In 1964 Sean Connery starred in the movie “Goldfinger” in which the villain, a wealthy Brit named Goldfinger, attempted to revalue his personal gold hoard higher by a factor of 10. His plan was to detonate an atomic bomb inside Fort Knox making the US gold radioactive for hundreds of years. With the Fort Knox gold hoard, the largest in the world at that time, effectively unavailable the global price of gold would increase at least ten times from the 1964 price of approximately $35.00 per ounce. Bond, James Bond, thwarted the dastardly plot and saved the US gold, the US dollar, and the US government.
The current 2015 gold price is about $1,100 per ounce. Overprinting fiat dollars has done what Goldfinger could not – substantially increased the price of gold.
The movie is, by today’s standards, a lousy movie, but Sean Connery and the Bond Girls are attractive. But bad movie or not, there are interesting parallels with today’s world.
- Goldfinger understood that gold was the basis for the strength and confidence in the US dollar in 1964. The US had committed to exchange dollars for gold and continued to do so until Nixon abrogated the Bretton Woods agreement in 1971.
- Goldfinger understood that the value of the US dollar and US global economic power would be severely diminished if the Fort Knox gold was missing or unavailable.
- Goldfinger understood that if the potential supply of Fort Knox gold was not available to the market, the price of gold would substantially increase.
- Goldfinger understood the lasting value of gold and that gold was wealth. Yes, he knew that people can’t eat gold but people can’t eat paper or digital dollars either, so he wasn’t swayed by such silly arguments. He understood that gold is globally valued and appreciated everywhere, especially by Asians.
- The British government understood that gold, stored in London, was important to British economic power and to sustain remaining strength in the British Empire. They also understood that a weakened dollar and weakened United States would damage British interests.
In some ways, not much has changed in 50 years. All of Goldfinger’s observations regarding gold remain true today. What has changed:
- Nixon refused to exchange gold bullion for US dollars after August 1971. Consequently the price of gold skyrocketed from $42 to over $800. Obviously the US dollar dropped in purchasing power. Crude oil rose from under $2 to about $40. Consumer prices rapidly rose and by 1980 even the government understood that something had to be done.
- To combat the weakened dollar, huge consumer inflation, and diminished confidence in the US dollar, interest rates were raised into the teens, the US economy faltered, stocks dropped, and bond prices plunged.
- But within a few years gold prices had been crushed and stocks and bonds began a 30 year bull market. Fiat currencies were revived and the financial and political elite massively increased their wealth.
- Central banks began “leasing” gold into the market to further suppress gold prices. The US government also sold over a billion ounces of silver from its strategic stockpile to suppress silver prices. Those sales suppressed gold and silver prices until 2001.
- The US dollar strengthened against other currencies, most Americans lost interest in gold, placed their wealth in dollar denominated assets, and believed their paper wealth based on debt based fiat currencies was valuable. Most forgot that the intrinsic value of a paper dollar, euro, pound, and yen is near zero, and that all unbacked paper currencies eventually revert to their intrinsic value – zero.
- The lessons of history – unbacked paper currencies always die – were ignored, as usual.
Goldfinger was correct when he observed that the massive Fort Knox gold hoard was important to sustaining confidence in the US dollar. When Nixon effectively made Fort Knox gold unavailable to the world, the value of the dollar dropped precipitously.
The current 2015 relative strength of the US dollar is still partially supported by the supposed gold remaining in Fort Knox and other bullion depositories in the US. Official gold is listed at over 8,100 tons or about 261,500,000 ounces, of which about 147,000,000 ounces is “officially” stored in Fort Knox.
That gold has not been audited in over 60 years. Reagan’s “Trust, but verify” does not apply to Fort Knox gold since there is no benefit to the US government from auditing the gold.
- Supposedly the gold remains in Fort Knox. But an audit would give credence to the non-believers. Or, more likely,
- The gold is largely or entirely gone (highly likely in my opinion). This would be a dollar and public relations disaster. And,
- Someone might ask where the gold went and who was responsible. The answers might weaken the already diminishing confidence in government, congress, the President, and central banks.
- Goldfinger tried to render Fort Knox gold radioactive and unavailable, thereby increasing global gold prices. Call it the “Goldfinger Effect.”
- By contrast, The “REVERSE GOLDFINGER EFFECT” is quietly and unofficially selling (leasing) Fort Knox gold to SUPPRESS global gold prices.
- Based on the massive increase in global debt (over $200 Trillion and counting) and the incredible increase in the supply of fiat currencies, many people believe the price of gold should be far higher. I think the “Reverse Goldfinger Effect” has been used to suppress prices. When the truth is finally revealed, we shall see.
- The global economy would be severely shaken, not stirred, when the truth regarding gold is revealed, or when the “Reverse Goldfinger Effect” runs out of gold.
- Don’t expect a truthful audit of Fort Knox gold.
- Do expect a massive increase in global gold and silver prices.
Paper dies, gold thrives!
The Deviant Investor