Is It Spike-and-Bust - or Stairway to Heaven?

By: Alex Wallenwein | Mon, Dec 12, 2005
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Gold bugs always talk about "to da moon!" when they get excited. Everybody sits there, on their little stash of gold (or rather paper claims to gold, mostly) and they're rubbing their hands together when it looks like gold will soon shoot way up past the $1,000 mark.

By now it should be patently clear to everyone who regularly reads articles about gold and free market thinking that gold's recovery of the fabled $800-$850 level is a foregone conclusion. Even mainstream news reports now are beginning to sign on to that notion. Just look at this small sampling from Reuters and a more obscure local paper, taken straight from Google's e-mail alerts:

GLOBAL MARKETS- Gold is king in US markets, oil down
Reuters - USA
NEW YORK, Dec 9 (Reuters) - Gold was unstoppable yet again on Friday, hitting ... was mixed and bonds fell ahead of an important Federal Reserve meeting next ...

Gold fever breaks out as the price tops $500 an ounce
Seattle Post Intelligencer - USA
... More recently, other trends have fueled gold's rise, including a revival of inflation, the Federal Reserve's raising of short-term interest rates and a ...

The real question, however, is not "will it get there" or even "when will it get there?" It's much more a question of "what happens after that?"

So, tell me: What would you rather have? Would you rather have a spike and then the inevitable subsequent bust (hoping that you'll be able to pick the top and cash out at just the right time) ...

... kind of like this one in 1980, or would you prefer a golden stairway to heaven, more like this one here?

(Please note that for lack of a better charting option going back to 1980, the upper chart consists of the CRB Precious Metals sub-index which apparently spiked to only $700, somewhat below actual gold, which went all the way to $850, and not entirely tracking gold very closely.)

As for me, I'd much rather have the latter scenario. Put that on my Christmas wish list, please. And, I'll tell you a secret. (It's the world's best kept secret - unless you read The Monitor, that is. And that secret is this: Pssst! Don't talk too loud now, okay?)

The bankers prefer it this way, too.

The bankers have lost the battle for their preferred outcome, hands down. That outcome was: keep gold under wraps forever. Well, too bad. Can't have everything you want - especially not if you're always used to getting what you want, when you want it, how you want it, and never have to really pay for it, anyway.

The bankers' second line of defense, of course, is a slow, controlled, steady rise in the gold/fiat ratio (also known as the "price" of gold.). That is the one they are defending right now. That is the true fight, at this point in time.

To continue the analogy to the 'elephant in the china store' from the last essay, the bankers have already faced the fact that the elephant ain't a-sleepin' no more. An orderly retreat - essentially a form of damage control - is all they are capable of, now.

The reasons for this paradigm shift in the banking sector have been touched on and explained in detail, over and over, from different angles and in different contexts, in pretty much every article I ever wrote on gold. Here is the story again for those who forgot, but only in key words, without explanations:

"Dollar-flood --- resulting shaky financial system --- the European Monetary Union as an attempted response --- the Washington Agreement -- China, Muslim countries, and Russia, all waking up to gold as an 'economic H-Bomb' to kill the world order instituted by western fiat-capitalists."

Margin Note:
As to the word "fiat-capitalist," the prefix "fiat" turns the core word "capitalist" into the exact opposite of what we all think of when we hear that word or see it in print. A "capitalist" in the classical sense is someone who uses accumulated value [real money] to the maximum benefit of himself and others. A fiat-capitalist on the other hand is the inverse of a real capitalist. "Fiat" means debt - which is the opposite of value by definition. Fiat is created when mere account entries signifying loans to borrowers (i.e., "credits", which is the other side of the old debt-coin) are counted as part of a country's money supply by legislative decree. (Hence, the word "fiat" which quite literally means "decree.") The Barons of Debt, therefore - bankers and those at the highest level who dwell and operate within their system - are everything but capitalists. They are anti-capitalists... (I'll let you complete that thought.)

So, gold has come back from its shallow grave (it was never really dead, of course) to bite its fiat rulers in the butt. The sedative they have intravenously (or should I say "intracranially"?) been feeding the elephant for over two decades now (via a lying financial press) has lost its effect. The internet has inoculated the elephant to even concentrated doses of pure deceit.

The beast is now up - and walking around the store!

Slowly, still ...

... a bit on the sleepy side, maybe ...

... but definitely on the move!

