Thursday, March 26, 2009

Some thoughts from FOA

Below are some thoughts from FOA in 2001.

With the G20 coming up and with all the talk of a "new world reserve currency", perhaps these thoughts are worth reviewing once again. The big players in this game are still basically the same. And so are the fundamentals... Gold! So I offer these few select thoughts at face value. As always, do your own due diligence and seek out your own understanding for peace of mind.

From FOA on The Gold Trail:

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Just as Koan (a USAGOLD poster) long ago expressed bewilderment at how gold moved as fast or faster than silver and most gold stocks after the WA, the coming true break in the system will make that percentage comparison to paper look like nothing at all. Investors that do not believe this should rejoice for the experience, it will be a chance to see something few ever get to see (smile)...

We must not confuse a currency's "total demise" or "falling out of use" with a "loss of identity". In our time there have been few major moneys that went away. Today, we have a whole world of national fiats "in use" and "not demised" that still carry their nations identity. They lose value at an incredible rate, are mismanaged to the highest degree, are laughed at and despised. But, still they are "in use" as they function for their governments and economies. Usually, they function along side whatever major reserve currency is in vogue...

NO, "this country will not turn over and simply give in" as you state. But, we will give up on our currency! Come now, let's take reason in grasp. Our American society's worth is not it's currency system. Around the world and over decades other fine people states have adopted dollars as their second money, only to see their society and economy improve. Even though we see only their failing first tier money. What changes is the recognition of what we do produce for ourselves and what we require from others to maintain our current standard of living. In the US this function will be a reverse example from these others. We will come to know just how "above" our capabilities we have been living. Receiving free support by way of an over valued dollar that we spent without the pain of work...
Debt is designed for default as fiats are for debasement.

--- My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationists get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms! (bigger smile)
At $30,000 POG the US [dollar?] as we know it will be no more, agreed?

-----Agreed, but still in use. Just like all those Pesos around the world! But remember, at the very least, the first $10,000 of that figure would represent the current purchasing power of the dollar today. We will most likely get there long before price inflation jumps way up. Once the current dollar gold market fails and gives way to a free physical price, we will see that figure even as our economic function drives all other hard money metals into the toilet. I'm talking about .50 cent silver. while gold races past it's first grand. When we see it we will understand it.-----------
What advantage would it be to the Power Elite to destroy the dollar.

-------- Wrong context. What advantage does the Power Elite gain by expending assets to save an already failed currency. Better to do what major players have done for centuries and are doing now, buy gold and evolve your power base to use the next reserve.-----------

Your (Randy's) words:
--------China is simply lagging by one Century in performing this act. Many of the other nations of the world unleashed their silver reserves near the arrival of the 1900's when the usage of silver was abandoned as redundant within the banking sector. And in contrast, not surprisingly, global gold reserves have GROWN since those days. Further, the dollar can be expected to suffer a worse fate than silver when it, too, loses its particular reserve and settlement role within the international banking system. And gold? All reasonable signs show that it shall maintain the king position as THE reserve asset par excellence for a long time to come. Get you some. ------------------

Following your chain of thought about China silver,,,, I noticed a comment from Bush that we would fight them over Taiwan. Then silver gets hit real good (the day the comment was made). Could it be they are unloading silver so as to buy Euros and gold prior to calling it splits with us? They do have more silver than their needs require (possibly more than all of us require).

If they are, indeed, going to run with the Euro later and the ECB is marking gold (not silver) as their main "wealth reserve", then it makes sense for China to position themselves this way. It also makes sense because as an addition, Hong Kong has so many dollar reserves they, too, could never unload them. Following the Euro system lead, they could afford to let their dollar reserves burn as long as they had even 15% of that value in gold prior to full "Euro roll-in"...

The big difference today (from the HUNT problem then) will be in the nature of this default. His was brought on by private investors buying a commodity. Today, gold market default and failure will be forced upon the dollar gold world by a sudden lack of "price setting" credibility. And that loss of credibility will stem from the stressed conversion of dollar contracts into Euro denominated units that demand "market based performance" (physical priced valuations) or an escalated (higher) Euro based cash settlement. This all will manifest in a lack of credibility in paper dollar gold trading that can no longer be marked to the market at the same value of physical gold.

This failure of price matching,,,,, this failure of contract conversion into metal,,,,,, this failure in the world gold market to any longer be able to correctly price real bullion,,,,,, will lead to a wholesale dumping of all dollar contracts that have US based performance,,,,,,and start a fall away of all dealings based on present protocols dollar market gold exchange.

As a side note: This will not apply to the paper silver markets as silver will not have the Euro vs. Dollar political struggle. A struggle where the ECB members are trying to loosen their main asset (gold) as a reserve wealth backing to replace the massive loss of dollar reserves. Remember, further back on the trail we covered how these reserve dollars will be simply cast down. In this light, silver trading will bear the brunt of selling in an effort to balance loses from a gold exchange that no longer works. Because silver has no hope of an official free market, it's paper pricing system may run amuck until it's price plunges to ??? This is the reason so many countries that are contemplating a switch from dollar to Euro use are selling physical silver and buying gold (China, India, etc). It also explains to movement of gold between countries that planned outright Euro conversion....

Suddenly the tide has turned and the ECB is seen as ahead of the curve while still in a non inflationary management position; relative to the dollar. Going forward everything the fed does will be seen as stoking US price inflation. Perhaps this is the reason Another said that Mr. D, of the ECB, can and is about to leave. His hard job is done! Only to see Mr G, of the Fed, beating a hasty retreat! Truly, no one wants to reside over the transfer of our US horde of political gold as prices soar,,,, both of gold and all local goods!

Even further:

This not only has "everything to do with a gold bull market", it has everything to do with a changing world financial architecture. And I have to admit: if you hated our last one, you will no doubt hate this new one, too. However, everyone that is positioned in physical gold will carry this storm in fantastic shape. This is because the ECB has no intentions of backing their currency with gold and every intention of using gold as a "free trading" financial reserve. None of the other metals will play a part in this.

Clearly, the coming drastic constriction in dollar financial trade will trigger a super "print press" response from the Fed. They will not be pushing on a string; rather picking up the ball of twine and throwing it! All the while using the old 1980s "monetary control act" that opens their use of monetizing almost anything and everything. They won't be adding reserves to the banking system in the future; rather buying any and all debts from anyone that needs fresh cash. Believe it!

For the first time,,,,,,,, our industrial production, along with the demand for industrial metals like silver, will fall away even as hyper inflation in prices takes hold.

For the first time,,,,,,,, demonstrating that no other asset is equal to gold, even though promoted to be!

When the coming paper illusion price of gold is destroyed, sending its trading price way up and way down, several times, before shutdown,,,,,,,,,,,,,, the thinner paper markets of lesser metals will be absolutely devastated. Yes we will see $50.00 silver in our time,,,,,, $50.00 for a hundred ounce bar,,,,, that is! No less a relative price decline for the other metals is in store. Even if these actual dollar numbers prove incorrect,,,,,, relative inflation adjusted prices will show the exact same ratios to gold. The gain will truly be in gold!

Gold,,,,,, a wealth for changing times,,,,, a wealth as new as it is old!

thanks
TrailGuide

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FOFOA: I do not wish to pick a fight with silver. On a weight basis, I personally own more than a pound of silver for every ounce of gold. But I will confess that I stopped purchasing silver quite a while ago. The way I look at it, go with the guaranteed winner.

The above quoted thoughts are considered taboo on most hard money websites, and they are rarely discussed. This leaves many newcomers with the impression that they do not exist. So I offer them to you as only an independent blog that doesn't rely on popularity or ad revenue can. Not as gospel, but simply as another piece to the puzzle.

