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Pricing Uncertainty in GoldPollock &
Mackenzie Currently the market perceives gold as a hedge against a declining US Dollar. In contrast we view gold as the ultimate insurance for global uncertainty, and its associated risks. When framing the value of gold, deflation and inflation are not mutually exclusive position points. Presently, we are experiencing aspects of both phenomena concurrently. No matter the prevailing or countervailing wind between these forces, gold will provide safe harbor. WE ARE PRICING UNCERTAINTY TO GOLD. Gold provides the ultimate arbiter of comparative value, it always has. A deflationary outcome must to be considered regardless of central bank willingness to provide an inflationary backdrop. The integrity of fractional reserve banking cannot by its very definition be indefinitely maintained. Such systems are bankrupt at origin. During times of severe economic dislocation the dollar value of gold becomes irrelevant. We are pricing dollars in gold not gold in dollars because all fiat paper currencies will eventually find their benchmark in gold. Presently these slips of fiat money paper are colateralized in debt with the promises of repayment in good faith. Since these systems are bankrupt at origin failure eventually becomes apparent to all as common interest to a common system with mutual but not equal benefit erodes. During deflation the "fiat-money" conversion price of gold could be in fact very low. By example gold could be priced at $200 per ounce, however the amount of purchasing power could be profoundly more than gold in a runaway hyper-inflationary environment. We believe that purchasing power of gold will increase during uncertainty. It is advantageous for all portfolios to have a gold component as the definitive store of value. Efforts to inflate do in fact cause deflation. Our economic leadership, and government, embarked on a clearly defined policy to weaken the US Dollar. The stated objective of this policy was to reduce the current account deficit by expanding exports. This policy has significant side effects, many unintended results, and risks. THE CATCH, WITH INFLATING LIABILITIES AWAY WITH A WEAK DOLLAR POLICY RESIDES IN THE FACT THAT THE USD PROVIDES THE WORLD WITH ITS RESERVE STORE OF VALUE. WE ARE THREATENING THE STATUS OF THE RESERVE CURRENCY. To solidify the reserve currency, the United States has to at all times provide the world with products, materials, services, and intellectual property, at prices the rest of the world can absorb. Therefore, by printing money we are only serving to undermine international confidence in the value of our capital stock, and our ability to provide return. As we intentionally exporting inflation. The domestic economy will continue to lose jobs because our domestic labor pool cannot compete with the fair value of global labor rates. Effectively, we are inflating away our advantage of holding rights to the reserve currency. Capital and Jobs are being exported under the specter of Globalization. As the natural trend to unemployment continues the economy contracts. Aspects of the economy start to break as contractual commitments like rental agreements, mortgages, pensions, and insurance cannot be serviced. A liquidity crisis emerges. Many people equate a dollar bottom with a cup of coffee priced at $5 a cup. In a deflationary environment it would be more likely that a cup of coffee would cost .25c that few had. This is the gold purchasing power effect we initially described. Again, Gold's purchasing power will allow you to hold a currency that acts as a store of value in a deflationary environment. Pollock &
Mackenzie Warren Pollock
is a guest author on Jim Sinclair's Mineset and has been published in journals
including the Journal of Homeland Security. John Mackenzie
manages private capital and hosts a gold
forum/investors exchange on Yahoo! groups. |
