A very prominent Chinese banker in Hong Kong said to me last week, "What you've got is a true story, and you will know it because of the thunder of denials." And I was quite delighted to see how thunderous they were. It is true.
Fisk's original report
The denials
Our topic of interest is getting big coverage right now...
...as the IMF meets in Istanbul, Turkey.
SDRs and the Endgame for the US Dollar Reserve
Curious sounds emanating from the WSJ...
IMF Managing-Director Dominique Strauss-Kahn's proposal... was politely downsized to a research project.
the fact that markets are now being left to bid the U.S. dollar down
"Bretton Woods is being overhauled before our eyes,"
Sea Change
"It is possible the world could turn inside out from what we have known since 1945,"
File this under: Hmmmm....
October 6, 2009
Today at Noon, the United States Mint issued a press release with some shocking and disappointing news. The collectible 2009 Proof and Uncirculated Gold and Silver Eagles will not be offered this year.
The reason cited for the canceled products is a familiar one: "the unprecedented demand for American Eagle Gold and Silver Bullion Coins."
Mint News Blog
The United States Mint Official Press Release - Oct. 6, 2009
Gold’s Breakout Not A Cause For Celebration
Jim Sinclair
...The reason why I suggest that today's market should scare you, and not be a cause for high five because of the implication of the event.
Hyper-inflation has always been a currency event, not an economic event. The currency event has always been, for whatever reason it occurred, a loss of confidence phenomenon. Clearly confidence in the US dollar and its management is slipping. Historically when this currency event comes about the transition is extremely fast.
We have been doing a countdown to the beginning of the end, or that process acceleration. The are 33 days to go.
Gold is then off to $1224, $1650 and then on to Alf's numbers.
Have you prepared yourself for the implication of such a gold price?
Respectfully yours,
Jim
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/gold/t24_au_en_usoz_2.gif)
47 comments:
Why are all you guys using biblical words like 'thunder', 'paper deluge' and 'judgement day'? Just to let you know I don't scare easily. :)
Sure looks like oil for gold is out in the open now..............
sounds like Rickards comments on CNBC last week are showing that many in the US and the rest of the world are not only becoming more comfortable talking about these things, but preparing the public a bit more for what to expect. seems even TPTB are acknowledging (on some level) the futility of their actions and the relative inevitability of this course...as for michaelB, i just hope we are not ground zero for a modern Soddom and Gomorrah! :)
Satya
http://www.russellmeansfreedom.com/wp-content/uploads/2009/09/leap-e2020-september-2009.pdf
Fofoa,
In freegold, how will the world deal with countries that are rich in gold as a natural resource - an analogy to oil producing countries at this moment?
Martijn,
I think you answered your own question. Perhaps we will build them private jumbo jets and bulletproof beemers. Indian wives will be the new sheik (chic). No one ever said life was fair. Just be sure you've got your piece.
FOFOA
Jay-Z knows it too, he already in 2007. Check the vid @1:20 min
@Fofoa,
I wonder if gold really has that power. A power shift to those countries would have a barbaric aspect indeed. I am not saying that the world as we know it is all fair, but shifting power to countries just because they have gold in the ground does not sound like that much of an improvement to me at all.
On the Jay-Z clip I linked featuring the Euro as the only money shown: rappers were also the first to introduce gold back to the table by means of "bling-bling".
Guess the understood financial markets before we did.
Did you guys read this arcicle from zerohedge?
It's about the Arabs complaining about being paid in dollars. Might fit with the stories of another.
Martijn,
In Freakonomics the author argues that the purest examples of capitalism can be found in the form of ghetto entrepreneur. For real.
@Martijn & FOFOA,
I’m having a hard time following the comment “In freegold, how will the world deal with countries that are rich in gold as a natural resource - an analogy to oil producing countries at this moment?” which generated “…Perhaps we will build them private jumbo jets and bulletproof beemers …”.
Large hoards of gold beget currencies. In a freegold system, the hoard of gold is the reserve ‘money’ (asset) that gives validity to the organization (political system) that creates the currency, while the freely trading gold (in the system) determines the exchange value denoted in that currency. Note that in our global world, anyone may hold this particular currency and may exchange it for gold.
