Wednesday, October 29, 2014

The Coming Hyper Doubt

We often hear conjecture about the gold market collapsing either "as prices rise" or "as prices fall", but we seldom hear of the notion that in the future "currencies and gold will change their relationship to one another".

I have, in the past, tried to describe this paradigm shift as a change from "currencies denominating gold" to "gold denominating currencies". But how will this come about?

Some do not see the coming changes as I do. But for those who do (or who might like to try) consider that part of this change involves the same type of change that accompanies any price hyperinflation involving currencies of the past. First, confidence is lost in the future value of paper, then purchasing power is lost as a result, and then this becomes a hyperactive feedback loop of confidence lost in tomorrow's purchasing power today, feeding every hour of every day.

Gold is immune to this psychological phenomenon I have just described, which we could more appropriately call "hyper doubt" in reference to the exponential loss of CONfidence in fiat currencies.

Through the fractionalization and rehypothecation of paper gold, Keynesians and Central Bankers have struggled heroically for decades to subject (physical) gold to this same defect as fiat currency. But "third world nobodies" and emerging producer economies like the BRICs have proven (physical) gold to be impervious to hyper doubt, as they continue to accumulate it with the various forms of paper.

I would propose that we call the continuing, massive issuance of fiat, used to "protect debt at all costs" (under the guise of bailouts, QE or any other name) the "hyperinflation". We should not confuse the coming "hyper doubt" with the dollar hyperinflation which has already far eclipsed all fiat currency hyperinflation episodes of the past.

I think we should perhaps separate these two completely different phenomenon (to avoid confusion) and refer to the coming fiat "price hyperinflation" as the coming "hyper doubt" which will usher in this paradigm shift that I speak of.

So when the hyper doubt of paper (Another's paper "inferno") begins to manifest it's psychological impact upon the world, the entire FX structure as we know it (all tied to the most hyper inflated currency in history for value) will begin to unravel.

Can you now see how physical gold will come to be valued as in "no price will do"?

But before this happens, we ask ourselves, "Where is the buying opportunity?" to obtain physical for paper while we still can? The answer is quite simple. "Buy gold when you have the paper to spare."

Since that answer is not good enough for many (as is proven daily by the endless prognostication on the subject) then think in terms as such:

For as many people who still have confidence that the paper gold system will bring either paper profits or physical gold (and for as long as they do) the paper price of gold will always fluctuate with their speculations and their actions.

I do believe that the long range direction of paper gold is DOWN, and that the system will crash on the way down, very quickly. Does it matter whether you've spent the last of the paper you can spare at $1140/oz. or $800? Not really.

All that really matters is whether you waited too long to buy any at all, at any price.

When the hyper doubt takes hold, all transactions will come to a halt, a meeting will take place, and when the markets re-open, a decree will be made to get the world's economic engines turning again - one that allows currencies to function again.

But this will not be a "new price of gold" denominated in the currencies. Rather, it will be a new FX market for currencies, denominated by gold.

Yes, we will still be able to buy gold with the currencies, but few little people will be able to, even in grams. That freedom will have been lost, I'm afraid, along with many others. And it will no longer serve a speculative purpose anyway, so why bother?

The big play for those who will walk in the footsteps of giants today, is in owning it today, for Giants will indeed buy it in the future.

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