In 1971, the U.S. 'closed the gold window' starting an era of global fiat money reference-pricing that has been unprecedented in history. Never before had the world operated on the basis of no country anywhere having a currency tied to something with intrinsic value like gold.
We did have the 'petrodollar' -- a U.S. dollar exchange rate based on the deal struck between Saudi Arabia and America -- for the U.S. to buy their oil and for the Saudis to buy U.S. dollars and bonds in return -- that started a multi-decade period of oil companies (with the U.S. military machine in their pocket) bullying the world into buying U.S. dollars or getting cut off from oil and dollar supplies. But now it's over.
This is important because the petrodollar has been the overriding motivation explaining why the U.S. is involved in multiple wars in various oil dependent economies and their satellites. U.S. wars have supported the petrodollar first and foremost and this lulled many into believing that Gold no longer played a role, but recent events prove these assumptions wrong.
Goodbye petrodollar, hello gold.
Leading up to the news that the Federal Reserve would not 'taper' their bond buying (i.e, QE) program we saw a precipitous drop in the price of gold. Since I know (like others including Peter Schiff, Bill Fleckenstein, and even James Rickards who stated as much on my show Keiser Report) that the Fed cannot 'taper' at any point going forward without throwing their entire Ponzi scheme into the ditch (causing every major bank in the world to instantly collapse) it was interesting to see the price of Gold trade down before the non-taper news -- unless you know the Fed, working alongside bankers on Wall St. and the City of London -- are actively managing the price of gold (along with stocks, bonds and currencies).
The Fed (who is implicated in every recent major market rigging scandal covering Forex, energy markets and credit default swaps) knew that it would make an announcement that would cause a buying panic in gold (that they were going to debase the currency some more) -- so the Fed had to go into the market and drive the price of Gold down ahead of the announcement or risk seeing gold pop to new all-time highs of $2,000 or more.
I commented a few weeks ago that to understand the Fed you have to understand that it, along with JP Morgan and the other TBTF banks, are one giant hedge fund. And this is a huge negative for supporters of free markets who believe prices should be determined by the market -- not the Fed. Surprisingly, a few days later Warren Buffett made the same observation. He said "the Fed is the greatest hedge fund in history." For Warren, this is great. He is on the receiving end of the biggest transfer of wealth in history from workers and savers to borrowers and speculators. But for those not on the Fed's list of recipients of hundreds of billions worth of interest-free loans that never have to be paid back the fact that the Fed is a giant hedge fund is devastating. It's no coincidence that the day after the 'no tapering' (what equates to more 'food stamps for bankers' aka QE) it was announced the government is thinking about cutting actual food stamps for the non-recipients of the Fed's free money who can now expect a real 'taper' in the form of a cutback.
The huge price drop in gold before the taper announcement is the 'smoking gun' proof the Fed does exactly what Warren Buffett says they do: operate like an enormous hedge fund; making free loans to 'friends,' manipulating markets with impunity, disrupting price discovery with high powered algo trading fraud and pressuring governments to submit to various extortion schemes like Hank Paulson's TARP of 2008.
In effect, if you know what to look for, the world is on a gold standard now. The price of gold -- in terms of its role as the currency of last resort -- is telling you that the Fed Ponzi is running at full tilt and about to bust and that the ravages of having such a destructive mechanism at the heart of the economy are now unraveling.
Gold is telling you something. Are you listening?
Because even with all that hedge fund fraud effort at the Fed to keep the price of gold down, the trend of the price of gold is still up and at some point the ability to keep it down will fail and then, as Warren Buffett also said, 'Only when the tide goes out do you discover who's been swimming naked."
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