Bill Buckler - The Case For Gold

We will miss the education delivered by Bill Buckler in “The Privateer” and what a legend he is.  We wish him all the best and thank him for sharing his wisdom and knowledge.

By Bill Buckler
The Privateer, Edition 727
April 2013

... Here is a third quote from our website. It is the conclusion of our page stating "The Case For Gold." It was first uploaded to the Internet in 1995. Its message will remain true unless and until gold returns to the global financial system as a circulating form of medium of exchange or money.

"Money is not wealth; it is a medium by which wealth can be exchanged between consenting adults. If an adult does not consent, then money cannot produce an exchange. Nothing can produce an exchange if the potential parties to it do not consent. But an expropriation can be produced, by a government with sufficient power. To obtain that power, money must be controlled by government. Today it is.

"And because the money you use is totally controlled by your government, dear reader, so are you. That is the case for gold as money."

And here is someone else making the case for gold -- long before your Captain was born:

"It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights."

-- Ludwig von Mises, "The Theory Of Money And Credit," 1912.

We certainly do not scorn the (indirect) gain in the purchasing power of gold that has taken place over the past 12 years. Nor do we scorn the loss of that same purchasing power that has taken place since August and September 2011. But gold's "price" in terms of what masquerades as "money" today is and must be a secondary consequence.

The fundamental importance of gold -- as money -- is eloquently summed up by von Mises in the quote above. A free nation cannot be achieved or preserved without a sound money. Gold -- above all other possible media of exchange, including silver -- has historically proven itself to be that sound money. Any analysis of any aspect of our current global financial system that ignores this fact is fundamentally flawed.

That is particularly true when dealing with markets.

Money is the bedrock of all financial markets. As such, it is also the bedrock of all economies.

It is impossible to overstate the importance of sound money.

Gold is the soundest money ever discovered.

The 'Controversy' Over Government Manipulation Of Gold

To state that the more despotic a government becomes or aspires to become, the greater grows its antipathy to gold as money, is a trivial observation.

To argue over whether government is constantly on the lookout for more ways to interfere with gold's ever regaining its role as money is a trivial pursuit.

To maintain that governments don't try to influence the "price" of gold in terms of the fiat currencies on which their continued domination depends is just plain silly.

In 2000, The Privateer analysed the huge upward bounce made by the Nasdaq in the immediate aftermath of its initial crash of March of that year. We used that particular event to make a wider point:

"Manipulation? Could Be: Why would such an action surprise anyone? Why is this particular instance of government intervention taken by so many as 'proof' of the absence of 'free markets' in the United States?

"The world knows that the Fed has the sole discretion to raise or lower U.S. interest rates by any amount at any time of its choosing. Governments have been intervening in currency markets for more than half a century. Government intervention in the economy, and in the markets, is an accepted tenet of both economic theory and practice and has been for most of the past century."

Only two things have changed today.

First, the Fed no longer "raises" U.S. interest rates.

Second, the level of intervention in the economy and the markets has hugely increased.

How could anyone argue that gold is "exempt" from all this? After all, there can be no doubt that gold is government enemy No. 1.

The Function Of Gold

Anything bought or sold on a financial "market" is supposed to be an investment. Financial investments are supposed to have two attributes. First, regardless of their price at any given time, they provide a "yield" in the form of a dividend and/or an interest payment. Second, being traded on a market and therefore being subject to price fluctuations, they provide the opportunity for capital gains -- or losses.

All dividends, interest payments and capital gains are denominated in the currency of the nation in which a given market is located.

The aim is to enjoy both an income stream and the possibility that the market value of the investment will go up. Both of these are ultimately paid in terms of "money" -- in all cases a fiat currency.

In the "advanced" nations -- those most steeped in modern economic and monetary "theory" -- the precious metals and gold in particular are not seen as investments.

We have long since become very tired of the mantra of Western investment analysts: "Gold is not an investment because it pays neither dividends nor interest."

This is perfectly true. No form of money pays dividends or interest -- money is dividends and interest -- and every other form of payment that exists in all markets. Money is used to buy -- and sell -- investments. It does not constitute the investment itself.

A gram, troy ounce, or tonne of gold is merely a mass of inert metal. When used as money, it is not a promise to pay; it is a medium of exchange and therefore a form of final payment. It cannot be created by law (fiat), so its quantity cannot be increased by law (fiat). It is not a promissory note (like a Federal Reserve Note); it is a means of transferring property between participants on a market.

Gold is final payment. Its utility as a medium of exchange does not depend on the future confiscation of wealth. It is the medium by which the ownership of wealth is voluntarily transferred between the owners of that wealth.

Gold is not an investment and should not be looked upon as an investment. It is the best means discovered to underpin a market economy -- and, by doing that, a free and therefore civilized society.

The 'Market' For Gold

The reason there is a "market" for gold today is because gold has been legally barred from its historic role as money. Since gold in the form of money is no longer the common denominator in all prices, it has a price in terms of the currencies that have usurped this role.

There are two markets for gold. In one, money is used to price paper claims to gold. In the other, money is used to price physical gold itself.

The headline "price" of gold is determined in the paper markets -- most notably in the futures markets of the United States and other “developed” nations. Physical Gold plays next to no role in these markets. Almost all "contracts" are bought, sold, and settled in terms of paper. The holder of a futures contract can "request" settlement in the physical metal on the expiry of that contract, but he or she cannot demand it. All contracts can be and almost always are settled in paper terms.

All Privateer subscribers will be well aware of the price gyrations that have recently hit the futures markets for the precious metals. For an excellent overview of the current situation, we recommend "Waiting For The Dam To Break," which was recently uploaded to

The most notable feature of the recent dive in the "price" of gold on the global futures markets is that the lower the "paper price" went, the higher the demand grew for the physical metal.

Even more notable is the fact that this physical demand was not confined to those parts of the world where gold is seen as insurance against central bank monetary creation. The demand was global. The cleaning out of physical inventories took place everywhere. And the "premium" on physical metal -- the markup of the "spot" (physical) price over the futures (paper) price -- blew out all over the world to an unprecedented degree.

This is the most dangerous event to have hit the overseers of the financial system since the credit freeze of 2008. And there is no "cure" for this one because physical gold cannot be created out of thin air.

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