove anything to anyone. I am the real deal.

So anyone wanting to determine if they can be taught how to consistenly make money trading Forex needs to register for my 90 day Forex course.

The cost of registration is $500 US dollars with $250.00 payable via E Transfer and the balance after the 90 days is up only if the pupil got his or her monies worth of which they can decide. So the only cost to start is $250 US Dollars. That gives registered students 24/7 access and all their questions will be answered. If people do that then they can ask me questions in live time or post anytime. My corporate website has been contracted for development and beta testing. Until then I will post and teach from here.

I hope that answers all your questions.


Benjamin
BWM


514 247 0775



https://www.zerohedge.com/news/2019-...ops+to+zero%29

Authored by Brandon Smith via Alt-Market.com,
There has been much speculation lately on the Federal Reserve and its ongoing tightening policy. If you were to only read mainstream economic news you would think the Fed had already reversed course and “capitulated”, but this is not the case. The Fed continues to hold interest rates at their neutral rate of inflation while also moving forward with asset dumps from their balance sheet. Nothing has changed since December/January when the Fed first made minor changes to its public statements hinting at “accommodation”.

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By leaving such wording completely ambiguous and refraining from any specifics, the central bank has allowed the media and the investment world to assume that the phrase changes can mean whatever they want the changes to mean. In other words, the Fed has bamboozled the mainstream into projecting their own fantasy outcome. Meaning, they believe that the outcome they desperately want (near zero interest rates and QE4) is the outcome they are going to get. Not only that, but they also think they are going to get it all very soon.

In the alternative economic media, I have noticed that there is also a presumption that the Fed will revert back to stimulus measures at any given moment. In fact, I have heard predictions of Fed rate cuts every month for at least the past seven months. And, each time the Fed doesn’t cut rates, the same analysts argue that “this time was close and next month is certain.”

To be fair, many analysts are basing their assumptions partly on the current financial reality. They are aware of factors that the average person is mostly oblivious to.

Even now in the wake of swift declines in almost every sector of the economy there are still economists and portions of the public arguing that we are in the midst of an economic renaissance. Those people predicting a Fed rate cut in the near term know better.

They see major indicators like the housing market suffering from a 7.8% overall drop in sales and an 8.1% drop in prices.

They see auto market sales at the slowest pace in four years as interest rates rise on auto loans.

They see historic levels of consumer debt and corporate debt. They see massive retail closures (more than 7100 closures announced so far this year), a grinding halt to shipping and freight, seven-year lows in Global manufacturing PMI, the weakest U.S. manufacturing PMI since 2009, and a three month running inversion in the treasury yield curve, etc.

All of these factors signal a violent drop in global and U.S. demand, while the squeeze in dollar denominated assets globally signals that the Fed is indeed tightening liquidity as it said it was doing. Only a fool or a liar would argue in the face of these facts that the economy is in “recovery”. We are in a recessionary crash right now.

In a world without agendas, the Fed would have openly admitted that all of this is going on and that they created this mess through ten years of unprecedented inflationary measures followed by rate hikes and policy tightening into ongoing economic weakness. Then again, in a world without agendas the Federal Reserve would not exist.

As Jerome Powell recently reiterated in his statements to the Council On Foreign Relations, the Fed continues to make false claims that U.S. economic growth remains “strong”, and that while they will be watching for “crosscurrents” (and blaming the trade war for the economic stagnation they created), they do not intend to let “short term swings in sentiment” push them into any policy changes to the Fed funds rate.

Translation: The Fed is not going to stop policy tightening until the crash has hit its peak. This is a classic central bank modus operandi. The Fed’s last policy statements indicate no rate cuts until well into the year 2020.

I have written extensively in past articles on exactly why the Fed will not admit that a financial crash is happening right now, and why they will continue to tighten liquidity until the crash becomes obvious to the general public. To summarize, the Fed is an economic exsanguination machine; they create bubbles deliberately, and then they crash them deliberately so that their international banking counterparts can bleed the public of ever more wealth. They also consolidate control over hard assets and centralize political governance during these periods of engineered crisis.

