The Silent Gold Rush is on

“ …It is, in short, the only unquestioned and generally acceptable means of payment among nations, as dollars are the only unquestioned and generally acceptable means of payment among Americans, francs among Frenchmen, sterling among the British, and so on.”

Peter Bernstein, ‘A Primer on Money, Banking and Gold.’

Peter Bernstein is no gold bug. Rather, he is one of the world’s foremost authorities on capital markets and economics. A Primer on Money, Banking and Gold was first written in 1965, when gold was still the international currency. It is our contention that in the years ahead, gold will once again resume that role.

Prior to 1971, gold was effectively the commodity with which international payments were made. The flow of gold into and out of countries said more about a nations’ economic health than anything else. Indeed, the outflow of gold from the US in the late 1960s ultimately triggered President Nixon’s decision to suspend gold convertibility. In a fateful decision, the global financial system’s link to sound money was broken.

Ever since, the world has been on a US dollar standard, a monetary system where only one country has the benefit of borrowing and repaying debt in its own currency. In order for this system to prosper, the true international currency, gold, needs to be discredited. We believe gold has been held down for many years in order to allow the US dollar based international financial system to survive. But the official grip on the gold price is beginning to weaken, perhaps this time for good.

The smart money knows this and is beginning to move into gold. There is a silent gold rush taking place all around the world. Investors who understand gold’s role as an international currency are selling their surplus paper dollars and buying the yellow metal. This has led to unprecedented demand for bullion and coin dealers everywhere are struggling to meet this demand.

The Australian newspaper reported over the weekend that the Perth Mint is not taking any more orders for gold until January. Our guess is that the Mint does not want to expose itself to higher future prices given that it does not have the inventory to meet the demand for bullion. In a recent report, The World Gold Council said investment demand for the September quarter was $10.7 billion, double last year’s quarterly total.