Sunday, May 9, 2010

Open Letter to EMU Heads of State

Dear Angela, Nick, Silvio, Jose, Jan, Yves and the rest of you too,

I was just sitting here thinking about some of your statements this weekend like, "We will defend the euro, whatever it takes," and "When the markets re-open Monday, we will have in place a mechanism to defend the euro. If you don’t think that’s significant, you haven’t been to many EU summits," and that you will "confront speculators mercilessly." Sounds exciting, I thought.

And then I started to wonder, Could they really be ready to use "The Nuclear Option" on Monday? (And by the way, the nuclear option I was thinking about was NOT printing up another 500 bn euros.)

But then it hit me. "Holy Cannoli!", I thought, "they don't even know!"

All of a sudden it hit me that I know something you guys don't! Please bear with me as I try to explain this.

What hit me like 400 tonnes of BOE gold pitched by Gordon Brown was that none of you politicians know what the Central Bankers know. That there is actually another option for saving the euro. You see, unlike Central Bankers, you slick politicians come and go with some regularity (I noticed a couple elections just the other day). And also unlike Central Bankers, you guys have notoriously loose lips and wild-ass socialist political agendas. So chances are they don't fill you in on all the minutiae of everyday central banking. So it would be easy to also leave out a whopper of a secret along with the minutiae.

Now what I'm about to tell you might sound a little "tinfoil-esque", but I'll back it up with a logical proof and some whistleblower testimony. I'm going to tell you about a secret market that maybe only 100 people in the whole world know exists, because they transact in it. And I will also present what I see as a logical proof that this market MUST exist, or else other markets would not be the way they are today.

Every scientist knows that there are invisible objects that can only be observed because of the effect they have on other visible objects. Black holes are a good example. And this secret market is the same kind of thing. It is like a black hole around which all other markets rotate like a giant gravitational galaxy. It exists because it MUST exist for things to be the way they are. And in addition to this logical proof, I'll also point you to a Central Bank insider that leaked this information to a few of us 12 years ago when he predicted something like today's Global Financial Crisis was eventually, inevitably going to happen. More on that in a moment.

The point is, these Central Bankers do have a secret "Nuclear Option" at their disposal (other than printing more euros). And they WILL use it if and when they are backed into a corner. They know it's going to blow up on its own soon anyway, so they have no guilt about it. But in their back pocket they have a secret trigger, just in case. But the question for you, Angela, Nick, Silvi, Jose, Jan and Yves is, Will they use it in time to save your political careers, or will they only use it if it is needed to save their own butts?

Now you might be thinking, "How can this secret help us now if it is so secret and under the control of the Central Bankers?" Well here's the beauty of it: All it will take to deploy this "Nuclear Option" and reset the monetary and financial world back to a sustainable basis is one simple announcement, the revelation of the existence of this market, or even a credible leak will do the trick. (You guys are good at leaking stuff, right?) So here we go.

In case you haven't guessed it yet, this secret market I'm talking about is a gold market. But it is a separate gold market from the LBMA and the COMEX that we all know about. It has a different market-maker and a different price! It is the other half of a two-tiered gold market that has been operating in secret for at least 15 to 20 years.

But this is nothing new, of course. The Central Banks ran a two-tier gold market openly prior to 1971. They traded their CB gold with each other for $35/ounce while the plebes traded gold in the ordinary market at around $44/ounce. But even that $44/ounce price wasn't a totally free market price because the market had to price in the probability that the two-tier system would eventually end and the 'membrane' separating the Central Banks' 30,000 tonnes and the private ~100,000 tonnes would be broken. And apparently the market was right, it was broken!

Alexandre Lamfalussy wrote about this two-tier gold market in 1969 in his paper presented at the IMF titled The Role Of Monetary Gold Over The Next Ten Years:

"Even in the absence of effective purchases or sales on this market by the central banks, this price would only become the “true” price if all the buyers and sellers of the metal acquired the conviction that no central bank will ever connect the two markets in any way. As long as this conviction does not exist--and it does not appear to exist today--the price on the ordinary market will take into account potential purchases and sales by the official institutions. Quite clearly, the market is at the moment discounting possible purchases (rather than sales) by the central banks."

(Incidentally, I should point out that Lamfalussy made the news just this weekend saying, "The euro zone is stable despite the financial woes of Greece.")

What Lamfalussy said the markets were facing in 1969, the rejoining of CB gold and private gold in one market, is exactly what we are facing today. It did happen back then and it will happen again. The only question is the timing. And that's where you come in! More on this in a moment.

So anyway, the two-tier market ended in the early 70's as we all know. But what we don't all know is that it started back up some time later. My best guess is that the BIS started it back up sometime between 1985 and 1995. But why would the BIS do this? The answer in one word... size!

What the gold market evolved into after 1980 was a market based mostly on legal contracts instead of physical gold. Futures contracts, forward contracts, mining contracts, custodial contracts etc, etc... And while this contract gold market worked well for the plebes, it did not have the physical liquidity to supply really big orders, like the ones that come from sovereign entities and central banks. So the choice faced by the BIS was to either let these large entities bid for their gold in the contract market (and bring down the system like almost happened in 1979/80), or to restart the two-tier system where very large orders of physical gold could be transacted without affecting the contract market price. And restart it they did!

Now, since you guys are politicians and probably love the fiat money system, I need to give you a little background on the importance of gold. This is simply factual economic stuff. Trust me, I won't bore you with goldbug gobbledygook.

The first thing you must understand is that gold is the monetary metal precisely because it is NOT scarce. There is misinformation out there about rarity and scarcity giving something a monetary value. Rubbish! The fact of the matter is that gold is valuable as a monetary commodity because its price is STABLE! At least it is supposed to be. All the gold ever mined is mostly still with us. That's about 160,000 tonnes. Most of that is in private hands now, not with the central banks.

The FLOW of gold on the markets is tiny compared to the stocks of gold in the world. Gold is not used up in industry like other commodities. It is just moved around like poker chips on the table. It is this extremely large stock (all the gold ever mined) that makes the price of gold relatively immune to supply and demand shocks unlike other commodities. So if there is EVER a severe supply shortage of physical gold it means only one thing: There is something wrong with the price discovery mechanism!

Now, the effect of the contract gold market on the ordinary price of gold has been to keep it at manageable levels for 30 years now. But physical gold and contracts for gold are different things entirely. New contracts can be produced much faster than new physical gold can be mined. But when demand shifts from contracts to physical (which is happening) this puts great strain on the market that tries to price them as equals. And what must ultimately happen when this strain breaks the parity between physical gold and contract gold is that the membrane separating the BIS' physical gold price from the ordinary market will break.

When this happens, all your debt problems will be reset to manageable and sustainable levels again. In fact, the entire monetary and financial order will be reset. This is going to happen. And the Central Bankers can make it happen whenever they want, when they finally feel the heat of the fire on their own butts.

Jim Rickards, Senior Managing Director for Market Intelligence at Omnis, Inc., made this comment recently:

"One point that does not get enough attention is the impact of size in the physical market. It’s one thing to say that COMEX is $1,100 per ounce and physical might be $1,200 per ounce for one metric tonne if you can find it. But what about 100 tonnes? 500 tonnes? Physical orders of that size are impossible to execute outside of official channels. Size of order is relevant in any market but I have never seen a market (short of a full blown manipulation or short squeeze) with as much price inelasticity as physical gold which is why the buy side overhang keep their intentions to themselves."

Interesting statements, eh? And believe it or not, they actually let this guy on CNBC! "Keep their intentions to themselves." Do they? That would be mighty benevolent of them. Or do they have another place to go for their big transactions?

So here's what's going on: The regular gold market suffices for the general public, some of the "big money" like the ETFs and hedge funds, and the hedging needs of the commercial banks. The majority of this demand for gold is for hedging against a currency crisis like... uh... this one! And the banks are perfectly happy with their contracts to show on paper that they are hedged. Fine. Whatever. But what the regular market CANNOT handle is the really big physical gold transactions. That's where the BIS comes in.