This is what the rate cut and stimulus crowd does not understand – they think the Fed’s motives are limited to self-preservation. They think the Fed will act to prop up the U.S. economy at all costs with whatever duct tape and false hope and quantitative easing (QE) they can muster, but this is not always the Fed’s agenda. The Fed is a saboteur, not a fix-it man. The Fed wants a crash, but it wants the timing of the crash to occur at the most opportunistic moment.


Another reason I believe the rate cut crowd remains insistent of a near term end to all Fed tightening is that many of them are hedging into gold. Again, this is smart, but it is important not to be blinded by bias in the hopes of profit. The assumption here being that the Fed needs to reintroduce QE before gold prices spike again. This is not necessary for gold valuations to rise, though.

In fact, gold will rise in the near term whether the Fed cuts rates and ends tightening or not. As a point of reference, consider gold’s price history in tandem with the history of the Fed funds rate.

In 2006 gold prices began an exponential rise and nearly doubled; at the same time the Fed was raising interest rates above 5%. Gold prices spiked despite higher rates and Fed tightening.

When the crash occurred in 2008 and as the Fed dropped rates to near zero, gold prices did decline for a time, and then the epic spike returned. So, to be clear, analysts hoping that the Fed will cut rates and cause a price rally in gold should stop. The current economic turmoil will accelerate and gold will rally even if the Fed does not cut rates soon. It’s not an either/or scenario. And, to be clear, financial conditions today are far worse than they were in 2007/2008.

Add to this the incredible gold stockpiling trend among foreign central banks in Russia, China, India, etc., and there is an obvious build-up to a gold market rally no matter what the Fed does. Ultimately, analysts should try not to ignore evidence of the Fed’s policy tightening and sabotage just because they want gold prices to jump.

The current market environment hangs by a thin thread of false perception. This perception is reliant on the notion that the Fed stands ready to save markets, but what if the Fed has no intention of doing this? When the public realizes the Fed’s accommodation will not be as immediate as they imagined, everything will change.

Stock market junkies and ticker trackers are oblivious to what is happening; their attention spans are short and they will argue that everything is fine because stocks are at all-time highs, but the facts say otherwise. The stock market is a trailing indicator of economic health, not a predictive indicator. Stocks always fall after a crash has already overrun the rest of the economy. In the meantime, gold remains a solid bet for those who educate themselves on the reality of the existing crisis and are seeking to protect their wealth in the long run.

* * *
If you would like to support the work that Alt-Market does while also receiving content on advanced tactics for defeating the globalist agenda, subscribe to our exclusive newsletter The Wild Bunch Dispatch. Learn more about it HERE.

Hi Bruce, quick question for you, when it was Risk Off in the morning time, why market is going against??

The markets now can go from RISK OF to RISK ON in seconds. Tomorrow the FED Chairman Powell releases a statement at 8:30 AM.

He is then questioned by the House so each question and answer can cause swings.

Please call me tomorrow.


BWM

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https://www.zerohedge.com/news/2019-...ops+to+zero%29

https://www.goldmoney.com/research/g...lTUqNU-DMQeXDU


Broken markets and fragile currencies
By Alasdair Macleod

Goldmoney Insights July 05, 2019
There are growing signs that the global economic slowdown is for real. As was the case in 1929, the combination of the peak of the credit cycle coupled with trade protectionism in the Smoot-Hawley Tariff Act are similar conditions to those of today and potentially pose a serious economic challenge to the post-Bretton Woods fiat currency system. Therefore, we must consider the consequences if monetary policy fails to contain the developing recession and it turns into a full-blown slump. Complacency over broken markets is no longer an option, with rising prices for gold and bitcoin signalling the prospect of a new round of currency debasement to avoid market distortions unwinding. This article shows why this outcome could undermine fiat currencies entirely and looks at the alternatives of bitcoin and gold in this context.