Perhaps in the paper market game, silver will see some wild fluctuations soon that will reward the bulls with paper profits. I hope so. And perhaps silver will play an important role in a future (temporary) barter economy. But in the end game, I tend to agree with FOA. Silver may well be "the poor man's gold". But just think about that statement.

Sincerely,
FOFOA

Disclaimer: The above is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the author alone on the current and future status of the markets and various economies. It is subject to error and change without notice. The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.

68 comments:

FOFOA said...

Jim Sinclair just sent this alert out to all those on his free mailing list:

Dear Comrades In Golden Arms,

Professor James Galbraith was interviewed early this morning on the Geithner plan for the purchase of toxic assets. This interview focused on the very subject that constitutes my most serious concerns. It was on Bloomberg TV, but I see no review of it on their website.

His analysis would confirm what I have been told concerning the condition of the paper held by many financial institutions.

His review confirms my belief that there is no alternative but to bail out every financial institution in amounts that can't now, due to the opaque nature of the miscreant paper, be evaluated. What you can be sure of is that the number is enormous. Yes, larger than anything we have seen yet.

This financial situation is totally out of control. Government financial leaders are flailing in the wind, trying every remedy ever heard of while inventing new measures, all of it in total futility.

Major Banks will be nationalized. Smaller institutions will be rolled into nationalized banks.

The Dollar does not have a future. Gold is your only refuge asset.
To allow yourself to be run out of anything gold by the COMEX manipulators is to sacrifice your financial lifeline. It is just that bad.

The price of gold will attain Alf Field's objectives. There is no question about this conclusion as this problem cannot remain hidden. The unavoidable financial consequences are already raising their ugly heads and the curtain is coming up on the degree of this total disaster.

New financial oversight regulations of hedge funds and the OTC derivative market are so late all they really will amount to are meaningless public relations. The damage is done and cannot be undone by spin.

Galbraith this morning voiced his concern that the paper held in the banking system is "permanently impaired." That means this paper is to a large degree the left over partial contracts of the creation of the securitized OTC derivative paper sold everywhere to everyone without offset and is therefore valueless.

Galbraith alluded to a fractional reserve approach towards mortgage securitization by intent of error whereby the same mortgages were securitized more than one time.

Galbraith spoke of obscuration in terms of a planned cover-up of details of the asset's condition. He also discussed the need for clean audits that will only be available on the true valuation of that which is worthless and those with partial valuation. He indicated the conditions are so dire that only nationalization will permit clean audits.

Your future depends on gold as there is no piece of paper or SDR package of various paper that can protect you.

Gold is no longer investment, it is your lifeline. It is that serious.

About that there is no question.

FOFOA said...

Secret monetization over last four months?

Treasury Secretary Timothy Geithner tells us we are in a recession that will last for some time. Ben Bernanke, Federal Reserve Chairman says the economy would bottom this year. We do not think Ben is right but even if he was right he didn’t tell us how long we would bump along the bottom. If the bottom is in sight and Citigroup, GE, Hartford Insurance Lincoln Insurance, AIG, GM and Chrysler, etc. won’t need any more government funding. In fact banks are telling us they are going to make money in the first quarter. If all this is so, why is Mr. Bernanke monetizing $300 billion of Treasuries. We notice he has made no statement regarding the secret monetization that has been going on for four months. Needless to say, that is another state secret. He might also explain why there was enormous call buying in bond futures options over the three days prior to the announcement on Wednesday. Obviously there was a major leak to the anointed on Wall Street.

While Ben Bernanke buys $300 billion in Treasuries he is contemplating another $300 billion. In fact there is an excellent chance that the $300 billion, or at least a large part of it, has already been spent. Between you and we, and the fence post, Ben will need at least $5 trillion for monetization. What is being done is to cover debt and save the financial system, not to revise the economy. At the same time, as you have gotten a taste of this week, the dollar was hit very hard. Also on the agenda is hyperinflation...


International Forecaster March 2009 (#7) - Gold, Silver, Economy + More

Anonymous said...

FOA's prognostications about silver are a little disconcerting, but the main arguments in favour of skyrocketing silver prices still seem to me to be valid. With more gold than silver in the world, it seems unlikely that silver could drop to 50c (was FOA aware of how little silver there is?).

The other thing which seems inevitable is that, psychologically, the connection between gold and silver can't really be broken, regardless of what the central banks do. Remember, gold does not have value because of the policies of central banks, but because of human psychology, and the same applies to silver. If gold is not available for purchase at any reasonable (by 20th century standards) price then silver won't be either.

It also looks like silver might be the trigger that sets off the gold rush - central banks might be suppressing the gold price by leasing gold, but they're not doing the same thing with silver, leaving the task of silver suppression to JP Morgan, who is in big trouble with hundreds of trillions of dollars of derivatives exposure. It probably wouldn't take much of an increase in the silver price to cause a silver default on the Comex, which would set off something spectacular.

Also, people are beginning to notice that the silver price tends to drop when the NYMEX starts trading. A reliable pattern like that can be taken advantage of by profit-seekers. As more people start to take some of the free money, the likelihood of default will rise.

I don't mean to diss FOA - he might not have been aware of the full dirty details of the silver manipulation game.

FOFOA said...

Hi Anonymous,

Yes, it is disconcerting to read. But that is part of the reason I posted it. I did not read this until after I had amassed a substantial hoard of silver myself. But now I have had a long time to think about it and to come to terms with it and to adjust to it. There are others out there who agree with FOA. Even some high profile names. But they never talk about this subject for some obvious reasons. You can usually tell who they are because they write about gold but never mention silver. Like I said, it is taboo. But because I am aware of this concept, I often catch subtle references to it. Gold and silver are supposed to be the best of friends in this fight for honest money. And they are. But you also have to be a realist and look at what the big money is doing to prepare. Because the big money, the smart money will lead the pack into whatever comes next.

Allow me to play the devil's advocate (not that FOA is the devil, it's just a saying!) for a few minutes. You mentioned the relative rarity of silver to gold. I can agree that this is true, since most of the silver has been used up by industry while most of the gold ever mined is still with us. Let's agree that there are about 1 billion ounces of silver and 5 billion ounces of gold in the world. Well rarity only comes into play with price when supply and demand are the driving factors. Rarity is a measure of supply.

The silver market being much smaller in dollar terms to the gold market, is more volatile. So the argument goes that an influx of dollars will drive up the price of silver much faster than the price of gold. But the way the market is set up right now is with both metals trading as a commodity, not as a money or a wealth reserve. Commodity markets are driven by supply and demand. But from a weight perspective, there is more silver available on the markets at the current prices. This speaks to a much higher monetary demand for gold than for silver, because much more gold is held tightly as a wealth reserve by the really big money, including Central Banks.

Look at metal available in the Comex warehouse. 3 million ounces of gold available, 70 million ounces of silver available. Go to your coin store. Hundred ounce bars of silver may be available. How many hundred ounce bars of gold does he have? So the fact that there is less silver in the world than gold in terms of weight really doesn't mean a whole lot when it comes to monetary demand which is far greater than industrial demand.

As long as the current system is functioning, and Comex is functioning, it is possible that we could see a great run up in the price of silver on a commodity to commodity basis with gold. This is what happened in the early 80's, and that is the main reason it is expected to happen again. But once the system falls apart, the monetary demand will completely overwhelm the industrial demand. And the big money wants gold. This includes oil producers in the Middle East, China with large stash of savings, Russia, all the Central Banks except for maybe the BOE (thanks Brown!) and the super rich private investors as well. Ask yourself why the ratio has widened over the last year as the system has been collapsing. Last year when gold was in the low 900's, silver was $17 an ounce.

I believe FOA was aware of the relative scarcity of silver. He never made the rarity argument for gold, but instead he spent a lot of time explaining the historic precedence for why gold is so much more valuable than silver. He explained how ancient archeological finds backed up this idea. Some day I will write a post about the ancient history of gold and silver as told by FOA and Another. It is fascinating. But you can read it in the USAGold links if you would like.