Now, still in this globalized world, the businessman has options regarding where to invest for the long haul. They can choose a location where the local currency is managed well, or one that is not. Years down the road, if they choose wisely, they will have maintained (or gained) in purchasing power on their investments.
What might this businessman look for to maintain that purchasing power? That will be a location where the exchange between the currency and gold gets better over time. A place where gold will be cheaper in the future thus investing in items (machinery, real-estate, what not) denominated in a currency that’s getting stronger relative to gold.
Ultimately, a country rich in the natural resource gold will be able to stabilize the exchange between gold and the currency helping to foster an environment that is favorable for the businessman (which is favorable for the political organization that taxes the businessman). While, at the same time, if they country is rich in natural resources they will be able to get away with more – printing of the currency – before it starts to affect the exchange value of gold.
On the flip side, a country rich in gold that takes it to market to buy goods gives up on the ability to maintain a currency that can do a much better job at getting the same goods. They squander their wealth.
Thus, to me, I see it that the gold (natural resource) will be treasured and held in order to provide long term stability to the currency. They will not be purchasing jumbo jets with gold, but making their currency strong so everyone will want to sell jumbo jets in that currency!
I’m having a hard time following the comment “In freegold, how will the world deal with countries that are rich in gold as a natural resource - an analogy to oil producing countries at this moment?” which generated “…Perhaps we will build them private jumbo jets and bulletproof beemers …”.
...
Thus, to me, I see it that the gold (natural resource) will be treasured and held in order to provide long term stability to the currency. They will not be purchasing jumbo jets with gold, but making their currency strong so everyone will want to sell jumbo jets in that currency!
I agree. And if everyone wants to sell jumbo jets in that currency, the country (or its inhabitants) will squeeze in a few as consideration for maintaining the currency. So economic power will undergo a major shift and we will built them jumbo jets, bulletproof beemers and then some.
My interpration was that fofoa ment the same, but upon rereading I wonder if he did.
Did you, Fofoa?
Hello Ender,
That nation you describe will certainly have the highest standard of living the world has to offer. And if its collective manages its wealth properly, yes, it will become a Mecca for business. It will also be able "to live the good life" on credit because it has a mountain of equity backing that debt (currency).
Debt, Equity, Industry. The collective must strike a careful balance between the three in order to optimize. It must not tax too much that it drives away business. In fact, perhaps it does not tax at all, except for its main source of wealth, gold, like Nevada has no income tax, it lives off the casinos.
The collective can print more, as you say, in order to finance its collective activities. And this printing becomes a claim against its mountain of equity or its workforce of happy campers with no income tax.
Or the collective can supply some of its gold to a world hungry for the wealth of ages. A world that will offer up the most fantastic of products, because it will take just that to pry such a wealth away from such a nation.
The balance between these three, the management of the debt (currency), the management of the equity (gold in the ground), and the management of the workforce, is what will determine the ultimate stature of that region. Collectively, a region will have a high incentive to find the right balance, especially if it is endowed with a mountain of wealth in the ground.
The balance of trade in and out of this nation will regulate the net flow of gold. If the collective can manage to lure in a productive workforce with a healthy amount of exports then gold will be flowing in (along with, perhaps, jumbo jets and bulletproof beemers).
"Perhaps we will build them private jumbo jets and bulletproof beemers..." means that we will have to offer up the very best the world has to offer if we want any of their gold reserves.
For someone who doesn't have gold in the ground, only the very best mankind builds comes close. Jets and beemers were my symbolic representation of "manmade gold". It appears the Saudi Sheikhs would agree with me.
Does this fit your thinking?
Sincerely,
FOFOA
Hey FOFOA! Of course I've been swamped, and really need to catch up on my readings of Another and his first friend, but while I'm doing that, a new gold ETF launched recently SGOL: http://www.etfsecurities.com/us/news/etfs_news_090909.asp
Do you think this vehicle provides the kind of exposure to physical that you and Another (and his first friend ;) would be comfortable with? In fact, I would appreciate an answer on this from any of the many knowledgeable chaps who participate here at FOFOA. As always thank you so much for all that you do :).
