Thursday, August 19, 2010

Two!


As I told someone recently, my blog is not written for the gold novice. The concepts and principles I entertain are not found in any Gold 101 class. If you find them interesting, you should probably go read ANOTHER and FOA and then come back. In fact, you should probably read them a couple times to really understand where I’m coming from. The links are to the right.

This weekend my blog turns two! And over the past two years I have watched the number of regular daily visitors grow from 30 to 3,000. Very roughly, that’s an exponential growth rate that transpired at about one order of magnitude per year. From 30 to 300 the first year. From 300 to 3,000 the second. And these are the people that stop by almost every day.

To some extent, I believe this growth has a natural limit in the size of the online gold community. Because while my regular daily visitors have grown, the total number of views on certain posts that received wide distribution remained pretty much the same. Ranging from 10,000 to 20,000 readers total on the top posts for the last year and a half.

I share this data without interpretation.

My posts can certainly be read for their face value only, which is how most people read them. And at that level, most counter-points to my concepts appear relatively straight forward. But there is a deeper level of understanding that is available. And at that level comes a certain reward, which some of you know. The rest of you have no idea what I’m talking about. That’s okay. Perhaps I’m crazy! Onward…

Setting the Stage

To set the proper frame of reference for this post I am going to paraphrase/quote from a couple recent articles and then summarize the relevant perspective. The first article comes from the Wall Street Journal yesterday and the second from Bloomberg a couple days ago. What I hope you’ll pay attention to is the concept of “The West” as a distinct entity on this planet.
How to Win the Clash of Civilizations
By Ayaan Hirsi Ali
WSJ

Paraphrased for meaning and to avoid receiving a copyright violation notice from Dow Jones:

In the mid-1990’s, the late Samuel Huntington coined the term “The Clash of Civilizations” referring primarily to the clash between “The West” and “Islam.” But there are many more than just these two civilizations. There are perhaps seven or eight total. But the most important three that are the building blocks of the post-Cold War era, according to Huntington, are the Western, the Muslim and the Confucian.

The balance of power among these three civilizations, Huntington argued (a year or two before Another started posting), was shifting. The West was declining in relative power, Islam was exploding demographically, and Asian civilizations—especially China—were becoming more and more economically powerful. He also said that a civilization-based world order was emerging in which states that share cultural affinities would cooperate with each other and group themselves around the leading states of their civilization.

This view was not popular with the powers that be in The West. Their vision was for One World, a New World Order if you will, based on Western norms. Huntington’s paradigmatic view of a multipolar world was rejected from the left by those who believed all states could be brought together under a single standard of liberal capitalist democracy and never go to war with each other again. A one-world utopia, if you will. And from the right by the equally rosy scenario of a "unipolar" world of unrivalled American hegemony. Either way, Huntington’s detractors believed we were heading toward “One World” (presumably under the financial rule of the $IMFS).

China Drains Obama Stimulus Meant for U.S. Economy
By Andy Xie
Bloomberg Opinion

Partially paraphrased for brevity and relevant meaning:

Deflationists in the West are in for a rude awakening, probably in 2012. Stimulus is the only thing the West ever does when a recession hits. But in today’s globally-connected economy (where dollar inflation is automatically exported abroad through its reserve function) it isn’t effective in the best of circumstances, and is outright wrong for what ails the West right now.

Trade and foreign direct investment total half of global gross domestic product. Multinational corporations drive both. They shop around the world for the lowest-cost production centers and ship goods to wherever the demand is. Demand and supply are dislocated (unbalanced and bass-ackward). So when a government introduces stimulus, the initial increase in demand doesn’t necessarily boost local supply.

Just as water flows down, [Western] stimulus affects low-cost [Eastern] economies more, wherever it is initiated. As the West pours money into the global economy through large fiscal deficits or central banks expanding balance sheets, the emerging economies are drowning in excess liquidity. Everything is turning red-hot.