Introduction
Never in all recorded history have financial markets been so distorted everywhere. In our lifetimes we have seen the USSR and also China under Mao attempt to do without markets altogether and fail, having starved and slaughtered millions of their citizens in the process. The Romans started a long period of currency debasement, lasting from Nero to Diocletian, who wrote prices in stone (the origin of the phrase) in a vain attempt to control them. While the Roman Empire was the known world at the time, it was essentially restricted to the Mediterranean and Europe. Subsequently, there have been over fifty instances recorded of complete monetary collapse, the vast majority in the last hundred years, which have led to the breakdown of every society involved.[i]And now we could be facing a global totality, the grand-daddy of them all.


We have become inured to cycles of credit expansion, driven by fractional reserve banking at least since the Bank Charter Act of 1844, which legalised fractional reserve banking. Extra impetus was given by central banks from the 1920s onwards. We have become so used to it that we now expect central banks to issue and control our money and only get really worried when we think they might lose control. In their efforts to satisfy the mandate they have assumed for themselves central banks intervene more and more with every credit cycle.

Our complacency extends to prices, especially regarding the exchange and valuation of capital assets. There are now about $13 trillion of bonds in issue with negative yields. We rarely think in any depth about this strangeness, but negative yields are never the consequence of market pricing free from monopolistic distortions. The ECB, the Bank of Japan and the Swiss National Bank all impose negative interest rates, as well as Sweden’s Riksbank and Denmark’s National bank.

The ECB commands the currency and finances of the largest economic area in the world and the BoJ the third largest national economy. In Denmark, mortgage lenders are even offering negative-yield mortgages: in other words, Danes are being paid to take out loans with negative interest rates.[ii] Ten-year government bonds issued by Germany, Japan, Sweden and even by France have negative yields. All Danish government bonds have negative yields.

Negative yields stand time-preference on its head. Time-preference refers to the fact that we prefer current possession to future possession, for obvious reasons. So, when we part with our money we always do so at a discount to expected repayment, which is reflected in a positive rate of interest. The idea that anyone parts with money to get less back at a future date is simply nuts.

It gets even more bizarre. The French government has debts roughly equal to France’s GDP and by any analysis is not a very good credit risk, but it is now being paid by lenders to borrow. Only forty per cent of her economy is the productive tax base for a spendthrift, business-emasculating government. An independent observer evaluating French government debt would be hard put to classify it as investment grade in the proper meaning of the term. But not according to bond markets, and not according to the rating agencies which today’s investors slavishly follow.

There are a number of explanations for this madness. Besides complacency and misplaced investor psychology, the most obvious distortion is regulation. Investors, particularly pension funds and insurance companies are forced by their regulators to invest nearly all their funds in regulated investments. Their compliance officers, who are effectively state-sponsored bureaucrats, control the investment decision process. Portfolio managers have become patsies, managing capital with little option but to comply.

Additionally, with their highly-geared balance sheets state-licenced banks complying with Basel II and III are also corralled into “riskless” assets, which according to the regulators are government debt. The rating agencies play along with the fiction. For example, Moody’s rates France as Aa2, high quality and subject to very low credit risk. This is for a country without its own currency to inflate to repay debt. Low enough for negative yields? Low enough to be paid to borrow?

In Japan, the country’s government debt to GDP ratio is now over 250%. The Bank of Japan maintains a target rate of minus 0.1%, and the 10-year government bond yield is minus 0.16%, making the yield curve negative even in negative territory. It doesn’t stop there, with the Bank of Japan having bought 5.6 trillion yen ($52bn) of equity ETFs last year. This takes its total equity investment to 29 trillion yen ($271bn), representing 5% of the Tokyo Stock Exchange’s First Section. Last year’s purchases absorbed all foreign selling of Japanese equities, so they were clearly aimed at rigging the equity market, rather than some sort of monetary manoeuvre.

It’s not only the Bank of Japan, but the National Bank of Switzerland has been at it as well. According to its Annual Report and Accounts, at end-2018 it held CHF156bn in equities worldwide ($159bn), being 21% of its foreign reserves. We can see the direction central bank reserve policy is now heading and should not be surprised to see equity purchases become a wide-spread means of rigging stock markets and expanding base money.

