By Egon von Greyerz Founder Matterhorn Asset Management

February 28 (King World News) - AU = QE

“Yes, gold will continue to reflect the printing of money by Central Banks worldwide just as it has throughout history.  Gold will always reveal the inevitable consequences of  governments’ mismanagement of the economy.  There are numerous examples of this in history.  As the decadent Roman Empire started to crumble, laden with debt,  their currency – the Denarius – went from  virtually 100% silver content to 0%.  That took almost exactly 100 years between 190 AD and 290 AD.....

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Most currencies have declined between 97% and 99% against gold since the creation of the Fed in December 1913.  The remaining fall of 2-3% of the dollar and other currencies will most probably take place in the next 3-5 years.  A fall of 2-3% doesn’t sound much but that will involve a total destruction of  most major currencies until they reach their intrinsic value of ZERO.

The race to the bottom of the currencies has gone on for a few decades now.  One currency which has been well controlled and relatively stable has been the Renminbi.  The problems in the Chinese banking and shadow banking system is now putting pressure on the Chinese currency which has recently started to weaken.

The financial system almost collapsed in 2008.  Since then Central Banks worldwide have opened the money spigots, leading to the world drowning in worthless paper money.

The graph below shows that the major Central Banks in the US, EU, Japan, UK and China have printed $10 trillion since 2006 and $8 trillion since the crisis started in 2008.  Not only have they printed money, but these Central Banks have also filled their balance sheets with investments  that will not and cannot ever be sold at current prices.


Although the Fed has started  nominal tapering of $20 billion per month, a continuation of that program would lead to a total collapse of the financial system in both industrial as well as  developing countries.  Emerging Markets’ external borrowings have gone from  $1 trillion in 2002 to $5 trillion in 2014.  These countries are totally dependent on continued borrowing in the international market. Any tapering will have an extremely serious effect on their economies.

If then look at the effect that the money creation has had on real GDP growth, we find that the law of diminishing returns is working the way we would expect.


Whilst Central Banks balance sheets have gone up 2.5 times since 2008, there has been virtually no change in GDP.  This is of course totally normal since printing worthless pieces of paper cannot create real wealth.  But for some sectors of the economy the money printing has been manna from heaven, namely the bankers and the wealthy.  These groups have benefitted immensely whilst the masses have been landed with bigger debts.  So QE is just like pushing on a string for the economy as a whole.  The problem is that the world will be damned if it stops and damned if it continues.  And sadly the world is damned for probably many decades to come since a century’s destruction of the financial system will not be resolved over a few years.

As I have stated numerous times, governments and central banks around the world have no solution to the current problems in the world for the simple reason that there is no solution.  Therefore they will continue with the only thing they know which is to print money.  Tapering will be replaced with another QE program which will have a different incomprehensible name with the FED, ECB, BoE, IMF, BoJ etc all participating.  The dollar will be the first currency to fall strongly and eventually all the others will follow.

It is critical for investors not to measure their wealth in dollars or any other currency since every single currency will totally lose its purchasing power.

The graph below shows how Global Liquidity has gone from $3 trillion in 2003 to $15 trillion today.  During the same period gold has gone from just over $300 to $1,330.


Since 2011 gold has not reflected the continued growth in money creation.  That is just a temporary correction in gold’s long path to $10,000 or much higher depending on how many hundreds of trillions will be printed.  The correction since 2011 has now finished and gold will most probably be over $2,000 before 2014 is over.

But investors must remember that gold is held for wealth preservation purposes and must therefore be held in physical form.

Jim Sinclair recently set out on jsmineset the correct criteria for owning gold:

“When selecting a bullion storage provider:

  1. 1. Avoid pooled, paper and digital gold and silver opting only for fully allocated storage of physical metal.

  1. 2. You should ensure that the integrity of your bullion is secure by making sure it is sourced from recognized refiners.

  1. 3. Make sure that in any event you can take delivery of your bullion personally or have it shipped to you.

  1. 4. Select a provider that has an appropriate internal and external auditing system in place and allows for owner directed audits on demand.

  1. 5. Establish that your provider has adequate insurance cover.

  1. 6. Make sure you can readily view your bullion holdings online, whereby you can note the description, quantity, gross weight, fineness and value.

  1. 7.Ensure that you can arrange to visit your provider and view your holdings if you wish.

8.  It is important that the legal ownership of your bullion holdings remains with you and no other party.

If possible use a provider that can facilitate the sale of your bullion efficiently and expeditiously.” – JSMineset 02-24-14

I totally agree that the above rules must absolutely be adhered to.  During the next few years of wealth destruction, physical gold held as stated above will be the ultimate method for preserving wealth.

© 2014 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.

UPDATE - To read about U.S. Secrets, Criminal Banking Syndicates & Empty Gold Vaults CLICK HERE.

IMPORTANT - KWN will be releasing interviews and pieces all day today with former US Treasury official Dr. Paul Craig Roberts, Egon von Greyerz, Art Cashin and many others. 

The audio interviews with Dr. Paul Craig Roberts, Grant Williams, Andrew Maguire, Andrew Huszar, Michael Pento, Art Cashin, Rick Rule, David Stockman, John Mauldin, Eric Sprott, MEP Nigel Farage and Dr. Marc Faber are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.

Eric King

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© 2014 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.

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