He showed how in ancient times there was sort of a reverse Gresham's law in effect, because the monetary system was completely metal-based. People spent their gold, and stored their silver, much like you might spend your $100 bills but keep your pennies in a jar. Speaking of $100 bills. Think of how much more rare an ounce of silver is than a $100 bill. There are roughly 8 billion US$100 bills in the world, yet only 1 billion ounces of silver. Yet each bill is currently worth 7 times as much as an ounce of silver. That is a discrepancy of 56 times in comparative rarity. And that only counts physical paper money. This is just an example of how little rarity matters.

You also mentioned the psychological connection between gold and silver. This is a powerful argument, because the US Constitution mentions both gold and silver. But this connection may be more tenuous than you think. In the 1800's the US overvalued silver as part of its silver standard which caused a run on gold, as foreigners quickly took advantage of a foolish American government. From Wikipedia: "The US Treasury was put on a strict hard money standard, doing business only in gold or silver coin as part of the Independent Treasury Act of 1848, which legally separated the accounts of the Federal Government from the banking system. However the fixed rate of gold to silver overvalued silver in relation to the demand for gold to trade or borrow from England. Following Gresham's law, silver poured into the US, which traded with other silver nations, and gold moved out."

In ancient times, as FOA points out in The Gold Trail, it is thought by many historians that gold was valued at 10 times silver. But FOA makes the case that some other historians hold that it was nothing near 10:1. In fact, there was no direct trade of gold for silver because the discrepancy in value was simply too big. People used silver in trade if they had no gold. But if they had gold, they always traded with that first because they got so much more value for it. And when traveling to foreign lands, they only carried gold. And therefore, the gold was always "on the road". And as it moved from country to country, it was melted down and cast into the new countries currency. This is why we find so few gold coins in archeological sites, but in many cases we find large hoards of silver. Think of that jar of pennies. But to the 10:1 historians, these finds of silver are claimed to be proof that people valued silver highly. But if that were the case, we should find more gold, yet we don't.

And in the 20th century, as Randy said in the post above, silver was abandoned as redundant by the banking sector, which included the Central Banks.

You also mentioned the vulnerability of JPMorgan and the Comex to the silver market. This is very real indeed. And if anything causes silver to spike to $50 an ounce or even $100 an ounce, this will be it. But it is my view that this will require a functioning Comex. Once Comex is toast, the US dollar will not be far behind. And then the real monetary demand kicks in, on a mega scale. Perhaps physical silver will benefit from this as you say. I certainly hope so, as I will do very well if it does. But like I said, I stopped increasing my hoard of silver a long time ago after I read Another and FOA and finally started to understand what they were saying.

I don't know where FOA got his .50 per ounce of silver. I hope he was exaggerating to make a point. Another never said anything so brash. At least not in the public forum. I think that while the small investor demand for silver will spike once the system crashes, that small demand will be overwhelmed by the big money that will move from silver into gold very quickly. A sort of "monetary epiphany" by the wealthy who are currently playing with silver. I think this is what FOA was thinking. It has certainly been true that governments have dishoarded most or all of their silver in favor of gold. And lately they are net buyers of gold, not silver. So I will leave the rest of the conclusions up to you.

I will stop being the devil's advocate for now and go back to being plain old FOFOA.

Please don't hate the messenger, even if you hate the message! ;)

Sincerely,
FOFOA

FOFOA said...

One more thought. I do expect silver to play an important role in the future. But the question is, what is the best vessel to ride in through the changeover?

If the system doesn't break down, but instead muddles through, it may very well be silver.

But if the system completely collapses and the whole paradigm shifts to something new, something which might include Freegold, well then it may not be the best lifeboat for the ride through the storm. Although I'm sure that a little silver could come in very handy to trade for food during the worst of it.

FOFOA said...

This is a good new public article from Chris Laird, "The Prudent Squirrel", on SDR's, the US treasury problem, and a new global reserve.

Challenge To The USD:
Special Drawing Rights?


Has to be forced cannot be planned

Planned transitions to replace the USD have about as much chance of being approved (done in an orderly agreed manner) as hell freezing over. Too many disparate interests are involved

The Mad Scientist said...

It would take only 1 billionaire who disagrees with FOA to push silver prices higher in % terms than that of Gold.
The odds of that a very high...
Also the kind of collapse FOA is referring to you would be better off with a house food non -perishable food like peanut butter rather than gold.Because any kind of less severe collapse would still have industrial demand for metals and probably because of the chaos supply would be affected too.
Here is an interesting chart of gold silver ration during weimar germany...as you can see some strange things happened at the end but throughout the bulk of it a nice 1:20 ratio was maintained.
http://www.gold-eagle.com/editorials_08/watson030409.html

Also let us not forget..there have been times in ancient history where Gold:silver ratio has been as little as 1:4 or even 1:1

FOFOA said...

FOA said:

"Going forward everything the fed does will be seen as stoking US price inflation...

Clearly, the coming drastic constriction in dollar financial trade will trigger a super "print press" response from the Fed. They will not be pushing on a string; rather picking up the ball of twine and throwing it! All the while using the old 1980s "monetary control act" that opens their use of monetizing almost anything and everything. They won't be adding reserves to the banking system in the future; rather buying any and all debts from anyone that needs fresh cash. Believe it!"


Eric deCarbonnel agrees with this. He sees inflation in the current stock market rally. Not improved economy, just monetary inflation.

Here's an interesting question. If the Fed and the PPT buy up the majority of the stock market indexes with printed money, raising the stock market as a whole, is that inflation?

FOFOA

(Hint: Mugabe)

Anonymous said...

Many thanks for your thoughtful response, FOFOA. I hate neither the message nor the messenger, and I'm grateful to you and FOA and Another for providing these thoughts.

I have to think about it a little more, but I'm leaning towards buying gold only from now on. I'll read some more of the thoughts and the trails.

Incidentally, another question which is weighing on my mind and presumably everybody else's is the question of timing. leap2020.eu have predicted that summer of 2009 would be the time when the dollar crisis occurs, and they have a good track record of predictions. People who claim to have inside information on youtube (valano72) have said that August/September will be the time when the banks shut down. whatdoesitmean.com makes bizarre claims about inside information. The G20 is just in a few days and it could trigger a market reaction. Peter Schiff and Jim Rogers seem to think that the massive inflation is a few years away. I don't know what to think, but I'm not too proud to ask if anybody has any arguments that could help me get a better view of the timing question.

Many thanks again.

FOFOA said...

Hi Mad,

I was wondering when you would show up to this party.

It is true, the small silver market is very vulnerable to a big inflow of cash.

And the ratio of "cash favoring gold" needed for gold to overpower silver is huge. But it is actually miniscule compared to the amount of capital out there that is at risk right now. So the real question is where will all that capital flee to once TSHTF?

For me personally, I plan to sell silver and buy gold if I see a good spike.

Remember, there is more physical silver available at today's prices than there is gold. What message does that send to lurking capital about today's prices? Doesn't matter how much is in existence. It would take a much higher price to coax all the rest into the market. What matters is how much (as a percentage of the total) is offered at a given price. 7% of the world's silver is offered at today's price. And that doesn't include CB sales (they don't have any). But only .04% of the gold in the world is offered at today's price. That's a difference of 175 times. A 175 times greater portion of the worlds silver is available in the Comex warehouse at today's low price.

And if the CB's are not supplying the silver market, then what does that say about the private holders of silver? Were they counting on industrial demand which is falling?

I have read many articles about the low ratios. I read Ted Butler all the time. I have a signed book from David Morgan from when I met him at the Money Show last year after watching him speak. I even receive Jason Hommel's regular emails. I know the arguments for silver.

