{"id":47072,"date":"2013-07-02T04:50:40","date_gmt":"2013-07-02T03:50:40","guid":{"rendered":"http:\/\/rinf.com\/alt-news\/breaking-news\/why-the-gold-crash\/47072\/"},"modified":"2013-07-02T04:50:40","modified_gmt":"2013-07-02T03:50:40","slug":"why-the-gold-crash","status":"publish","type":"post","link":"http:\/\/rinf.com\/alt-news\/breaking-news\/why-the-gold-crash\/","title":{"rendered":"Why the Gold Crash?"},"content":{"rendered":"

Recently
\n by Peter Schiff: Sock
\n Puppet Kabuki; Nikkei Today Parallels Dot-Com Bust<\/a><\/i><\/span><\/p>\n

\n
\n \"\"<\/a>
\n <\/p>\n

The New York
\n Times had the definitive take on the vicious sell off in gold. To
\n summarize one of their articles:<\/span><\/p>\n

\n

Two years
\n ago gold bugs ran wild as the price of gold rose nearly six times.
\n But since cresting two years ago it has steadily declined, almost
\n by half, putting the gold bugs in flight. The most recent advisory
\n from a leading Wall Street firm suggests that the price will continue
\n to drift downward, and may ultimately settle 40% below current
\n levels.<\/span><\/p>\n

The rout
\n says a lot about consumer confidence in the worldwide recovery.
\n The sharply reduced rates of inflation combined with resurgence
\n of other, more economically productive investments, such as stocks,
\n real estate, and bank savings have combined to eliminate gold’s
\n allure.<\/span><\/p>\n

Although
\n the American economy has reduced its rapid rate of recovery, it
\n is still on a firm expansionary course. The fear that dominated
\n two years ago has largely vanished, replaced by a recovery that
\n has turned the gold speculators’ dreams into a nightmare.<\/span><\/p>\n<\/blockquote>\n

This analysis
\n provides a good representation of the current conventional wisdom.
\n The only twist here is that the article from which this summary
\n is derived appeared in the August 29, 1976 edition of The New York
\n Times. At that time gold was preparing to embark on an historic
\n rally that would push it up more than 700% a little over three years
\n later. Is it possible that the history is about to repeat itself?<\/span><\/p>\n

At the time
\n The Times article was written gold had fallen to $103 per ounce,
\n a decline of nearly 50% from the roughly $200 it had sold for in
\n the closing days of 1974. The $200 price had capped a furious three-year
\n rally that began in August of 1971 when President Nixon “temporarily”
\n closed the gold window and allowed gold to float freely. Prior to
\n that decision gold had been fixed at $35 per ounce for nearly two
\n generations. That initial three year 450% rally had validated the
\n forecasts of the “gold bugs” who had predicted a rapid rise in gold
\n prices should the dollar’s link to gold be severed. The accuracy
\n of these formerly marginalized analysts proved to be a bitter pill
\n for the mainstream voices in Washington and Wall Street who, for
\n reasons of power, politics and profit, were anxious to confine the
\n “barbarous relic” to the dustbin of history. Incredulous as it may
\n seem now, with gold still priced at $35 per ounce, official forecasts
\n of both the Secretary of the Treasury and the Chairman of the Federal
\n Reserve were that demonetizing gold would undermine its value, and
\n that its price would actually fall as a result.<\/span><\/p>\n

Of course government
\n experts could not have been more wrong. Once uncoupled from the
\n dollar, gold’s initial ascent in the early 1970’s was fueled by
\n the highest inflation in generations and the deteriorating health
\n of the U.S. economy that had been ravaged by the “guns and butter”
\n policies of the 1960’s. But the American economy stabilized during
\n the mid-years of the 1970’s and both inflation and unemployment
\n fell. When gold reversed course in 1975 the voices of traditional
\n power elite could not contain their glee. When the gold price approached
\n $100 per ounce, a nearly 50% decline, the obituaries came fast and
\n furious. Everyone assumed that the gold mania would never return.<\/span><\/p>\n

Although the
\n writer of The Times piece did not yet know it, the bottom for gold
\n had been established four days before his article was published.
\n Few realized at the time that the real economic pain of the 1970’s
\n had (to paraphrase The Carpenters 1970’s hit) “Only Just Begun”.
\n When inflation and recession came back with a vengeance in the late
\n 1970’s, gold took off (to quote another 1970’s gem), like a skyrocket
\n in flight. By January 1980, gold topped out at $850 an ounce. The
\n second leg of the rally proved to be bigger than the first.<\/span><\/p>\n