Sovereign wealth funds, which are government funds that owe their origin to monetary inflation through the foreign exchanges, have invested a cumulative total of nearly $2 trillion dollars in listed equities.[iii] While this is only 2.5% of total market capitalisation of listed securities world-wide, they are a significant element in marginal pricing, more so in some markets than others.

Between them, central banks and sovereign wealth funds that are buying equities in increasing quantities further the scope of quantitative easing. The precedent is now there. Economists in the central banking community now have a basis for drafting erudite neo-Keynesian papers on the subject, giving cover for policy makers to take even more radical steps to pursue their interventions.

By all these methods, state control of regulated public and private sector funds coupled with the expansion of bank credit has cheapened government borrowing, and it would appear that governments are now enabled to issue limitless quantities of zero or negative-yielding debt. So long as enough money and credit is fed into one end of the sausage machine, it emerges as costless finance from the other. Never mind the destruction wreaked on key private sector investors, such as pension funds, whose actuarial deficits are already in crisis: that is a problem for later. Never mind the destruction of insurance fund finances, where premiums are normally supplemented by healthy bond portfolio returns. Just blame the insurance companies for charging higher premiums.

This is now the key question: are we entering a new phase of low-inflation managed capitalism, or are we tipping into a mega-crisis, possibly systemically destructive?

If the latter, there’s a lot to go horribly wrong. The Bank for International Settlements, the central banks’ central bank, is certainly worried. Only this week, it released its annual economic report, in which it said, “monetary policy can no longer be the main engine for economic growth.” Clearly whistling to keep our spirits up, it calls for structural reforms to boost government spending on infrastructure. Translated, the BIS is saying little more can be achieved by easing monetary policy, so Presidents and Prime Ministers, it’s over to you. You can create savings by making government more efficient and you can spend more on infrastructure.

While the BIS washes it hands of the problem, history and reason tell us increased state involvement in economic outcomes will only make things worse. It is in the nature of government bureaucracy to be economically wasteful, because its primary purpose is not the efficient use of capital resources. And while the outcome, be it a new high-speed railway or a bridge to nowhere may be a visible result, it fails to account for the true cost to the economy of diverting economic resources from what is actually demanded.

Heed the message from the credit cycle
Bullish investors should note that we are already far down the path of our economic decline, which gives a fundamental falsity to financial valuations. Following the Lehman crisis, the expansion of money and credit fed into asset inflation, creating an illusion of improving business prospects. The suppression of interest rates was the come-on to businesses to invest in production. The government’s budget deficit created extra spending as a further encouragement. The government’s economists say it’s all down to reviving those animal spirits. But they have been encouraging businesses to chase a mirage, which as they progress towards it always seems that little bit further away, until it finally disappears altogether. Businesses that relied on the state’s mirage now find it is just an illusion.

For those of us struggling to preserve our savings the effect of monetary inflation on financial prices is the reality that matters. The purchasing power of the currency in which we measure our savings is a commonly neglected consideration, an issue of added importance at times of high monetary inflation. Unfortunately, it is an effect that cannot be measured, but it doesn’t stop statisticians from persuading us that they can. Even though they are accepted by financial analysts without any reservation, government statistics on price inflation have underplayed the progressive impoverishment of productive consumers by monetary debasement. Since this dishonourable manipulation of statistics was adopted, governments have been faced with a stark choice: either they confess to the deceit and protect the currency from further debasement, or like every Roman Emperor who followed Nero, continue to debauch the currency so long as there are suckers to believe in it.

The growing dishonesty of statistical manipulation over time is an additional factor to take into account when observing successive credit cycles. They are part of a policy of concealing the fact that they are getting worse, when the official line is otherwise: policy-makers claim to be improving their control over the excesses of the markets by suppressing evidence to the contrary.