The ideal end to this East-West goods-dollars exchange would be for the multinational corporations to shift production to the West because the cost of labor had shifted. This would have to happen before inflation takes hold in the West. This is impossible because the cost of labor in the West is still 10 times more than in emerging markets. And there are five people in the latter for one in the former.

The more likely scenario is that the West will have to stop stimulus programs when inflation spreads to it from the emerging economies. The most immediate channel is through rising commodity prices. It’s a tax on the West to benefit emerging economies that produce raw materials. That’s the irony: The stimulus in the West can immediately bring harm to itself. It’s also the magic of globalization.

The prices of imported consumer goods will rise with increasing labor costs in emerging economies. China’s nominal GDP is growing at about 20 percent per year. The odds are that its labor costs will surge as its worker shortage bites.

Lastly, labor in the West will demand wage increases to compensate for current and future inflation. One may argue that high unemployment rates will keep wages in check. Think again. In the 1970s, the U.S. suffered a wage-price surge even with high unemployment because workers saw through the Fed’s “growth first and inflation be damned” intention.

In 2012, the Fed will run out of excuses not to raise interest rates. As the excess liquidity in the global economy will be gigantic by then, the tightening will probably trigger a global crisis as asset bubbles burst.

What really ails the West is declining competitiveness. Globalization is pitting the Wangs in China or Gandhis in India against the Smiths in the U.S. or Gonzalezes in Spain.

Multinationals such as General Electric Co. or Siemens AG decide on whom to hire. The Wangs and the Gandhis offer productivity but have little money. So they are willing to accept low wages to accumulate wealth. The Smiths and the Gonzalezes have wealth and won’t accept Third World wages. When their governments give them money to spend, their demand just makes the Wangs and the Gandhis richer and themselves poorer with rising national debt.

When ANOTHER began writing in late 1997, the terms West, Western, and Westerners were prominent from his very first post. We know from later revelations that ANOTHER was himself a Westerner. And we also know that he was writing specifically for the benefit of Westerners, “Western Gold Bugs” in particular.

I believe ANOTHER’s delineation of the West as a distinct group in need of a new frame of reference regarding physical gold is one of the most significant and underappreciated concepts in the entire archive. And the shift I believe he described is so all-encompassing as to say everything you think you know about gold, the gold market and the biggest players in that market is mostly wrong.

I believe this is still true today. That most of what you and I read about gold today is wrong on some deep level. And that herein lies the puzzle that is yet to be solved.

In my opinion, the portions of the above articles that I used set a nice frame of reference for the rest of this post. What I have done is quite simple. I have compiled almost all of ANOTHER’s paragraphs that directly referenced “The West.” Most of the paragraph breaks do represent contextual breaks within the original archive. Yet viewed together as presented here, with the above perspective fresh in your mind, they reveal a few remarkable pieces to the puzzle.

This type of exercise I sometimes do on my own. Today I do it for you. Enjoy.

ANOTHER

Westerners should not be too upset with the CBs actions, they are buying you time!

The Western governments needed to keep the price of gold down so it could flow where they needed it to flow. The key to free up gold was simple. The Western public will not hold an asset that is going nowhere, at least in currency terms.

Ever notice how many important middle eastern people keep a residence in London. It's not because of the climate. The most powerful banks in the world today are the ones that trade oil and gold. It is in the "city" that the deals are done by people who understand "value"! Westerners should be happy that they do because the free flow of oil and gold has allowed this economic expansion to continue these past few years.

The western world today, as we know it does not use money ! They use "paper currency". To fully understand what that really means you must come to terms with this fact. "When you use paper currency you are placing a value using another persons concept of value" You are using a thought as a means of value! When an investment in stocks, bonds, bank accounts, CASH, businesses etc. is priced in US$ currency you are really holding the "intentions of providing value" locked away in the thoughts of another mind.