Sincerely,
Josh
FOFOA, see the GEAB pdf link above, page 22.
Can we expect ads on this blog in the near future?
alek_a
Martijn,
A power shift to those countries would have a barbaric aspect indeed.
Would it be any more barbaric than today's Middle Eastern countries with great wealth and power in the hands of the few, due to natural occurences of oil? Perhaps we will even find that gold producers are a friendlier bunch than oil producing states, and that we are making progress!
Regards.
Hi Josh,
I suppose if you must go with an ETF, one claiming 100% physical backing held in Switzerland would be as good as it gets. Can you convert shares to physical at any time without a heavy premium? Do they have a walk-up conversion window? Anyway, in my vision of the future you will be best to take physical possession of the metal, and soon.
I am not the best person to ask for a new ETF analysis. I will always tell you no, go with physical. ETF's are all just another paper gold scheme. Buy our paper and we'll hold your gold. This is not the way gold will work in the coming paradigm that I envision. Of course, some ETF's are more dangerous than others.
ETF's are a collectivist and lazy way to store your wealth. And as with all collective activities, they are vulnerable to the eventual corruption of management.
Some people say, well, what if I have too much money? I can't keep that much gold at home. I say, so your problem is too much money? Then Freegold and the collapse of paper promises will solve your problem one way or another.
If you have too much money, I would rather see you pay for a vault in Switzerland than buy the ETF, even if you get less gold, and even at the cost of perceived liquidity. You may find some day that ETF shares are not liquid at all. I find it very difficult to imagine ETF shares trading at Freegold prices. And if one ETF fails, others will be exposed to immediate liquidation pressures which may not go down as fairly as you would hope. Unless you are standing at their door (in Switzerland) when it happens, with your heavy premium for physical conversion in hand, your shares will be automatically and quickly liquidated in fiat at the worst possible time. When no physical gold is available for purchase and while the price is still climbing higher by the hour.
Or worse! The price of physical will simply not be known. So you may find that the forced liquidation requires a 300% premium on the paper price for physical conversion with an 8 hour window of opportunity... in Switzerland! If you don't do it, you get the paper gold price.
ETF's may hold physical, but they trade based on the paper price of gold. Think about that!
Even if your ETF shares liquidate at $10K per ounce, for a 1000% profit, what good is that if gold is heading higher and no physical can be found?
And if you don't have the "problem" of too much money, then just buy some physical.
That's the best advice I can give (which I don't usually do).
Sincerely,
FOFOA
Perhaps it is not more barbaric then the current establishment, but it does have a barbaric aspect. To make matters worse, gold production is very environmentally unfriendly (as I know oil is too).
However, looking around in the world I am not convinced that the human kind is totally free of barbaric traits, so perhaps we shouldn't hold my observation above as too much of an argument, but it is an interesting observation though.
Apart from the barbaric aspect, shifting power to those naturally gold-rich countries as described above would impact the world wide power system quite drastically. That will require quite some power and in that will be a true revolution in all its meaning, should it happen.
Hahaha... Hi Alek.
Long time no see. Where have you been?
I noticed that late last night. Apparently someone at LEAP2020 is aware of this little blog. I should get a free GEAB subscription for that! (In case you are reading now :)) You can send it to fofoamail@gmail.com.
I really hate ads on blogs. They are so ugly and distracting. And they make the page open so slow. But I do accept tips now, Alek. You can send me some gold if you would like to help keep it ad-free! ;)
Sincerely,
FOFOA
Hi FOFOA! Thanks so much for the well reasoned advice, it would be difficult to find such well reasoned advice on this topic elsewhere. Thus I am indebted, grateful, and ready to get a safe deposit box - oh wait, is that a safe way to store gold? Endlessly difficult times indeed...
On barbarism:
With all due respect to your opinions, I consider such statements to be socialist collectivist and elitist in the worst way. In essence, you are saying the free market is barbaric if it awards high status to such undeserving people.
Who are you to decide which resources the free market should value most?