But after taking it all in, I just don't think we are going to see a reversion to the mean this time (if that is indeed the historical mean, which it may not be given 4000 years). I think that this time it is different... for many reasons.

Anyway, I don't expect to make many friends with posts like this one. In fact, I expect I will lose a lot of the silver bugs. I was getting about 400 unique individuals per week. About 130 of you come ever day. I imagine that will drop significantly now. But I also think it is important to present all credible scenarios available for consideration. And I know that this one is not being presented anywhere.

So at my own peril as a master-blogger, I offer you a contrarian's contrarian opinion. ;)

By the way, Mad. I like your blog even though I don't always agree with you.

Always the best,
FOFOA

FOFOA said...

Anonymous,

Thank you for the kind message. I am happy that you are exploring this world of fancy metals.

As for timing, let me just say this. Timing is for traders. Buy physical fancy metals and then relax, don't worry about the timing.

That said, I respect LEAP2020 and frankly I agree with their timing. But last year in April I was calling for the Chinese to turn their back on US debt right after the Olympics. So sometimes things take longer than expected.

Don't trust whatdoesitmean.com. That's my opinion of them.

Personally, I think massive inflation will come around the turn of 2009 into 2010. But of course that is just a guess. Eric deCarbonnel sees starting right now. And I cannot really disagree with his analysis.

What I expect, personally and privately, is for some major peak to happen after the G20, after Tax Day, and around April 19. By peak, I really mean the collapse that happens right after a peak. It could be the stock market, the bond market, the public's confidence in the government to make it all good, the USDX.... it could be any number of things. But I expect a shift in public confidence.

Then I expect problems to arise by early July. I expect demonstrations in Washington. I expect some private pensions to deny payments to pensioners, causing some sort of pension uprising. It might be online, it might be at the pension headquarters. This will raise doubt in other pensioners, spreading the problem.

I expect some reported shortages in the supply chain to show up by summer. (Some small ones are showing up now). I expect this shortage problem to get worse by the fall and by December I expect high prices for whatever is left in the stores.

By 2010 I expect some major changes on the international currency scene. You have probably read many articles which claim that any world currency would be years away. But remember, the markets price in the future. So if there was a definite plan announced at the G20, it would be priced into the markets immediately, even if it was 2 years away. I don't expect this... but by January 2010 I do.

By summer 2010 or by January 2011 I expect something like Freegold to be in full swing. Between here and there we should see wild fluctuations in price, a breakdown of the Comex, a physical price that blows people's minds, and then no gold for sale... period... for a while. If you've got some and you need to sell it to survive, you will get whatever you want for it. Because no one else will be selling.

Then, eventually, a somewhat stable price for gold will emerge. It may not be a price in dollars like you are used to. It may be a price in things, or in Ameros, or Euros, or Yuan, or SDR's.... who know and who cares. It will be more than enough. In my opinion, this is the best way to prepare for this unknown future.

Sincerely,
FOFOA

FOFOA said...

Anonymous,

One thing to keep in mind regarding timing predictions. My timing thoughts are somewhat tainted and extended by being premature in the past. Peter Schiff is having this same problem. In fact, all the credible writers that I read that actually offer timing predictions are reaching far into the future for this very reason. It sucks to be premature.

But the flip side is this. When things start going REALLY down hill, they can happen very fast. Another talked about things changing dramatically within a 30 day period. And then gold "going into hiding". So under this "accelerated transformation", if things shifted and headed down badly on April 19th, you could potentially see really high gold prices and the beginnings of hyperinflation by Memorial Day. And then you could see Freegold by October.

Just something to keep in mind.

FOFOA

Anonymous said...

With gold at 30000 and silver at 50 centsit wouldn't take much gold to buy up all the silver in the world.if i were one of the major holders of gold l would think i would give up a few of my oz's of gold to do that. what would the price or ratio be after an event like that?

FOFOA said...

Good point. It would take about 17,000 ounces of gold to buy up all the silver in the world with that ratio. But if silver hit that ratio it would mean that it had been reduced to a mere commodity and then not even wanted by industry. So why would you want to part with 17,000 ounces of Freegold for that?

Perhaps you could afford to purchase the entire money supply of Zimbabwe. But why would you want to?

As FOA said, "it will be a chance to see something few ever get to see"... and... "When we see it we will understand it."

Anonymous said...

sorry went back and reread post. You said silver at 50 cents as gold went past it's first grand.
very intersting discussion.What do you think the ratio will be?

Anonymous said...

By the way i'm a silver bug but that won't keep me from reading your blog. It definitely makes you think!

FOFOA said...

I do not know what the ratio could ultimately be. I could see it fluctuating and gradually growing wider over the next year. I could see it shrinking to 35:1 and expanding to 150:1. I just don't know. I would guess the widest it could settle in a Freegold worst case scenario for silver would be about 500:1. Although FOA seems to put as wide as 2000:1 in a worst case.

And thanks. I do like silver. I like to fondle it more than gold! ;)

Anonymous said...

http://seekingalpha.com/article/128150-nyse-runs-out-of-gold-bars-what-happens-next

Anonymous said...

My comments aren't posting? TEST

Mark said...

David Morgan has a thought...
Silver - Gold's Poodle?

FOFOA said...

Hey Mark,

I like David Morgan a lot. He was one of the few people other than Peter Schiff that I went to see at last year's Money Show. But I disagree with him on almost every major point in this article. David is also a big proponent of mining stocks. And like silver, mining stocks is another sector of investment that Another and FOA said will fall way short of expectations.

From what I can tell, there are many columnists like Morgan that at their very core, believe we are heading into a repeat of the late 70's and early 80's. At that time we had high inflation, a rising gold price, and mining stocks and silver raced past gold during the mania phase. Then Paul Volcker stepped in and instituted the Revitalized Gold Ratio Certificate program. Oh wait, that's what Jim Sinclair says will happen this time. Last time Volcker just raised interest rates. ;)

The point is that the late 70's was a volatile time in the dollar era. 2009 is the very end of the dollar era. There is a big difference.

There is not going to be the continuity of markets that is required for silver and mining stocks to jet past gold with leverage and volatility. There is not going to be the continuity of currency for Paul Volcker to step in and save the day. The very paradigm is going to change this time. We have reached the end of a cycle. There will be a phase transition and a new and different cycle will begin.

That is how I view things and that is what I expect.

Sincerely,
FOFOA

FOFOA said...

Anon,

Thanks for the Seeking Alpha article. Isn't it amazing that people that have actual physical gold available (coin dealers) follow the pricing lead of entities that don't? This is another crack in the "Berlin Wall" that separates us from freegold.

FOFOA

Mark said...

Hi FOFOA, I was more homing in on his point about poor man's gold. The middle class sits on a tidy sum of aggregate wealth and they won't watch it burn w/o demanding an available haven, which silver will likely fulfill. It should rise at first due to demand, then settle in as a lesser store through "usage demand". Gold won't show it's face in public at the values you envision.

FOFOA said...

Hi Mark,

Thanks for the clarification. As I have been saying, the all-important concept in this changing world is the flow of capital. And yes, the small amount of capital held by the 90% of the huddled masses definitely has some pull.

What remains to be seen is how that capital measures up against the rest of it.

"Gold won't show it's face in public at the values you envision."

Certainly not in the 100 oz variety, any more than an original Picasso shows it's face today. I suppose you could go up to Steve Wynn's bedroom and see the one he put his elbow through. But the problem with Picasso's is that even though you can tear them, like Steve Wynn, the smaller pieces tend to lose the relative value of the whole.

Gold bars, on the other hand, as Wikipedia says, are "Divisible into small units without destroying their value"

But you are right. The free valuation of gold will take some getting used to.

Sincerely,
FOFOA

FOFOA said...