Credit cycles have been generally worsening, at least since the inflationary crisis of the 1970s, which followed the abandonment of the Bretton Woods Agreement in 1971. Central banks have debauched their currencies increasingly over successive credit cycles, building up to an inevitable apocalyptic crash. The approaching one could be our global totality, the grand-daddy of them all.

Those of us not wrapped up in the illusion of modern monetary theory and Keynesian and monetarist claptrap have always know it will happen one day. The collapse of the Bretton Woods Agreement was an event in a larger cycle of government intervention and failure. Von Mises knew it would happen, and he explained why in his The Theory of Money and Credit, first published in German over one hundred years ago. Ten years before it happened, he predicted the collapse of the mark and other European currencies in the early 1920s. Since then, we have proved that collectively we have learned little.

It’s like living on the slopes of a volcano, knowing it is certain to erupt one day. The optimists are betting that the growing mountain of negative-yielding debt is not the apocalypse’s calling-card.

Trade protection and the credit cycle
So far, I have described the worrying imbalances in financial markets, evidenced in this credit cycle by growing quantities of negative-yielding debt. But last year, an additional problem arose through American trade tariffs, which now combine with the top of the credit cycle.

I have written about this before, so will only summarise the main point here.[iv] In 1929, the Smoot-Hawley Tariff Act was legislated at the end of the 1920s credit expansion, and it was the combination of the two that changed the similarly benign conditions of the 1920s to those of today into the 1929 crash and the depression that followed. Undoubtedly, there were other factors that made the situation worse than it otherwise would have been, principally President Hoover’s disastrous attempts to intervene in the economy. Today, government intervention is far more pervasive, and has the potential to make things even worse.

It must not be assumed that today’s stock markets will fall by nine-tenths, as was the case between 1929-32. Through the medium of dollar, in those days prices were effectively measured in gold at the fixed rate of $20.67 to the ounce. Today, currencies are totally fiat, and the price of any financial asset will reflect changes in value from the money side as well as from the asset itself. However, stocks are still likely to be liquidated in a serious downturn. Added to this today is a potential ETF problem, where investors’ only attachment is to bullish stock markets and not individual investments. As soon as the public wake up to changed market conditions we can expect them to liquidate index-tracking ETFs.

By all appearances, in its early days the ending of a prolonged period of credit expansion is turning out for investors to be no worse than a normal downturn – nothing monetary policy can’t fix. It is certainly possible the can will be kicked down the road just one more time. If that fails, a second phase of investor psychology will anticipate a deepening of the global recession and a realisation that monetary policy is failing to stop it. Equity markets should then begin to fall in earnest. Property prices can be expected to follow, perhaps declining heavily given the leverage of mortgage debt. So far, so conventional.

If it happens, almost certainly there will be a financial abyss into which we will all stare. We have seen it before: in January 1975 in the UK, it was after the stock market had fallen 73% from its 1972 peak. There was a similar moment in America in 2002, when Alan Greenspan turned it round. And during the great financial crisis, there was another moment, still fresh in our minds. Always, the solution was for the establishment, comprising the government, its central bank, the commercial banks and the pension and insurance funds to act together behind the scenes to restore confidence. We can be sure that government coercion to achieve the same revival of confidence will be tried again if the situation arises.

If an attempt to fully restore confidence fails to do more than provide a short-term fix, government finances will deteriorate further, and monetary inflation will be tried in even greater quantities than we have seen heretofore. Flooded with fiat money, most economies will then experience rising price inflation that can no longer be camouflaged by government statistics. To protect the currencies and reflect the markets’ increasing time-preference, higher interest rates will then surely follow.

In such an environment, the world’s banking system will be under enormous strain, and the risk of systemic failure will escalate. While it is never too late to look for alternatives to deposits in the banking system, it is far better to seek them before a crisis can be seen on the horizon. In the event that global fiat-money finances do deteriorate into a systemic crisis, the majority of people will be caught by surprise, having relied on the state to regulate greedy bankers and crony capitalists of all stripes.

