By Steve Brown…
Ian Fleming wrote Goldfinger for good reason. The most important market in the world is gold. Not US stocks. Not shares in Amazon. Not bitcoin. Not Facebook. Sovereigns use gold – real gold – as the foundation for their most important deals.
Now consider that 40% of the world’s physical gold trade passes through bin Zayed’s United Arab Emirates. The same United Arab Emirates that blundered Bush into the Dubai Ports World scandal. The same UAE that hosts one of the largest US airbases in the Middle East… and the very same al Nahayan plutocracy that touts Israel as its closest friend and ally, beside the former United States.
But first, consider that the United States began weaponizing the US dollar as a matter of policy long before alleged criminal Treasury Secretary Mnuchin announced it. Weaponization of the dollar is isolating the US in world trade, but as regime star Kushner noted, “you cannot turn a battleship around overnight.”
The ‘battleship’ has been turning for fifty years since the disaster of the Nixon Shock, when the United States ‘temporarily’ abandoned the international gold standard thus heralding the ‘permanent’ era of central bank by-decree currency. Fifty years hence, a new perfect storm of events may prove that the consequence of August 15th, 1971 must now be confronted.
During the Vietnam war the demand for US gold in exchange for US dollars could not be sustained. Nixon’s cowardly act in closing the US gold window enabled the imperial hegemon to survive as geopolitical bully on the basis of the US dollar being global reserve currency — but only temporarily. Fifty years on, the piper must be paid.
Once again, the world is demanding gold in exchange for US dollars. And the Federal Reserve’s primary dealers – some of which operate as bullion banks — are unable to comply. Briefly, when a commodity exchange is unable to settle gold contracts by delivering the product to a buyer, the exchange must then settle the paper contracts in US dollars.
Historically the manipulators of the monetary metal played along happily, speculating on gold contracts as derivatives, where no actual delivery of the commodity was ever intended. As result, trading gold contracts has been a speculative operation engaged in by the major bullion banks where delivery seldom occurred. *
But when the demand for gold is real, settling gold contracts in US dollars bears little relation to holding the metal itself. Contracts settled in dollars are worth less than the actual commodity. That’s because the published spot price for gold is lower than the price at which the physical metal actually trades. This is called contango and has amplified the demand for settlement in real gold called EFP, or Exchange for Physical.
Before COVID and since the repo crisis of 2019 the stability and safety of the US financial system has increasingly come into focus. The US financial system has been forced to lower real interest rates to real negative territory, causing gold to look more attractive than holding increasingly worthless US dollars, since gold has intrinsic value when the US dollar has none.
Instead of a classic store for inflationary dollars, the new demand for settlement in real bullion threatens the existence of the US gold exchange (COMEX) and threatens serious financial loss for the largest global players, including HSBC, JP Morgan, and UBS. Even Goldman Sachs has warned of this threat.
So… what has changed? It appears that some new element is at work. As explored in a prior article, the US regime’s new cold war versus China has caused that country to re-assess its relationship to US assets. China began divesting itself of US debt instruments in 2019. And, seldom reported in the west, China has recently escalated its effort to divest itself of US public debt (Treasury) holdings in 2020.
In tandem with improved convertibility of the yuan (CNY) intel sources indicate that China may be the second largest holder of gold globally. Likewise, China may be using gold as a medium of exchange to avoid the aforesaid weaponization of the US dollar so favored by the current US regime. Even so, the foregoing does not fully explain the events we are seeing.
Traditionally the Federal Reserve and their dealers have controlled gold to limit central bank losses and prevent gold from effectively competing with or displacing the US dollar as a primary trusted monetary medium. But someone or some entity somewhere is now battling the US central bank for that control.
Bottom line, monetary realists as observers still don’t understand why the historic central bank market manipulation of gold is presently failing. The US Central Bank must suppress the price of gold or face catastrophic losses that will cause an escalating downward spiral in the standing of the US dollar.
We can only return to the concept of flailing Empire. The United Arab Emirates trades in illegal gold from Africa and has used its influence via the gold carry trade and elsewhere as an essential tool to support the corrupt western banking empire that the United States and Israel represent. Now the major media touts the visible association of the UAE, former United States, and Israel as elements of an aligned geopolitical bloc. The intention is to somehow portray these powers as moral and worthy of respect when in fact they are not.
The United States, Israel and UAE present a divisive bloc removed from any real notion of an efficient global hegemon. As we see, these powers are exposed and vulnerable to gold’s economic reality, the reality that no corrupt power favoring warfare and division can rule forever when its currency is severely devalued and global trade is impacted.
Regardless, argue, ignore, or deny it… the golden rule, “He who hath the gold rules” is as true now as it has ever been. The problem arises when that being of real value is supplanted by illusion. And it is only the illusion we have seen since August, 15th, 1971. Fifty years on the reality has yet to play out. But that which is of real value will always trump fakery in the long run, regardless of what paper traders and central bankers say.
* see: gold carry trade
Steve Brown: author of “Iraq: the Road to War” (Sourcewatch) editor of “Bush Administration War Crimes in Iraq” (Sourcewatch) “Trump’s Limited Hangout” and “Federal Reserve: Out-sourcing the Monetary System to the Money Trust Oligarchs Since 1913”. Steve is an antiwar activist, a published scholar on the US monetary system, and has appeared as guest contributor to The Duran, Ron Paul Institute, and Strategika51. twitter: @newsypaperz