Mark,

I will also note an interesting statistic I came across a while ago. The wealth reserves of the world are roughly $100 trillion. And the wealth reserves of "high net-worth individuals" (defined as people with a net worth of over $1 million not including their primary residence) are roughly $50 trillion.

Some of the remaining $50 trillion is wealth held by private corporations, including pension funds, etc...

The $1 quadrillion number is wagers yet to be settled. Obviously there is not enough real wealth to settle those bets. Only hyperinflation can help settle those bets.

The $100 trillion number represents the private capital that will attempt to find safety.

In addition to the $100 trillion of POSITIVE capital, there is also the issue of public debt, that will seek backing. So you have to assume that the flow of gold into the CB's is kind of like a tug of war against the flow to the private positive capital. In other words, the CB's aren't just going to hand all their gold to the public at current prices without first driving the price sky high.

Capital flows and a massive public-private tug of war for physical possession. That's what we have to look forward to.

FOFOA

Mark said...

Certainly not in the 100 oz variety, any more than an original Picasso shows it's face today

Sure, but 1oz at say even $10k becomes an account waiting for resolution of the tug-of-war, no? I mean, even though it will sell for a boatload of FRNs, inflation means that it is still preferable to "tomorrows" notes. Unless FOA means that silver won't slide until the dust settles and Freegold spends in highly divisible form(?).

FOFOA said...

Forgetting about inflation for a moment, speaking only in terms of today's FRN's in circulation, as the "price" of gold gets higher and higher the tension on the tug-of-war rope gets less and less. At some point, gold reaches its free and fair valuation at which point both you and the CB's could go either way. "Give me an ounce of gold or give me 100,000 FRNs, makes no difference to me. They are both the same value."

It is the tug-of-war that will likely get gold to that point. Because once the faith in paper gold is broken, everybody will only settle for physical. And those that hold physical will not let it go until they sense a fair offer coming their way.

So who is on the other side of the silver tug-of-war? For one, I am. I have a stash of silver that I will put out in the market if the ratio ever hits 45:1 or 40:1. I want more gold. In other words, I'm ready to let go of the rope at some point with silver, but not with gold. Of course, I can only speak for myself.

But I can also point to the CB's that appear to feel similarly to me.

Now bring inflation back into the picture. In a time of high inflation I won't be trading my gold for FRN's at any price, unless I need a few FRN's just to survive the next 6 hours.

So there will be no equilibrium in a high inflation situation, where "Give me an ounce of gold or give me XXXXXXXX FRNs, makes no difference to me. They are both the same value." Gold and FRN's simply won't be exchanged. It is this pressure that will keep the governments that create inflation in check (in a Freegold world).

Sure, there will be a scramble for silver as FRN's burn. But in my mind, FOA has correctly identified that it will be orders of magnitude different than gold.

Perhaps it shouldn't be, but that's not the point. The point is what WILL be, not what SHOULD be, when you are trying to prepare for an uncertain future.

Let me ask you this. Why would you rather by a 5 ounce ingot of silver than a 1/10th ounce gold eagle? Is it because you are getting "more"? Does the eagle just feel too small to exchange for that fantastic $100 FRN?

Or, is it because you buy the idea that, like in 1980, silver will zoom past gold as Bunker Hunt tries to corner the silver market? That IS what drove silver to a very temporary stay at $50/ounce in 1980. And do you know why Bunker liked silver so much? It's because when he started in the early 70's, it was still illegal to amass a hoard of gold.

From The Story of The Hunt Brothers:

First of all, the Hunt brothers started buying silver in the early 70's because they believed in hard money and they also believed that high rates of inflation were eating away at their considerable wealth. Why silver? Well at the time that they started buying and for the first three years of their buying, it was illegal for Americans to own gold. So silver was the next best thing. And for those of you who are fortunate enough to have a substantial amount of savings, you probably know the difficulties and costs of converting large amounts of paper money into hard money. So imagine if you were a billionaire trying to protect your wealth. You couldn't just go to your local coin shop with $10K per day. That would take 200,000 days or 547 years to convert the kind of cash they wanted to convert.

So what if they had started in hard money in 1973 instead? Perhaps we would have a different idea right now about what silver will do in relation to gold. The Hunts' little adventure drives a lot of the silver speculation right now whether people admit it or not. So if you remove "the butterfly effect" of the Hunts, does that change your thinking at all? What if in 1980 silver went up in exact proportion to gold, or at a lower proportion?

This one thing did happen. And it will probably not happen again. But, the mere fact that it happened affects the thought process of the community as a whole. But it does not necessarily change what will happen in the future. But even if one billionaire DOES corner the silver market, who is going to be on the other end of that rope tugging? The CB's? The average Joes? If one person owned all the silver in the world, sure, he could sell it for whatever he wanted. But then that becomes a very small market place. Meanwhile, gold is distributed the world over and held by the most powerful entities in the world.

Sorry, I'm getting carried away here, so I will stop.

I think what FOA meant was that when the system of paper futures trading breaks, the price of physical gold will go sky high, but people will stand in amazement at what happens to silver at the same time.

Sincerely,
FOFOA

Mark said...

I think I get it. I don't have anything larger than 1oz bars anyway, as I don't consider silver as a STORE of wealth, but more as a liquid medium in a transition period. And nobody can say for sure what this interventionist Government's response might be at that time. Like you though, I am concentrating on gold going forward.

FOFOA said...

By the way, Mark, I do agree with this statement, "It should rise at first due to demand, then settle in as a lesser store through "usage demand"."

If we find ourselves in a barter economy, silver will have high usage demand.

Since from here on out we will always face the threat of a fiat currency being legal tender, I thing Gresham's Law will rule the day. Gold will be a store of wealth and silver will be spent. If the threat of fiat was gone permanently, then the reverse of Gresham's might kick in again. But that will never happen.

Anonymous said...

What are your thoughts on peak oil? Wat effect will this have on gold/silver prices? don,t the people of the middle east consider silver money?
i consider sikver to also be a play on energy (solar power, superconductivity, batteries etc).
Have you noticed the absense of platinum and palladium from this discussion? There seems to be a diifference between them and silver. A historical monetary role?

FOFOA said...

Hi Anonymous,

On the spectrum of monetary demand versus commodity demand, gold is at the monetary end of the spectrum. Silver is in the middle, and platinum and palladium are on the commodity end. Sure, gold has some industrial uses, and platinum and palladium have some monetary qualities. But what we are looking at is which one will be the biggest recipient of the massive transfer of wealth that will happen when the system collapses.

When the system collapses, a good portion of industry collapses along with it and must be rebuilt from a capital perspective. So the industries that provide the demand for the metals toward that end of the spectrum will decline, and therefore that demand will decline.

On the other hand, when a system collapses, the monetary demand for hard money explodes. So it is logical to think that the metal on that end of the spectrum will benefit the most.

And what we are facing right now is the mother of all economic, financial and monetary collapses.

The difference is not only historic, but it is also current. As Another always said, "follow in the footsteps of the giants." Those giants are the largest pools of capital on the planet, the Central Banks and the Sovereign Wealth funds. They want gold not silver.

I believe the people of the Middle East like silver more as a jewelry item. Not as much in its bar form. Jewelry is a commodity use, not a monetary use. In a collapse, the jewelry industry will take a hit. And so will the energy industry.

In the long term, the energy industry will be very important. But here we are talking about which is the best lifeboat in which to ride out the storm.

As for Peak Oil, I guess you could say I am a Peak Oil skeptic. I do not have a strong opinion one way or another. I realize that oil reserves are finite, but I think the whole story is quite complex. I find some of the things that Lindsey Williams says to be fascinating. And I think that when oil prices spike soon (and I think they will, to $150 and on to $200), that a new dynamic could evolve in the field of oil exploration. I could even see a change in the US oil exploration policy coming. Especially if the US finds itself bankrupt without a reserve currency to print.