So this is what the BIS is doing, and has been doing for probably 20 years. It is making the market for a second-tier, physical only, sovereign and central bank gold market. This market is totally separate from the LBMA and the COMEX because it has a separate market-maker and... a separate price! More on this in a moment, because we do have a clue as to what that secret price might be!

Now, before you run to your respective national central bankers to verify my story, let me just say that this is a very small secret market. That is, there are only a small number of people in positions of authority that know about it. And I don't know if all the EU member states' national central banks ever participated in the "bid and offer" portion of this second-tier market. It probably started during the run-up to the euro launch and the BIS might have been dealing with EU members differently.

You see, before 1971 central bank gold transfers were part of the monetary adjustment mechanism. And during the run-up to the euro launch it is reasonable to assume that eurosystem gold was returned to this function. So inter-central bank gold transfers within the EMU during the 1990's were likely "managed" by the BIS to smooth the monetary transition, rather than being a free market system of bids and offers. So go ahead and ask them, but if they don't know what I'm talking about that doesn't mean it doesn't exist.

I'll tell you who probably does know... The ECB knows. Trichet. The BIS. The SNB. The PBOC. The Saudis. Probably Russia and maybe even the BOE. I also suspect the IMF knows about it because they refused to sell any of their announced "gold for sale" to the private sector at the COMEX price...

See: Eric Sprott: "That left 191.3 metric tonnes left available for purchase to qualified buyers, which include central banks and sovereign nations. According to Kitco, Eric Sprott bid to buy the remaining 191.3 tonnes and the IMF refused to sell it"
GATA: "Coincidentally, GATA learned this week on the best authority that a financial house far bigger than Sprott also recently tried to purchase gold from the IMF, also was refused, and wasn't very happy about the refusal."

Hmm... strange.

What this tells me is that unlike pre-1971, the second-tier gold price is now actually HIGHER than the regular market price. The opposite situation! And of course this makes perfect sense. Why wouldn't it be higher? How could extremely large orders, so big they would send the price on the ordinary market to the moon, be handled in physical only at a lower price like, say, $42.22/ounce (that's the US Treasury price, in case you didn't know!)? Precisely... they couldn't.

Just because we're talking about central banks and sovereign entities here doesn't mean regular market forces don't apply. They do! And as such, consider the BIS' role as the market-maker in this extraordinary market. From Wikipedia:

A market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread... the market maker sells to and buys from its clients and is compensated by means of price differentials and for the service of providing liquidity, reducing transaction costs and facilitating trade.

So here's a big point in the logical proof: This market does exist. If it didn't we would have to accept some very unlikely assumptions about large interests like the Saudis, the Chinese and the Russians. For one thing, that they are benevolent to the outside world when it comes to protecting their wealth. What I'm saying is that a market for very large transactions (buy and sell) of physical gold does exist separate from the LBMA and the COMEX, because they cannot handle the size. The BIS is the market-maker in this market and in that role, it must be discovering a price that would rock the financial world if published!

Now, before I move on to the current price on this second-tier gold market, which I've already shown must be higher than the LBMA paper fix, let's look at how exposing this market would help the EMU and the euro. I'm sure you are aware that, unlike the US Treasury that keeps its gold booked at $42.22/ounce in perpetuity, the ECB marks all eurosystem gold reserves on its financial statements to the market price each and every quarter. What this does to the balance sheet is quite amazing to watch, even at LBMA/COMEX prices! Just imagine what it would look like at BIS prices!!

This is the elephant in the euro chamber that no one wants to talk about. But not so for the dollar. Back in December of 2008, right after the market collapse, none other than former Federal Reserve Governor Lyle Gramley hinted that a big upward revaluation of gold could figure heavily in the Fed's attempt to rescue the U.S. economy and its own balance sheet during an interview with Niall Ferguson on the Business News Network in Canada.

In the interview, Ferguson asked: "I've heard it said that the Fed has turned into a government-owned hedge fund, leveraged at 50 to 1. Do you feel nervous about what this might actually do to the Fed's reputation?"

Governor Gramley replied: "I think you have to reckon with the fact that one of the Fed's assets is gold certificates, which are priced, as I remember, at $42 an ounce, and if we were to price them at market prices, the Fed's leverage would look a lot less than it is now."

The video: BNN interview with Gramley

Here's a thought, what do you think would happen to Greece's reputation (and balance sheet) if its gold were revalued to the physical price at the BIS? I have some trivia (or not-so-trivia) for you:

Did you know that Greece alone has 14 times as much gold per capita as China? Do you realize that your "PIGS" actually have the same amount of gold per capita as the US claims to still have? (PIGS=25 tonnes/million people; US=26 tonnes/million people) And did you know the PIGS combined have 34 times as much gold per citizen as China? Astonishing really. A big gold revaluation should do quite a job on their reputation as swiney muddlers, especially compared to, say, California? I forget. How much gold does California have left?

So, what could I possibly know about this super-secret price on the super-secret central bank and sovereign-entity physical gold market? Well, I have a whistleblower! ANOTHER, we'll call him, since he could get in trouble if we knew his real name...

"...Then, in October of 1997 at the internet's only gold discussion forum of the day, a series of remarkable postings began appearing under the pseudonym "ANOTHER", offering plausible answers to those questions. What followed in a seemingly incongruous stream of thought over many months was, in the fullness of time, seen to blend into a logical whole by many astute readers following the complete text...

"In the final analysis, ANOTHER offers one of the more plausible hypotheses for why the financial markets have acted as they have in the past few years, and therein lies his immense value to the reader, no matter who he is. Again, knowledge as is conveyed in his series of "THOUGHTS!" is rarely to be found outside the highest levels of international finance...

"As explained by ANOTHER, an opportunistic arrangement for massive physical gold acquisition among important petroleum producing and exporting nations could be comfortably facilitated..."

That's part of the introduction to the archives found here and here. Here's the real stuff...

Date: Sat Apr 18 1998 19:18

"What Is The Real Price Of Gold IN The Central Bank World?"

The one that posts using SDRer, has shown many times how "Gold Value" is used in international trade. What cannot be seen is the value of gold in the "INTERBANK" world. Here is the realm of "true valuations" in paper currency terms. It is a real shocker for lesser eyes.

In this modern world, the current value of every asset is formed by a relationship of gold/currencies/oil. This cross relationship is the "very basis of our modern world banking system"!

Through this basis, all currencies are given value as the local government treasuries hold US$ as reserves. The US$ is given backing as its government is guaranteed that all crude oil, worldwide, will be settled in dollars. An oil reserve backing, if you will. And the "value" that the "future supply of" currency traded "oil" imparts to the world economy, is guaranteed by an "INTERBANK paper gold MARKET" that values "physical bullion" in the Thousands!...

But, how can this be, you ask? It is done, "right before your eyes" and we see it not! I ask you, if you have one ounce of gold, and sell it on the market for $300, it is worth $300, yes? Now, what if a CB holds one ounce of gold, and sells it twenty times, that one ounce is now worth $6,000, no? The difference between you and CB? The persons that hold "interbank" IOUs for gold, value them at the multiple of leases/sales made against reserves. This leverage, it is held for performance on bank part. The BIS, it forces performance, on any economy! You ask Korea about gold, yes?

This is why oil can take a small amount of physical gold out of world supply, at current "freely traded", "managed prices", and hold it at a many times valuation. That is what gives this "new world gold market" much value in trade at high levels. Look even at your "Comex", and divide the daily volume by the "eligible stocks for delivery". That number (perhaps three million ounces divided by 150,000 stocks), deliverable, times the spot close gives close, real world price of physical, $6,000. It follows close to paper trade on LBMA.

You see, "physical gold is of much greater value than public traders can move it for"! In your world, this cannot be, but it is, and will show for all to see in your time.

