Have You Caught Gold Fever? The Value of That Shiny Metal Is as Artificial as Paper Money
Quick, check out this hot investment tip! For decades now, the Federal Reserve has been suppressing the true value of gold to keep its prodigious impact out of the market, which is currently dominated by fiat currencies like the dollar and light-speed binary code transactions like high-frequency trading. If you stripped away the Fed's continuing manipulation, gold's free-market value, currently hovering around $1,000 per ounce, would increase by multiples. Wait, are you yawning? Why are you leaving?
Here's why: This isn't news. The Federal Reserve, along with investment banks, hedge funds, governments and even you (yes, you), have not been just manipulating the so-called real value of gold and other financial instruments for decades, you've also been manipulating reality itself for centuries. Because gold is just chemical element, or a precious metal as it is called in the business, which means you can't eat, grow or use it to power your house or car.
But what gold is good for, and admittedly has been since the beginning of recorded history, is storing notional value: It is simply an idea made shiny, attractive, and up until our recent Great Depression rerun, pretty lucrative. In other words, it is a hyperreality, a consensual hallucination to borrow a term from novelist William Gibson. It has value as a currency because we decide it does, just like the fiat currency system that replaced it, not because of anything it can actually do on its own.
And the determined devaluation of that notional value has some goldbugs angry.
"The price of gold is largely determined by what people who do not have trust in fiat money system want to use for an escape out of any currency," explained Adrian Douglas, publisher of Market Force Analysis and member of the Gold Anti-Trust Action (GATA) committee's board of directors, in an article titled "More Fed Minutes Document Gold Market Manipulation." "They want to gain security through owning gold."
But as the War on Terror and return of the Great Depression have both shown us, security is often an illusion masking the subtraction of further freedoms and values. It tends to make a small percentage of people very rich, at the expense of others less fortunate. That includes those who cannot afford to pay over $1,000 an ounce for gold futures. Or physical gold, which goldbugs are hoarding for the day they foresee Neil Young's aforementioned knights in armor coming to collect their riches for a king, lately President Obama, demanding their total obedience to what Douglas described as the more democratic fiat money system.
These issues will doubtlessly be discussed when the Commodities Futures and Trade Commission (CFTC) holds public hearings on March 25 examining futures and options trading in the metals markets. On the docket? A presentation from GATA chairman Bill Murphy explaining massively unsustainable short positions in gold and silver from the usual suspects like HSBC, JP Morgan Chase and more, including the hated Goldman Sachs, ex-employer of current CFTC chairman Gary Gensler. Sure, this probably doesn't come as a shock to anyone familiar with those banks, and their regular practice of naked shorting everything else in financial reach at the expense of trillions in taxpayer bailouts. But for its part, the CFTC is staying out of the gold conspiracy theory for now.
"The idea is to hear what the public thinks the problems are in the markets," a CFTC spokesperson told AlterNet. "We won't question the motives of the people who participate in the hearings. We have panelists that are market participants, but this is just a public meeting."
It should be a well-attended affair, given the inevitable flight to gold after the housing bubble imploded under the bloated weight of other notional value instruments like CDOs, SIVs, MBSs and other alphabet-soup investment stratagems. Before everything went to holy hell in 2007, gold was trading around a lavish $600 an ounce and holding steady. After the meltdown, it has nearly doubled. And if GATA is to be believed, the value of physical gold could be many times more than that, which would put its price of security somewhere near $4,000-$5,000 an ounce. That's security out of the range of normal world citizens, but well within the reach of those either rich or hip enough to gold's so-called real value.
Which, in a sense, is GATA's main point: Rigging the gold or any other market for the purposes of making oneself rich at the public's expense is a dishonest affair. And it should be stopped. GATA believes that process begins with transparency in gold.
"The gold price manipulation scheme is the fraud that makes all other frauds possible, the scheme that enables the rigging of all markets and the very wealth transfer you complain of," GATA treasurer Chris Powell told AlterNet. "Ending this fraud will make it a lot harder for the others. GATA advocates free markets. But even more than free markets, GATA advocates our right to know what our government is doing, especially when it attempts to set the value of all capital and labor."
