If history repeats itself, we will soon be recipients of the biggest windfall of the new millennia. Not since the Bank of England sold 400 tons of its gold in 1999 at the very bottom of the market have gold investors been presented with such good fortune. Ladies and gentlemen, get your pens and checkbooks ready.

Representatives of the world’s industrialized nations, the G7, have recommended that the IMF sell 401 tons of its gold to help meet operating expenses. If the sale of IMF gold proceeds, gold investors should be prepared to buy as much as they can—and then some for this will one of the last opportunities to buy gold at current prices.

THE US DOLLAR AND GOLD

After WWII when the US agreed to redeem US dollars with gold, all currencies were tied to the US dollar and therefore to gold. This system, called Bretton-Woods, continued until 1971 when the US unexpectedly announced it would no longer exchange gold for its dollars held by other nations.

(Article continues below)

When this happened, the US dollar and consequently all currencies became fiat currencies, currencies no longer anchored to anything of value, historically gold or silver. In 1971 with the announcement of the US default on its gold obligations, all currencies became fiat currencies, i.e. government issued coupons.

After WWII, the US possessed 21,775 tons of gold, 75 % of the world’s monetary gold. No nation had ever owned that much gold. But by 1971, the US had only 7200 tons left and owed other nations over 38,000 tons.

When the US officially cut all ties between the US dollar and gold in 1973, the era of floating exchange rates began. This marked the beginning of FX (foreign exchange) markets where from negligible sums in 1973, $3-4 trillion per day is now bet on the probable value of tomorrow’s currencies. For the first time in history, speculators, not gold or silver, determine the value of money.

Every system based on irredeemable paper money has failed. This has been true throughout history. The fact that we now have the internet, cell phones, FX markets and indoor toilets in addition to nonconvertible paper money does not change this fact.

The question is then, when will the present system of irredeemable paper money collapse? A question perhaps whose answer was set in motion when credit markets contracted in August 2007.

The contraction of credit markets in August 2007 caught the wizards of Wall Street off-guard. That spring, after a dizzying run of profits, the global financial sector appeared unstoppable. Billion dollar bonuses were no longer unheard of and betting on the future appeared to be the safest bet of all.

But the wizards of Wall Street were wrong. Suddenly the momentum and luck of Wall Street soured in July 2007 when Wall Street investment bank Bear Stearns unexpectedly announced the collapse of two of its billion dollar hedge funds, the Bear Stearns High-Grade Structured Credit Fund and the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund.

Full article here.