Physical Gold In The Hands Of The People

Posted 19 May 2009


Decades ago Ludwig von Mises wrote in The Theory of Money and Credit,

It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments.  Ideologically it belongs in the same class with political constitutions and bills of rights.

There is a simpler way to state the rule:  He who has the gold makes the rules.

One of the reasons, if not the chief reason, for the excessive government encroachment on civil liberties is the abandonment of sound money.  Contained within the United States Constitution are very specific monetary powers and disabilities.

 This constitutional violation is the chief cause the world has become a very dangerous place.  Governments and their central banks are able to engage in legalized counterfeiting which is confiscation through inflation and a form of taxation without representation or due process of law.

Why a special interest group is given an exclusive monopoly enforced through violence to produce the currency used in ordinary daily transactions baffles me.  A common Western ideal is equal justice under law.  So likewise currency should be money and a tool for society that is fair to one and all.

 Anyone and everyone should have the same power as the Federal Reserve to print up little paper tickets or be able to create as much new money as they want.  But nowhere should those paper tickets be decreed legal tender.

As a result the market would choose, voluntarily, commodities as currency and civil liberties would be protected.  There is a great book on this topic by Jörg Guido Hülsmann called The Ethics Of Money Production.


A lot of profit can be made running and riding cartels.  OPEC is a good example that when economic actors own a lot of something it is in their best interest to run a cartel to keep the price up.

 Cartels are a common occurrence and take place in all types of industries such as potash, diamonds, etc.  But contrary to initial logical impression, the Gold Anti-Trust Action Committee, GATA, alleges that central banks run a cartel to keep the price of gold down.

But if you own a lot of something then why run a cartel to suppress the price?  After honing in on GATA's beacon and applying some initial analysis the answer is actually quite simple and makes a lot of sense.

The power of central banks to issue without limit irredeemable tickets that billions of individuals use as currency in ordinary daily transactions is infinitely more valuable than the price of a portfolio asset.  As such, gold is a currency and always poses a mortal threat to their irredeemable fiat paper ticket franchises.

By analogy the current currency market is like McDonalds (FRN$), Burger King (Euro) and Wendy's (Yuan) receiving preferential treatment by government decree which requires that customers must pay exorbitant prices to eat their inferior food.  

But governments did not create food so there is always competition in the marketplace and therefore anyone who wishes to eat food made by the trans-fat cartel's common chief competitor, a star French chef serving kobe beef (gold), must pay excessive taxes or be shot in the head.  After all, what would the rational customer have for lunch if a Big Mac cost $100 and an expertly prepared kobe beef filet was $5?

Consequently, legal tender laws and taxes on gold and silver serve the purpose to hobble gold and silver as competitors in the currency market.  But even with such extreme handicaps they are still formidable competitors and so as Dr. Alan Greenspan testified before Congress in 1998, “central banks stand ready to lease gold in increasing quantities should the price rise."

As an IMF paper titled Treatment Of Gold Swaps And Gold Deposits (Loans) reveals, the asset side of central bank balance sheets are incredibly overstated.  

The net effect of these gold derivatives, creative fictitious accounting and leasing of physical gold into the market to keep the price suppressed has greatly weakened central bank balance sheets.

 As a result, GATA alleges that central banks have less than half the gold claimed and confusingly “carry gold in the vault and gold out on loan as one line item; as a result report cash and accounts receivable as one in the same thing.”

But even more important is that the central bank gold price suppression scheme is a key lynchpin of a monetary system that is in complete opposition to the supreme law of the land.  Even more disturbing is that the deeper one digs the more essential the gold rig appears to be.


The distinguishing characteristic between gold and its chief competitors is that it actually is something tangible.  Gold has atomic number 79, a standard atomic weight, melting and boiling points, etc.  Gold is real in contrast to FRN$, Euros or Yuan which are mere illusions absent of any consistent tangible definition.

 There are many inferior substitutes for gold, such as the problematic GLD ETF, but they generally have much lower melting points than 1,064.18 °C or 1,947.52 °F.

One of the reasons governments are abusing their livestock is because of the livestock's lack of possession of physical gold, silver and guns.  While central banks thought they would slowly leak 100-200 tons of gold per year instead GATA alleges they have been hemorrhaging between 1-2,000 tons of physical gold.

 Precise figures are difficult to obtain.  Some central banks, like China, have been understating their reserves.  Others refuse to allow their reserves to be properly audited.  For example, Fort Knox has not been audited in many decades.  But all this does not destroy the reality of gold:  gold is either in your possession or it is not.


Curiously and despite the language barrier I have many readers in Germany.  While their Weimar experience which led to the rise of Hitler may be faded in the corridors of memory it is still brighter than the American's experience with the Continental.

On 19 May 2009 Reuter's India reported that

a German asset management company which plans to set up 500 "Gold-To-Go" ATMs in Germany, Switzerland and Austria ... 'In absolute numbers, the demand for physical gold is still tiny in Germany.  But in relative terms, the growth is explosive, inquiries have been doubling every six weeks' ...

 The gold ATMs to be set up at central locations such as airports, railway stations and shopping malls are intended to gradually accustom people to the idea of investing in physical gold.

And so hastens the remonetization of gold in ordinary daily transactions.  With gold dispensing ATMs, digital gold currencies like GoldMoney and complete ignorance of monetary science by the vast majority of the world's inhabitants the future for gold is brighter than ever.

With the current above ground salable gold there is only about 0.8 ounces per person or approximately $740.  That is a pitifully small amount for checking or saving account cash balances.  But it is the fundamental lack of interest in gold as money and currency that is perhaps the most bullish aspect of this cycle.


Gold and silver are not mere barbaric commodities but essential checks and balances in the political machinery.  Most individuals are extremely ignorant of monetary science and gold's role as money, currency and protector of liberty but through advances in communication the ideas are spreading rapidly.

 The central banks are profusely bleeding physical bullion.  The flow to individuals is hastened with ATMs in Germany expelling the 'sweat of the sun'.

Tremendous amounts of fictitious capital was created during the great inflationary credit expansion.  But there has been a change in psychology and The Great Credit Contraction has begun resulting in capital is seeking safer and more liquid assets.  Consequently, as the penultimate asset the future for gold is extremely bright and with physical gold in the hands of ordinary people they will begin making the rules.

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Disclosures:  Long physical gold and silver.