Transition from Dollar to Gold


Randy Strauss, who has been the sitemaster and an active forum participant at since the very beginning, is probably the finest Freegold observer there is (other than a couple of great guys that stopped posting back in 2001). He doesn’t write much anymore, but what little he does write is worth following every day. It can be found here following the notation RS View.

He has been on the trail for about 10 years longer than I have. And when the systemic phase transition didn’t happen as expected (and thank goodness it didn’t, otherwise I wouldn’t be here nor would I have any gold), he started looking for signs in the international monetary realm as to any kind of a sweeping plan. And he found the signs he was looking for! Much has been evolving in the IMFS over the last decade. The signs are everywhere! (I think Costata has been working up a list.)

Anyway, starting around 2005, many international policy stirrings gave Randy every indication that 2010 was to be the targeted year for assertively rolling forth the Freegold paradigm. But the ongoing financial crisis that began with the subprime fiasco has caused instability of such magnitude that the central bankers have been forced to delay briefly and “play it safe” – one does not dare rock the boat (if there remains any choice in the matter) when the financial waters have become so turbulent and choppy.

As for a new timeframe, Randy is seeing good indications of a mid-2013 benchmark. Of course he is also cognizant, as are the central bankers, that any number of potential and unplanned events could force the transition at literally any moment. Luckily, for the most part, things are already in place. Which begs the question, is your gold already in place? And with this background, here is Randy’s week ending post from last Friday.

Randy Strauss view:

For the wealth-preservation minded individual, the important question centers upon this comment made in the article: “How long this process goes on depends on the availability of alternatives to the dollar.”

Frankly, the answer is surprisingly simple, and the preparatory timeline is surprisingly short.

As evidenced in the commentary about the new trade arrangements between Russia and China, it should be obvious and intuitive that bilateral trade between any two given countries could be similarly invoiced in their respective currencies. The timeline is effectively zero given that these currencies already exist and are in local use. At issue, mostly, is the simple matter of breaking with mere tradition — the habit of invoicing/contracting in this third party currency, the dollar. Given the suitable functionality of most national currencies for the invoicing/payment of their bilateral trade, there is no need for the world to spend time and effort conjuring up a new supra-national currency unit to replace the dollar as a universal invoicing agent.

With invoicing/payment alternatives ready and waiting, the only other aspect of usage in the dollar’s international role is that as a reserve currency — that is, as a store of value.

Store of value is a significant element because at the end of any given trade cycle (monthly or annually for example) a nation actively trading with its international peers as described above will inevitably end up with a net position in various foreign currencies. It becomes a matter of national importance to consolidate those paper positions into a more reliable form that is not dependent upon the fiscal policies and monetary management skills of your international trading partners. It is the form of asset chosen for this consolidation of the net position that embodies the “store of value” function from one trade cycle to the next and beyond.

But as this article points out [see the article link to read more than the few excerpts above], “Since 1973, the dollar has been unanchored and has been anything but a stable store of value.” Gold, on the other hand, serves this role uniquely well because it resists the degrees of artificial inflation and depreciation commonly afflicting national currencies driven by naturally self-centric national management.

The central banks of the world, throughout their long history, have more or less developed the requisite infrastructure and ample experience in the fine art and science of gold storage and allocation transfer. Therefore, not only is an alternative to the dollar available for the store of value role, it is readily available with no significant timeline to accommodate the practice. To be sure, many central banks have already in place the mark-to-market accounting structure to accommodate (and benefit from) the significant upward revaluation of gold reserves as would be expected to occur through the dollar-to-gold transition.

Various policy signs over the past several years had indeed pointed toward 2010 to be the watershed point in the international monetary transition, but the depth of the current commercial banking crisis likely argued strongly for a delay under the thought that calmer waters would facilitate a better transition. As such, the existing infrastructure and policy is largely in place at the present time, so a timeline for this store of value transition can be every bit as short as that for invoicing — essentially, no time needed for flipping the switch.

But in light of the current crisis and some of the policy efforts underway to restore calm to the commercial markets, it looks to me that the new timeline for significant transitions is mid-2013 consistent with the current policy talks driving the permanent European Stability Mechanism to that timeframe, but with that said, it could be set into motion at any given moment between now and then, and between your breakfast one day and breakfast the next. Hence, it is best that you work to actively establish your desired gold position without undue delay, and then with peace of mind you can turn your full attention to the business of living your life as it was meant to be. Spending significantly further time obsessing over currencies and investments is a fool’s errand.