The further back in time we go, the more perspective we have about the present. This gold chart begins in 1720. But, you would say, this is a new world, and the past is merely the past!

The best answer comes from (Ecclesiastes 1:1-13, NIV). "What has been will be again, what has been done will be done again; there is nothing new under the sun."

LET’S GO TO THE CHART!

The first thing we notice is that gold was relatively unchanged from1720 through the early 1930’s. The War of 1812 is associated with the first rise in the price of gold.

The First Bank of The United States (The First Central Bank) lost it’s charter in 1811. Due to increasing English pressure on trade and interference with shipping, the US declares War on England in !812. A currency crisis emerged as the cost of financing the war became apparent. Inflation was at 13.3 percent by 1814. It was 1816 before inflation receded. The Bank of the United States was charted in 1816 ( This was the Second Central Bank). Gold returned to its normal price after this crisis.

Things went along smoothly until 1836.

In 1836, The Bank of the United States contracted the money supply, resulting in an economic panic, and a major depression. This was in retaliation for Andrew Jackson’s refusal to renew their federal charter! Andrew Jackson was not against state banking, but knew that federal central banking was a threat to freedom of Americans. The depression continued through 1842-43. But again, gold returned to its normal price levels by the 1850’s.

The gold price was normal until the Civil War.April 12, 1861 - At 4:30 AM Confederates under General Pierre Beauregard open fire with 50 cannons upon Fort Sumter in Charleston, South Carolina. The Civil War begins.There was a massive increase in the price of gold during the Civil War as shown in the gold chart. Of course, it’s a just a coincidence that the English blockaded the South during the Civil War, depriving the South of trade, and much needed vital supplies such as medicine. The South did fight the war over the issue of "States Rights" which includes the right of the states to have their own banks. After the war, the price of gold returned to its normal levels.

The Origins Of Black Friday

September 24, 1869 In US history, day of financial panic. In 1869 a small group of American financial speculators, including Jay Gould and James Fisk, sought the support of federal officials of the Grant administration in a drive to corner the gold market. The attempt failed when government gold was released for sale. The drive culminated on a Friday, when thousands were ruined : the day is popularly called Black Friday. There was great indignation against the perpetrators. Several other days of financial panic have also been occasionally referred to as Black Friday.This little episode shows us the futility of trying to manipulate major markets (especially commodity based markets). These attempts fail even when the conspirators have massive resources, and friends in very high places.

March 6, 1933-the Proclamation 2040 by President Roosevelt issued on March 6, 1933, sometimes called the Emergency and War Powers order. This act, codified as 12 USC 95(b), effectively declared the Constitution suspended and conferred dictatorial powers on the President, a situation which continues to this day.The Gold Confiscation Of April 5, 1933 Presidential Executive Order 6102Section 3. Until otherwise ordered any person becoming the owner of any gold coin, gold bullion, and gold certificates after April 28, 1933, shall within three days after receipt thereof, deliver the same in the manner prescribed in Section 2; unless such gold coin, gold bullion, and gold certificates are held for any of the purposes specified in paragraphs (a),(b) or (c) of Section 2; or unless such gold coin, gold bullion is held for purposes specified in paragraph (d) of Section 2 and the person holding it is, with respect to such gold coin or bullion, a licensee or applicant for license pending action thereon.This maneuver kept the price of gold stable until 1940, as the public could not buy gold, other than "rare or collectible" gold coins or jewelry. However, by 1940, the burden of financing Roosevelt’s socialist schemes caused gold to fall to $34/oz as deflation resumed. Panicked, Roosevelt immediately implemented a scheme to finance the coming war in Europe. On December 8, 1940, the Lend Lease Program was proposed by Roosevelt.

Gold began rising until 1947, topping out at $43/oz as the Lend Lease Welfare Program was no longer keeping the Western economies growing. Enter the Marshall Plan (1947) A desperate man will always pick a desperate plan!

