GOLD FLOWS EAST

 

While the Stand for Delivery Comex problem  has begun to receive attention in the financial press, there is an important aspect to it that is being largely ignored but which is crucial: the Stand for Delivery Contracts are from the East.

There is a steady flow of Gold now out of Western vaults into ther Vaults of China and the South-east Asian countries, Russia and the East European countries, and the Oil Rich Mid Eastern countries.

And this defines the entire move in the Gold Price thus far.

It used to be an adage that if you follow the flow of gold in the world you follow the flow of Political and Ecnomic power.  From Rome to Constantinople to Spain to France to Holland to England and then to the United States.

Now it is flowing East.  This is a very uncomfortable fact for those who are touting a new Golden Age for the United States, wherein China and Russia and their sattelites cower and kneel in awe of our might.  

Today, most Americans would argue that the flow of gold is no longer relevant in a financialized world wherein Currency is a form of Debt.  Wherein stock prices float ever higher on debt financed stock buy-back programs.  Wherein structural deficits grow ever larger as the billionaire class is subsidized by tax cuts and bailouts, and goverment sponsored contracts, while inflation destroys the purchasing power of the middle class.  

But it is worth wondering where this leads as the countries that are buying gold are doing so expressly in order to dump US debt out of their reserves and replace it with Gold.  

One place it leads is obvious: As our trading partners dump our debt, we will have to buy more and more of our own debt with printed dollars.  We will have to spend more and more to service our debt.  And we will have to exercise control of the long end of the yeild curve.  All of which is highly inflationary.

Meanwhile, we will be engaged in financial warfare with ever greater swathes of the globe, an exercise that is also highly inflationary.

At the same time both of these challenges are a major drag on growth.  Which is highly deflationary.

Over time, this will be a challenge to the New Golden Age.  

And these type of challenges tend to be structural and tend to last decades.

Once gold begins to flow in earnest from one are of the world to another - that trend tends to play out over long periods of time.

And remember: we have only been in this highly financialized world for a few decades.  

Another question to ask is what happens in a highly financialize world as global liquidity dries up and all the liquidity has to come from printed dollars injected by our own central bank?

That is exactly what we are about to find out.

It might be good to own some gold when we get our answer.  At least that's what the East seems to think.