Monday, October 29, 2012

LIBOR-gate vs. Gold-gate

The LIBOR scandal rocked the financial world--as it should--as the rigging of interest rates in London was exposed.  Multiple lawsuits have ensued, since the manipulation of credit affects everyone, from institutional clients forced to pay higher prices for less yield, to homeowners forced to borrow at higher rates (because of more regulations and banks paying fines), to citizens forced to pay higher food costs due to artificially low interest rates and debased national currencies.  In other words, exposure of LIBOR-gate was a big deal, but the average person remained apathetic.  Instead, the complacent masses are more interested in the electoral theater, too myopic to anticipate the imminent destruction of their purchasing power (and standard of living).

But the recent unfolding fractional gold accounting scandal will ultimately lead to different reactions by the masses.  The symptoms of fraudulent gold accounting aren't as esoteric as a few bankers behaving badly.  After all, the fixed-income market is for professionals, right?  And by now, most people understand bankers are mere crooks in suits.  This was news 5 years ago, but now, it's the status quo.

However, the re-hypothecation--and the disappearance of central bank gold will have entirely different outcomes.  The smart money (the "conspiracy theorists") have already bought in.  As more evidence seeps out that the emperors (central bankers from the US and Europe) have no gold, the Big Money hedge funds and emerging market central bankers from the East will catch on and pour into physical gold.  Actually, the Russian and Chinese central banks have already done this, dis-hoarding US Treasuries and hoarding gold.  The gig is up, and the USDollar Ponzi scheme is about to meet its end game.

This in turn, will catalyze a soaring price of gold which will catch the attention of even the most disinterested public, much like soaring gas prices are on the minds of every driver.  It will make news headlines on Main Street.  And that will only fuel the fires of a gold mania.  But not at $2,000 an ounce.  Try $3,000.

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