Greyerz – Jim Sinclair $87,000 Gold And China’s 20,000 Tonnes Of Gold

As we kickoff another trading week, Egon von Greyerz takes a look at Jim Sinclair $87,000 gold and China’s 20,000 tonnes of gold.

Slumping Into A Hyperinflationary Depression
(King World News) – Egon von Greyerz:  Will gold be confiscated? Yes, of course it could be. Desperate governments will take desperate actions. And as the world economy is now slumping into a hyperinflationary depression, unlimited money printing will cause currencies to collapse, leading to a surge in the gold price measured in worthless paper money.

So the first question we must ask is: Why would governments punish prudent savers who have taken protection in gold against the irresponsible mismanagement of the economy and the currency?

GOLD IS 0.5% OF GLOBAL ASSETS
Global financial assets are estimated by Credit Suisse to be $360 trillion. Of that total, stocks are $85 trillion or 24%. The global bond market is $100 trillion (28%). Investment gold is around 35,000 tonnes or $1.9 trillion. This represents a mere 0.5% of global financial assets.

With investment gold representing only 0.5% of global assets while stocks are 24%, you can ask why the US government is doing all they can to drive up the value of stocks by printing money, and at the same time suppressing the price of gold. Why are shareholders supported to become rich while gold holders are penalised?

Governments are clearly supporting ever higher stock markets since this buys votes. But with so few investors holding gold, the government will lose very few votes by manipulating the gold price lower.

WILL THE US CONFISCATE GOLD
Since we are now entering a period of major currency debasement and potential hyperinflation, you could ask why governments would stop investors from preserving wealth in the form of gold. So would the US government, instead of encouraging thrift and prudent wealth preservation in the form of gold, confiscate the savings of the Americans? Well, some observers like Jim Sinclair – “Mr Gold” – think this is possible also for US gold mines. He does believe though that coins of the Realm like Eagles would be excluded…

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But the confiscation by Roosevelt in 1933 was a totally different situation and not comparable with today. At that time, the US was in a depression and the dollar was tied to gold. The economy was under pressure and the US government decided that the dollar needed to be devalued. A dollar devaluation automatically meant a revaluation of gold since the two were totally interlinked. But FDR decided that the US holders of gold should not get the benefit of a revaluation. Thus gold was confiscated and then revalued from $20.67 per ounce to $35. Gold in bank safe deposit boxes was taken but many Americans hid their gold at home. Gold held outside the US was not confiscated.

AMERICANS HOLD GOLD IN MANY COUNTRIES
Today gold ownership is global. US investors for example are legally storing gold in many countries – Canada, Singapore, Australia, UK and Switzerland to mention a few. Substantial  amounts of gold are stored by US citizens in these countries. Switzerland is a major gold hub where gold is stored in the big banks as well as in many private banks. In addition there are a many private vaults outside the banking system in Switzerland storing considerable amounts of gold. 

It would be totally impractical to require Americans to ship the gold back to the US. Also, many countries would not cooperate. I have heard people criticising Switzerland for giving in to the US authorities and revealing the names of Americans who held undeclared accounts in Switzerland at UBS and other banks. As a Swiss I also consider that the Swiss government should not have succumbed as they did this in contravention of the Swiss constitution. Banking secrecy was holy and law in Switzerland at the time. But there was pressure from many European countries also that the Swiss were complicit in tax fraud. In Switzerland, not declaring funds or income was not a criminal event. …..more here

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