What Is Gold Telling Us?

Earlier this year we wrote that gold buying rose spectacularly in 2018 led by the world's central banks, which increased their physical purchases by 651.5 tonnes. That's an astonishing 74 percent over 2017. This was the most gold these banks bought in more than a half century, since 1967. Not only have central banks purchased more gold, but a number of new buyers have entered the market. Poland became the first European Union country to buy gold in the 21^st century, adding 14 tonnes in the third quarter. The Hungarian central bank bought its first gold in 32 years, increasing its gold holding 10-fold. India added 21.8 tonnes, its first major increase since buying 200 tonnes in 2009. Mongolia bought 12 tonnes. Egypt bought gold for the first time since 1978, while Indonesia, Thailand and the Philippines re-entered the market after multi-year absences. The Russian central bank was by far the largest buyer of gold in 2018 adding an incredible 274 tonnes to its holdings.

Figures released by the World Gold Council for the first quarter 2019 show the strong uptrend in gold prices during 2018 has continued in 2019, and it isn't just the central banks that are buyers. Purchases of gold-backed exchange traded funds (ETFs) and similar products rose sharply in June by 127 tonnes as the price of gold rose to a six-year high. North American funds had inflows of 65t, and European funds rose by 59t. In North America, SPDR® Gold Shares (the largest gold ETF) added 51t and experienced its largest one-day inflow of all time on June 21st while iShares Gold Trust added 12t.

In the UK, ETFS Physical Swiss Gold added 23t, worth nearly a billion U.S. dollars, and grew by 115% during the month of June while iShares Physical Gold ETC added 20t. European gold-backed ETF holdings represent the largest percentage of gold assets in its history at 47% of total assets, trailing North America by US $3.6 billion

Why have central banks all over the world been buying so much gold? The U.S. national debt is now $22 trillion, but that is only the “official” debt; it doesn't include much larger “unofficial” expenditures. Those will never be paid as promised, because the obligations are growing faster than the government's income. Every dollar the federal government has borrowed since 2008, has generated only 44 cents of economic output. The U.S. gross domestic product has increased 35% since 2008, but the national debt has increased 122%. So much for the Keynesian idea that government spending will promote economic growth that will generate tax revenue to pay its debts.

Obviously the government cannot continue indefinitely to spend more money than it takes in. If that trend continues, eventually the monetary system will collapse amid high interest rates and people's distrust of the money. This is what happened in the U.S. in 1789 when inflation was rampant and people couldn't trust the value of the currency. Even the U.S. Congress refused to accept its own money in payment of a debt.

What the central banks are telling us by buying gold now is that they have less confidence in the future of the dollar. The official $22 trillion dollar national debt does not include future payments for social security, medicare, medicaid, and various other payments for which the government is obligated. Laurence Kotlikoff, an economics professor at Boston University says, “Congress has been very careful over the years to label most of its liabilities as 'unofficial' to keep them off the books and far into the future.” Based on Congressional Budget Office data, Kotlikoff estimates there is a gap of $202 trillion between the 'official' and 'unofficial' obligations of the federal government, but all must be paid. The worldwide transfers of gold are pointing toward a day of reckoning for the dollar. It won't happen far in the future, and it won't be favorable for the value of the dollar.

We are headed for a catastrophe. Thomas Jefferson was right when he wrote: “There does not exist an engine so corruptive of the government and so demoralizing of the nation as a public debt. It will bring us more ruin at home than all the enemies from abroad.” If you are seriously interested in the monetary situation, I recommend you get my book The Impending Monetary Revolution, the Dollar and Gold. It contains far more information than I can include in a few blog postings.

Uncommon Thoughts On Global Warming

Despite all the scare stories about global warming, we are actually in an Ice Age. We are in a relatively warm period within a much larger incredibly cold period says geologist Dan Britt. In his lecture Orbits and Ice Ages: The History of Climate, he says “reading the rocks” gives us a really good record of climate for the past 500,000 years. And the climate for the latitude of Pensacola, for example, is about the same now as it was in the Mid-Cretaceous period a half billion years ago.

Since then, the average temperature of the earth has been much warmer than today. There were only four periods that were as cold as the present. In short, we are in one of those rare periods in which the earth is about has cold as it ever gets, at least in a half billion years--so why are we worried about global warming? During those four warm periods, each lasting 3,000 to 4,000 years, nowhere on earth, including the poles, was the average temperature below freezing. Temperate climate extended all the way to the Arctic Circle. Today in the Arctic Circle, fossils can be found of crocodiles, turtles, and breadfruit trees. The temperature must have been quite warm for those species to survive there. The climate where New York city would someday rise was comparable to that of Key West today. But during the extreme cold of the Ice Ages, the ice was a mile thick at the New York city location, and also at the sites of London, Berlin, and Minneapolis.

Carbon dioxide is a natural part of the atmosphere, and it can increase or decrease from natural processes having nothing to do with burning fossil fuels. We have been warned that 400 parts per million (ppm) CO2 is a “tipping point” for an unavoidable worldwide environmental disaster from global warming due to burning fossil fuels. But pre-industrial CO2 reached 1,700 ppm—six times the pre-industrial level—when there were no factories or automobiles; and the high CO2 couldn't even melt the glaciers, much less overheat the earth.

What is the “normal” level for CO2? The earth has seen both higher and lower levels of CO2. Can anyone say today's level is the optimum or that a higher or lower level would be better? Glaciers are rising. What is the “normal” level for glaciers. Sea level is rising. During the last glacial maximum, sea level was 150 to 200 meters higher than today. Would the average sea level of the past half billion years be the standard for which we should strive? That standard would eliminate Florida; Miami would be under 80 meters of water. There is no “normal” level for CO2 or for sea level.

What about Antarctica? Is it threatened? Should we be worried? There is no such thing as a “normal” level of glaciation for Antarctica. There was no Antarctic ice until 35 million years ago. Glaciers are triggered by changes in the earth's orbit. Antarctica glaciated, but that did not last. Then 12 million years ago Antarctica re-glaciated, which brought a sharp drop in the earth's temperature, which increased rock weathering. More important, when India collided with China creating the Himalayan plateau, it greatly increased rock weathering, which sucked out 80 percent of the carbon that was in the Cretaceous atmosphere.

Carbon is essential to all animals and plants. If the CO2 level in the atmosphere is too low, they will be will be unable to reproduce, and the earth will become a barren planet. That fate was avoided by the invention of agriculture, variously estimated at 8,000 to 10,000 years ago. To expand farmland for food, people were cutting and burning bushes and trees—thus putting carbon dioxide back into the atmosphere. About 5,000 years ago they also began cultivating rice, and rice paddies also put carbon dioxide (and methane, another greenhouse gas) into the atmosphere.

Volcanoes represent the largest natural input of carbon dioxide into the atmosphere. Other natural sources include sunspots, ENSO (the southern oscillation of the El Nino ocean current) and CO2 already in the atmosphere. Britt thinks all of these may have some limited effect but too minor to be more than just “noise” in the background.