One of the great money troubles facing the western currency system today is that many third world people are starting to put a "mind value" on real money, gold. These people don't know the true value of gold money but they know its worth a whole lot more than the world paper currency price now placed on it. And that brings us to the next problem; how can paper currency that represents "the thoughts of a nation blowing in the wind" be used to value real money of ancient world class proportions, gold? It cannot! Any price you can think of will do, as in no price will work!

If the world price can be maintained in the $300s it would be a small price for the west to pay for cheap oil and monetary stability. The battle is now between CBs trying to keep gold in the $300s and the "others" buying it up. In effect the governments are selling gold in any form to "KEEP IT" being used as 'REAL MONEY" in oil deals! Some people know this, that is why they aren't trading it,, they are buying it.

Asia put an end to a sweet deal for the West! From the early 90s it was working very well. But now… The problem with gold physical supply is very real indeed! But, there is no way that the CBs will continue to sell off an asset for its commodity price that has many times more value as money!

Western thought is still linked to gold as a commodity. That thinking is going to change! The world will witness an almost instantaneous run into this commodity the likes of we have never seen before! It will not be "a trading rally" or "a two way street". Bullion will have become a holding for "the lifetime" never to be sold. "Sell and spend everything but not gold"!

If a bank that uses Yen has lost 90% of its loans and holds gold and bullion has risen 500% in yen in a week, to use a western way "would it cut its winners and let the losers run?"

Who can know the thoughts of the "Big Traders" of the world? If they press the physical market, it will end tomorrow. They are by no means dumb as they sometimes show! Most would like to keep their gold at today's price and allow the economies to continue in prosperity! In time and with luck it could all be worked out. But, it is the equity/debt/currency markets in general that are a problem! If only a small, very small very few "western people" begin to buy?? Remember, the other world no ones have gold in their hand. They care not about YOUR debts, these small people have won a great deal and know it not.

To make a long story short, many people who would have purchased bullion years ago have now squandered much of their "safe insurance money" on wall street. It is no wonder that many WESTERN gold investors have now turned bitter on gold. If they knew the truth about this new market they would have turned their bitterness on wall street instead.

Try to live in this outcome and see how different the world will be. It will not be the end of all things, only the changing of most things in "western thought". The "Digital Currencies" will still trade, but we will value them as not before. Anyone who has sold gold they do not have will not be allowed to cover that position. Anyone who has bought gold they do not have will not be allowed to cover that position. Many will lose all they have in a world without honor! Looking back, one will ask, "how could I have thought that noone wanted gold, when more of it was being bought than existed?"

The falling price of physical gold only hurts the mining industry ( and its stockholders ) and leveraged paper buyers. All others benefit from a lower value of gold. Look now as even the western public are buying coins. They help themselves even in the face record Dow Jones.

Will the BIS try to settle this unbalanced market by destroying LBMA? Or will they drive the CBs to lease another 20% in an effort to inflate this "paper gold currency". Just like the fiat dollar, if inflated it loses value. This is not lost to the oil states.

If you owned an oilwell in your back yard and no-one could take control of it, then oil is the best investment. But, most people use various forms of western paper to trade oil and that paper will burn in a currency fire. Make no mistake, a currency fire is now in process and it has much fuel remaining. Even Korea will find out that oil is all that counts. Their paper will die! Gold would have helped them in a different world, but for now gold is in the background as the IMF tries to add more paper to this inferno. If one owns real gold , it will be with ease to view the world currency developments. They will be truly of biblical proportions!

I ask you, when your worth in the ground is equal to much of the earth, is an IOU of the same future value? Only gold has such a history book for reference. These people do not trust foolish thoughts of value from western minds. That history book is only in the first chapter.

This same mindset creates a worry in the back of many a mind in the oil states. It is clear to most, that even a small amount of gold in the asset mix, makes one appear "less western" and therefore "less foolish" when the concept of value and currency are discussed. But, the problem has always been that oil is "so large" in relation to gold that any attempt to convert, even a portion of ones assets creates a distortion in the markets. Of further concern is that; everyone knows that western minds don't like or want gold, but if they think you like it they will trade it up in price for the sake of "sticking it to you".