"By 1950, gold had dropped to $37/oz. Deflation was beginning to get serious. They needed a plan. Providentially, on June 25, 1950, at approximately 4 a.m. (Korean Standard Time) on a rainy Sunday morning Democratic People's Republic of Korea Army (DPRK - North Korea) artillery and mortars open fire on Republic of Korea (ROK - South Korea) Army positions south of the 38^th Parallel, the line then serving as the border between the two countries. The opening barrage is followed shortly by tank/infantry attacks at all points along the Parallel. At 11 a.m. North Korea announced a formal declaration of war and what is now known as "The Korean War" officially began. "I know you will be shocked and amazed that gold immediately rallied. 1951 saw the final high price of gold at $44/oz. The world had become so battle weary, and broke, that even a shooting war could not keep prices up.Gold headed down to $35/oz and stayed at these levels until 1968. Divine inspiration prompted the North Vietnamese Army to stage a massive attack against US and South Vietnamese troops on Tet, January 21, 1968. Gold jumped to a high of $44/oz on mid-June of 1968, and then began falling!. Wall Street started screaming to get out of Vietnam when they saw the price of gold breaking. Gold continued down, reaching bottom at $35/oz in January, 1970. From here it began a slow, but relentless rally. On August 15, 1971, Richard Nixon declared the US broke, and closed the Gold Window. It was a desperate move. The world was placing massive shorts on the US dollar, and we were almost out of gold!

In January, 1972, gold crossed the $44-45/oz major top for gold, and the US entered the cycle of diminishing financial power. The US dollar was no longer the lead dog. We were now just another mutt (although a big mutt) in the dog pound.

"On May 16, 1972, the International Monetary Market opened for business, listing eight foreign currency futures contracts—British Pounds, Canadian Dollars, Deutsche Marks, Dutch Guilders, French Francs, Japanese Yen, Mexican Pesos and Swiss Francs."

This news was anticlimactic, and came at the final high of the move ($193/oz). Gold then fell to $104/oz by August, 1976.

On April 30, 1976, The International Monetary Fund officially removed gold from the world monetary system:

The Second Amendment to the IMF Articles: After the final collapse of the Bretton Woods System, the IMF articles were re-written to take into account the new international monetary circumstances. The following excerpt contains Article IV of the revised agreement where gold is written out of the system. In Section 2(b)(i), member countries were allowed to tie their currency to any external anchor with the sole exception of gold. This article remains in force to this day.

Gold began a relentless drive from its August 1976 bottom of $104/oz, culminating at $850/oz on January 21, 1980. Gold then proceeded to commence a bear market from its January 1980 top.

On March 31, 1982, The United States Gold Commission announced its findings:

"In the wake of the economic crisis of the 1970s, The United State Congress established a commission to evaluate and make recommendations regarding the use of the United States gold reserves. The commission was divided between a monetary group, which printed the majority report rejecting a return to the gold standard, and a minority which believed a return to the gold standard was an essential component of financial stability."

A rally from $282/oz. stated in August,1984, culminating at approx. $490/oz on December of 1987. But alas, the great bear woke from his nap, and had a snack, driving gold prices into new lows.

The bear market bottomed at $250/oz. in December of 1998. Gold had a total decline of $600/oz, or 70.6%. The top gold chart is based on monthly closing prices. However, the actual All Time High of Gold occurred on January 21, 1980 at $850/oz.

A BIG HISTORICAL MISTAKE IN GOLD PRICING

Traders found it profitable to send gold to be minted, while selling silver for shipment to India and China where it was valued more highly. The premium for gold coinage was confirmed in 1717, when Sir Isaac Newton, as Master of the Mint, set the historic gold price of £4.4.11½d (£4.35) which lasted for two hundred years. His action confirmed the preference for gold coins and accidentally put Britain on a gold standard, with gold forming the major coin circulation until 1914, when World War I broke out.

WAS THE MISPRICING OF GOLD REALLY A MISTAKE?

Master of the Mint

In 1699 the post of Master of the Mint fell vacant and though technically less senior than that of Warden it was more lucrative since the Master acted as a contractor to the Crown, profiting from the rates at which he put the work out to sub-contractors. The post was offered to Newton and he took up his duties with effect from Christmas Day 1699, his fifty-seventh birthday. Surviving the political upheavals of the early eighteenth century, he remained as Master until his death in March 1727 and for the last thirty years of his life he therefore occupied high position in the Mint.

