Most people don't realise that the value of their "paper" wealth (i.e. dollars, pounds, shares, bonds, derivatives, ETFs, etc) is based only on hope and promises. The investments themselves have no material value - they are just paper with ink on them. You hope someone else will deliver some greater future value to you when you want it, probably in cash.
There is a heirarchy of investments, a ladder from the more solid to the more speculative: as you go up the ladder, the financial strength of each rung is based on the perceived strength of the rung below.
Exter's Pyramid (click image to enlarge)
When the most complex and most widespread class of investment fails (i.e. derivatives - the blue slice at the top of the picture), all these investors scramble down the ladder to lodge their wealth on lower rungs (e.g the red or the orange slices), which massively increases the price of the investments at those levels. Of course, if these lower levels are swamped by all this desperate capital, they may well collapse in their turn and so the capital cascades down to flood the levels even further below.
The Tower of Jenga - What goes up must come down (click image to enlarge)
Can you see that the whole inverted pyramid of value in the so-called sophisticated world of investment is a tottering Tower of Jenga, supported ultimately by the presence of gold? Gold has always been the foundation for money, and people have always attempted to expand it, inventing fancy variations and alternatives to it and abusing and inflating it into oblivion along the way. Oh yes - this is not the first time a currency has been destroyed by debasement.
If a massive torrent of displaced wealth is released from the higher levels, where do you think it is going to eventually settle, and what effect do you think this will have on the value of gold? Physical gold carries its own material value: you don't have to trust someone else to make good on your gold, the gold IS the value, so gold is where the buck stops.
I listen to the fag-end "currency reports" on news broadcasts: "The Dollar is up against the Euro, the Euro is down against…
