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Turk: “The level of complacency at the moment, Eric, is astonishing.  The budget fight in Washington has now rolled into a debt ceiling fight, and the market repercussions have, so far, been unbelievably mild when considering what is at stake here, which is the solvency of the US government and the future of the dollar....

Continue reading the James Turk interview below...


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This point really came home to me when I was listening this weekend to the two interviews KWN posted with Andrew Maguire and Art Cashin.  They are excellent.  Each interview was so insightful and full of information that I listened to each one twice.

Maguire used the term “synthetic supply,” which I think very accurately describes what is impacting the gold market.  His conclusion was that all of this selling of paper derivatives, aimed at trying to keep a lid on the gold price, “doesn't change the bullish fundamentals at all,” with which I wholeheartedly agree. 

What we are seeing today is a lot like what happened in the 1960s.  Back then, the US government dishoarded over 12,000 tons of gold from Ft. Knox in order to keep the price at $35 per ounce, which was an exceptionally low price, even when measured with the purchasing power of a 1960s dollar.

But all of that dishoarding did not change gold's underlying fundamentals.  The supply of gold dumped on the market was soaked up because so much paper money was being created.  Buying this gold was an easy decision by those who understood gold because they recognized that it was very undervalued.

There is one thing different today from back then:  The central planners back in the 1960s did not have all of the derivative instruments at their disposal to cap the gold price.  All they could do was sell physical metal.  But in the end, they were trying to stop a tidal wave of buying and so they were eventually crushed, and the gold price went on to soar. 

So let's fast forward to today:  For months there has been wave after wave of buying in the physical market.  We see this from the data.  It shows that gold is flowing from West to East.  So the central planners have to feed this appetite for physical gold, just like their predecessors in the 1960s.  The great similarity is that they are doing it again at exceptionally low prices and emptying what's left in central bank vaults -- just like all the gold that flowed out of Ft. Knox five decades ago.

Meanwhile, the Federal Reserve's balance sheet continues to grow as it buys evermore US government debt through its QE program.  But here's the important point:  The Fed is turning that debt into dollar currency, which erodes the dollar's purchasing power.  It is, in effect, the same thing that the Reichsbank did in Weimar Germany when it turned German government debt into currency -- which brings me to the Cashin interview and his article you posted.  Everybody needs to carefully read that article because it may prove to be the roadmap for the dollar.

In his interview, Cashin mentions that inflation in Germany happened slowly, and then suddenly, which is a key point that brings me back full-circle to the level of today's complacency.  The circumstances are ripe for everything to start happening suddenly.

For years, the dollar's position as the world's reserve currency has been eroding slowly.  Is the speed going to change so that its decline is now going to happen suddenly?  That looks like a good possibility given the way the US government and dollar are now being managed.

The rest of the world needs a sound currency for international commerce between countries.  Without sound money economic activity suffers, which is the last thing one now needs given that the world is still struggling with the consequences of the 2008 financial collapse.  China has been making inroads to use its yuan as a currency for trading with a growing number of countries.  And judging from the gold flows, the growing amount of physical gold in China is apparently available to back the yuan in order to give it credibility.

There is no immutable law that the dollar has to remain the world's reserve currency.  That longstanding role could end suddenly.  And importantly, a surge in inflation could happen suddenly as well, just like it did in Weimar Germany.  The dollar, like the reichsmark before it, rests on the value of government promises and a central bank in love with easy money.

The gradual decline of the dollar is about to pick up speed.  What is important for KWN readers around the world to understand is that as the dollar decline picks up speed, the 3-month rising trend in precious metal prices will also accelerate to the upside.

Just as the US foolishly dishoarded 12,000 tons of gold in a desperate attempt to keep the price of gold at $35 an ounce, and were eventually overrun with the collapse of the London Gold Pool, history is about to repeat as Western manipulators are going to be crushed by the growing tidal wave of physical gold demand.”

IMPORTANT - Due to recent volatility, KWN will be releasing an important series of interviews today.

© 2013 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The audio interviews with Andrew Maguire, Art Cashin, Egon von Greyerz, Bill Fleckenstein, David Stockman, Robin Griffiths, Jim Grant, Gerald Celente, William Kaye, Dr. Paul Craig Roberts, Chris Powell and Eric Sprott are available now. Also, other recent KWN interviews include Marc Faber and Felix Zulauf to listen CLICKING HERE.

Eric King

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