"The beginning can be traced to 1711 when the South Sea Company was given a monopoly of all trade to the south seas. The real prize here was the anticipated trade that would open up with the rich Spanish colonies in South America upon the conclusion of the War of the Spanish Succession--a war that began in 1703 and would end in 1713 with a treaty that did favour England but not nearly to the extent that was hoped. In return for this monopoly, the South Sea Company would assume a portion of the national debt that England had incurred during the war. The scheme was originally promoted by Robert Harley who wanted to set up a financial establishment that could compete with the Whig Bank of England, which had been created in 1694. Hence, the South Sea Company was really a financial institution that used its monopoly primarily as a means of attracting investors. Some slave-trade voyages were made but these produced little profits. When Britain and Spain officially went to war again in 1718, the immediate prospects for any benefits from trade to South America were nil. What mattered to speculators, however, were future prospects, and here it could always be argued that incredible prosperity lay ahead and would be realized when open hostilities came to an end. "

"Such scams were bad for the speculation business and so largely through the pressure of the South Sea directors, the so-called "Bubble Act" was passed on June 11, 1720 requiring all joint-stock companies to have a royal charter. For a moment the confidence of the people was given an extra boost, and they responded accordingly. South Sea stock had been at 175 pounds at the end of February, 380 at the end of March, and around 520 by May 29. It peaks at the end of June at over 1000 pounds (obviously a psychological barrier in that four-digit number). "

"With credulity now stretched to the limit and rumors of more and more people (including the directors themselves) selling off, the bubble then bursts. To be accurate, it suffers a puncture and begins a slow, very slow at first, but steady deflation. By mid August the bankruptcy listings in the London Gazette reach an all-time high, an indication of how people bought on credit or margin. Thousands of fortunes are lost, both large and small. The directors attempt to pump-up more speculation. They fail. The full collapse comes by the end of September when the stock stands at 135 pounds. "

"The last part of the story may be told quickly. Investors scream foul against the South Sea directors. Parliament is recalled and George I hastens back to London. Mobs crowd into Westminster. A committee is form to investigate the South Sea Company; by early 1721 it uncovers widespread corruption and fraud among the directors, company officials and their friends at Westminister. Unfortunately, some of the key players have already fled the country with the incriminating records in their possession. Those who remain are examined and some estates are confiscated. Robert Walpole then rises to power with some reasonable proposals to restore public confidence. They take effect but the "Bubble" affected the fortunes of several families and remained in the consciouness of the Western world for the rest of the eighteenth century, not unlike our cultural memory of the 1929 Wall Street Crash. "

"The amount the market declined from peak to bottom: In 1711, stocks in the South Sea Company were traded for 1000 British pounds (unadjusted for inflation) and then were reduced to nothing. A massive amount of money was lost. ""For those who had realized big losses or gains, the mania redistributed wealth. The largest honest fortune was made by Thomas Guy, a stationer turned philanthropist, who owned £54,000 of South Sea stock in April 1720 and sold it over the following six weeks for £234,000. Sir Isaac Newton, scientist, master of the mint, and a certifiably rational man, fared less well. He sold his £7,000 of stock in April for a profit of 100 percent. But something induced him to reenter the market at the top, and he lost £20,000. "I can calculate the motions of the heavenly bodies," he said, "but not the madness of people."

This little fiasco in England raises certain questions! There can be no doubt that England was on the gold standard, since Isaac Newton personally fixed the price of gold in 1717. Isaac Newton was both the Master of the Mint, and the country’s top mathematician. Nevertheless, he did incur a massive financial loss because he invested in the Bubble! Finally, the politicians and the social powers of England were involved in this scam!

Objectivity requires us to note that the gold standard did not stop the bubble. Newton’s scientific reputation did not prevent him from participating in the scam. Finally, we must note that the government and the social powers of the day not only sanctioned the scam, but participated in it.

Long Term Capital Management, the current housing bubble, and the massive US debt are, to quote Yogi Berra, "This is like deja vu all over again." Gold standard or not, the cycles repeat!

The End of Bretton Woods: Free Market Capitalism is Born

On August 15, 1971, it became official: the Bretton-Woods system, a system used to fix the value of a currency to the value of gold, was abandoned once and for all. While it had been exorcised before -- only to subsequently emerge in a new form - this final eradication of the Bretton Woods system was truly its last stand: no longer would currencies be fixed in value to gold, allowed only to fluctuate in a 1% range, but rather instead their fair valuation could be determined by free market behavior such as trade flows and foreign direct investment.

