Sunday, November 9, 2014

Greenspan, Again, Says That Gold is a Sound Investment

WND reports, that when Gary Alexander interviewed former Federal Reserve Chairman Alan Greenspan at the recent New Orleans Investment Conference, he asked  Greenspan where the price of gold would be a year from now.

Greenspan’s answer was, “I can’t say about one year, but five years from now it will be higher.” When probed about a specific number, WND reports, he said he was skilled in making obscure predictions so he said gold would be “measurably” higher.

Greenspan also warned that excess reserves (money not in the system but being held by banks back at the Fed) is a major inflationary threat. From WND:
Greenspan answered by saying that the $3.3 trillion in “quantitative easing” since 2008 has not been in circulation. The banks are holding onto the bulk of these dollars, earning 0.25 percent. Since banks think business loans are too risky, they’re holding tightly to this cash. But then Greenspan said, “We have this huge potential of an inflationary explosion kindling, but it has not been lit. … Ultimately, inflation will eventually rise. It has to rise, and I say that in my most recent book.”
I have warned for some time about the explosion in excess reserves since the 2008 financial crisis. Serious price inflation could take place even without excess reserves entering the system, but if they do, the problems on the price inflation front could accelerate at an exponential rate. In other words, Greenspan is absolutely correct:

Also see: WOW Alan Greenspan is Going to Die a Goldbug and the Council on Foreign Relations is Going Crazy About It


  1. I wonder what is motivating Greenspan to speak out like this on gold. These statements and "Headwinds" Yellen's comments seem like CYA "posterity papers." We must be getting close to the endgame now.

    1. Permanent gold backwardation = global meltdown ahead An analysis of the potential for permanent gold backwardation to lead to global financial crisis and an enormous increase in the gold price.

      In a “short term backwardation”, the mathematics clearly dictates that the bullion banks should arbitrage by selling certificates. But as the backwardation becomes “semi-permanent” - as it has been since 2011 - the market risks entering a negative feedback loop, causing the backwardation to become ever deeper. This is caused by investors stubbornly buying physical gold thereby removing the backing for the market itself. Announcements by the US Mint of “record sales” and “shortages” do not help.

      One solution to breaking such a backwardation is to take LIBOR negative, which seems impossible, but this is strangely happening in Europe where banks are now charging customers interest to safely store their money. Other solutions are (1) to drive the spot gold price ever lower, in the HOPE of getting the spot price to stay below the futures price and thereby create a positive GOFO, and (2) to drive the gold price so high that investors stop buying and the gold hoarders start selling (or leasing), all with sufficient quantity so as to create a lasting contango.

      This problem should be well understood by both the bullion banks and the Governments because they have already seen it once before in the 1970s. When Nixon ended the “gold standard” in 1971, there was a massive flight to gold and a “semi permanent” backwardation resulted. The gold price rose from $35 to $200 in 1974 and then the price was taken back down to $100 in 1976 (presumably in the hope of ending the backwardation). But this only caused a surge in demand which eventually took the gold price back over $800 in 1980. Inflation skyrocketed, requiring interest rates to be raised to around 20%. Finally, some sellers and leasers of gold appeared and the backwardation was broken, allowing for the normalization of interest rates and the economy.

      But the same problem is repeating today and so far the response has been the same. From 2008 to 2011 the gold price tripled from $650 to $1,900. Over the last three years the bullion banks and Governments have tried to break the backwardation and normalize the economy by dumping huge amounts of physical gold and “paper gold” at the gold spot price. But they have failed, because although they have reduced the gold price from $1,900 back down to $1,200, they have not been able to create a lasting contango. Instead, the gold buyers and hoarders have dug in, bought everything and demanded more – which has only strengthened the backwardation.