Enter the world of "paper gold".

You and all western minds must weigh this offer as it is heavy for your side! A great many losses will be for the holders of debt and paper things, but the gains are for a better life.

Thru these "thoughts" I have made effort for many months, in haste, to make clear. My words are plain, but hard, and others have presented this truth in a western way. But, you sir, have made the best of it!

As a "currency of gold" springs from this wind, western trading in this metal will end. The "terms" of all currencies will change as the "use" of these moneys is changed. Many will now know true worth as the "terms" of every asset does find a "real price" and a "real value" in the "true world of things". For the future of most, "the wealth that was shown in paper" will be seen as clouds in the sky!

The gold market is made up of a very broad spectrum of investors. At the very farthest ends of this spectrum lie the persons with the largest influence on the physical bullion. The super wealthy at one end and the "third world no ones" at the other. The middle is occupied, mostly, by the "investors with western thought". The far ends buy bullion. And they don't buy it as a gamble or a game! It is a way of life that has worked, through thick and thin, even before the West was "The West".

Now, on the other hand, this "modern day middle of the spectrum"! Well, they have read why we need gold, but they have never "Experienced" the need for gold! Until that day, when they gain "Experience", most of them will make "A Gamble That They Never Intended To Take". Yes, they do invest in all forms of paper and or leveraged gold and all the while, expounding from the roof tops the coming currency crashes and stock market declines. Even looking for bank closures and bank runs, as they cling dearly to comex options and gold stocks!

Anyone, from the outside looking in can clearly see that "westerners" do lack "experience".

There is a "flaw" in this modern market that many do not quite grasp. In time, they will! There have always been people and companies that make a living dealing in gold. It is an ages old business. Today, we see a phenomenon that is "as none before". It is mostly done by the investors at the middle of the spectrum. The "trading of gold" has grown to a level never seen in history! You read every day, that no one wants or needs gold! In a way those statements are very correct! No investor wants to hold gold, but everyone and his brother ( and sister ) want to trade it! The volume of paper trading, worldwide, on and off market is beyond belief! It has created a type of "Parallel Paper Gold Universe", existing side by side with the physical. The major "flaw" in this system is found in the makeup of the "traders" of this "paper gold universe". Without fail, the majority is made up by those in the "middle of the spectrum", those without "loss of currency "Experience" ". Mostly, they are of "western thought".

I have tried to offer these thoughts as a way for many to understand why this modern gold market is not as before. Most of these letters apply to investors at the far two ends of the market ( see my last post by another ) . Many, from other places, do understand these "expressions" as given. For many here, I resist the replies to questions that offer results for "gold traders". The intents and reasons are for persons to "consider" and "see" this market in a true light for today. Not for paper trades that will lead to certain loss for the future. I now believe, that by way of other posters, these thoughts are "in grasp" by many traders of "western thought". One may not "accept" the conclusions, but they can, "mentally experience the outcome" of the future. For this end I will now offer real direction. That of Why, When and How Much! I do this for those of "Family and Country", and persons of Honor. Those that live to help, not take, in times of change! Some say this knowledge should not be in a "public way", but I say secrets are for fools.

We must grasp that all commerce is done, at least, in the US dollar concept of "valuations of real things". In this way, " the true value of the purchase of real money" is hidden from view! Persons will say in the future, "how could gold be $500 one day and $5,000 the next"? I tell you now, it is already past that level, as in "present reserve currency dealings" it is not seen! Consider, that in all that you do and think, your "western values" are of paper concepts. From your birth, real things are not used to cross value themselves! When the battle to keep gold from devaluing oil ( in direct gold for oil terms ) is lost, the dollar will find "no problem" with $30,000 gold, as it will be seen as a "benefit for all" and "why did noone see this sooner"?

This question from you, it proves for my eyes what I have said. Indeed, if I viewed as a western person, gold money as $30,000 paper dollar credits, my thoughts would also show "this cannot be"! But, from another world, I view this US$ and say "how can it be of such value to all and have numbers as the stars in heaven"?