Date: Sat Apr 25 1998 22:55

It is true, that in times past when a currency is inflated (over printed) to a point of only 10% real gold backing, the government could revalue gold upward and the currency was 100% backed again! A terrible blow to the holders of this paper, but at least the money system survived! Today, the world's currency, the US$, by default, would require a gold price of many, many thousands to back it without using its citizens as collateral! The only problem with this is the US gold stock is so small, that even at $10,000/oz, a large deflation would be necessary to decrease the outstanding US currency to this gold backing level!

Now, consider the Euro. It will have much real gold backing from the beginning. Even at 10% to 30%, the Euro will be the equivalent of a 100% gold backed dollar, when the world comes off the dollar standard! The selling of old dollar reserves alone will reprice gold in US$ terms of at least $6,000/oz! Its present interbank reserve value.


The BIS is the gold broker for all interbank sales/purchases. Bullion Banks are for sales to other entities. I think, at first, China was leverage against the oil producers. Then Arabia was allowed into BIS for Euro.


Sir, The history of "Hot" paper money does show it to "burn easily" from " much heat"! If you read my Thoughts in today's replies, we see much "fuel" in dollar derivatives trading in foreign markets. Much of this trading represents a "claim" on physical gold that may become "a transaction for physical gold" as dollar reserves are displaced. The $6,000 valuation of gold can only be true if currency deflation destroys enough dollars to bring it down to that range. Without deflation, the dollar will be devalued much lower than this (higher gold price)! Once the Euro is created and begins to effect world trade (late 1999 perhaps), the gold market will begin a transition as never before! I think it will be interesting to follow the politics of this change, yes?

Your question of Euro gold backing? The Euro will not be backed or fixed in gold. It will be the first "modern currency" to hold true "exchange reserves" in gold. It is important to understand that "exchange reserves" of gold are much more powerful a tool for currency defense than gold backing! In this system, gold must be traded in a "public physical market", in that currency, Euros! As such, the Euro can "devalue gold" (Euro price of gold falls) thereby making it strong in gold! In today's world, this will happen as a "strong Euro physical market" displaces and defaults "the old dollar settlement paper gold market"! The dollar will become"weak in gold"!

I assure you, there is much more where that came from. But the point of these quotes I selected is ANOTHER's implication that $6,000 was the "interbank" --meaning interCENTRALbank-- valuation of gold back in 1998, while the ordinary market price was only $300. What do you think the extraordinary price is today? The market price has gone up 4x. Has the interCENTRALbank value gone up to $24,000/ounce?

Not much has changed since then on the central bank money printing front. At least nothing in the direction that would imply a lower multiplier. Perhaps the BIS price is actually up 5x. Is that possible? $30,000/ounce if you want 200 tonnes of physical gold? Sounds like a lot of money, but it's really not that much if you can print your own money!

The other thing to consider here is the presently thin customer base of the BIS. If this market were to reconnect with the public like it did in the 1970's, meaning if the public were able to buy and sell physical to and from the central banks, where would the price go? Would it plummet? Or would it skyrocket? I think the answer is clear. Even the higher BIS "interbank" price is a false market construct.

So what does this mean for the euro? Well let me ask you this: Why was the euro conceived in the first place? The ECB's own website lists "the road to the euro" as beginning in 1962:

1962 - The European Commission makes its first proposal (Marjolin-Memorandum) for economic and monetary union.

May 1964 - A Committee of Governors of central banks of the Member States of the European Economic Community (EEC) is formed to institutionalise cooperation among EEC central banks.

Link - See pg. 52

I believe Alexandre Lamfalussy, who I mentioned earlier, may have been "on this road" 5 years later in 1969 when he wrote...

"On the one hand, I would like to see gold lose its monetary function; on the other, however, I would not like a national currency to assume the role of a reserve and international currency, that is to say, that the unsteady gold-exchange standard be replaced by the dollar standard. Consequently, I would like that the demonetization of gold takes place alongside with the creation of an international reserve currency. At the risk of repeating myself, I would emphasize that these are my wishes and not my forecasts.

"...It is this same mistrust, which made it impossible for the gold-exchange standard to function properly and which therefore led to the “negotiated” creation of reserves. Seen from this point of view, the establishment of the two-tier system is an act of despair, the survival of which is more than doubtful. Instead of a decline of the monetary function of gold, we are on the road to more frequent monetary crises, to exchange restrictions of all kinds and finally to a collapse of the economy--which could be avoided only by the reestablishment of the gold standard."

Again, from: The Role Of Monetary Gold Over The Next Ten Years

Lamfalussy went on to join the BIS seven years later in 1976 where he remained until 1993. From there he became the founding president of the European Monetary Institute in Frankfurt, forerunner to the ECB. And from 2000 to 2001 he chaired the "Committee of Wise Men on the Regulation of European Securities Markets".

I read a great comment the other day that said, "The only true hope at this stage of the game is some kind of miracle that would produce sufficient real wealth in excess of our compounding debt loads." The revaluation of all the gold reserves in the world at the true price discovered on a physical-only global gold market would be just such a miracle. And with the ECB "Mark to Market" policy and the eurosystem gold in place, the euro is built to receive just such a miracle.

Now I might be completely wrong. I suppose it is possible that all the wealthy sovereigns and overflowing central banks of the world are so benevolent as to withhold their bids for actual physical gold from the LBMA and the COMEX and patiently wait in line for a few scraps from the IMF. It is possible, but is it probable?

It is also possible that ANOTHER was just an Internet crackpot looking for attention. I suppose such a person could persist in capturing people's attention for over four straight years of writing and then have his words carry on for another eight years without being debunked as a complete crank. It is possible, but is it probable?

All I'm suggesting, dear leaders, is that you might want to look into this. Do a little digging, so to speak, while you still have political careers that allow you to dig into extraordinary things. You might be surprised what miracle you will find.


Disclosure: Long physical gold


capt goodvibes said...

Seems tables at the All Inn are filling up.
FOFOA is manning the bar.
It's easy to find... just follow those giant footprints!

CNK said...

IMHO, before gold can attain its status, the political classes must destroy the currency first. Thus, the masses will not question gold's new status - actually, they will participate in its rise as they lose all faith in paper and run to gold.

Freegold will not arise by political design, but by default.

John said...

Dear FOFOA, Another great post to add to your collection and to add to our collective illumination. I do sense your frustration in watching a bunch of political idiots dig themselves into a deeper hole while no doubt feeling smug that they have kicked the can further down the road...However meritorious and inevitable your proposed "reset" via a one-time readjustment upward of gold prices versus fiat may be, I believe our political leaders may not be as idiotic as they naturally seem, but rather it seems they realize such a move while eradicating the global debt problem would no doubt unleash an eventual political fury from constituents who see their wealth (paper, that is) and standard of living plummet in tandem. This inconvenient truth cannot be missed by our political leaders who if anything can be trusted to have a very keen sense of the most politically expedient way out of any fix.

FOFOA said...

Hello CNK,

I agree. That is the highest probability outcome.

Goldsubject put up a nice post today about the US destroying its own currency, with a quote from yours truly! ;)

Peter Schiff echoes FOFOA on U.S. currency crisis

John said...

I also sense that today's move by the Fed to provide fresh swap lines
is reminiscent of the neighborhood bully playing nice to his rival after the rival cries uncle...score one for the dollar camp that has succeeded in dragging down its principal rival one or more notches in monetary ethical purity. The battle royal continues....

S said...

Your point about the BIS market is interesting. Should I infer from your comment that the recent IMF sale to india was anything but or merely a mock invoice?

As for the swap lines read the NYFRB description. They are put on or were at a fixed exchange rate - no fx risk - and the interest rate is that whcih is collected at the dollar auctions. This is merely a stopgap to extend the game. There is some irony in that just a month or so ago the Portugese were discussing selling bonds in $. And so the $ complex launched a stinging attack on greece and drummed up support in the CDS market with an assit from the rating agencies one of which, Moody's, has a Wells Notice pending.