Perhaps a wealth reserve is the most valuable resource to mankind, because it gives other men a true reason to overproduce that which man needs to survive. Perhaps a real wealth reserve is what is lacking in our dysfunctional world. Why overproduce food if you cannot retain your purchasing power over time?
As for the power shift you speak of resulting in a true revolution, tell me which countries you are talking about. Gold in the ground is not the same as gold above ground.
Let the free market decide.
FOFOA
Hi Josh,
I think you answered your own question. I love when that happens! ;)
Clearly you are capable of rationalizing a clear path from here.
FOFOA
With barbarism I mean that seems a bit barbaric to me to allocate power based on material possession that has not been worked for instead of moral accomplishments. By that remark I am not taking any stance as to whom are morally superior or anything, I am only observing a potential drawback of a freegold system.
And off course there is a chance that the market weights such a drawback in on its decision. No decision has been made yet.
FOFOA wrote: "Hi Josh, I think you answered your own question. I love when that happens! ;) Clearly you are capable of rationalizing a clear path from here."
Indeed I am FOFOA, Indeed I am. I will be prepared prior to the attack on Iran (prolly before then), which I am guessing will happen late Spring next year. That alone could blow the lid off the many boiling cauldrons we've been keeping an eye on of late.
"With barbarism I mean that seems a bit barbaric to me to allocate power based on material possession that has not been worked for instead of moral accomplishments."
Who is allocating power in your barbaric future?
And who allocates power now?
Should all heirs be disinherited at birth? Should we have a 100% "death tax"? Then, at least, everyone will only have what he has earned, his "moral accomplishments".
Of course, then you take away the incentive to overproduce beyond what you can consume in your own lifetime. I think we would have some of our best and brightest producers retiring at 35 in such a world. What a shame to lose their "prime of life" contributions.
And is it not work to take gold from the ground? I think you show a subconscious anti-gold bias in this barbaric train of logic.
Yes. I believe so.
Yet, the idea that “only the very best mankind builds, comes close…” might be a little misleading. It all simply comes down to balance of trade and settlement. When a man is over-productive he can create a wealth reserve. Gold and surplus productivity go hand-in-hand. A man doesn’t have to build jumbo jets to get someone to part with their gold, all he has to do is be over-productive and convert that over-productivity into a wealth reserve that can be used later.
And, Gold ETFs support fractional gold. Gold in hand is debt settled.
Ender
Ender,
I agree. That is misleading and your explanation is better.
But isn't it interesting that, even now, the best made products flow to the wealthiest regions of the world? And the cheaper, inferior products flow to the "third world" countries. Of course the cheaper products are now flowing into the US. It is part of the hidden "inflation tax". An almost invisible lowering of the standard of living.
FOFOA
Thank you for not having ads. Hopefully I will not be a freeloader for long. But one cant live on hope, sigh.
I never went away, I just dont have the motivation and focus to post comments. I admire you on how you find the time and energy to write such a quality blog for free.
Appologies to LEAP for posting the link to their work (for which people have to pay).
But I cant restrain myself not to comment now that I have "opened the floodgates". However, I will not respond to further comments. I promiss, really.
Gold is becoming a monetary institutional asset (even in the words of the devil - A. Greenspan) and ETFs et al. treat it is a commodity. Those days are over. It may even be said that such role of gold never went away but was temporarily swept aside as this current cycle of (monetary) history developed.
I think that upcoming wild swings in the goldprice will demotivate new ETF creation and the existing ones will dwindle away as "investors" are replaced by "savers". Kind of a natural evolution.
Coins and smaller quantities can be hidden around the house at different places.
Larger quantites... well, it is a problem with gold but it should go away once the transition is made. I can thik of a few possibilities: a safe bolted or cemented in place at an unknown place, old-fashioned banks, some sort of a regional deposit store, safe place at work (!) etc.
Nobody said that it is easy...
alek_a
just a market observation and question. is anyone else getting the feeling that something big may happen in the coming days? i can't tell you the last time i remember silver adding nearly 2% to its price between 4:30 and 9pm...i know the dollar is dropping like a rock back to minimal support at $76, but has anyone heard anything else going on?
re: barbarism, i am in FOFOA's boat on this one. are any of us necessarily deserving of wealth, power, etc. do most of the people who have it, have some moral or technical superiority regarding its attainment?