The Western public has always thought of gold as money. Even after the 70s and 80s, most private investors held a small side thought, that gold was still, somehow dollar money. It was only during the late 80s and 90s that people started to completely lose the connection of paper spending money and gold. Clearly, all evidence shows that prior to the 90s and particularly prior to the 50s, the push was to change the public's thinking away from gold money, to paper currency as money. In this political climate, gold mine investments were the correct move, as the business of gold was encouraged over the usage of gold as money! That is why the metal was called in and the mines were untouched.

However, today, the change will be counter to the prevailing public opinion, that gold "is not money". The world debt system and currency exchange, as we have now will implode and leave little room for political maneuvering. The governments will revalue gold and "demand" that the public carry it and use it! It will be the source of all gold, the mines, that will be controlled! That's Controlled, with a capitol "C", not confiscated!

The Western mind does focus on "what I buy today for the lowest price". Yet, in this modern world economy, the lowest price is always the function of "the currency exchange rate"? The Yen, it is compared to the dollar today, and used to purchase goods. One year later and the Japan offers these goods for much less, as the Yen has fallen to the US$. The currency value of this purchase, was it "true " today or a year ago? Understand, all value judgments today are as subject to "exchange rate competition"! It is in "this exchange rate valuations" that the private citizen does denominate all net worth! A safe way to hold the wealth for your future, yes? You should ask a Korean or the Indonesian ?

Please understand, this "gold trading arena", both physical and paper, will be subject to "GREAT" surges, up and down, in US$ pricing. The removal of the political "world dollar settlement" price of gold will revalue this asset in terms that noone of "western thinking" can understand. This "gold war" will leave a great landscape of burned and destroyed "gold companies" along with the investors who "stood for battle without real metal" as a shield!

For many, the years have passed and this noble metal has not revealed the value it hides. Ones of western thought have held long and strong, with great demands that it should obtain a high price in American currency terms. Yet, in some two decades of time it was the dollar and paper investments that bring forth their hidden strengths. For you, this history has proven gold is without value in these modern world economies!

My friends, events will change your thoughts. Often you are sold gold that is called "deliverable", yet the broker does lend you much percentage cash to buy. Perhaps this transaction is "deliverable after full payment" and as such the broker doer deliver "little real gold", yes? Much of the western world does "attach" to gold in this form. This metal is sold with the "modern concept" of "gold is the commodity for fabrication" and "is dead as money" in "this new era". This "concept" say that only "leverage" and "trading" does add to your estate. In this fashion, many have lost the long term benefits this "world class money" will soon bring. These persons wait for the event that does not come. In the future, many "salesmen of leverage" will tell stories of the fact that could not be. "The demand for gold "the element" will vanish, as the dollar price for "gold the money" does soar". What chart will be used to view this new high gold price, that will remain, for many years, "unaffordable" as a commodity, yet all bid for daily as the right to buy "money"?

I would say, all forms of physical gold is good to own. Even the rare ones offer the "art form", yes? Even in war, the art work is looted first, then the jewels, and always food. I prepare for not the war of men, but the war of currencies! This conflict will bring forth a new concept for many: "western governments will encourage people to hold physical gold"! When the Euro has defeated the Dollar, citizens will be asked to use gold as a savings, for holding the Euro will be frowned on. Gold will not bring your "capital gains tax" as the mines will be taxed to compensate.

Yes, rare gold will be good, but not as liquid as "bullion type" gold.

Many savers consider "no need for the gold". As spoken to Mr. Kosares, I think these investors of "young eyes" do not know the value of this insurance. Please add the amount you pay for the "Western insurance" of all personal things. The Automobile, House, Health, Life and Other. What is the "return on this investment"? It cannot be known until time to collect, yes? Perhaps, a fortunate person will find "never a return".

The physical gold, this money insurance, it will be collected in future. In that time, the return will be easy to see.