Unfortunately, complacency and ignorance are no defence in the courts of human experience. The two alternative stores of value, whereby money can be taken out of a bank without queueing for physical cash, are through the purchase of secure cryptocurrencies such as bitcoin and metallic money - gold and silver. Their prices are already rising, perhaps reflecting shortening odds of the cataclysmic events described herein taking place.

For this reason, the merits and limitations of both should hold our interest.

Bitcoin, King of the cryptos
The more prescient individuals amongst us will have already taken out some insurance against the inevitable calamity von Mises described over a hundred years ago.

Traditionally, this has meant portfolio exposure to precious metals. But in the last few years, we have observed an interesting development. The decentralisation of information through the internet has undermined government control of the media, particularly with respect to money.

The growing numbers of millennials now seeking the truth about money is a new phenomenon. They seek alternatives to state-issued currency, and are the driving force behind cryptocurrencies. The invention of a digital rival, bitcoin, along with other cryptocurrencies has profound implications for the hitherto unquestioning public acceptance of fiat currency.

Keynes wrote that:

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces on the side of destruction and does it in a manner which not one man in a million is able to diagnose.” (The Economic Consequences of the Peace, 1919).

With the new millennials, the ignorance of the masses upon which currency-issuing governments depend is being unexpectedly eroded. Through their interest in cryptocurrencies they have learned about the drawbacks of fiat currencies, and while their unconditional support for bitcoin and the like may be challenged, they realise that governments debauch currencies at their expense. For this reason, cryptocurrencies, particularly bitcoin, are a significant threat to state currencies.

The consequence may be to speed up the collapse of fiat currencies. Faith in fiat currencies is already being tested, which can be deduced from the performance of bitcoin’s price. Furthermore, if commercial banks become systemically threatened, we can expect to see rapidly increasing amounts of fiat deposits being exchanged by millennials for diminishing quantities of bitcoin.

The mistake observers of bitcoin often make is to disqualify it as money because it is volatile. What matters is not its use as a medium for transactions, but its ability to store value wholly protected from government intervention by virtue of its distributed ledger. Through their continual debasement and their tightening control over the use of fiat currencies, governments have created and fuelled the demand for bitcoin. And when it comes to security, bitcoin and its blockchain has survived all attempts to break them. It is in various service providers that the weaknesses lie, not in bitcoin and its blockchain.

Though they have shown interest in the blockchain, financial institutions are only now beginning to take notice of bitcoin itself, and pressure is mounting for it to be accepted as an investment asset. Regulated bitcoin futures contracts are being traded on Comex, and when other asset classes yield inadequate returns, pressure for financial institutions to invest in bitcoin should continue to increase.

While no one can predict how bitcoin prices will actually evolve, it is already becoming clear that its story has much left to tell. Interestingly, bitcoin’s recent dramatic price move has come at a time when the risk of a deepening and global economic recession appears to be increasing. It is not yet tangible evidence that bitcoin could accelerate the transfer of value away from fiat money, thereby undermining it, but it is food for thought.


Gold, the only money that survives all
In all history, its rarity, desirability and chemical stability tell us that gold is the most secure form of money. It is only in the advanced economies in the West, where we have fallen for decades of government propaganda that gold no longer has a monetary role, that people have forgotten its proven qualities as the ultimate money.

It stands to reason that as the purchasing-power of state-issued currencies is increasingly threatened by over-issuance, the west’s collective amnesia will be replaced by a reassessment of gold as the proven protection from collapsing fiat currencies. Despite the excitement generated by secure cryptocurrencies such as bitcoin, gold remains the refuge of choice for those concerned about an emerging post-fiat world, a world where even the internet and mobile communications risk being disrupted, rendering cryptocurrencies temporarily useless as transaction money.

Ahead of a collapse in fiat currencies, the most powerful argument in favour of both bitcoin and gold is their ability to store value. This is not the same as their role as currency, which becomes more important afterwards, when bitcoin cannot compete with gold. The transfer of bitcoin ownership is restricted to a daily rate of about 500,000 and is already running close to this capacity. For this reason, it can never replace conventional forms of instant exchange, unlike a gold coin. Only gold (and additionally silver) will offer both the store of value and cash-transaction functions demanded in a post-fiat world. The physical supply of gold will become central to its price relationship with failing fiat currencies, so a proper assessment of the stock of gold available as currency in a post-fiat world is essential.

