If you ask any of my good friends, they’ll tell you “Don’t get Nick Jones started on gold. He’ll talk your ears off.”

Unfortunately, my friends are right. Precious metals were the very first market I ever researched. I’m glad that’s where I started, because to understand gold is to understand the U.S. dollar. To understand the U.S. dollar is to understand macroeconomics, housing, credit finance, and energy makets.

After putting in an excessive amount of due diligence into the above mentioned issues, I came to the conclusion that inflation and economic woes were on their way. In fact, I decided that not only were we going to experience serious stagflation, but we were also probably entering a period of time that will probably go down in economic history.

At the time, the imbalances seemed obvious, but it took some time for these theories to gain acceptance. I’m not kidding either. The notion of deflating housing prices was simply impossible for America to grasp. It was like telling people that the world actually isn’t round. The general public could have cared less, because these issues had yet to affect them. They had their 4 bedroom 2 bathroom credit card that just kept appreciating. When gold ran from $250 to $600 in just a few short years, the world yawned. All they cared about was the DOW passing 12k, 13k and eventually touching 14k.

In the mean time, I was screaming economic murder to any who would listen. I would tell people that we are headed for rough waters economically and that a recession was inevitable and depression was possible. I would tell them BUY GOLD, because the Federal Reserve is going to try and prolong decades of inflationary Keynesian based economic policies. More people are listening now, but there are STILL those who doubt.

BUY GOLD for Crying Out Loud

Just as I screamed buy gold when it was at $600, I’m screaming BUY GOLD again. It is an absolute steal at current prices. With gold trading 25% off its highs, many investors were shaken out.

We must remember a couple of things. Gold is a liquid asset, than many funds, investment or otherwise, hold. When things get a little shaky the funds will sell their liquid assets. The other item to remember is that funds don’t like selling losing assets. They would rather book positive capital gains. So the managers will be more inclined to sell their winners, like gold.

Let me tell you another little secret. I would bet my right hand that the U.S. has only a meager percentage of the gold reserves they claim to hold in Fort Knox and otherwise. On the other side of that, I would also be willing to wager that the only reason the dollar index rallied to 78 was because of a synchronized effort by monetary authorities around the world to enter forex market and buy up significant amounts of U.S. dollars. I believe that this was a last ditch effort at either rescuing, or simply prolonging the dollar’s life.

Gold Carry Trade End Game

All in all, these are glaring signs that this is the final tipping point of the gold carry trade and the central banks massive shorts rolling over. Translation:

The central banks have massive short positions in the futures market. This means they have presold gold. They continue to short sell more and more gold further pushing the price down. In doing so, they buy back their prior shorts at a cheaper price. The game continues to cycle and the shorts are continually rolled over, until market forces finally take hold and prices rise and begin to represent real monetary inflation. At this point, there are two options for the central banks. The shorts can be bought back at a much higher price with massive losses, or the central banks can use their precious metal reserves to make delivery on the contract.

Where’d the Gold Go?

You don’t believe me about the pending conclusions of the infamous gold carry trade? All you have to do is call your favorite coin dealer and ask for a 1 oz. gold American Eagle coin. Chances are you will get put on at least a 3 week back log. That compares with the overnight delivery that I would receive when I first started accumulating physical metals.

The reason for this delay is that the U.S. Mint has suspended both private sales and sales to authorized dealers, and rationing is currently underway. The United States of America either has, or is running out of gold. Listen here, gold is finite and U.S. dollars aren’t. The ratio of gold to U.S. dollars in circulation is absurd and most definitely not represented by gold trading at $800 /oz.

This opportunity will not be around for long. In fact, I promise that there will be a time in the coming years where you won’t be able to get your hands on physical gold period. It will be an ultimate shake up of confidence in the U.S. dollar and our fractional banking system. This bull hasn’t fizzled and we all should be buyers of the dips.

Nicholas Jones
Analyst, Bourbon & Bayonets