Now, I have already touched on the idea that the "china store" is the entire financial world. There is no safe way "out" for the elephant. Besides, the elephant is what makes the world go 'round, anyway, because it is not "gold" itself that is represented by the analogy of the elephant. It's you and me and everybody else who has a heartbeat and a brain to think with. Gold is just a funny looking metal that would still sit in the ground if people hadn't figured out its usefulness and ability to preserve value a long, long time ago and started digging it out and using it for various 'items of personal adornment' - and for money.

It is actually we who are "the elephant." It is us, the non-braindead part of humanity, who are now walking around the fragile china store, about to smash to pieces what our debt-rulers have wrought for us over the preceding decades and centuries. And the "we" includes all of us: Europeans, Americans, Africans, Asians, Australians, of whatever denominations, ideologies, backgrounds, education, cultures, religion - whatever.

Certain Asians, along with others of Caucasian descent who dwell in the Europe-Asian border regions, and yet still others living near the Asian-African divide, have now figured out that gold can be a potent weapon in their efforts at first undermining and eventually overwhelming the financial, cultural, and military dominance of those living in Europe proper and in certain northern regions of the American continent.

Wonder why I'm being so vague? I've recently been labeled a "name-caller" and a "racist" for mentioning certain nationalities and ethnic groupings as being opposed to north American values and lifestyles), which has led to a classic case of censorship - and that by a prominent publisher of supposedly free-market information. (Wonder if they'll accuse me of being "geographically biased" now?)

Anyway. So, the Banker Barons of Debt are now experiencing a classic case of the sorcerer's apprentice-itis. China is using the Barons' own trick to crank out unfathomable amounts of fiat for fueling its own economic ascendancy, for papering over internal problems caused by inefficient business models, and for buying up all those excess dollars generated by dumping their cheap products on cash-strapped, debt-enslaved Americans who couldn't maintain their artificially high lifestyle any other way.

Unlike their former economic masters, though, the Chinese communist regime is using the proceeds of their own fiat-racket to buy gold - and they encourage their population to buy gold as well. That, and what the Russians and Muslim nations are doing with their dollar proceeds, creates demand for gold, and that demand 'demands' a higher price, if you will.

Okay, back to the real subject:

Certain parts of the fiat world-order have begun to understand that a pure fiat system is untenable over long periods of time. It cannot exist forever in stark opposition to gold, so they have tried to design ways to create a new way of loosely "gold-referencing" their paper spawns in order to give them a more robust life span - but without going back to the all-too-limiting days of the classical gold standard. To say it in elephant-terminology: They have stopped trying to wrestle the elephant to its knees and have resigned themselves to just making sure it doesn't get up too quickly and maybe topple over again, taking some of their carefully stacked and lavishly decorated fiat-china shelves with it on the way back down.

That's one group of fiat-barons.

The other group hasn't quite given up on old delusions of grandeur (and supposed 'skill') in managing the unmanageable. That other group has benefited just too much from its past ability to rule the world via their position as the issuers of the world's premier house-brand of debt money: the dollar.

Now, they can hear the bell tolling for the end of their structural supremacy in these matters. Needless to say, they want to defend their status quo. They are primarily the ones who tried to sell gold into the ground back in the latter nineties - until the formerly mentioned group said "Nein" (or "Non" or whatever) and came out with the Washington Agreement to put at least a symbolic stop to all that nonsense.

In other words, the former group (the Europeans and those who advise them, like Prof. Mundell, for example) are like AIDS victims who say to themselves "Okay, we know we're screwed, but let's at least try and live out whatever life we have left in relative comfort and ease." The other group (the Anglo-Saxon contingent) is still living in denial, and they act like they will never die.

So, these two groups are fighting each other behind the scenes of boardrooms, parliamentary committees, and over lunch and drinks after high-level summit meetings with their blue-blooded peers.

The European contingent wants the golden 'Stairway to Heaven.' The US-Brit contingent apparently wants the boom and bust 'spike' in order to disillusion the gold crowd and scare any potential suitors away from gold for good.

The picture is also interesting from a technical standpoint, as noted in the last essay. The only resistance up overhead is currently the upper trend line from the 2001 bottom. The major resistance from the post-1980 $500 peak back in '81 has already been passed, and there is nothing - absolutely nothing in the technical sense - between roughly $600 and $850 (or between $600 and $715 if you look at Jim Turk's GoldMoney commentary of even date, which is probably more accurate).

So, what's your preferred choice: Spike-and-bust ... or Stairway to Heaven?

Realize, of course that, in making your choice, you'll be aligning yourself with one or the other of the two aforementioned camps of central bankers.

Got gold?


Author: Alex Wallenwein

Alex Wallenwein
Editor, Publisher
The Euro vs Dollar Monitor

Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is your golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

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