The parallel
\n between the 1970s and the current period are even more striking
\n when you look closely at the numbers. For example, from 1971 to
\n 1974 gold prices rose by 458% from $35 to $195.25, which was then
\n followed by a two-year correction of nearly 50%. This reduced total
\n gains to just under 200%. The current bull market that began back
\n in 2000 took a bit longer to evolve, but the percentage gains are
\n very similar. (We should allow for a more compressed time frame
\n in the 1970s because of the sudden untethering of gold after decades
\n of restraint.) From its 1999 low to its 2011 peak, gold rose by
\n about 650% from $253 to $1895 per ounce, followed by a two year
\n correction of approximately 37%, down to around $1190 per ounce.
\n The pullback has reduced the total rally to about 370%. The mainstream
\n is saying now, as they did then, that the pullback has invalidated
\n fears that rising U. S. budget deficits, overly accommodative monetary
\n policy, and a weakening economy will combine to bring down the dollar
\n and ignite inflation. But 1976 was not the end of the game. In all
\n likelihood, 2013 will not be either.<\/span><\/p>\n

The biggest
\n difference between then and now is that until 1975 ordinary Americans
\n were barred by law from buying and owning gold. About the only route
\n available to participate in the earlier stage of the precious metal
\n rally was by hording silver dimes, quarters and half dollars minted
\n prior to 1965. My father indulged in this process himself by sifting
\n through his change, the cash registers of any merchant who would
\n allow him (exchanging new non-silver coins and bills for silver),
\n and by sifting out silver coins from rolls he bought from banks.
\n It was a time-consuming process, and most of his friends and family
\n members thought he was crazy. After all, he had $10,000 worth of
\n pocket change earning no interest.But the $10,000 face value worth
\n of those coins he collected had a melt value of over $350,000 when
\n silver hit its peak.<\/span><\/p>\n

By the mid
\n 1970’s none of the problems that initially led to the recession
\n in the early years of the decade had been solved. Contrary to the
\n claims of the “experts” things got much worse in the years ahead.
\n It took the much deeper recession of the late 1970’s and early 1980’s,
\n which at the time was the worst economic down-turn since the great
\n Depression, to finally purge the economy of all the excesses. The
\n lower marginal tax rates and cuts in regulation implemented by President
\n Reagan and tight money under Volcker helped get the economy back
\n on track and create investment opportunities that drew money away
\n from gold. As a result gold fell hard during the early 1980’s. But
\n even after the declines, gold maintained levels for the next 20
\n years that were three to four times as high as the 1976 lows.<\/span><\/p>\n

Although the
\n economy improved in the 1980’s, the cure was not complete. Government
\n spending, budget and trade deficits continued to take a heavy toll.
\n The U.S. was transformed from the world’s largest creditor to its
\n largest debtor. When the time came to face the music in 2001, the
\n Fed kept the party going by opening the monetary spigots. Then when
\n decades of monetary excess finally came to a head in 2008, the Fed
\n open up its monetary spigots even wider, flooding the economy with
\n even more cheap money.<\/span><\/p>\n

Unfortunately
\n just like 1976, a true economic recovery is not just around the
\n corner. More likely we are in the eye of an economic storm that
\n will blow much harder than the stagflation winds of the Jimmy Carter
\n years. And once again the establishment is using the decline it
\n the price of gold to validate its misguided policies and discredit
\n its critics. But none of the problems that led me and other modern
\n day gold bugs to buy gold ten years ago have been solved. In fact,
\n monetary and fiscal policies have actually made them much worse.
\n The sad truth is that as bad as things were back in 1976, they are
\n much worse now. Whether as a nation we will be able to rise to the
\n occasion, and actually finish the job that Ronald Reagan and Paul
\n Volcker started remains to be seen. But I am confident that the
\n price of gold will rise much higher, and that its final ascent will
\n be that much more spectacular the longer we continue on our current
\n policy path. Don’t believe the mainstream. Just as before, they
\n will likely be wrong again. <\/span><\/p>\n

July
\n 2, 2013<\/i><\/span><\/p>\n

Peter
\n Schiff is president of Euro Pacific Capital and author of <\/i>The
\n Little Book of Bull Moves in Bear Markets<\/a> and <\/i>Crash
\n Proof: How to Profit from the Coming Economic Collapse<\/a>. His
\n latest book is <\/i>The
\n Real Crash: America’s Coming Bankruptcy, How to Save Yourself and
\n Your Country<\/a>.<\/i><\/span><\/p>\n

Copyright
\n \u00a9 2012 Euro Pacific Capital<\/a><\/span><\/p>\n

The
\n Best of Peter Schiff<\/span><\/b><\/span><\/a>
\n
\n <\/span><\/p>\n

Republished with permission from:: Lew Rockwell<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Recently by Peter Schiff: Sock Puppet Kabuki; Nikkei Today Parallels Dot-Com Bust The New York Times had the definitive take on the vicious sell off in gold. To summarize one of their articles: Two years ago gold bugs ran wild as the price of gold rose nearly six times. But since cresting two years ago […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[487],"tags":[],"class_list":{"0":"post-47072","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-breaking-news"},"_links":{"self":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/posts\/47072","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/comments?post=47072"}],"version-history":[{"count":0,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/posts\/47072\/revisions"}],"wp:attachment":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/media?parent=47072"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/categories?post=47072"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/tags?post=47072"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}