If I understand the history of mankind, it's usually those who are the most barberous who hold most of the wealth..at least for the bulk of times. this seems pretty obvious in that those who seek to attain it, to hoard it, and/or to keep others from doing so, are usually willing to do more to achieve that goal than others in their (or another's--not related to another on this blog) society.
as the world is showing, "our" people (western caucasians in particular) have not shown to be very judicious in the wielding of power, political or economic, the last several thousand years. with that said, very few cultures have. and successful and "moral" strategies to combat those who are willing to do more, are quite few and far between.
Satya
$1050 in Hong Kong. Would be nice if we could reach $1100 by the end of the week ;)
You all seem to miss one obvious point: SDRs are in the works! And don't believe that this will take long. Ignore it at your own peril.
When speaking about freegold you should take them into consideration too, otherwise you cannot deliver a good prediction.
And do you think that is negative for Freegold?
Jim Sinclair believes the acceptance of SDR's (or similar) is all but assured, and that it will mean $17K gold.
Of course Jim has never really acknowledged A/FOA or Freegold directly. So I can understand his low forecast. At least he has made some progress since the $1650 days.
And how many times have I said that we will still live in a world of fiats? SDR's=Fiat. Do you think all the CB's are going to dump their gold for SDR's hot off the press?
How many times have I said that gold will be a demonetized wealth reserve? So what if it is included in a stabilizing basket? Once free from the dollar, gold will be the best stabilizer out there!
I haven't missed your "obvious point", though I don't dwell on it. SDR's may or may not get out of the starting gate. SDR's may or may not work. Either way we will likely have Freegold long before SDR's get an honest chance to do their job lubricating global trade. And if I am wrong, then perhaps Jim is right and gold only goes up to $17K per ounce.
Actually, I think SDR's will not work. But that is my personal opinion. Even if tried, I think we will quickly go back to national currencies for trade.
Are you happy now that I have addressed the issue of big, scary, fiat SDR's?
Hi Anonymous,
It is interesting to see calls towards SDRs. It has been brought up a number of times in the last few months, but the problem is that there is a critical lack of trust throughout the entire system(s) that will need to be healed before anything like SDRs can be implemented. The concept of Marked-to-Market will have to be implemented in a transparent way. That, my anonymous friend, is not happening.
In order for a fiat to work, there must be trust in the currency. People have to believe that it will be worth something if they use it. That is breaking down. On a larger scale, the ballooning of dollar reserves shows the dollars non-function. No country can buy enough oil fast enough to spend their dollars.
For those following along, if you read a bit of the following link (http://www.imf.org/external/np/exr/facts/sdr.HTM) you’ll find that the current SDRs are based on the euro, Japanese yen, pound sterling, and U.S. dollar. Well, it seems that these are the currencies that are under pressure right now. If someone were to come up with another set, they would have to choose some collection that’s more stable. Can you name that collection? What currency, right now, doesn’t have huge unknown derivative positions?
I cannot name any.
Before anything will change, the excessive debt must be purged from the system. When that is done, those that have already settled will be in a unique position to start over again and rebuild trust.
Never lose sight of the fact that there must be trust and settlement. Today dollar reserves cannot be settled and dollar assets are not Marked-to-Marked. Without this, there will be no trust. That implies no SDRs.
More re: SDR's...
ANOTHER: There are nations that will try to "resource a new currency" as the old financial system implodes. Oil or gold or both may be used. If it is done at the correct time, much will be gained by all! Fail this Attempt, and gold will never trade on an open exchange again, in our lifetime! We will see this end in our time.
