Gold and the Reverse Goldfinger Effect

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.

SO WHAT?

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.

  1. Supposedly the gold remains in Fort Knox. But an audit would give credence to the non-believers.  Or, more likely,
  2. The gold is largely or entirely gone (highly likely in my opinion). This would be a dollar and public relations disaster.  And,
  3. 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.

CONCLUSIONS:  

  • 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!

 

Gary Christenson

The Deviant Investor

16 thoughts on “Gold and the Reverse Goldfinger Effect

  1. I take exception to the statement that gold just sits there. This is a non-argument since gold has no counter-party risk (as long as you physically hold it and it isn’t in a “pool” somewhere). If you are making ( or losing ) money on an investment then there is inherent counter-party risk in that you might make money or lose it. Gold will never be worth zero. Can’t say that about stocks, bonds, or many other investments. It is a long term asset protection.


  2. I haven’t a doubt in the world that gold & silver will knock the socks off anyone who has bashed both for many years. Physical gold & silver are the only two entities currently that |i have any faith in. Gary has done an excellent job in presenting the real facts & I applaud his due diligence. KUDOS Gary. Keep up the great work!


  3. Dear Gary and friends,

    Gold is not a short term investment. It is, quite literally, for the ages. Its pricing over any short time period, whether measured in days, weeks, or years, will fluctuate. That will be true whether its valuation is determined by real market forces or by manipulation (which seems rather likely during this period).

    I approach the investment in gold as a value investor.

    The Dean of value investors, Benjamin Graham, often said to his students (including Warren Buffett) that “In the short run the market is a voting machine. In the long run it is a weighing machine.”

    As far as manipulation, we all know that in 1971 Richard Nixon suspended (“temporarily” I think) redemption of the U.S. dollar for gold. If you use a standard compound interest formula, over the 44 years from 1971 until now, the price (not value) of gold has risen from $35 per ounce to $1070 per ounce. That is a compounded rate of return of just over 8%. Citizens have no idea when the next visible action will be taken, though it is possible to have opinions about the extent of non-public actions.

    Much has been written on the opinion of whether it is or is not possible to “value” gold, whether gold is a useful hedge against inflation, etc. There is much subjectivity in all of those discussions.

    As a value investor I have found it useful to look at assets that seem to be declining in price relative to other assets. Just now gold fits that profile, as does silver. I accept here that precise valuation of the precious metals (and their miners, which is a separate but related consideration) is not possible. But between the polar opposites of “zero” and “a whole bunch” I favor the latter.

    I am not saying that gold is the best investment of all time, or that it is the only thing that I would acquire and hold as an asset. But the ability to take action at times of uncertainty and turmoil, particularly when the crowd is emotionally neutered, can have its payoff. I was a buyer of Berkshire Hathaway (now Class A) stock in 1987 around $3100, when it had dropped by about one-third in price from $4600 per share the day before. I still own those shares. Over that holding period from 1987 to 2015 the rate of return on Berkshire has been roughly twice that of gold (as calculated over the longer span above).

    Both of the assets that I have used as examples have had different rates of return during shorter periods over the last several decades, and I make no prediction about the future. Such differences are of greater interest to traders than to investors, and I leave such adventures to them. Predicting future returns is a matter of being able to foresee future environments, something for which I have no ability or inclination.

    I can say that I have bought substantial amounts of gold in the period from 2004 to the present, mostly during the earlier part of that timespan. On average the the position continues to be held at a profit, and if gold prices drop much more from here, as Mark Faber, I expect to be a buyer.
    Bob Eckhardt


  4. GOLD HAS INCREASING VALUE AS A CATALYST AND CATALYST ENHANCER IN THE CHEMICAL AND PHARMACEUTICAL INDUSTRY. SIMPLY LOOK AT http://www.USPTO.gov FOR ALL THE PUBLISHED U.S.PATENT APPLICATIONS AS WELL AS RECENTLY ISSUED PATENTS PERTAINING TO GOLD CATALYSIS


  5. Gold keeps making lower lows despite the unprecedented money printing and violence all over the globe. Gold kept making lower lows for two decades since 1980, despite all the money printing during this time.

    Since 2011, everyone who bought gold when one of you crazies said “buy gold” is now deep in the hole. Crazy speculations about the gold in Fort Knox or “manipulations” do not put food on the table.