SMITHSONIAN AGREEMENTInternational monetary negotiations were undertaken within the framework of the Group of Ten. Details were worked out by the Group of Ten in a meeting at the Smithsonian Institution in Washington DC. The agreement was then formalized by the IMF.

It was a temporary regime. The agreement allowed member countries to vary their exchange rates within margins of 2 ¼% on either side of the central rates after currency realignmentCurrency realignment: Yen appreciated 17%, Mark 13.5 %, pound 9%, FF 9%. In return for the revaluation of other currencies, the U.S. agreed to raise the price of gold from $35 to $38 an ounce. This was equivalent to a dollar devaluation of 8.57 %.This devaluation of dollar has no significance because the dollar remains inconvertible. 10% import surcharge was suppressed.

The collapse of the Bretton Woods system did not generate a chaos as did the the collapse of the international gold standard in the 1930s.

The Smithsonian Agreement was a useless attempt to perpetuate the adjustable peg system with new currency alignment.

With the second devaluation of the dollar in February 1973 by 11% (the price of gold rose from $35.00 to $42.22 per ounce), the Smithsonian agreement fell apart and other currencies were left to float against the dollar. Bank of Japan absorbed a few billion dollars in one week, but eventually quit.

The Central Bank's Gold Agreement. In the fall of 1999, the major gold-holding central banks agreed to limit their gold sales over the period of 1999-2004. In addition, the signatories listed below (who control approximately 50% of official sector gold), the governments of the United States (25% of official sector gold) and Japan (3%) indicated that they would follow the guidelines of the agreement. Prior to the Agreement, Switzerland had announced it would sell 1300 tonnes, while the United Kingdom planned to sell 365 tonnes. Austria, the Netherlands, and Belgium had sales plans of undeclared amounts.We are actually witnessing the world’s major banks attempting to slow down the rate of their gold liquidation. Perhaps gold is not as valuable as we have been led to believe!

SUMMARY

Sir Isaac Newton’s "mistake", and the unintended consequences of setting the gold price by a "dead" contractor’s bid for over 200 years is now over. Mercantilism is now in full rout.

Currencies now are priced by the free market process. This mechanism automatically penalizes the more "irrational" polices of governments, and rewards "saner" polices of other governments. One should remember that life is a "reverse beauty contest". One learns to pick the "least ugly".Perhaps the biggest hidden truth of gold is the myth of a stable, "crisis free" economy for those on the "Gold Standard"! As we have documented above, Isaac Newton personally fixed the price of gold for the Bank Of England in 1717. Remember, the South Sea Bubble disaster blew up in 1720, while England was on the gold standard!. And Isaac Newton was personally involved, incurring massive financial losses as a result.

No longer are the citizens totally dependent upon the information (spin) of their government. They can see the world’s opinion of the economic viability of their country’s policies by glancing at the computer screen, or by reading the financial press. You can even "day trade" currencies and gold. The citizens now have "objective" information to challenge their leaders with. There are no "secrets" any more. When the citizen notices that the entire world is shorting their currency, they want to know why!

But what of gold, you ask? Gold has been demonitized. Gold still exists, and will always have its place in the economy. It has elevated to its natural status, and now has more advantages than it did in the past. Now you can trade it, and prosper. In prior eras, only kings and princes could trade gold. Nations rose and fell as the gold in their princes treasuries fluctuated. Yes, even the "great princes" of history were subject to the basic laws of economics, and watched helplessly as the laws of supply and demand work their magic in the never ending wealth creation/destruction process described by Schumpter .Never before in history have individuals had as many mechanisms available to help them prosper, and, or, protect himself from the arbitrary dictates of the government! You have opportunities that were beyond the comprehension of your ancestors. You may freely buy and sell both gold and many currencies in the futures exchanges of the world. You may even sell short to profit from the crises that are inherent in management by "consensus".

Your peasant status has been removed. It’s time to stop acting out the "peasant" script. Learn about markets, master supply and demand as measured through form (chart) reading, and enjoy your freedom. Now, it’s all up to you!

Well, dear readers, the deed has been done, and the tale has been told. We can’t change history, or human nature, but we can now prosper by correctly anticipating the consequences of the follies of human nature!

Wayne N. Krautkramer Onlypill@cox.net https://onlypill.tripod.com/