A Golden Twist

CDS Swaps for Gold

Excerpts From the Huffington Post:

Washington Must Ban U.S. Credit Derivatives as Traders Demand Gold

Congress should act immediately to abolish credit default swaps on the United States, because these derivatives will foment distortions in global currencies and gold. Failure to act now will only mean the U.S. will be forced to act after these "financial weapons of mass destruction" levy heavy casualties. These obligations now settle in euros, but the end game is to settle them in gold. This is so ripe for speculative manipulation that you might as well cover the U.S. map with a bull's-eye.

Speculators Want U.S. CDS Payoffs in Gold

Remember AIG? When prices moved against AIG on its credit default swap contracts, AIG owed cash (collateral) to its trading partners. AIG paid billions of dollars and owed billions more when U.S. taxpayers bailed it out in September 2008.
U.S. credit default swaps currently trade in euros. After all, if the U.S. defaults, who will want payment in devalued U.S. dollars? The euro recently weakened relative to the dollar, and market participants are calling for contracts that require payment in gold. If they get their way, speculators on the winning side of a price move will demand collateral paid in gold.
The market can create an unlimited number of these contracts very rapidly. The U.S. wouldn't have to ever default to trigger a major disruption in the gold market. Spreads (or prices) on the credit default swaps could simply move based on "news," and demand for gold would soar.


This is the most interesting twist in the financial markets I have seen in a long time. If it is true, gold, the old barbarous relic could rocket upward at an unprecedented rate.
Have the markets caught on that fiat currencies are only colored paper?
Will we see a crisis develop that will force us to return to a gold standard?
It would truly be an economic advent.

Only time will tell.
I suspect the global elite will have something to say if we start to move in this direction. They still want to force some kind of global currency upon us all as we examined in an earlier post.