Golden Warning Lights

Gold hit a new record high again on Friday: $1,277.50 per ounce. The precious metal has come a long way since Trumpet writer Ron Fraser wrote about it in 2002. Back then the precious metal traded for only just over $300 per ounce.

The benefit of hindsight, some might say: If only you had invested!

But the Trumpet watches the price of gold for other—far more important—reasons. For one, it is a bellwether of the global economic system and especially that of the U.S. dollar. For another, it is an indicator of where future global centers of finance will gravitate.

With that in mind, Ron Fraser’s 2002 article is well worth the read. Here is a snippet (emphasis mine).

Is gold on the comeback track? Traditionally, gold is seen as a hedge against economic hard times. Though it has shown no real sparkle for the past couple of decades, the slide of the dollar and tough times on Wall Street have brightened the immediate future of gold. In fact, as the price for the precious metal picked up in August, some pundits began predicting that, as economic reality dawns in the collective mind of the public, gold prices might head out of orbit. …A crisis of confidence in the market breeds a desire for more control over the source of investment. Possession of gold puts the buyer in direct control of the asset. He’s not at the whim or sleight of hand of investment advisers or crooked ceos.To exacerbate this crisis of confidence, the weakening of the greenback challenges investors’ trust in their own monetary system. USA Today put it this way: “Gold is a direct bet against the monetary system: Gold investors figure an ounce of gold is always worth something, even if the government is in shambles and currency is worthless. For two decades, the powerful U.S. economy kept the dollar strong and gold prices low. But lack of confidence in the financial system and the specter of more terror attacks are pushing gold prices up—and individuals back into the gold market” [Aug. 15, 2002].In 1933, the U.S. government recalled and melted down its gold coins. Forty years later, it went off the gold standard. Thus the dollar’s value today is underpinned merely by the level of global confidence in the U.S. economy. When that confidence drops, so does the dollar—and the flight to gold historically commences. In simplistic terms, it would then seem, under such circumstances, that those countries which have hoarded gold as a hedge against the prospect of leaner times would emerge as economies of strength in the midst of such adversity.Gold is great disaster insurance. Predictions of global economic disaster presently abound even among some high-profile commentators. On this score, it is interesting to note that while a number of countries, including Britain and Canada, were busy liquidating gold assets over the past few years, one country was busy buying them up—Germany.The German central bank holds the second-largest gold reserves in the world. It has not engaged in any form of large-scale selling. Not only this; when 11 of the present 15 EU member nations joined the European Monetary Union (emu), they signed over their individual national holdings of gold to the European Central Bank, located in Frankfurt, Germany! Coincident with this transfer in 1999, Germany bought bullion in a big way.The timing of Germany’s acquisition of huge amounts of gold was intriguing. “[T]he Bundesbank suddenly acquired massive gold reserves, just as the euro was launched in the first quarter of 1999. The gold amassed, both in terms of its physical size and of its value (national valuation basis) is more than enough with which unilaterally to introduce a gold-backed ‘new deutsche mark’—in contrast to the U.S. dollar, which is not backed by gold” (Economic Intelligence Review, March 2000).The point is, whether or not the euro is a success in the long run, Germany sits in the box seat. On the one hand, the euro has substantial gold backing from the receipt of bullion by the European Central Bank, courtesy of the emu nations’ signing over of their reserves. This gives some strength to the euro’s backing. Yet the collective economies of emu nations are really not in the best of shape. “It [emu] was meant to be the cornerstone of the single currency. Instead it is fast becoming a millstone. In the face of global slowdown the eurozone’s stability and growth pact is a misnomer. It is failing to deliver stability and may yet threaten growth” (Dawn Group, Aug. 14).

It is prophetical articles like this that make the Trumpet required reading for anyone who wants to understand their world and the direction it is headed. For more information on what the soaring price of gold means for you, read “Gold Price Warning Signs” and “World to America: We Want Our Gold Back.”

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