Is it your opinion that thr ECB underestimated the Fed's resolve to protect the dollar? Surely they are not that nieve as to expect the $ complex to roll over. Or did they expect such action as part of a natural birthing process?

I tend to agree with you that this is merely Act I. One suspecs the $ complex will move aggressivily possibly on an accelerated timeframe to push for the SDR to bury the dollar in yet more obsucirty of fiat fiat. This it seems is where the real battle lies. And that is what makes that 11-May IMF/CHF meeting so key...

FOFOA said...

Hello S,

"Should I infer from your comment that the recent IMF sale to india was anything but or merely a mock invoice?"

I don't know, but my guess is it was most likely a paper repatriation of gold that never actually left India. India pledged it at $42/ounce (or whatever) and repatriated it at ~$1,050/ounce for some unknowable political reason. The IMF can't very well get BIS prices for "IMF gold" that was pledged but never left the CBs.

In fact, it is possible that the discovery of the BIS second-tier physical market by the RBI could give it enough leverage to buy back some of its IMF pledge at ordinary prices. Could this explain how India's neighbor Sri Lanka also got in on the deal? I don't know.

Patrick said...

I'm going all in also...FOFOA you are like wine... you're getting better and better..Another great article...

Patrick said...

can't we make a connection to Gordon Brown and Brown's bottom now...????....

Martijn said...


Don't you think they'll delay the nuclear option for as long as possible?

There was slack enough to print some more first, so how much did they really loose now?

I guess not so much?

And perhaps they have an other agenda, such as e.g. institutional reform in Europe. These troubles increase the pressure perhaps adding some fluidity to the decision making process.

The nuclear option will not go away for a while I guess, or will it?

Martijn said...

Also perhaps those politicians quite like the fact that they now have a large pool of money on the European level. They would not have gotten this during normal times.


interCENTRALbank prices gold vs "real" prices for the citizens

another point of view ;-)

for people that don't understand the interbank price 4 or 5 times higher for the same product

you could compare it with prices for local people and tourists (eg. in asian countries for attractions and entry fees and even foodprices)

same food = different price (people)

sincerely yours

a reader

dojufitz said...

Bring it on....i'm ready........

My Gold will but me a nice Chateau in the valley.......

and i will spend my late years diving into the cellar and resurfacing....

then by by open log fire....

enjoying the FOFOA blogs....

Martijn said...

It all seems to involve USD again

costata said...


Another fine piece. (smile)

Martijn said...

Still nothing on Brown's bottom I guess.

Martijn said...

ICO web site

KnallGold said...

For Ambose, the nuclear option is buying bonds...

We'll see if the euro camp will make themselves the same $-bail-out-system which will have to blow up first ;-)

bucephalus said...


BIS is the central bank's central bank, the market maker and clearing house for gold...

what are your thoughts on these questions, if you have the time, please

does the BIS itself own gold, or only serves as depository (warehouse) for central banks' gold, please?

even though the BIS and IMF may have different views of the evolving currency regime, why does BIS still utilize the SDR as its unit of account?

does this statement from make sense to you?
"The gold franc was the unit of account for the Bank for International Settlements from 1930 until April 1, 2003. It was replaced with the Special Drawing Right. It was originally based on the Swiss franc, and remained at the value the Swiss franc was pegged (0.29g/fine gold) after the Swiss franc came off the gold standard."



mortymer said...

For-All-In`ers: Don´t forget you need to defend your hoard and live :o)
For me last few days are just a proof that politicians don´t represent anyone (or they pick) and speak to those where power comes from.
Interesting argument FOFOA that gold is a nuclear option safety vest for CB bankers. Hmmm... How would you define the role of CBs after freegold?

radix46 said...


A few months ago, I discovered this blog, it has taken me a long time to read and digest the information, which I doubt I have fully done.

However, thanks to all participants and especially FOFOA for providing undoubtedly the best blog on the internet.

From this post it is suggested that the BIS uses covert (to some) leverage to facilitate a two-tier market for gold.

It would appear, from recent revelations and pending criminal/civil investigations that there is also 'management' of the silver price.

Whilst I appreciate that silver isn't used in the same way as gold in this system, I would be interested to know your thoughts on whether it has any role in this piece of monetary theatre?

Thanks to all


Patrick said...

In fact we have 3 markets....

the paper dreams
the little guys
the giants...

S said...


Check out the story on Bloom that JPM is openeing a warehouse in Singapore to house precious metals:

"May 10 (Bloomberg) -- JPMorgan Chase & Co. will start its
first precious metals vault in Asia in the third quarter to tap
increasing demand for storage.
The facility, in a tax-efficient zone in Singapore, will
“accommodate the trading of physically settled futures
contracts on regional exchanges,” exchange-traded fund
allocations and “physically settled financing transactions” in
which JPMorgan is involved, the bank said.
“We have seen a strong appetite from both private and
institutional investors to diversify the location of their
increasing gold holdings,” Blythe Masters, head of global
commodities, said in the statement.
JPMorgan agreed to purchase some assets of RBS Sempra
Commodities LLP for $1.7 billion in cash, including the global
oil, metals and European power and gas assets, it said Feb. 16.
The bank said today it expects to complete the deal later this
year, pending regulatory approvals.

Khoa T said...

The Crisis of Methodology & the Critical Path of the 21st Century

Shocking plunges, violent surges, and weekend surprise announcements, etc; all remind us of the early days of Bear Stein and Lehman. The noticeable difference is the unit of measurement: While the bail-out package in 2008 were measured in billions, this time the packages are announced in Trillions and the terms employed in the press release are “Shock and awe” and “Nuclear option”.
Despite the overwhelm escalation in magnitude and scale, the approach to solve the problem remain the same: To inject more liquidity into the system and continue to kick the can down the road. This method of problem solving fall perfectly into the definition of insanity: “to do something over and over again and expect different results.”
Our modern civilization is a product of the human collective thinking mind. While this thinking activity has lead to producing a wide range of material comforts, it also brings us many difficult problems such as overconsumption and pollution. It has been well known that our current civilization is now entering an unsustainable path. If we cannot address the problem of sustainability, we will all face extinction. Given the current military capability, our species survival is not a guarantee in any foreseeable conflict.
The real problem is we cannot outsmart ourselves this time. As Einstein said “You cannot solve a problem at the same level of consciousness that has created it.” In other words, the solution to our problem cannot be arrived via our thinking process, which was the same process that brought us the problem.
So, what method can we used? … ( knowing well that a quick answer will lead us right back to the problem)
This is the crisis of methodology that we are facing as we enter the critical path of the 21st century.
To reach the next level of evolution, it is required that we must experience an disruptive change. Human must understand the question of sustainability and deliver the solution in a Just-In-Time manner. This would required a revolution in the method of problem solving and decision making.

Kewl said...

Investors Willing To Pay 31% Premium To NAV For Sprott's Physical Gold ETF In Strike Over Global Fiat Devaluation Insanity

tdfxman said...


"while eradicating the global debt problem"

What makes you think politicians would ever want to do that? The history of banking, since the Bank of England back in the 1600's, shows the opposite. The banks goal is the keep the interest payments going. The banks create money from nothing so it is usury, I refuse to call it interest. Of course the government is in on it and with all the extra cash gets to hand out the lollipops that make everyone clueless as to what is actually happening. When 2% of people know what is happening, TPTB don't need the sheeple to have confidence in anything. They can say here it is and folks accept it. So an argument for freegold being folks have to have confidence in the next currency I don't think holds water. If it did, they would not have confidence now. The dollar has NO intrinsic value but that doesn't stop them from manipulation it to their benefit and end.

