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Dan Oliver: The money to push gold past $10,000 has already been issued
8:35p ET Sunday, February 24, 2020
Dear Friend of GATA and Gold:
Gold will reach and pass $10,000 per ounce because the money that will drive the price there has already been issued, Myrmikan Capital founder and managing member Dan Oliver writes in a fascinating study of gold backing for central bank balance sheets through history.
The current gold backing of the Federal Reserve's balance sheet, Oliver writes, is less than 6 percent, a small fraction of what it normally has been.
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Oliver writes: "At some point, whether it is during the next panic or the following one, the market will discover that much of society's wealth has become entrapped in non-cash-flowing malinvestments. Tax revenues will plummet, and the assets that our central bank holds will be shown to be near worthless.
"That is when gold will shoot into the multi-thousands of dollars per ounce.
"History allows us to make some projections. The average gold backing for Bank of England liabilities from 1720 to 1900 was 33%. Private banks in the United Kingdom maintained a similar percentage of gold backing during this time.
"This percentage was set more by the market than by policymakers: Until World War I, anyone could deposit gold and demand paper or vice-versa. The composition and size of the Federal Reserve's balance sheet require gold to trade above $5,000 to reach one-third backing.
"Looking at American history, Federal Reserve notes were freely exchangable for gold until 1933, and the average gold backing of the Federal Reserve through that time was 54%. To reach that level of backing would currently require a gold price above $8,500. Recall, however, that the above figures occurred when the non-gold assets on central bank balance sheets were nearly all commercial bills. Given the current composition of the Federal Reserve's balance sheet, the market will demand more backing than one third or even a half."
Oliver's study is titled "Gold Past $10,000" and it's posted at the Myrmikan internet site here:
http://www.myrmikan.com/pub/Myrmikan_Research_2020_01_14.pdf
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
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