    Gold is in a bear market. It will keep going down until it isn’t. Stop deluding your readers. Wait for a trend change before putting any money in gold. It’s that simple. All the conspiracy theories and other sophistry about “fundamentals” won’t help you get any richer – in fact, they will help you get poorer.


    • As usual, thanks for your comments. Of course I generally do not agree with you.
      Since 2011 everyone who bought gold etc etc etc.

      You could also have said: Since 2009 everyone who bought the S&P has benefited nicely. Or since 2001 everyone who bought gold has benefited nicely, or since last summer everyone who bought junk bonds is now deep in the hole. In essence you said, markets go up and markets go down.

      “Crazy speculations about gold in Fort Knox or manipulations do not put food on the table.” Living in La-La land in full denial also does not put food on the table.

      “Gold is in a bear market. It will keep going down until it isn’t.” Well said but useless! Stop deluding yourself. You might as well have said, “Gold is in a bear market and will reach absolute zero in about another six years.” Useless!

      In other words, you have said little useful or rational so I conclude that the basic ideas expressed in “Gold and the Reverse Goldfinger Effect” are more or less correct.
      Thank you.
      The Deviant Investor



  6. At the closing bell to-day – the Gold/Silver Ratio hit the following: 75.86/1
    Gary – you & I feel SILVER is a real steal these days for so many good reasons.
    Eric Sprott thinks Silver will be the investment of the decade!
    What are your thoughts?


  7. Gary
    Nice analysis, and I like the reverse contrarian innovative thinking.
    Like my Reverse Midas Syndrome short comment recently on Bill M’s site.

    Ian Fleming also predicted a form of 11.09 with Moonraker, and one of his Biographer’s argued he became disenchated with his elite boss(es) M and the James Bond series was gradually exposing the secret false flag plans until he was taken out to prevent further damage. If true what brilliant work was done subsequently to turn the scripts back in the right patriotic direction,


  8. Hi Gary, I very much respect what you are trying to accomplish. Nevertheless, we need to be realistic. The issue of gold stored in Fort Knox is a non-issue. The market value of the 8000+ tons of gold in Fort Knox is tiny in comparison to the total US debt of roughly 200 trillion. In our modern world, debt is good because it is wealth producing interest. The basis of western financial markets is the belief that holding paper investments produces income without work. Every body wants to eat without working. That is the promise of paper money. Gold on the other hand just sits there and does not even produce a sandwich for lunch. That is the point which Warren Buffet has repeatedly stressed. Personally, I do not share that belief. To counter Buffett and other protagonists of paper assets, somebody should take the effort and find out what the value is today of 20 stocks bought in 1900 and held without any trading. The frequently quoted Dow Jones Index is not a true measure of buy and hold because components of the index are continously removed and replaced. In other words, the Dow Jones index suppresses bankruptcy. Buying one ounce of gold in 1900 and holding it until today did not lead to any capital loss. However, buying the equivalent amount of stocks in 1900 and holding it (with no trading allowed), most likely would have led to a substantial capital loss in comparison to gold. Unfortunately, I do not have the resources to investigate this matter myself, but somebody should really investigate that thoroughly. The result could be very interesting. Thanks and please keep up the good work!


  9. To lease or sell someone else’s gold is both fraudulent & criminal – beyond a doubt. This will come back to haunt the U.S. in spades & is the reason there has been no audit of Fort Knox since 1953.
    Please consider Egon vonGreyerz’s comments:
    “Dollar strength is ephemeral

    So gold seems very weak. But that is only in US dollars. In virtually every other currency gold is holding well. That includes the Euro, the Pound, the Canadian dollar, the Aussie dollar, the Yen, even the Swiss Franc and of course weaker currencies like the Ruble as well as most others.

    The dollar is on its last swansong. The strength could last a bit longer but the reserve currency of the world is living on borrowed time.The technical picture for gold is indicating misplaced optimism from the dollar bulls. And fundamentally the most indebted country in the world will soon realise that the road to prosperity cannot be built with printed pieces of paper. No economy that runs budget deficits for over 50 years and current account deficits for over 40 years can survive. Retail sales are declining and the major retailers trading is under real pressure. Industrial production is weak and so is housing. Freight and trade is declining fast and these are important advance indicators of economic activity.”


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