Why Gold is headed to $4,000

Jim Rickards: Gold is money and probably manipulated for its deadly power

Submitted by cpowell on Fri, 2010-07-02 03:55. Section: Daily Dispatches

12:08a ET Friday, July 2, 2010

Dear Friend of GATA and Gold (and Silver):

In his latest interview with Eric King of King World News, Omnis Inc. Senior Managing Director James G. Rickards remarks that while he has never witnessed central bank manipulation of the gold market, he thinks central banks do manipulate it, even as they may call their manipulation "policy," and he notes that, perhaps because of this "policy," the financial regulation bill proceeding through Congress would knock banks out of certain commodity trading but not out of trading gold and silver.

Rickards calls the legislation almost useless and notes that while debate on the legislation began with complaints that the biggest banks had gotten "too big to fail," those banks are now even bigger.

He sees both deflation and inflation in various sectors of the economy and expects deflation to prevail.

Perhaps most interesting, Rickards and King discuss the presentation Rickards made in March 2009 to the Unrestricted Warfare Symposium held by the Applied Physics Laboratory at Johns Hopkins University in Laurel, Maryland. Addressing the threat of economic and financial attacks on the United States, Rickards described a scenario in which Russia requires its exports of oil and natural gas to be purchased with a gold-backed currency of its own creation. This, Rickards wrote, would constitute a "Pearl Harbor" attack on the U.S. dollar that might drive its value down 50 percent almost overnight and drive gold up toward $4,000 per ounce, causing gold to replace the dollar as the world reserve currency.

"If China joins Russia in this plan," Rickards wrote, "its success is assured."

Of course the Russian and Chinese central banks lately have been buying a lot of gold, and for some reason China hid some pretty massive purchases for a long time.

Rickards also writes that the United States might pre-empt such a Russian and Chinese scheme by restoring gold backing to the dollar -- also at a price of $4,000 per ounce.

While Rickards' scenario is frankly speculation, it seems a bit more authoritative than the recent dismissive comment of Kitco senior market analyst Jon Nadler that central banks have no interest in manipulating the gold price and the similarly dismissive comment of CPM Group executive Jeffrey M. Christian that central bankers hardly ever think about gold.

Of course central bankers do think about gold -- a lot. The minutes of the Federal Reserve's Federal Open Market Committee, though heavily edited, show persistent concerns about gold and even discussions about controlling the gold price. The Fed has all sorts of records involving gold that it is refusing to make available to GATA in response to GATA's freedom-of-information lawsuit against the Fed in U.S. District Court for the District of Columbia. If gold was nothing to central bankers and nothing special was going on with it, these records would be quickly released.

And of course GATA long has noted that the central banks of even some smaller countries, like South Korea, could accomplish a result similar to the one in Rickards' hypothetical Russian scheme just by selling enough U.S. Treasury bonds and buying enough gold. Five years ago mere speculation about little South Korea's diversification of its foreign exchange reserves almost crashed the dollar:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aWcrfg7PMTtQ&refe...

In his inteview with King World News, Rickards argues that the instability of the dollar is by far the greatest threat to U.S. national security. He also notes that gold and silver remain money. Indeed, GATA maintains that their continuing centrality as money is the secret knowledge of the financial universe. Now Rickards too is busting the secret. We're grateful to him. The truth will come out. It won't stay a secret much longer.

... Truth forever on the scaffold, Wrong forever on the throne --
... Yet that scaffold sways the future, and, behind the dim unknown,
... Standeth God within the shadow, keeping watch upon His own.

Rickards' interview with King World News can be heard here:

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/7/1_Ji...

Rickards' presentation to the 2009 Unrestricted Warfare Symposium can be found here:

http://www.jhuapl.edu/urw_symposium/proceedings/2009/Authors/Rickards.pd...

An index of the symposium's proceedings can be found here:

http://www.jhuapl.edu/urw_symposium/Proceedings.aspx

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.