Thank You


Conclusion

I hope you enjoyed my little exercise. I have done it in the past with other search terms like “BIS.” It is always an enlightening experience to read his words written over the period of a year within a condensed focus parameter.

As I said above, we learned that ANOTHER was, himself, a Westerner. So what subset of “The West” might he be representing? I think the following gives us a bit of a clue.

5/5/98 ANOTHER (THOUGHTS!)

[**USAGOLD questions in italics**]

Mr. Kosares,

A few thoughts for you, as the questions are asked?

** It seems that both you and your friend believe that the world is splitting up into currency/trading blocks -- much as the world did for both World Wars. There has been much discussion around the world about the imposition of a NEW WORLD ORDER and international one world government. Simultaneously, we see another, opposing force at work -- regionalism, nationalism, even tribalism. What do you make of this? Is the Euro a child of the forces of the New World Order, or the forces of regionalism/nationalism/tribalism? **

Sir,

I would say, "Old World Order" to return. To understand/explain better: " A very easy way to view this "order", would be to simply say that the American Experience is reaching the end! As we know, world war two left Europe and the world economy destroyed. Many thinkers of that period thought that the world was about to enter a decades long depression as it worked to rebuild real assets lost in the conflict. It was this war that so impacted the idea of looking positively toward the future. The past ideals of building solid, enduring, long term wealth were lost in the conception of a whole generation possibly doing without! In these fertile grounds people escaped reality with the New Idea of long term debt, being held as a money asset. Yes, here was born the American Experience that comes to maturity today.

New world order, regionalism and tribalism are but modern phases that denote "group retreat to avoid paying up". The worldwide currency system is truly a reflection of an economy built from war, using the American Experience, the US$ and the debt that it represents. But, for the American dollar to continue as the representative of the global financial system, in the form of being the reserve currency, maturing generations of all countries must accept it, and the tax on real production it clearly imposes! In the very same mind set, that people buy the best value for the lowest price (Japan cars in the late 70s), and leave an established producer to die, so will they escape the American currency and accept any competitor that offers a better deal. Because we are speaking of currencies here, the transition will be brutal!

As you ponder these thoughts, consider that; all economies today are truly equal in production as the exchange rates are the manufactures of profit!"

** Is Europe (led behind the scenes by the BIS) an opponent to the United States?**

Sir, Yes, but not in the ways of war, as it is in the feelings of "pride" and "we go our own way". The downfall of the Russia, did allow for the Euro and all that it will build. They now see the debt of the US$, as a reserve money can be escaped! As even the US citizen will leave its own workers to die as products are purchased "overseas", how much less will the world also flee the dollar! Opponents? No, I would say they are learners of the "American Way" as they embrace the "American Idea" of a "free world market economy".

*** If so which countries are in which camp? Your associate seems to feel that Asia is split between the United States which has Japan as an ally, and Europe which has China as an ally ( a notion I found particularly intriguing). Where is Britain in this? Japan? And most importantly, the Gulf States, particularly Saudi Arabia? **

Sir, I feel he is correct in this thought. Europe does grasp for a relationship with Asia as the US did have with the Japan. It would build a mighty economy on a foundation of oil and gold as backing for new money. As China and Arabia was once a part of the Europe economy, in a small way. They may now return with no fear of Russia. Britain? A lost nation. Japan? This one is "of the American Economy" and is to live and die by it! They will seek your Alaska oil before loss of face with gold. A dead Yen be a dead Japan.

**Along these lines, I too believe that currency movements will flow through Europe because the Euro currency will be gold backed. Where does that leave Japan with over $200 billion in dollar reserves, let alone its massive U.S. Treasuries' holding? **

Perhaps, they be like Korea? Rich in paper until the world says, "this paper, it is not good"!

***Your associate says that BIS helped China increase its gold holdings. Please tell me what the source of that information is, or is it simply a speculation on his part. ***

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.