Also, I find some of the intents of the peak oil movement to be a little suspect. But at the same time, I like the idea of electric cars for other reasons. I guess I would just like to see the free market work it through, and not the politicians with political agendas. I don't trust politicians, period.

FOFOA

FOFOA said...

By the way, on the subject of silver there is one thing I noticed a few months ago, and this is pure conjecture. But I have been reading Jason Hommel for about a year now. And a few months ago I noticed a subtle change in his rhetoric about gold. He started mentioning gold a little more than usual and a little more positively than he used to. At the time, I snickered to myself and wondered if maybe he had read Another.

Very soon after that he started talking about his new business of minting and selling silver, and his rhetoric changed back to the way it was before.

Now he is running a business of selling silver. He claims that he is immediately restocking his silver after he sells, but I am not so sure.

He has always been very open about the size of his hoard. He says he has 6 tonnes of silver. That's about 200,000 ounces. I am suspicious that he is using his new "silver business" to diversify some of his hoard into gold. The timing is suspicious. He bought most of his hoard at around $6 per ounce. He watched it rise to almost $21 per ounce and then back down to $9 per ounce. When it was up at $20 per ounce, you couldn't shut him up with a gun. On the way down he was very quiet. All of a sudden he is selling his silver at $16 an ounce ($2 over spot).

I'm just a little suspicious because of the rhetoric. When someone is preaching about something they are selling, you need to take it with a grain of salt. And no one wants to buy a look at his stock portfolio anymore because it is down about 80%. Just something to think about.

FOFOA said...

One more thought on oil. In the short run I fully expect a gas shortage, long lines at the pump, rationing, and $8 a gallon, maybe even by summer or fall. But the cause will be economic collapse, not running out of oil. In the long run, that remains to be seen and will be determined by a complexity I do not know enough about.

Anonymous said...

I sent hommel a link to your site a month or so ago asking his opinion about your theories. Never heard anything back.

FOFOA said...

LOL... maybe he is Anonymous! Was that back before he started praising gold in December?

He's got 80,000 fans. So he is a rock star. I'm just a lounge act.

alek_a said...

Hi FOFOA,

Good stuff, as usual. I have two remarks.

What happened to FOA and ANOTHER? Who do you think they were?

Secondly, about Peak Oil. Google abiogenic petroleum origin. The hypothesis is that oil may not entirely be a product of organic decomposition - if true there will be plenty available of it at great depths (and thus against greater expenses).

All that may be somewhat speculative, but it fits with the view that energy will not become rare simply because we exhausted one possible source of it. I am sure that if there is a huge demand, men is capable of extraordinary creativity (read on the history of the radar during WW2 - Artur Clarke (may he rest in peace) wrote a book on it).

If we indeed run out of oil, which I doubt, there will be other things.

FOFOA said...

Hello Alek,

Thank you.

"What happened to FOA and ANOTHER? Who do you think they were?"

I wish I knew. And I wish they would start posting again.

Speculation is that Another was from Belgium. Possibly involved in central banking. Possibly involved in the creation of the Euro. Possibly a member of "the illuminati" as such, if such a thing exists. Perhaps clearing his conscience by anonymously helping the little guy. I don't know. But it sounds reasonable. FOA was clearly American and seemed to be a protege of Another.

MK probably knows more about them than anyone else. Therefore I pay attention when he writes.

It is clear, at least to me, that they knew things going on behind the scenes. Things that went beyond what they were comfortable saying on a public forum.

It is also clear to me that their intentions were honorable. I find no evidence that they had any intent beyond that of helping people understand the vast undercurrents hidden from public view.

It is also clear to me that they were wise. To me, this is the most valuable quality to have. And the most precious to be in the presence of wisdom.

I will check out the oil link. Thanks.

FOFOA

Ender said...

FOFOA, nice to see that your articles are stirring up some foot traffic. You’ve got some good conversations going on here. Thanks for the effort. I hope you don’t mind a couple more comments in the collection.

On the lesser ones, no billionaire is going to rescue silver. Last time, the people involved where virtually destroyed. This time it would be exactly the same story. No, silver will have to find function and value in millions of hands. No one person can value it, it must be done by all people.

Peak oil – all one has to do is think about gasses in space and you’ll start to wonder if ‘fossil fuels’ is simple a flat earth scientific ideal that will soon be dismissed.

Now, the more important issue, gold. It’s not a matter of someone driving the price sky high. Value must be determined by people in an open public manor. It’s only at that point that stability will be found and the value of currencies can be determined. Even though it’s possible, I would consider it highly unlikely that central banks will actually devalue their currencies making gold expensive (locally). That prevents all the citizens in that economic unit from acquiring gold. It’s prevents the bankers themselves from acquiring gold – cheaply.

The currency devaluation comes when a currency is mismanaged and trade is lopsided. If to much currency finds it’s way outside the economic trade zone, some fraction of that currency that is considered savings will be recycled into gold. That act of saving, a wealth reserve, will, in that currency, affect it’s trade value.

Keep in mind that the goal in the coming Freegold system is to acquire a gold reserve. Thus, if you’re able to acquire a gold reserve, you wealth (the wealth of your family) increases. For this to happen, you have to be able to afford to buy gold. This happens if you are a businessman dealing with a currency that functions in an economic unit that has trade surpluses. Why? Because the surpluses will ‘bring home the gold’ so as to make gold readily available in that economic zone. Thus, over time, the gold ‘price’ will be seen as dropping (locally). In other words, the currency will be getting stronger.

A Freegold system that allows for gold settlement for savers and gold exchange on an international level will allow currencies to float based upon the strength of their local economies. It doesn’t matter if the price of gold is high or low, what matters is that savers of the world learn that gold is wealth regardless of the currency you’re dealing with. It is the anti-currency. It is not debt, but an asset. It is something you own free and clear. It is not a promise to deliver.

The value of gold is being discovered. It doesn’t need a dollar price for some to realize what wealth is.

In any case, as people start to think about the function of gold in the role of international settlement of surpluses and deficits, they will realize where the wealth of nations really exists. The role of gold, IMHO, is more important then it’s price.

Anonymous said...

Hi FOFOA,

Late to the party and struggling mightily to catch up. Great food for thoughts, though.

You wrote: "MK probably knows more about them than anyone else. Therefore I pay attention when he writes"

Who is MK, please?

Anonymous said...

Google The Oracle

Anonymous said...

Bah - never mind. Max Keiser (he should be first).

The Mad Scientist said...

Peak oil is real and I do think it will cause trouble but we will be able to overcome the problems.
I have posted recently on a couple of issues regarding it.Here
http://ispeakofpeak.blogspot.com/2009/03/we-are-all-freaking-doomed-and-other_22.html
and here
http://ispeakofpeak.blogspot.com/2009/03/we-are-all-freaking-doomed-and-other_14.html

I do not understand why people think that price can change the outcome. The prices in the US were at one time $1 a barrel and at their peak were $147 a barrel. Even inflation adjusted that is a very huge jump. But that had zero correlation with US oil production year after year.
BTW I have no clue what depths people are talking about exploring. As far as I know the rigs that can operate at the deepest levels are all in use. See Transcocean and diamond offshore. They together own about 40% of the worlds deepest water fleet. Assuming there is some new depth at which we can find oil then we need to build new rigs which on average take 5 years. The current level deep water rigs cost upwards of $500 million each. Assuming that we have to start poking unlimited amounts of holes at that depth (pure crock if you ask me) it would take multiple years of very very high prices and then years to build. So even if the story is true it would take a minimum of 10 years to start having the rigs to start getting oil from those depths. Again we have to ask ourselves what kind of flows are we talking about? Are we talking about million barrels per day per hole, then we need only about 100 holes and 100 new rigs and about 10 years (lol even that is a long time after we start) or if it is 50,000 barrels per day per new hole in which case we are screwed for the medium term even if there is an unlimited supply.
Since no one knows I think people who rely on the abiotic theory are getting abiotic ahead of themselves.

