"As a delaying tactic, U.S. foreign exchange operations were often successful. They raised the potential costs of speculation and provided cover for unwanted, temporary, and ultimately reversible dollar flows. They delayed the drain of the U.S. gold stock. But to the extent that these devises substituted for more fundamental and necessary adjustments and postponed the inevitable collapse of Bretton Woods, they were a failure."
Robert Wenzel, Cleveland Fed Accidentally Links to Paper Highly Critical of US Currency Market Interventions to Support Bretton Woods
When I said, and it already seems so long ago, that we had broken out with a higher high a few weeks ago, I cautioned that the markets had not suddenly become honest and transparent. and so caution was still advised.
And indeed, the breakout was stuffed, with the usual routine of dumping large amount of futures contracts at market in thin trading hours, often on the open of the NY trading.
This is the currency war. This is the struggle we are seeing for the nations of the world to find a new way of arranging the international trading relationships in the face of Triffin's Dilemma, which indicates that at some point if a single country manages the world's reserve currency, eventually they will come to an impasse between their domestic interests and the interests of the rest of the world.
And after the failure of Bretton Woods and the slowly destabilizing status quo of Bretton Woods II, we are there now. Some mistakenly think the dollar is rising now because of Triffin's dilemma. This is not the case, but rather a policy choice by the US to allow the dollar to appreciate against the euro and the yen, remembering that the US Dollar DX index is weighted to how things were in the last century.
The US is fostering the myth that it is already past the worst of the financial crisis, which its Banks largely promoted in their frauds and abuse of the reserve currency status with the cooperation of the Federal Reserve and acquiescence of the regulators.
This is not going to be short, nor easy. I have rarely seen so many who are interested in precious metals so discouraged. They think one thing, they see other things, but then they see and hear other things that are almost completely opposite, and do not know what to believe.
And losing money hurts, ESPECIALLY if you are using leverage and are overextended. Mining companies are levered plays on the precious metals, and the small the cap, the greater the leverage.
Timeframes also matter. I have been in this trade for a long time, not because I like gold for itself. My thinking at the time I was looking into international money issues and global trade, which was related to the communications business I was in, was that we were approaching a currency wars scenario.
It seemed pretty clear that the Dollar regime could not be sustained without the establishment of a very unipolar, de facto world governance, with perhaps two or three cooperating spheres of control. I wrote a paper about this in B-School in 1991 (ok I was a late bloomer but as an classically educated engineering type pure business management course were not my thing).
And there was clearly a movement in that direction, from the neo-cons and their predecessors, and there still is. Money is power, and power is the new god of our marketplace in the West if not everywhere.
So try to keep this in perspective. This are very difficult times. I see where a major supplier of retail precious metals is publicly referring to a large number of their customers as 'crazy' even while there is a sea-change with central banks increasing their gold reserves (although it is clear the WGC is blinded to China). Fed President Richard Fisher owns quite a bit of gold. Maybe he is crazy. .
I remember, quite vividly, gold being at $280 and silver at $4.70 and the prevailing wisdom was that the precious metals were 'dead money.' Seriously. You could barely find a buyer less than 20 years ago.
The truly big changes catch people flat-footed, because they run against the grain of what we knew yesterday, which is where most people are focused.
I do not know what will happen in the future, and do not think for a minute that I do. We are all in God's hands. But I am looking for the signs based on my understanding of how certain things work, and over a 20 year timeframe I am pretty much in the groove, so to speak.
Don't be overly worried about these things that are beyond your control. Rather, spend more of your time on things that you can control, and the things that will, in your waning days, loom most heavily on your conscience in their importance.
Have a pleasant evening.
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