Gold as money can be regarded as being in two categories. There are the reserves, held by central banks, which will be required to back note issues and electronic money when the fiat-money component of reserves become worthless. Additionally, there are gold bars and coins distributed in public ownership. The two quantities appear to be similar, as the following analysis demonstrates.

Of a total above-ground stock of physical gold, which at Goldmoney we estimate to be about 176,000 tonnes[v], perhaps 60% is used for jewellery and industrial purposes, leaving 70,400 tonnes, of which 34,024 tonnes are recorded as official reserves.[vi] However, it is almost certainly the case that nations, such as China, hold gold which is undeclared, and at the same time, not all official reserves are bullion, but bullion swapped and leased so are double-counted. Let us simplistically assume that these two quantities cancel each other out. That leaves an estimated 36,376 tonnes owned by the public as bar and coin, which together with official reserves we can regard as the gold money supply.

Strictly speaking, it is a mistake to include jewellery in Asia (where the bulk of it is held) as part of gold’s money supply. While it can easily be encashed close to melt value, in practice it is not held for this purpose. The flow of gold into jewellery tends to be a one-way phenomenon, where it is more likely to be used as collateral at Asian pawnshops for the purpose of bridge financing and capital spending, with the intention of being redeemed for fiat cash. Therefore, except in the case of a post-apocalyptic economic catastrophe, gold jewellery is not part of gold’s monetary flow. Significantly higher gold prices may change this, but for now gold jewellery should be regarded as its owners see it: a dependable asset to be held and passed on to successive generations.

The reason for belabouring the point is analysts mistakenly use estimates of total above-ground stock as gold’s money supply. It confuses a store of value with money available for transactions, the same confusion that leads advocates of cryptocurrencies to regard bitcoin as a circulating currency. Bitcoin can only circulate within the constraints of a distributed ledger, so its theoretical status is more akin to a form of digital jewellery, hoarded and not intended to be spent.

We can now compare the value of gold that will circulate as currency with the total of cash and bank deposits in fiat currencies held round the world. Internet searches tell us the world’s fiat money totals about $80 trillion, while the quantity of monetary gold as redefined above at current prices is worth $3.2 trillion, a ratio of 25 times. And that’s before any further expansion of fiat money is issued in an effort to stem a developing credit crisis.


Conclusion
It is very likely the recent strength in both gold and bitcoin is linked to changing perceptions of risk to the global economy. It has become increasingly clear in recent weeks that the coincidence of the end of the expansionary phase of the credit cycle coinciding with trade protectionism has damaged global trade very severely, and the effects are now extending into domestic economies. This being the case, we can expect a renewed acceleration of monetary inflation. While supporting government finances through new bouts of quantitative easing, the wealth-transfer effect of monetary inflation will increasingly undermine the productive economy.

That is why gold and bitcoin prices could turn out to be an early warning of an acceleration in the rate at which fiat currencies will lose purchasing-power. If leading nations through their central banks fail to protect their currencies, then these two alternatives to fiat currencies will have only just started to rise.



[i] See https://object.cato.org/sites/cato.o...gpaper-8_1.pdf

[ii] Currently -0.31% fixed for the rest of the year. See https://www.thelocal.dk/20160628/bre...eap-home-loans

[iii] See https://www.swfinstitute.org/transactions

[iv] See https://www.goldmoney.com/research/g...conomic-crisis

[v] Extrapolated from a paper authored by James Turk and Juan Castañeda in 2012. See https://www.goldmoney.com/images/med...dgoldstock.pdf

[vi] The World Gold Council estimates the ten-year average of jewellery and industrial demand absorbed 61% of global mine and scrap supply. See https://www.gold.org/about-gold/mark...ture-and-flows


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