FOFOA why are you using the Comex to make your argument as to how much Gold is there available for sale at today's prices. I have to disagree as the ETFS have shown that they can get much more than that off the market.
Maybe you distrust GLD ( I do not) but look at what CEF, GTU and even precious metals mutual fund run by Nick Basheriff have picked up a lot of Gold. Comex is but one shop ( a pretty big one mind you ) where most of the customers are window shoppers.
The reason is the size. 33-100 ounce bars are hardly what the average person can buy easily. Change Comex to a one ounce system and you will see exactly how quickly it becomes a real market.

alek_a said...

Dear MS,

FOA uses the physical price-setting market for PMs to draw conclusions. The COMEX is a part of it. The market at which large deliveries take place is actually the LME (London Mercatile Exchange).

ETFs are not the market for gold. They are simply investment vehicles. You cant get delivery of shares when you buy an index-fund and the ETFs are the same.

You quote oil exploration and extraction as if you are an engineer that knows the details of the business. Are you? Secondly, the resources necessary to extract oil from greater depths are indeed greater - but it is not necessary as there are reserves around the world where oil can be extracted easier but are not economical at the moment.

Peak oil or not, it doesnt matter I think anymore. We will run out of things that run on oil much faster than oil itself. See the mountains of unsold car lots at sea ports.

FOFOA said...

Anon,

MK is Michael Kosares. If you read Another and FOA as linked on the right of this blog you will learn about who he is. He still posts under 'MK' on the USAGold forum. He had the most direct and behind the scenes contact with FOA and Another.

FOFOA

FOFOA said...

Hi Mad,

Couple things. I only used Comex for a rough comparison of gold to silver. A starting point for thinking about how much of the world's silver is "available on the market" compared to gold. The Comex warehouse is probably the largest single pool of available metal (I don't have any data on the LME warehouse). I am aware that it does not represent all the metal, that's why I also mentioned a coin shop. Even there, more silver by weight will be available at current low prices, and therefore a greater percentage of all in existence. The whole point was to show that rarity is not as big of a factor as some people think.

As for the ETF's, I suspect that as they have added gold lately, it is in the paper form. It might be a paper claim issued on some real physical gold parked somewhere in Canada or New York, just like a Comex contract is a claim on the physical in the warehouse. But there is more than one claim for each bar of gold in the warehouse. This only works if 9 out of 10 people never pick up their bars. And the ETF's are not interested in picking up their bars. That's why in their prospectus they say it is "stored at various depositories". Perhaps this new ETF in UAE will be different. Perhaps you know more about the ETF's than I do. In fact, I'm sure you do. Can it be shown that they have segregated and allocated bars for all of their holdings?

FOFOA

FOFOA said...

Hello Ender,

Your thoughts and comments are always welcome here. In fact, I would be more than happy to publish full posts written by you.

FOFOA

FOFOA said...

Mad,

I don't really want to turn this forum into a discussion about Peak Oil, but just out of curiosity, what are your thoughts about large untapped oil reserves mentioned by Lindsay Williams and others. I think there was one in Idaho, in Alaska, and a couple over in Russian and maybe south Asia? Lindsay wrote a book called "The Energy Non-Crisis" which is more about known oil fields that have been intentionally un-tapped in order to perpetuate the US dollar monetary system through the Middle East.

If true, then a failure of the dollar system could change the motivation of those who have the power to tap those reserves. And they are not deep and difficult reserves that he talks about.

Curious about your thoughts on that. Here is a link.

FOFOA

Anonymous said...

What if Mexico who is a major silver producer announced they would be only accepting silver for oil? are there any other oil producing countries rich in silver who would benefit from the monetization of silver?

FOFOA said...

Interesting. From Jason Hommel yesterday:

I bought the Rocklin Coin Shop. I will take delivery on the morning of Tuesday, March 31st. For the first three days of operation, from March 31 to April 2, we will have a super sale on silver bullion! $1.75/oz. over spot (of about $13.50 or whatever it may be) on silver rounds and bars.

Rocklin Coin Shop
4870 Granite Drive, Rocklin, CA 95677


We will open up the shop with the following inventory:

At least 20,000 ounces of silver bullion bars and rounds.
140 ounces of gold, or more.
450 ounces of palladium.
At least 10 bags of 90%, and mercury dimes.

Please don't call for price quotes, the shop won't ship bullion. Please come on by for a personal visit if you are in the Northern California area.

The Mad Scientist said...

FOFOA,
That was some seriously funny stuff from Lindsay.
Tell me this how is it that if all this oil is available, how is it that every country that passes peak production produces an almost perfect bell curve of oil production. Can you imgaine the conspiracy level required for this to happen around the world?
Why would countries like indonesia choose to become importers when being exporters in an era of $147 oil would bring them great riches?
Mexico is another example. There production has been falling and exports falling even more dramtically. Their state depends on oil for 60% of its revenues. Surely they would want to maximize production.
If you search for "peak oil myth" on google you will see all this BS about really deep oil. They cite Russia as an example. Well what about now? Russian production too is falling. BTW Russia even at its peak produced less than the US did at ist peak.
There is a lot of oil around and it can be mobilized. That does not change the peak.
As far as flows just look at the giant fields in texas which now produce anywhere from 1% -20% of their peak flows. That also is possible due to huge injections of water. If he is so confident that these fields should be producing 5-100 times oil as they should he needs to get his head examined.
He can go an examine them and ask an geologist to verify what is coming out and what should come out.

The Mad Scientist said...

Dear Alex_a
It is ahrd to argue that there is no shortage of silver while arguing that there is shortage of gold. Or rather less Gold is available than silver.
Whether the etfs are investment vehicles or not they do hold that gold (as verified by the bar numbers) and hence were successful in gettng gold much higher than what the Comex will ever or did ever hold. Hence much more gold WAS available for sale at some point along the last 5 years. Therefore using the Comex argument is erroneous IMO.

FOA makes another huge blunder in his analysis when he says silver will be at 50 cents. There are virtually no pure silver mines. Most silver is produced as a byproduct. When demand for industrial metals dries up so will the supply of silver.

To give such high value to Gold is a mistake as only in a complete and total collapse of every existing system could it prove its value.I could argue that if aliens attacked the earth and if those aliens could be killed by Guns and bullets then each Gun would be sold for 1000 ounces of silver and each bullet for 10 ounces. That does not mean I have made a rational argument for accumulating guns over silver.
Even in a total collapse 6.7 billion people will still need to eat. I would bet that even in a collapse food outperforms gold in % terms.


And your qt
"You quote oil exploration and extraction as if you are an engineer that knows the details of the business. Are you?"
I have 2 doctorates neither in engineering but I have stated what I believe to be the truth.

Anonymous said...

You sure won't see anything like this discussion on cnbc! Refreshing to see that there is intelligence out there.

Mark said...

Mad - just curious, do you buy into anthropogenic CO2 driven calamitous warming?

alek_a said...

Dear MS,

I thought hard about whether to post this, out of respect for FOFOA, and I decided to compromise and be very short.

I am an old fashioned guy. There are several things I respect. One is professionalism. See, I will have a doctorate in physics/electronics next year (if I work hard and not discuss too much on blogs) but I will never claim to know things related to oil extraction and exploration like you do. I sense that you are one of those that liberally applies the scientific method - none the least your language tells me that. You are in a sufficit supply in todays world of "internet experts".

You may post what you wish in reply but just a heads-up: I will not respond so dont try too hard.

FOFOA, even if you ban me I will contiunue reading.

