BERAL, INC.
Andrew Racz
Director of Research
300 East 54 Street, Suite 26C
New York, NY 10022
Phone: (212) 319-6949
Fax: (212) 753-1944
E-mail: mlikar@aol.com

The World Without Gold

By Andrew Racz

July 2, 2013

The World Without Gold

This essay is dedicated to President Barack Obama, the 47th President of the United States. In July 2013, the United States found itself with a price of gold down from $1,600 to $1,200 and heading towards $1,000 … a gold which is losing its significance in daily trading. Simultaneously the President is facing the end of his second term with over $20 trillion debt, possible 2% interest rate meaning that at the end of his second term the country will have to pay $.5 trillion interest charges. 

There are many possibilities, but for the sake of this essay, we don’t want to speculate on extremes. Historically there are plenty of examples.

During the Second World War Winston Churchill gave away all of England’s gold to the United States for survival- military activities, and food. As a result after the war England fell into one of the world’s greatest economic disasters which cannot be attributed to what Churchill called “socialist extravagance”. The government accepted the unwinding of the British Empire. Because of the election of 1945, Churchill was saved from personally presiding over the dissolution of the British Empire. Prior to the war, London was prosperous and looked like it never looked before. England had gold, England had prosperity and Piccadilly Circus was named as the center of the world.

In the 21st Century, the Chinese purchased about 3 trillion ounces of gold. They bought it from the United States who sold them U.S. Treasury bills , $3 trillion in a sharply declining value. Now in July 2013, the Chinese have to reckon that their holdings in gold declined 40% making gold technically unmarketable unless they want to move the price way below $1,000. So the Chinese lost in many respects and America won. The interesting part is that none of them planned it that way but that is how it happened – and gold was at the center of it all.

The person who has benefited most from owning gold even for only a short time was Jesse Owen in 1936. Shortly after becoming President in 1933, President Roosevelt confiscated gold from private hands and as a result no American person or citizen could own gold.

When Jesse Owen returned from Berlin with four gold medals, the President invited the American sportsman to the Oval Office. In the course of the conversation, President Roosevelt asked Jesse where his gold medals were ? Jesse politely said, they are with me Mr. President. Roosevelt said, well you have to give me the gold because an American citizens cannot own gold but the government will pay you for it.

When Jesse Owen counted the money he politely stated that it was a pleasure to do business with the President.

When four years later Jesse Owen was the owner of four restaurants in the South and visited the President again he proudly told Rooseve, not only that he did well but that he was probably doing better than the President. Jesse Owen was a winner. In many respects one of the few winners of owning gold. A country which is vital to the United States is South Africa. Gold was discovered at the turn of the last century by the Oppenheimers and their friends and they built one of the most prosperous countries in the world, certainly the most important and prosperous country in Africa. The importance of Africa today is illustrated by President Obama spending four days in Africa at the time of writing. His advisors obviously told him that recently the GNP of South Africa declined 25%. This is a vital issue for the United States as well as Africa. South Africa has a billion people, has many minerals, is the largest gold miner in the world. It has 66 million people out of the billion in Africa and it was considered a financial industrial leader as it is still considered today. However, gold which may drop 50% is going to shake up not only South Africa but the mining industry all over Africa . This could create an economic dislocation in the largest continent in the world with a billion inhabitants.

How did the IMF – how did the United States – how did South Africa ever permit to get into this position – that a 50% drop of a commodity could shake up a billion people and the whole continent – I don’t know. However, it’s happened. The remedy maybe coming, but it will not stop South Africa from undergoing great hardship firs.

A historical fact, that of all international leaders, President Charles De Gaulle was a firm believer in gold.

Another firm believer was Dr. Henry Kissinger before he became National Security Advisor to President Nixon and it was a great surprise when the West discovered after the fall of the Soviet Union that the so-called Russian gold was not what the world believed.

Apparently, gold has many kinds of influence over international politics and domestic lives.

The wealth which had been accumulated since the Second World War via gold is obviously manifold. The Hungarian born Peter Monk, Chairman of Barrick Gold became an international figure and a man of wealth -several billion dollars. One of the most colorful and real gold stories was Robert McEwan who built up a small company called Gold Corp. and sold it for $80 billion.

In the United States, two individuals – George Soros the Hungarian born financier and John Paulson, the hedge fund manager, have made billions of dollars in gold. Since gold is basically a trading vehicle, the achievements of George Soros’ billion dollar hits were often reflected in the newspapers. He was the first trader who recently predicted that he believed that gold was the ultimate bubble.

Gold actually started to trade on the commodity markets in 1974. A legendary banker, Edmond Safra built an international banking empire while he was the gold trader and a banker for Russia ,South Africa and the Middle East. After 1974, he introduced the Euro Dollar Market and trading in currencies began growing on a phenomenal scale.