So while maybe out of my league on this blog and trying to stay away from this whole subject, this Euro "bailout" was big news and wanted to check out the blog. Boy bailout is the name of the game isn't it? We should not be surprised at all at what was announced.

Since the days of the Bank of England the monetary scientists and the political scientists have been in bed together.
Look at history on why wars start. They create debt.
Look at the bail out of Chase and Citibank back when Panama could not pay interest. That led to the Monetary Control Act of 1980 that allowed the Fed to "monetize foreign debt".
These banking and government powers, ALL on the SAME Team, want global socialism. This isn't tin hat stuff, it is what they say. There is a great story on how it sounds in the room from James Watts book "The Courage of a Conservative", 1985. We have to save our banks from an ouchie is the moral of their story.
This stuff is sick but not surprising.
If freegold fits into global government and a one world currency sign me up. I have not seen anything that speaks to the motivation of TPTB that would allow freegold to come on.
In politics, nothing "naturally" happens. What happens is what needs to happen to rule another day, despite popular sentiment. So this concept of freegold being some sort of natural process seems to be ilogical to me.

FOFOA, if they have the Mandrakain Mechanism running smoothly, why would they want to break that and have "real money" again? Or should I say a real measuring stick of value. IF they did, the world currencies would be shown to be lacking.

Also, since for the CB's to exist there MUST exist debt, the elimination of the CB's/some debt would require a large political response and not a natural process to take us to freegold.

Where can we get more Iceland's who told the banksters to take a hike. Something has to change to get us on a path to freegold. For example, the masses are going to have to affect the political changes we need by understanding that inflation is a BIG TAX. At 5% annual inflation, that is a 64% confiscation in a generation. OUCH.

Lastly, if I said the US government didn't need to tax anyone to function normally, would you agree or disagree?

S said...

Is the intent to drive the euro to parity and pre align halo currencies with the dollar in a relative overvalued position from which the IMF springs a move into an SDR basket ex gold. The euro has completly rolled over. Trichet and the ECB have lost a huge amount of credibility and the notion of a soft launch of fregold looks like a complete bust. I could never reconcile while FOFOA you mentioned last year that you were in agreement that the move off the dollar would be rapid and abrupt and yet you endorse the idea of the slow transition.

If freegold is indeed the aim the EC has now forced itself into a corner of its own. Look at the way gold was crushed down on the open. The only quaetion that now remains is will the ECB stand idly by as they get steamrolled. or have they already relinquesehed any optionality they did have?

Jeff said...

How does a BIS gold sale among members take place? Is it simply a journal entry? Are members free to make physical withdrawals? Where is the saudi gold?

China and Russia are not believed to have much gold, but they strongly back gold-based SDRs. This seems a paradox, unless they have more gold than is suspected. Do we believe that as currency is printed with abandon, China is simply sitting on a mountain of T-bills?

Kewl said...

Russia has lots of gold yet to be mined. Even if they don't have a lot in their reserves (which I doubt), they can gradually extract from the ground as much as they need IMO. Same should be true for China, except that they mine abroad and are vulnerable to resource nationalization.

stibot said...

Similar thoughts to tdfxman. Government and banks is a cartel.

How can one expect the cartel will even mention gold? Politicians will not speak about gold until they are allowed by bankers. Gold is enemy of the cartel.

If people start hoarding gold, how government can seize and monitor people wealth then? How cartel can suck ("create") wealth so easily? And if they try to put taxes on gold, it will be considered as a tyranny.

sutski said...

haha so this answers our recent question of why the Saudi's and other ME oilers have not got MASSIVE posted (or otherwise) gold reserves after selling so much oil for so long!!

To buy any big quantity of gold FOR DELIVERY to actually put in your reserves at home/in your central bank, it actually CURRENTLY costs $30,000+ an ounce ($6,000 in '98:). For this real deliverable gold :)

So you don't get much gold for ya buck in the big tonnage delivery world.... and you cant complain as if you did, it would go up even more once "we" realise the real price of physical deliverable gold is a tad more than this paper game price of $1,200!!

Or is this too easy to be right??!!

zenscreamer said...

Forgive me for not having a quotation to cite, but my recollection of the path of giants is that

1. the Saudis need to keep the official price of their product low enough that the Western world will still be willing to consume it in quantity (i.e. Wall Mart -- small profit on large volume)

2. they arranged for, essentially, a contract for oil "in the ground" to be swapped for gold "in the ground" in paper contracts, with the price of gold held low enough that they would still receive enough in quantity (weight) to satisfy them

3. this arrangement requires a slow, gradual transfer of gold based on actual mine output, rather than the tying-up of existing gold stocks

4. because both transactions were/are taking place in $FRN, the FED and the U.S. Treasury get a free ride, keeping the $FRN strong as long as the arrangement exists

Am I wrong?

raptor said...

This "Instant Controlled devaluation" seems like plausible scenario, because it already happened and SAVED a country ...

may be even saved it twice ....

OK.. I will leave to you to answer me what was the event and which was the country ?

If not I will answer later :)

FOFOA said...

Hello Zenscreamer,

"Am I wrong?"

No, you are correct. Here's the way I picture it. In my post I mentioned the 'membrane' between sovereign/CB gold and private gold (which includes most mining operations). "The deal" was a secret deal to breach that membrane without breaking it, for the Saudis only to take gold from the private sector at the ordinary price. Normally Giants like "oil" couldn't do this without spiking the price. The delicate structure of the breached membrane was threatened when others like Big Trader noticed what was happening. This threatened to break the membrane completely and openly, a threat we still face today.


FOFOA said...

Hi Raptor,

Let me guess... USA?

Joshua Kane said...

Wonderful open-letter FOFOA! in a perfect world the ECB leaders would read it. In this messed up world, I know you will enjoy reading TSIBR's latest post entitled "Educated Premonition." Its a doozy!
Joshua Kane

capt goodvibes said...


1933 & 1971?

raptor said...

Correct FOFOA and capt goodvibes,

You win "tap on the shoulder" ;),

Just the following is still missing, so that the whole operation can succeed..

1. There have to be trust in GOLD globally. I think just one year 10%+ inflation will be enough to convince 80% of population of the Fiat-game.
(It is not there yet. I have friends which follow all the news and stats and still don't want to get gld, even that they are convinced that $ is shell game.
I mock them constantly on IM with the following phrase "Got gold ?" :) )

2. Most ppl have to accept it like a normal transition, by this I mean not to oppose it...let me be more clear.. by not opposing I mean not to understand they have been FLEECED.

The 1934 switch was successful cause general population trusted the authorities.
I don't say it can't happen otherwise, just that if those conditions are not true it could be bloody.

One question, if Russia and China can buy on this secondary market, why they also buy on the open market.
Why bother peek grains, when they can buy it at large from BIS market ?

Tyrone said...

1933 and 1971...
not enough gold to back the paper.

Today: Paper Gold (ETFs or other)
Same as before--not enough gold to back the paper. The creation of this paper did two things:
1) satisified demand for gold
2) offered a means to suppress the price and mask the real problem


Desperado said...

Actually, my understanding of 1933 was that Roosevelt wanted to devalue the dollar against the Europeans' gold based currencies since US was the global export powerhouse, and this was the only way since then the entire western world was operating on a currency peg, to gold. The US was also suffering deflation at this point in time, not inflation.

On Sundays action, I am still not clear as to whether the ECB was propping up the Euro or just preventing a banking system liquidity crisis. It seems to me that the entire manufacturing world is still involved in a currency debasement race to the bottom as all countries wish to export their way into growth and a balanced budget.

Desperado said...

Today Proaurum in Germany again has various kilo and fractional kilo gold bars, yesterday they were all "Nicht verfugbar". If you look at the list, over half of the coins are still out of stock. I wonder whether a drying up of the European gold market was one of the reasons that the ECB was forced into action.

Meanwhile Tulving appears to have maintained plenty of gold on hand throughout the crisis.