**One other item you might clarify for me is "Who is really behind BIS?**

Perhaps, "who control them"?

**The Swiss?

Yes.

**The eurocentral banks?

Yes.

**Who does BIS really represent?

"old world, gold economy, as viewed thru modern eyes" or " way to move from US$ without war".

**Why was Saudi Arabia just included in BIS?

answered.

**Has Saudi Arabia gone with Europe?

Yes.

Sir, there is much more to this, but we talk over time, yes? I will be away for perhaps ten days. We speak again.

Thank You


Lastly, someone recently asked me to explain my understanding of the following quote from Relativity: What is Physical Gold REALLY Worth?:

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!...

The key to this quote is... ""the "value" that the "future supply of" currency traded "oil" imparts to the world economy..""

This is a value that is """"priced"""" into EVERYTHING!!!

It is guaranteed by the paper gold market which delivers physical to those that want it at a paper price.

If that (paper gold market) disappears, so does the (known currency) """"price"""" of EVERYTHING!!!

Sincerely,
FOFOA

60 comments:

AroFarMeR said...

Thanks FOFOA... for doing the work for the benefit of us :)

A great piece.

Happy 2nd Anniversary!!

Blondie said...

Here's some analysis we can all appreciate-

The Failure of the Second London Gold Pool

Looks like the manipulators are finding the going overwhelmingly tough ever since the game changing announcement of April 24 2009...

Happy Birthday indeed!

Patrick said...

your teeth are growing.. and that is fine...

Great you give the writings of another in your blog.... some people are too lazy to read them through... which is stupid off course...

Jimmy said...

Here the video of Ayaan Hirsi Ali

How to win the clash of civilizations

Anders said...

I don't understand freegold, but I know this:

Being a working white male westerner, my purchasing power is inflated compared to the rest of the world.

If we believe in globalization, and I do, the logical outcome is less purchasing power for me, and more
purchasing power to the worker in the emerging economy.

It may not happen this year, or even in 10 years, but it will happen.

The safest way for me to project this "imbalance" into the future is to put any excess I earn into physical gold.

As commodity prices rise (and they must), we will see real inflation that will destroy our paper savings as emerging economies rise.

Yea, there might be a short window to buy up productive assets on the cheap just as deflation turns into inflation, but I prefer gold in the long term.

Gold will be gold.

samix said...

FOFOA keep up the good work!

I refresh my FOFOA page atleast 5 to 5 times each day, hoping you have posted something new...

answer2me said...

For a look into the past regarding the world bank and globalization under the US$ read, "the road to huddersfield" a journey to five continents, by james morris. This was a book commissioned by the bank, published in 1963.

erik said...

I'm calling it... another was Not a Westerner... Arabian.
He knows alot about the western mind and system, , but fails to see there are two things in this world of higher value.. # 2 is Gold # 1 ......(fill in).

samix said...

@Jimmy Ayan Hirsi Ali is not liked by 98% of Muslims. Most Muslims are sure that she is put forth as the voice of sensible Islam only by western media outlets to further their propaganda and show Islam in a bad light.

Her allegations related to genital mutilations and all the weird issues that she keeps bringing up are cultural issues and not related with Islam.

Her form of Islam is not liked neither endorsed by Muslims around the world.

Again I don't know if FOFOA would like this discussion but I had to answer as the topic came up.

Angel Eyes said...

erik,

To come to those conclusions you cannot have read Anothers archives at all.

Another was a European central banking insider, most likely from one of the smaller central European states.

Your conclusions sound like a wild guess based only upon what you have read in the post above. What you see above would be well less than 1% of Anothers archived material.

erik said...

@Angel Eyes

Maybe... but smaller Euro CB's have been communist for decades especially at the time of the USSR breakup.. an unlikely gold bug with such knowledge of the value of gold. I'll stick with my interpretation....a smart Middle easterner .

Paul said...

Happy Birthday FOFOA.

