Oct 31, 2006

Richard Russell on gold

"There can be no other criterion, no other standard than gold. Yes, gold which never changes, which can be shaped into ingots, bars, coins, which has no nationality and which is eternally and universally accepted as the unalterable fiduciary value par excellence." -Charles De Gaulle

Russell Comment -- De Gaulle called upon the US to settle its debt with France by shipping US gold to France instead of US paper. At that point, President Nixon shut the gold window and in so doing took the US and the world off the gold standard and into the world of fiat paper.

Lower interest rates make the US dollar less attractive. And over the last few weeks the dollar has been heading down. How far down is the big question. A lower dollar means that imports to the US become more expensive. More expensive imports in turn mean rising inflation. It becomes a vicious circle, and if it continues Ben Bernanke is going to be facing a nasty and rather puzzling situation.

A weakening dollar represents a "wake-up call" for gold. Most people don't realize it, but rising gold is a form of dollar-devaluation. It's not an official devaluation, I call it a "free market devaluation".

Question -- Why does the US government continue to keep the official price of gold at $42.22 when the free market price for gold is over $600?

Answer -- This is the government's way of denying that the dollar has been greatly devalued. It's the government's method of keeping its citizens "stupid" and unaware of what's been happening to its money.

Remember, rising gold is the free market's way of devaluing paper currencies. Since the Federal Reserve creates our fiat dollars, you can imagine that the Fed does not want to see the dollar fall apart. A dollar that is very slowly declining against gold is acceptable, but a dollar that is rapidly declining against gold (i.e., a surging gold price) is something that the Fed most assuredly does not want. This has given rise to talk of the Fed manipulating the gold price, particularly at times when gold is surging. Does the Fed really manipulate the price of gold? I honestly don't know -- I'll leave that question to others, such as the Gold Council...

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