Since Fofoa is discussing parallel gold markets, I thought I would ask him about these world-wide gold prices set by Comex and LBMA. Are they not an artificial construct? It would appear that if this ECB "prop-up" had not occurred then Europe would have entered backwardian while the US would have been in cantango.

Also, if the major gold retailers had run out of bullion, the only source of supply would have been Ebay, where buyers can pretty much only buy single coins, and we would have had parallel markets alone in the retail market.

Martijn said...

haha so this answers our recent question of why the Saudi's and other ME oilers have not got MASSIVE posted (or otherwise) gold reserves after selling so much oil for so long!!

There is a bit more to the Saudi story then A/FOA's oil-for-gold I guess.

There are plenty of sources indicating how Washington promised unconditional support for the house of Saud in return for dollar denominated oil.

So whatever gold was exchanged for oil might not belong to the country but rather to its rulers.

Martijn said...

Actually, my understanding of 1933 was that Roosevelt wanted to devalue the dollar against the Europeans' gold based currencies since US was the global export powerhouse, and this was the only way since then the entire western world was operating on a currency peg, to gold. The US was also suffering deflation at this point in time, not inflation.

I think it did a few things.

First of all the US was indeed suffering from deflation and by removing the gold backing domestically the paper became less valuable and hence it enabled for the deflationary forces to be countered. Removing the gold backing created domestic inflation.

However, internationally the dollar was still backed by gold, so I'm not so sure what the international consequences where.

Martijn said...


You've probably discussed it before, so redirect me if possible, but how exactly do you see the notion of investment, lending and interest under freegold.

Would those of us with wealth they want to keep not lend it to others anymore? And if we did would we lend our gold for interest?

FOFOA said...

Hello Martijn,

I imagine it will be much more of an equity-based system, not debt-based. And I imagine this to be emergent, not legislated. There will still be lending for interest by the banks, but the bank's own ass(ets) will be on the line, so lending will be tight and the borrowers will have to prove merit. A meritocracy.

Investors that are not banks will be more inclined to take equity positions than debt positions. And the rest of us will do whatever we are most comfortable with, which may be physical gold in our own possession.

It will be much closer to a religious no-usury system than we have seen in at least 300 years.


Patrick said...

MTC : marked to comex
MTR : marked to reserve...

costata said...


"So whatever gold was exchanged for oil might not belong to the country but rather to its rulers."

Bear in mind Saudi Arabia is a Kingdom. As far as the House of Saud is concerned they own it all, right down to the last grain of sand.

FWIW I don't pay any attention to their published "official reserves".

raptor said...

Desperado said : The US was also suffering deflation at this point in time, not inflation

Good point,yes it was deflation. We are currently in disinflation..and at the moment Bernanke/gov! have to devalue against any other currency..
as most other countries want to do too.

And I think Europe is more probable to want to devalue against gold, once because (as fofoa says) of the ECB balance sheet structure, and second because printing even that is possible is much harder and slower to do in the eurozone, compared to usa.

Jeff said...

Martijn made me think of another question. Will it be possible to lend our gold under freegold? What system would this follow? Interest payable in dollars, I suppose?

mortymer said...

FOFOA, if you have spare time,... what is your take on why BIS abandoned Swiss gold franc in 2003 and went to accounting unit SDR? If I look at the chart its about when gold started to take off. Coincidence?

Ender said...

FOFOA, it has been a while. You carry the flag well.

Martijn, Jeff, I hope you don’t mind if I add a few thoughts to your questions regarding the function of gold in a freegold system.

It is my understanding that in a freegold system gold is the most prized asset that one holds on (or off) the books. It is the asset that settles trade. It is wealth at rest waiting to be applied.

Would you not loan your truck to someone that needed it for a short while? How might that person show their gratitude?

If a tanker of oil takes a bag of gold to settle the transaction, might there be profit to make refining that oil into fuel? If the only way to get that tanker required someone to provide a bag of gold, might there be value in loaning your gold to them?

I expect that the presence of gold will enable transactions. It will back transactions. It will be the insurance behind the transactions.

I also expect that he who owns that gold will be rewarded for their participation in enabling the transaction.

As it stands today, gold need not leave the vault to back a transaction. Some may, but to those that truly understand that gold is wealth, gold will be a tool that consistently enriches the holder’s life.

For all, stand strong and celebrate what FOFOA has so selflessly provided as a gift to you. Enjoy every day and don’t worry about the timing of it all. The time is at hand, yet it takes time for mountains to crumble.

Remember, it is the people that will bring on the freegold system. ‘leaders’ have no incentive. Buy a coin and it will come that much quicker.

Jeff said...

Gold new all time high. 1230. Drinks on me at the All inn. ;)

KnallGold said...

Anyone heard something from that Zurich meeting? It was only shortly mentioned on Swiss TV, heard Hildebrand say that there is no Silver bullet to this crisis (well I hope theres at least a Golden :-)

It was also said that the IMF needs a new role and the seriousness in aknowledging that one wants to solve this crisis.

It closed with the line that now, the IMS is at crossroads (wink wink!?)

When the meeting got announced btw I got the feeling that the IMF got an invitation from the SNB etc. to offer them saving their face.

raptor said...

Did I figured out how the Pyramid still hasn't collapsed ? What do you think ?

Currently the Fed,FDIC, et all has not only poured 1.5T in MBS,+ the last year, but they also backstopped ~23.7T loans.. this leveraged 1/30 is 711 T, approximately the derivatives market.
(Once a bank has backstopped some bad loan she can play with the money somewhere to make up the difference, isnt it ? That is my presumption of why even the backstops can be leveraged, at least partially)

So now that they have the hold on this, the pile can be slowly defaulted over time and help them print at the same time w/o visual inflation...

Don't have statistics, but does the market currently add more on top of this pile ? OR it is in generally shrinking ?

JR said...

"Executive Summary
• The notional value of derivatives held by U.S. commercial banks increased $8.5 trillion in the fourth quarter, or 4.2%, to $212.8 trillion."

Museice said...

Hello patrons of the All Inn...
As we sit around the bar discussing the wonderful world of gold I am curious as to the web sites my colleges read on a daily basis. I want to learn more and by listing our favorites I believe we can lead each other to new libations.

I read:
The Market Ticker
Harvey Organ's
Market Skeptics
Jim Sinclair
Jesse's Cafe Americain
The Silver Bear Cafe
Zero Hedge
The Golden Truth
(the best, can't get enough, thank God I found it) FOFOA
Gold Versus Paper
Max Keiser
The Daily Reckoning

I raise my glass to FOFOA.
Cheers My Friend!

SatyaPranava said...

@museice, i would only add the following to your list:

Catherine Austin Fitts
The Market Oracle (UK)
Stephen Hickel
and Antal Fekete's site.

mortymer said...

New A.Fekete article alert :o)

Martijn said...


Nice hearing from you!

I agree with you that it would be strange to let gold sit by idle waiting until you need to call it's worth for consumption.

Why not loan it in between. Even though John Locke argued that hoarding gold is not unethical, I think that their will be always enough demand for gold to allow for a price for loaning it.

If we loan it without moving, then we would get an extra currency next to an unbacked fiat one like the euro. We would get gold loan certificates.

Won't that mean we will start over repeating mistakes from the past?

Luke Garratt said...

Steven Keen's Debtwatch
Contrarian Investor's Journal
The Market Ticker
Harvey Organ's
Jim Sinclair
Jesse's Cafe Americain
Zero Hedge (though the comments have gone waaaaaaay downhill)
Max Keiser
The Daily Reckoning
Mish's GETA
Trader's Narrative
Inca Kola News


costata said...


Thanks for the notice on the Fekete articles. Worth reading IMHO.

Museice et al,

You guys have covered most of my regular online reading.


IMHO Axel Merk presents a very good analysis of the EU fund announced this week.


Martijn said...

Jim Sinclair believes the SDR will take over the reserve role of the USD.