When gold trades the currencies trade. When currencies trade, the country participates. This will not change.

The world without gold will never be a real world. It influences the price of the dollar and interest rates in various countries. The world will never be without commodities. The world will never be without food. Since the Second World War the population of the world has increased and today we have 7 ½ billion people. Trading in the Middle East , in the Far East, gold is traded in almost every part of the world,

President Obama is not without weapons for a prosperous world. After all, the world needs all kinds of commodities – coffee, cocoa, tea, wheat, soy beans. There are 7 ½ billion customers. What will change is the value of the indices, the commodities and their correlation with one another. In July 2013, soy beans, coffee are going to trade as before except at different prices.

What is at stake in the price of gold?

Obviously, in the first few months people will fly away from gold and the relative value of currencies and commodities may change. Subsequently, there will be the opposite of what has happened in the past. Theories, speeches, predictions will change.

Statements that gold is unimportant; that nobody will buy it, that it will fall, that it will be just like any other commodity is erroneous.

The United States of America and its president have to evaluate commodity prices every day and gold will no longer be the center of attraction. There can be very serious dislocations in the actual ownership of gold – banks, individuals, hedge funds, may fall in value.

There may be a changes which the president will have to cope with and that is that the value of monetary establishments will change. but the demand for goods may increase.

Since the rise of China it has become the largest depository of monetary value . However because of the ever growing deficit America is going to suffer in prestige and buying power. If it suffers in buying power, the borrowing will increase further and interest rates will increase creating more deficit.

All in all, I feel sorry for the current President of the United States. He inherited as he said an incredible economic mess. He is trying to bring out the United States from an economic mess and hardship. Just when he flies around in the world in negotiating with African nations, he now has the problem of the steep declining price of gold and further declines of every currency and commodity in the world. This would create problems with which he has never been willing to cope in his two-term presidency. The President spoke in the first term about “the millionaires and the billionaires” by which he meant ithe category of bankers who benefited from major changes in values which at that time was real estate.

In his second term the millionaires and billionaires are all going to suffer. As a result, he will have to adjust his economic policy and give more liberty to individual capitalism and restrict expenditures that are contracted for the long run. We have to adjust to life – an adjustment which brought along the price of gold, the income of the millionaires and billionaires, and enable the little guy, the ordinary people to adjust to go forward in a natural normal way.

Left wing policies and rigid left wing policies which in the past were reflected by Communism and Socialism will not be capable to cope with the world and continue their visions without gold.

Whittaker Chambers who helped Richard Nixon, put Alger Hess to jail, was a Communist and he said in his writings that when he left the party, he thought he was leaving the winning side. The rigid left wing policies will not stand up. The world without gold requires tremendous flexibility. The words of President Nixon are worth bringing back when he said that “I spent my whole life to prove to my friend, Whittaker Chambers that he was wrong – the winning side are not left wing ideologues.”

One of the most important steps the president has to take is to create a flexible and free domestic policy. The world without gold could shake up our entire economic and social structure. We can only survive if the prices are flexible and if individual capitalism will get greater and greater power. Finally, I would like to refer to a similar event. In 1975 Paul Volcker was head of the Head of the Federal Reserve Bank. Gold fell from $200 to $100. I was in Johannesburg office of the brokerage firm of Davis,, Brokam and Hare visiting Mr. Oppenheimer’s broker when $100 gold price hit the press. The American chairman of the Federal Reserve said in the New York Times he did not know what it means that gold is $100, but he felt the lower it goes the better.

I think it is an erroneous statement and it is certainly erroneous in 2013. The decline of gold moves prices, moves asset values and moves liabilities.

Disclaimer

Information contained herein is based on data obtained from recognized statistical services, issuers reports or communications or other sources believed to be reliable. However, such information has not been verified by us and we do not make any representation to its accuracy or completeness. Any statement non-factual in nature constitutes only current opinions which are subject to change. BERAL INC. or their officers, directors, analysts or employees may have positions in the securities or commodities referred to herein, and may as principal or agent buy and sell such securities or commodities. An employee, analyst, officer or a director of BERAL INC. may serve as a director for companies mentioned in this report. Neither the information nor any comment expressed shall constitute an offer to sell or a solicitation of an offer to buy any securities or commodities mentioned herein. There may be instances when fundamental, technical and competitive opinions may not be in concert. This firm may from time to time perform investment banking or other services for or which investment banking or other businesses from any company mentioned in this report.

 

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Andrew Racz. 300 East 54 Street, Suite 26C, New York, NY 10022
Phone: (212) 319-6949 Fax: (212) 753-1944. E-mail: mlikar@aol.com

Copyright © 2011 Andrew Racz. All Rights Reserved.

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