Labor of Luck
In this sense, GATA's mission is a positive one. Those who truly fear and openly oppose transparency are usually the ones with something to hide. But what's out in the open is that gold's real presence on this Earth is annually declining: Global gold output has steadily declined, as has the global economy's reliance upon its fractional standard. These are no accidents. As a natural resource, like the much more valuable oil and water, its real-world power is finite. But as a notional signifier, GATA and other goldbugs seem to believe that gold's value is being unfairly restricted. Which on its face seems illogical: If anything, the world needs much more water and oil than it does gold, silver, copper, diamonds or other precious metals and minerals. And just because, like oil, all of the easily obtainable sources of gold have already been found and plundered doesn't mean gold's price, like oil, should go up. It should go down, as its inherent inadequacy to our 21st century, an age of quickly decreasing natural resources, becomes more apparent. And it is apparent.
So it's a delicate balance. Exposing the obvious gold suppression of the last century -- one in which the global economy was trying to unhitch itself from the gold standard, to the anger of those elites who owned it and saw their bank accounts plummet -- is a tightrope worth walking. But not because the world needs to turn back the clock on the gold standard at the expense of fiat currency. In fact, exposing gold as just another fiat currency, a pretty notional nugget you can wear on your finger much like dollars line your wallet, is overdue. Which is why the mark in the first paragraph didn't fall for the conspiracy theory. Everyone already knows gold is fake money disguised as real value.
But the incessant pounding on fiat systems like the dollar, euro and even the guinea-pig currencies of the emerging market -- which are merely playthings for hedge funds, economic superpowers and worse -- is counterproductive. Especially if the opposition comes at the expense of the dollar's purchasing power, which it inevitably will, for the benefit of gold's notional value. If that happens, those who have the gold will make the rules more than ever, not less. If the dollar dies, so does the United States as we know it. Of course, taking the veil off gold won't be the only Cesarean knife plunged into the republic's back.
"The massive bailouts, stimulus packages, giveaways and short-term debt, along with imperial wars we can no longer afford, will leave the United States struggling to finance nearly $5 trillion in debt this year," explained war correspondent Chris Hedges, in his recent article, "We Stand On the Cusp of One of Humanity's Most Dangerous Moments." He continues:
This will require Washington to auction off about $96 billion in debt a week. Once China and the oil-rich states walk away from our debt, which one day has to happen, the Federal Reserve will become the buyer of last resort. The Fed has printed perhaps as much as two trillion new dollars in the last two years, and buying this much new debt will see it, in effect, print trillions more. This is when inflation, and most likely hyperinflation, will turn the dollar into junk. And at that point the entire system breaks down.
What it specifically breaks down to is still unresolved. Hedges, James Kunstler and many others believe the United States will devolve into a militarized, nationalist dystopia, a scenario that is less far-fetched by the day in the era of puppet ciphers like Glenn Beck and Sarah Palin. The technological optimists at Wired believe we'll transcend the bonds of these material fiat currencies and go further hyperreal, firing electronic payments by iPhone via Twitter and other virtual value systems.
"The Future of Money," Daniel Roth's story for the March issue trumpeted, is "Flexible, Frictionless, and (Almost) Free." Hoarding stores of physical gold in a new century filled with environmentally and economically aware citizens sustainably exchanging real-world goods and services, while paying for them with electronically notional currencies plugged into a value system unhinged from an Earth whose natural resources are shrinking by the day, looks less attractive by the minute. In fact, it looks like the past, not the future. And we all remember the past, don't we? Not pretty.
To avoid the dystopia and nail the utopia, we're going to need to admit that arbitrarily assigning value to something that is comparatively worthless to us all is so last century, be that dollars or gold. Our fundamental concept of value has changed altogether, whether we like it or not; in fact, it is the only silver lining to the Great Depression rerun. What did Marx say about history repeating itself twice?
Well, the farce of fiat currencies and precious metals alike is almost over. Yes, we know the Fed has been suppressing the price of gold, because we know it also has been propping up the dollar. That is, after all, its job. We know Goldman Sachs and other hive-minds for mathematics Ph.Ds, proprietary algorithms and carnival barkers have been gaming the gaps between these real and notional values, at the expense of our republic's integrity. But we've paid them billions more for it anyway, which is lunacy: Exploiting the stress fractures in economics' clumsy house of cards isn't intended to fortify it. It is intended to destroy it, and it has succeeded brilliantly.
What's left now for us all is to collectively chart currency's 21st-century upgrade with honesty, solidarity, and yes, transparency. We've wrecked the shit out of our chosen currency for the 20th century, as Chris Hedges has explained. Once the casino changes its membership rules and admits China, Brazil, India and more world citizens into the party, the pie will necessarily shrink if it's allocated in real value. But if we want notional value to survive the 21st century, we're going digital or going home to our makers.