ME: In my opinion, it was already too late by November 2007. It was certainly too late by October 2008. And everything since then has sealed this fate. The collapse of the dollar (value), the loss of its reserve status, hyperinflation and Freegold are all connected. In my opinion, only full-blown hyperinflation could possibly be avoided by complete 180 in Washington DC, which will never happen. Here are all the things they would have to do to avoid just this one consequence of hyperinflation: Default outright on the national debt, default on Social Security, default on Medicare, allow all the banks to fail that would fail on their own, don't bail out the depositors through the vacuous FDIC, let people lose money and let the M1 and wider contract through natural asset deflation, admit they are broke and slash the national budget by more than 50%. If the government did all the right things in all these cases, starting tomorrow, and admitted that all of its promises were empty, and no one is going to get paid, then they MIGHT... MIGHT avoid a full-blown hyperinflationary collapse. But they would still have to deal with the collapse of the dollar's value based on the past (hidden) inflation tax (the mother of all taxes), the loss of reserve status, and Freegold, which basically means pay-as-you-go!
What do you think are the chances this happens?
FOFOA,
yes how can SDRs been of any real use when the Fiat now is dissolving....
SDRs - same shit - different bucket.
I know i'm going to wake up anyday soon and see a line going vertical on kitco that will be a $500 leap!
$1050 - $1550 in a hour!
FOFOA,
what time frame are you looking at for Gold @ $17,000oz?
Time frames are for fools. Now, I'm not saying that Jim Sinclair is a fool. But his close time frame (1 mo.) is only for the start of the fireworks. And his distant time frame (Jan. 2011) is for a very modest price of $1650. So he has hedged his time frame bets. He gives them because he believes he has a responsibility to those people that read his free, advertising-free blog.
Now you are asking me for a time frame on a number that I didn't come up with. If you had asked me my time frame for $100,000/oz gold, I might have been tricked into letting something slip out. But nope! Not this time.
What does it really matter WHEN it settles wherever it's going anyway? What matters is when you cannot find physical anymore, right? For the time being, I'll stick with Jim on that one.
Sincerely,
FOFOA
PS. In truth, you'll never know when it passes $17K.
FOFOA,
i have most of my savings in Gold & Silver....
it seems we are now in uncharted waters for the price....
@Fofoa
My bias - if I ever have one - does not center on gold that much. I can see many merits of freegold and certainly its superiority over fiat money.
However, apart from monetary matters, allocating power to a group of people because they live in a certain geographic are does not comprise the most advanced societal establishment imaginable to me.
Ah well, I guess you agree with me at least to a certain extend: No one ever said life was fair. Just be sure you've got your piece.
Time frames are for fools.
Although I can agree that fundamental logic might be more important than time frames, on general matters I would advise one to remember that the human live we live is a finite time frame in itself.
Hi Martijn,
You know I have a special place in my heart for you, don't you?
Now tell me how you think power or wealth should be "allocated" in the world without sounding like a socialist or elitist.
Sincerely,
FOFOA
What most gold-people don't seem to realize is that the digital fiat-life and the physical gold-life will continue to separate gradually (cfr. Duisenberg statement).
The coming *value* of the goldmetal will have NO links anymore with the defaulting IMFS that nevertheless will continue to function as a 100% fiat-system.
Goldmetal trade (public & private)will be experienced as being a trade outside the IMFS. A trade in grams (and less) instead of ounces/kilograms.
Nixon and those who came after him, NEVER severed the link between the dollar en gold !!! That's why every goldobserver continues to think about gold in dollar-terms. And how can gold, the wealth metal, possibly be linked to a(ny) worthless fiat digit ?
B.
so are places that hold lots of gold going to become safer places to live, or less safe? countries in southern africa. would south africa be different (better or worse), since it has ties to the west? would countries such as ecuador and venezuela be liberated from the coup-attempts of the west? or would those attempts be replaced by coup-attempts from teh east?
i'm curious to know how people see the future of "countries" under this new world (economic) order. is it just business as usual with an added commodity (gold) instead of just oil and different masters?
ahh...the descent into barbarism :)
Haha Satya,
I'm still considering what the implications would be. Given the countries you just mentioned I guess a shift in power would also mean a shift in political paradigm. Different people, roots and ideals.
@Fofoa
That feeling is mutual. As for your question I do not have the answer yet. Listing the aspects I would rather not see is a lot easier than coming up with workable solution.
Jim Willie CB - His latest observations on Fisk, dollar, gold, silver, and the accelerated timetables of these end times:
http://news.goldseek.com/GoldenJackass/1255032000.php
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