FOFOA seems to think the Euro stands a better chance as it is designed to cope with high gold prices.

In the past weeks the US was showing Europe it's power by banging Greece and the Euro. Perhaps they are trying to force Europe into SDR backing by showing their power.

So what does all the European printing prove.

Are they scared yet, will they join the SDR?

Martijn said...

Thanks for that link, costata.

Jimmy said...

Also don't forget to visit these sites:

Gordon T Long, Tipping Points

Jim Puplava Financial Sense

George Washington Blogspot

John Mauldin, Investors Insights for good technical analyses

The Daily Bell, my each morning read with coffee...

And the rest of the given sites above (Satya, Museice and Luke), are also my favorite blogs.

Jimmy said...

And forgot this one:

Between the hedges


Jeff said...

Thanks to Ender and Martijn. I am glad that you believe gold lending will be practical and legal in a freegold system. I hope to use gold in a productive way in the future.

mortymer said...

Martijn, Jeff, Ender: Quite much about gold lending is in Fekete last articles... there may be some nice thoughts for you.
Museice: What about:
kitco, 24hgold, ecb, bis, CBs, tech and history, etc., etc., + technical/multi-area pages, nobody? Too much of reading others, what about own research like Martijn?
BTW: This seem to be to me quite important:

S said...

Note the article this am by Handelsblatt saying the ECB was bought into the buyout by agreeing to axel weber as next head. Then there is this from the following which is pure rumor but interesting nonethless...

"Deutsche Marks Vs. Euros Long Term

A 'news tip' which we take with a grain of salt from a news tipster says...

I'm working at the Deutsche Bank in Germany. Today we delivered 1 container with new Deutsche Mark notes and new coins. I will present a photo from the new banknotes tomorrow morning. The curency change will be the night from Saturday to Sunday 5/16/2010. On Friday, 19.00 GMT Angela Merkel the germany chancelor, will speach to the german nation.This Blog reports that France was close to collapse last week. Only in German.

The note then offers a translation attributed to "The Bullionaer" site which asserts:

"End the grandee nation The backgrounds of the dramatic rescue operation of the last week-end appear so slowly. The problems did not lie with Greece, Portugal or Spain. Since the PIIGS virus has struck the present stability anchor of the euro-space, France. Or in plain words expressed: In the end of the last week France stood before the collapse. The grandee nation is same with 911$ milliard dollars of the principal creditors of the PIIGS states. "


"After during the past weeks merely the known debt problems of Greece had determined the debate, the last week the historical project of the euro seemed in danger. Before the euro-summit of the heads of state and head of government on Friday in Brussels the situation escalated and forced the EZB to the intervention. "Suddenly only German federal loans were liquid, yet any more good French state titles", a euro-mark banker does not explain the compulsive situation. "It had to be traded - without taking into consideration losses."The panic was written Sarkozy in the face."

Martijn said...

France did get some attention from traders.

Jimmy said...

Strange article on Bloomberg:

Gold Coin Output to Drop by 32% on Demand, Austrian Mint Says

And on Zerohedge:

Panic Buying Of Physical Gold In Europe Threatens Depletion Of Austrian Mint

Who's right now?

Kewl said...

Hey Jimmy!

Check the date of the article on Bloomberg :)

FOFOA said...

Hello Jimmy,

Considering the first article is over 6 months old, I'd say the second one is more accurate. Looks like the Austrian mint sold 37% of its projected annual sales in the last two weeks alone! And that's just in Europe. Oops.

Also remember that as Freegold unfolds, any gold-buying or coin-minting trend estimates denominated in weight are deceiving, and considering the source, often intentionally.

As demand explodes along with the price of gold the trend measured in ounces will be much smaller, will be flat, or may even decline. Eventually the flow of gold measured in weight will go to zero when gold "goes into hiding" briefly. But even then, when measured in dollars, flow will be huge! Very deceiving.


Ender said...

@Martijn, I believe that you are basically correct. If the ‘gold loan certificates’ have a ‘face value’ and become commonly used as currency, then we would once again have an inelastic currency that the local political organizations would make fractional. They effectively want the ‘face value’ for free.

This happens every time we apply a numerical denomination to a weight of gold and allow settlement in the actual currency. This is the system that we have today.

In a Freegold system, the exchange rate between currency and gold is always available at the current ask/bid in the physical market. Anyone that wants settlement out of an economic unit of trade (a currency) will be able to step away with no currency - fully paid in physical gold.

‘Gold loan certificates’ are a derivative of gold. One does not receive settlement by acquiring them. One only acquires more risk by carrying this paper because the risk as been reduced from the entire economic unit down to a specific party that must perform.

As long as people don’t want settlement, we will have derivatives of gold. As long as people want to collect interest on gold, we will have gold derivatives. Ultimately, there must be an avenue for settlement or we get the same problems that we have today.

The governments are going to print their currency for free, hold your coin. Execute your right of settlement. Be careful if you enter into a gold loan. As the payee, you may have to come up with gold at a much higher price. As the underwriter, you may not get your gold back – is it worth the risk?

raptor said...

itulip, jesse, market ticker, ZH, (hilarious),,,,

and my favorite blog :

he he...

Martijn said...

That's a sensible reply Ender.

Perhaps we shall go back to investing as it was supposed to be done (more close to the religious no-usury system FOFOA mentioned indeed).

Desperado said...

This afternoon, Switzerland put up a special message saying that "due to excessive demand we are shutting down our online purchasing system".

Now that the day is finished, I went to their price list, and every single PM item is "nicht verfügbar". Ditto

Meanwhile Austria sells more gold pilharmonics in 2 weeks then in the entire first quarter of 2010, and UBS says that coin and bar sales are through the roof.

It would appear that Austrian, German and Swiss investors get it...

Fauvi said...

Why do Europeans react that quicklyey s
Are they smarter or is the danger bigger?

stibot said...

"Why do Europeans react that quicklyey s
Are they smarter or is the danger bigger?"

I believe it is because they still "remember" hyperinflation in Germany, they have savings not debts and they are not brainwashed by MSM about sole status of their currency.

Jimmy said...

FOFOA, Kewl,

Yes, the second is important, because I remembered the first article on Bloomberg, so you could calculate the supply after the record sale...

Muenze Oesterreich AG aims to cut production of Philharmonic gold coins to 650,000 ounces in 2010 Source: Bloomberg



= 406,500 ounces after record sales


total goldsales Q1: 205,000 ounces source: investorvillage

= 201,500 ounces available for the next 7 months (!)



Jimmy said...

Jim Willie argues on financial sense:

No charts are necessary. A thousand words might suffice, rather than six charts showing Gold breaking out to new highs across the world. Some major points scream to be told. Here is a list:

* Gold is rising in every single major currency
* Gold is not a hedge against price inflation, but rather against ruined monetary system
* Gold is making new highs in almost every single major currency
* Gold had consolidated in price for four months, the base for breakout
* Gold will reach $2000 in price within the next two years time
* Gold is desperately needed to anchor the failed fiat paper currency system
* Gold is planned for a component role in the new Northern Euro currency
* The sovereign debt crisis has fueled demand for Gold without the full realization that the central bank franchise system has failed along with the fiat currencies
* Quantitative Easing is monetary hyper-inflation, the fuel of the Gold rally
* Gold is urgently needed as a bank reserve to ensure proper function
* Gold contains no inherent counter-party risk
* Gold is in the midst of vast supply shortages
* The Gold Cartel is seeing defections among its allies, who are buying gold bullion after the cartel knocks down the price
* Nations are hoarding their gold mining output, the latest possibly Venezuela
* Gold is seeing panic buying in parts of Europe, like Austria
* Gold mining output is trending down for the past few years
* Gold was by far the #1 investment asset in the entire 2000-2009 decade
* The US Dow Jones Industrial Average is in multi-year decline, in Gold terms
* Gold is protected from human corruption, except in its theft and hollow replacement
* Gold market is receiving heavy scrutiny for corrupt metal exchanges
* The London Bullion Market Assn has been in default since December, bribing on delivery demands to receive cash settlement with a 25% premium paid
* The GLD gold exchange traded fund is a corrupt diversion from metal ownership
* Hong Kong is soon to offer several exchange traded funds for Gold
* Gold can and does rise in price concurrently with the USDollar
* Future payment for oil shipments will require a gold-backed currency
* New barter systems of trade will contain a gold core component
* Gold is the ultimate safe haven asset
* The USTreasury has no gold reserves, as Fort Knox is empty, since the Clinton-Rubin gang leased it and sold it all
* PIGS nations have more gold reserves than the United States
* Switzerland and Canada have almost zero gold in national reserves
* The IMF gold sales are lies, actually closed out USGovt gold short transactions from past years when the Clinton-Rubin gang leased gold for sale
* Gold leased from the Italian central bank was lost by LongTerm Capital Mgmt
* Bear Stearns was targeted for a kill, since it was long in gold, defying Wall Street
* China participates with the IMF sideshow game in order to buy its gold pledges
* If Gold were revalued at 3x to 5x the price, many national banking systems would be restored to health and solvency
* Price hyper-inflation is the likely next blemish on the US landscape, which will fuel broad public gold demand
* Any attempt by the USGovt to confiscate gold would result in a gigantic backfire, with the gold price doubling in price, and US foreign assets subjected to freezes
* Gold will reach its high range when US bankers along with London bankers face a Nuremberg style criminal trial on the global stage
* Prepare for the arrival of a small group of new Gold-backed currencies, the USDollar death knell
* As John Pierpont Morgan once stated under oath before the USCongress and the Pujo Commission in 1913, "Gold is money, and nothing else"

Jimmy said...

UK's economy ‘worse than Spain’, Ian McConnell, Business Editor

Jimmy said...

And related to my remark on May 12, 2010 2:23 PM

Austrian silver shortage (!) (Dutch version)

Sigo Plapal said...

I would only add to the list. It looks like we all make most of the same rounds.

Mark said...

I am struggling with this two-tier price system. If the "size" price is somewhere between 6K and 30K and the "plebe" price is 1.25K one would think that all of the plebe gold would be completely sold out, like the choice airline reward seats. Even if "oil"/Russians/Chinese were careful not to spike the price, the word would get out quickly enough and private associates of these entities would be buying like there was no tomorrow.

Moreover, on the commodity buy/sell sites out there one can find mandates for buying and selling gold for a 6% *discount* (or even more) to the london fix. You can see mandates for 100MT all the way to thousands of MT.

I also don't quite understand how ANOTHER comes up with $6K/oz back in '98 for the "size" price.

Luke Garratt said...

From my slowly growing understanding I would have to agree with Ender, and the observation that there is no true monetary extinguisher of debt (ie settlement) other than for gold is explained well by Fekete. However, the danger in a fully backed freegold system will be the deflationary effects of significant hoarding of gold, as the velocity of gold is reduced. This is where the role of investment comes into play during times of certainty - and during times of uncertainty the reduced velocity and thus deflationary effects act as correct bubbles and bad investments.

costata said...


Allegedly Jon Nadler is offering sponge baths to those in need of some relief from the feverish action in gold and silver.


PS Reading the exchanges here with great interest and appreciating the links. Thanks.

costata said...

FOFOA et al,

Re: IMF and SDR

Robert Mundell, "Father of the Euro", tells this story in the speech linked below.

Keynes had asked Morganthau at the Bretton Woods meetings why the US referred to the IMF as a fund and the World Bank as a bank when the labels should be reversed."


Apparently the Americans considered alerting the US public to the fact that the IMF was designed as a one world bank to be political dynamite for Roosevelt.

Therefore it may assist our discussions about these issues if we bear in mind that the IMF was set-up post Bretton Woods as the World Bank and the "World Bank" was set up to be the international development fund.

If you want further evidence look at the activities and mandates of these two institutions. For example the IMF can create "base money" while the World Bank cannot.

As we all know both of these institutions are controlled by the Anglo-American PTB.

Accordingly I speculate that the current push by the (Anglo-American controlled) IMF to make the SDR the new international reserve currency is an attempt to retain power in the post $IMFS world.

Perhaps the trade-off is some power sharing among the G20 nations who can be betrayed later by the Anglo-American PTB. Let's face it, they have a track record of doing this (think Roosevelt and Nixon).

In the opposite corner, as A/FOA originally informed us, we have the BIS as the alternative Central Bank of Central Banks (World Bank) + their allies and the Euro Freegold project sponsors + their allies.

Does anyone else see this as a plausible interpretation of the situation?

Martijn said...

Does anyone else see this as a plausible interpretation of the situation?

I do, I was trying to say the same somewhere above.

Sinclair probably believes it too.

I think the Greece-bashing was a way to try to convince Europe to join.

However, the US/IMF might soon run out of time as attention will shift to the UK and California, and demand for physical is rising very rapidly now.

Some shops are temporarily closing, and Harvey Organs says: This increase in OI is real. Demand for gold around the world is very high. I will highlight in the body of the commentary
huge demand for physical gold.

The All Inn is getting crowded indeed.

Martijn said...

Guess people don't need to store their own gold anymore.

JP Morgan to open vault in response to high gold demand.

Martijn said...

Nice quote on the Fed's balance sheet by Max Keiser.

Jeff said...

new jim rickards interview:

Martijn said...

I wouldn't preclude countries agreeing to the SDR.

In the end it is a political game. If Europe decides to go with the Euro it will have to fight the US, which will not prove an easy fight.

And the Euro would leave countries such as China and Russia without much of a say.

In the SDR all can at least perceive they have a say, and sell it as that to the people.

And even though it's not optimal it might be considered the best option to keep world trade going at the moment.

A battle between the EUR and the USD is less likely to.

In the past all countries kept the dollar going for the sake of world trade, even though the dollar gave to US a significant benefit at the costs of all other countries.

Martijn said...

An important question would be: what will the SDR mean for gold?

If it (the SDR) gets sold, it might again allow for gold to be suppressed.

Perhaps at higher levels, but it still would not have to trade freely.

The run on physical gold going on now is most likely forcing those in favor of the SDR to act now.

We will hear more on it soon I reckon.

S said...

apmex sold out of krugs, maple leafs and philharmonics 1oz...

Per my earlier post fx crosses being pushed to parity to spring the sdr - Jesse has come comments on this per Rickards

No doubt the action in metals and gold physical will have to be bought off at some point the question is how - part of the basket?

wonder what thoughts are on the success of a move to SDR and its impact on the fx markets - the deepest market in the world. Why would Germany lock into a SDR basket handcuffed to the Euro? Why would any northern European country do so and have themselves duiluted in the SDR via consensus building in the ECB?

A move to an SDR is relativily meaningless if the current oil, trade and tariff paradigms remian intwact. It mearly subsitiutes worthless paper with paper by a different name

Tekin said...

No gold in Germany?

Mark said...

Hi, I'm a newbie here trying to learn all about this economics stuff. One thing I was wondering, which I am sure is answered somewhere, concerns the contraction of the money supply when all the mortgages and loans default after interest rates rise. Won't this counter inflation, allowing the government to monetize more debt? Will it only provide temporary relief?

Mark_BC said...

Oh and that is a different Mark above. I just changed by handle now.

samix said...

fofoa actually what nader said was

"Gold is a two-way market, so I would like to see that same machine buy back that gold and spit out cash," said Nadler.

Cut paste quotes out-of-context can make someone look very evil.

Don't mean to point a finger at you, something that I just observed reading that link.

MaC said...

"Gold is not used up in industry like other commodities"

WHAT ? I am sorry but it is indeed used extensively in electronics aerospace etc etc...

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