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The Gold Crash

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The price of gold fell 13 percent in just two days this week – its biggest two-day decline in thirty-three years.

What happened?

“The most important factor is that global inflation is falling, reducing gold’s value as a hedge against rising prices,” writes Peter Coy at Businessweek. “Gold bugs who were betting on an outburst of inflation are scrambling to reverse their bets and exit their gold positions at any price.”

Okay … that’s true, but why?

Here’s the depressing back story, courtesy of Chris Martenson’s Peak Prosperity …

The most recent gold bear raid has vastly enriched the bullion bankers, once again, at the expense of everyone trying to protect their wealth from global central bank money printing.

The central plank of Bernanke’s magic recovery plan has been to get everybody back borrowing, spending, and “investing” in stocks, bonds, and other financial assets.  But not equally so, as he has been instrumental in distorting the landscape towards risk assets and away from safe harbors.

That’s why a 2-year loan to the U.S. government will only net you 0.22%, a rate that is far below even the official rate of inflation.  In other words, loan the U.S. government $10,000,000 and you will receive just $22,000 per year for your efforts and lose wealth in the process because inflation reduced the value of your $10,000,000 by $130,000 per year.  After the two years is up, you are up $44,000 but out $260,000, for net loss of $216,000.

That wealth, or purchasing power, did not just vanish:  It was taken by the process of inflation and transferred to someone else.  But to whom did it go?  There’s no easy answer for that, but the basic answer is that it went to those closest to the printing press.  It went to the government itself, which spent your $10,000,000 loan the instant you made it, and it went to the financiers who play the leveraged game of money who happen to be closest to the Fed’s printing press.

The result of this transfer? The rich get richer and the poor get poorer … i.e. the exact opposite of U.S. President Barack Obama’s stated ideology.

But hey … let’s just keep printing money, shall we?

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