With regards,
Aleksandar

Anonymous said...

aleksander, just because someone doesnt have a piece of paper that says they are an expert doesn't mean they don't have knowledgr on a certain subject. Most of what he posted was just some commen sense observations.I myself since becoming interested in profits from oil investing have done a lot of studying of the business.I guess all the knowledge i have learned was a waste because i dont have a piece of paper.

alek_a said...

Its not a piece of paper. One may read as much as he/she likes, but without the "piece of paper" to help you filter knowledge from pseudo-knowledge, it is tough. The internet helps a lot in spreading pseudo-popular fiction from "experts".

Thus my (way to) sharp reaction. Apologies again.

The Mad Scientist said...

Alek_a there is no reason fofoa should ban you. This is USA not Iran. You are entitled to your opinion just as I am to mine. I never claimed what I said was the gospel truth, yet if you or anyone else can dispute one point I made about "deep" oil extraction I will gladly hear it. That goes also for my aliens,guns and silver analogy.
On oil I did state "facts" which are undisputable. The time to build rigs, the number of deep water rigs in business, the cost etc.
If you need a professional opinion I suggest you not look on the internet. There is westexas a geologist on theoildrum. He and I are somewhere between acquaintances and friends and I dare say he would agree with everything I said.
Finally I am here because FOFOA disagrees with me a lot of subjects ( we agree on a few). If his thoughts were identical to mine it would be pointless to be here.

The Mad Scientist said...

Mark,
I believe that regardless whether we believe in man-made global warming or not, I think the evidence that as a whole we are damaging our environment beyond belief is beyond dispute. Maybe we are not causing global warming, but we sure as hell are polluting and poisoning beyond a reasonable doubt. IMO we need to move to being better stewards of our environment as a whole. Specially with India and China moving towards a US lifestyle.
I think moving towards cleaner coal (maybe even less coal), less pollutants, higher amounts of recycling is needed whether or not we believe in man made global warming. I think enviromentalists should move towards that argument as a whole rather than focus on what they are which maybe a difficult battle to win.

FOFOA said...

Hello all,

It is good to see a lively discussion here. I think open discourse is extremely healthy, especially between thoughtful people with integrity and independence. Please check out this excellent (short) article to see what I mean. Here are a couple snips:

"When he spoke, there was no reason to distrust what he said. He had nothing to sell, so he had no motive to flatter or manipulate. In today’s world we have become very comfortable buying and selling things. It is also our habit to say what is pleasing to our superiors."

"To be wise, to love wisdom, requires a different emphasis than that of today’s culture. It requires an emphasis on truth and clarity. To be successful today, to advance your career, truth and clarity aren’t always appreciated."

"The crisis of our time is a crisis of intellectual integrity. We are suffering a deluge, in which common sense is drowned by the career logic of millions of nonentities."


As for my personal opinion on some of the more polarizing issues of our time, let's just say that I am a skeptic on ALL issues. That's not to say I don't have strong opinions. But if I sense a specific issue becoming dogmatic, my brow furls, especially when politicians start preaching.

By the way, no one is getting banned. We are all entitled to our opinions. Let the power of our words speak for itself.

In the online physics community there is an ongoing debate. And in this debate I have noticed a bit of a double standard from the scientific community. On the one hand, they enjoy their online anonymity and they want to be judged only on the merit of the brilliant words they type. But on the other hand, they discredit and judge their adversaries based on credentials. You can't have it both ways. To me, credentials mean far less than lucid, intelligent thoughts.

Sincerely,
FOFOA

FOFOA said...

Jim Sinclair...

Dear CIGAs,

Alf is right, Gold is going into the multi- thousands.

This is simply sick thinking. There are no words to express my disappointment in the lack of values amongst the banksters. They are the enemy within, driven by greed, caring nothing for the damage they do to others. They have truly sold their souls. They do not deserve to be considered human. Damn them for they do not deserve better.

Even Paul Volcker has finally been railed into the den of thieves. He too has sold his soul to the devils, now having blessed financial lying. By doing so it is clear who Paul has just done business with.

There is a message contained herein. The problem is worse than even I thought. Volcker would not have thrown away a life’s work publically, as he has done here, if he did not fear a total collapse of the world financial system immediately.

Shame on you Paul. You are no longer master of the financial universe. You have kept company with the financial whores, and now you have joined them.

A man is no better than the company he keeps.

There is no practical solution to this world financial problem. There is no ethical person to save the situation from unwinding completely.

Shame on you, Paul! 82 years work just went into the garbage can of history.

Alf is right, Gold is going into the multi- thousands.


New Rule Would Allow Banks To Choose Values Of Their Assets
March 26, 2009 12:00 PM

The Financial Accounting Standards Board quietly buckled to banking-industry pressure last week and proposed new accounting practices that would allow banks to value assets at a higher price than they could currently be sold for.

Banks have long demanded the "mark-to-market" accounting rule change, arguing that it’s unfair to require them to mark toxic assets down to current market prices because the very market for those assets is frozen.

The move marks a shift for Robert Herz, head of the FASB, who recently told a panel of lawmakers that the harshest critics of mark-to-market accounting practices have been the very same banks that have gone under when regulators would not let them adjust their accounting. Herz and other regulators have been under intense congressional pressure to reform the rules.

"I will tell you that I get calls and visits from some of those institutions that are now in government hands, about two weeks before they get taken over, trying to get the accounting changed," he said. "Clearly some of the most vocal opponents of fair value and mark-to-market have been some of those institutions that ultimately failed and have had to have billions of taxpayer dollars put into them."

House Speaker Nancy Pelosi (D-Calif.) said that she’s been consulting with former Federal Reserve Chairman Paul Volcker regarding the reform.

"I’ve talked to Mr. Volcker about this, who knows a great deal about it. And I think caution is important in it, but I think attention is necessary," said Pelosi in a brief interview with the Huffington Post.

She said that she’s following the issue closely. "I think it has to be done with care. But we have to pay some attention to it because the current system is not working," she said. "It’s the whole thing: If you mark it too low, what’s the price?"

More...

Anonymous said...

Gold at $30,000/oz, while Silver would sit at 0.50/oz, for a GSR of 60,000-1??? Oh please, that is outrageous...

FOFOA said...

Hi Anonymous,

This is the quote from the post...

"I'm talking about .50 cent silver. while gold races past it's first grand."

So that's a GSR of 2,000-1, not 60,000-1.

As I said in previous comments, I find this hard to imagine. Perhaps FOA was exaggerating to make a point. I don't know. The most I can imagine is 500:1.

Regards,
FOFOA

Anonymous said...

I believe when this happens the U.S will have no choice but to open up themint to the people.
all the silver jewelry will be used fordomestic currency and gold will be international.just trying to throw some ideas out there. maybe we already have a contingency plan.what does everybody think?

Anonymous said...

think about it.If we didn't do this they would own us we would have to borrow the oil just plant our crops!and they set the terms! Isure hope there is SOME gold in fort knox

FOFOA said...

Hi Anon,

Here is a new video of Chris Powell from GATA talking about the gold in Ft. Knox on FNC. Do you think we'll ever get an honest audit?

FOFOA

Anonymous said...

gata on fox cool. Everytime i see one of those cash for gold commercials i think there goes some more of our wealth gone!

FOFOA said...

Did you hear this?

Martijn said...

If the value of paper currencies would start approaching zero all commodities would rise since all are better than paper. In that scenario I find it hard to imagine losing wealth while owning silver. Perhaps gold will do better, but wealth preservation would be aim no.1 in case of a financial collapse.

Besides that gold and silver both remain trust items also. Both have a long history of monetary value and therefore make a logical refuge, but in the end it is all about the trust people put in these metals for storing value.

Seems to be about psychology. If money/wealth would flow into silver and lift it's price that would strengthen confidence, lifting it's price furter. The historical ratio has been rather tight, so a ratio of 1:2000 would seem quite bizare to me, especially on a somewhat longer run.

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