$4000 Gold, Bubble or flight from unbacked paper currency?

 GOLD OUTPERFORMS OTHER ASSETS

ALL CURRENICIES LOSING PURCHASING POWER

Today Gold is trading at $3950 an ounce, an amazing number, and it seems no limit to its rise. Silver is at $48 an ounce, very near its all time high and likely to break that in the near future. One would think due to its rapid rise that it is long overdue for a correction due to profitmaking, the dilemma is, sell it for paper currency that is losing its purchasing power at an accelerating rate.

The current U.S. budget has a deficit of near $2 trillion, almost 1/3 of the budget. This translates into further erosion of the purchasing power of the dollar, while this is bad, it is still the best in the western world, the lesser of other currencies evils.

It may still be true that Gold is in bubble territory. It is doubtful that there are many retail average buyer of gold at these prices. That is now probably reserved for silver buying. The Gold to silver ratio is now 82 to 1. Historical, for over 5000 years, that number has been between 12 and 15 to 1. so is gold overvalued or is silver undervalued. At 15 to 1 silver would command a price of $263, or using silver as a basis, Gold at 15 to 1 would be $720.  While gold may be overvalued, silver may be still much undervalued.

Gold it is being reported is being purchased by Central Banks and institutional investors. It seems it is moving out of Europe and into the U.S. and contracts are being liquidated and the gold is being taken for possession. For years gold contracts have been traded back and forth without anyone actually taking possession, that is no longer the case. It is not clear who is taking possession of all this gold, there is speculation that it is the U.S. treasury. The biggest market for gold contracts is the London bullion market and the Comex. Trading for physical bullion is conducted in Moscow and Shanghai where contracts are not sold. There has for decades been accusations that the trading of contracts has been effective in keeping the price of gold undervalued.

The other impetus for the accumulation of gold is the new trading settlement system that is evolving in the non western countries of the world. This is called BRICS-Pay and is a block chain electronic system that consummates transactions in seconds and is done in trading partners currency. This is less costly and quicker than the current SWIFT system. It also is setting up bullion vaults around the world were trade deficits will be settled in gold. The first 2 are in Shanghai and Saudi Arabia. An example is that China can buy oil form Saudi Arabia in Yuan and Saudi Arabia can use that Yuan to make purchases in China and if there is a surplus it can be exchanged for gold. Saudis could use their currency to make purchase in China in the same way. it will make it necessary that trading partners have reserves in gold available. This system will eliminate the need to have U.S. dollar reserves or assets. If the U.S. would be part of this system it could also engage in the same manner. It seems this system will encourage balanced budgets and balanced trading or you better have a large reserve of gold.

The BRICS do not desire that any country's currency becomes the reserve currency, which they believe has led to abuse. While there is talk of a new gold backed currency in the future, the present system may be just a step in that direction.

The reality is that the abuse of fiat or non backed paper currency is coming to an end. Every historical move to fiat currency has ended poorly. In reality, it is a type of fraud that robs workers and savers of their wealth.