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Alasdair Macleod: Payments panic and the end of fiat currencies

Section: Daily Dispatches

2:34p ET Thursday, March 19, 2020

Dear Friend of GATA and Gold:

Though it seems impossible to keep track of the virtually infinite money pouring out of electronic pipelines all around the world, GoldMoney research director Alasdair Macleod today published a magnificent synthesis of what is happening and what it is likely to produce: the collapse of the financial system it is meant to save.

Macleod's essay includes from pointed observations about gold. Among them:

"... From December 2015 the gold price began to rise from $1.050 to current levels, which is the appropriate non-fiat measure of the dollar's purchasing power. This fact says much about gold and silver's reaction last week, which was to fall heavily in paper form while physical demand led to shortages and premiums everywhere. And now we have credible reports of refinery output being curtailed, particularly in Switzerland's Ticino canton, where three of the large Swiss refiners are based.

... Dispatch continues below ...


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"After the mid-1980s, gold was used as a low-interest-rate form of collateral for the purchase of other higher-yielding assets. In recent years that function has ceased, and gold has become a plaything of bullion banks, which are skilled at using futures and forwards to soak up speculative demand in a highly profitable fleecing of speculative interest. The continuance of this game depended entirely on the Fed and other central banks setting the framework for prices of financial assets in the wider context by retaining an iron control over markets. Recent events have shown that that has almost certainly come to an end and increasingly the bullion banks see a logic in getting out of the gold and silver paper business by squaring their books. ...

"The dichotomy is between the world of financial assets and the real world of people. Events over the last few weeks have raised the possibility that the central banks, particularly the Fed, in whose dollars everything is priced, are losing control over the whole financial system. Normally scared into financial submission, ordinary people are not buying the establishment's Kool-Aid anymore. They know nothing, they do not understand what is happening, but at the margin they want precious metals at any price.

"The monetary authorities find this behaviour unacceptable. They have routinely killed off embarrassing price rises in gold and silver as the means of subduing public interest. The prospect of monetary inflation following a coronavirus lockdown will make it impossible to repeat the exercise successfully because of the monetary inflation involved.

"Meanwhile bullion banks are in a bind, having far greater gold and silver obligations than their access to physical gold for cover. These obligations are overwhelmingly in paper, futures and forwards, as well as liabilities to customers with unallocated accounts. Anecdotal evidence also suggests that customers with allocated accounts have already had difficulties getting physical delivery in recent years. Therefore, while public demand for physical bullion has been increasing, the bullion establishment has become badly exposed to the monetary consequences of the coronavirus pandemic.

"Central banks and the Bank for International Settlements cannot afford to see a bullion bank blowup and doubtless have been working behind the scenes to prevent one. Gold is likely being leased to the bullion banks, giving them some liquidity on paper, but in practice it never leaves the central bank's vault and therefore its possession. Futures are sold with the purpose of triggering the speculators' stops, creating an avalanche effect on the price. The intention is for bullion banks to either get at least square in their positions or preferably long, because they know that when the suppression exercise is over, the price of gold and silver will rise dramatically in the face of fiat money expansion.

"What they don't know yet is the fate of fiat currency. We know from analysing John Law's experience in 1720 that in 2020 we are likely to see the end of it very soon. Conventionally expressed, that gives gold and silver prices of infinity and moves of a hundred bucks or so are immaterial."

Macleod's analysis is headlined "Payments Panic and the Ending of Fiat Currencies" and it's posted at GoldMoney here:

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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