Snap, it's my birthday today too. I shall be buying myself a present at lunchtime. Any guesses what it will be? It starts with G and ends with what I am. OLD.

Is this
another co-incidence? Got some
Swiss chocolates from my wife.
?

The Sim said...

His comments about the size of the fractional """""paper gold""""" market being overwhelming the size of the actual ""physical"" were WAY on target!!!

The Sim said...

@erik, what's #1? I'm thinking it's women... lol.

Robert said...

Two years of good hard work, to keep those of us beyond Gold 101 educated, my many thanks and best wishes that your blog goes on and on. Thank you BASTANTE, FOFOA!

I still have a lot of spade-work to do in the archives of Another and FOA. But, the real bottom line for me, NOW, is to get my hands on more physical gold. Buy now, read later!

...

How much gold should we hold? I will do some math, but to keep it relatively painless, I will keep it short. By most calculations, there is approximately 1 oz of gold per capita in the world today. Much is held by Central Banks, but it still works out to be +/- 1 oz per person in the world.

So, how much should we hold as individuals? Early on, I decided that in my family's case that we should have at least 10 oz each for the three of us. I picked the number 10 times as much as the average per capita amount because my family is American, and picked somewhat arbitrarily that each American is 10 times "richer" than the average world citizen. That took me to 30 oz to cover the three of us.

For a variety of reasons (especially after finding fofoa.blogspot.com), I have upped that 30 oz we hold considerably. And that will continue to grow...

A question I ponder a fair amount is what about silver and platinum? I like both and I like diversification, so I do hold both as well. But, the value of my gold is far more than the other PMs. Still, I like to buy a Platinum Eagle in the rare times I see them, and I pick up a roll (20 oz) of Silver Eagles from time-to-time (as silver may have better SPECULATIVE properties than gold, as well be better accepted in a TEOTWAWKI).

For those of you who read zerohedge.com, my moniker is DoChenRollingBearing (aka Robert here, LOL).

DoChenRollingBearing,
for decades now a FOGARB!
(Friend of Gold and Rolling Bearings)

Angel Eyes said...

erik,

we were both wrong, FOA said it outright...

FOA (11/8/01; 15:10:35MT - usagold.com msg#131)

"I will say this for the record: Another is English and not Islamic!"

FOA was American, for the record.

erik said...

@Angel Eyes... Thanks
Now I'm really confused.

Wendy said...

I remember that post Angel Eyes, it was at the very end of FOA's posting I see no reason to doubt FOA's assertion that Another is English

costata said...

FOFOA,

Happy anniversary. Long journey and a lot of hard work. Thank you.

samix said...

@eric,I have read Another's archives and I am pretty convinced that he is not a Middle Easterner, heck, would I not know my brothers better ? haha..

erik said...

From Another...."we will accumulate thru the back door, using paper deals if you keep the price at or below the cost of production". Do this and oil will remain THE driving force of the world economy!

FAIL THIS AND WE WILL PRICE GOLD IN DOLLARS AT THE TRUE VALUE OF OIL TO THE WORLD!

I think Another had this understanding of Saudi demands backwards... I don't think it means what Another thinks ....'Fail this and we will price gold '..rather ' Do this and we will will price '... Reads to me 'Free Gold' will be in retaliation for western selling of oil at dirt prices.

Just saying.

Roual said...

FOFOA

How will the FreeGold market be different from the current one in place ?

Nuts & bolts on this answer please.

Also if gold is to return as a currency, then gold must have a bond market like all currencies.

How will this gold bond market work ?

And can anybody here explain Jim Sinclair's Gold Certificate Ratio to me.

Thanks in advance for any help.

Angel Eyes said...

Roual,

This document: Freegold may answer your question. It was put together with thoughts gleaned from this blog, and from this comments section.

While this may addres your "nuts & bolts" question, it is important to note that A/FOA/FOFOA have NEVER advocated golds return as a currency, but as the ultimate store of wealth. Big difference.

Ender said...

Happy birthday FOFOA.

As we have discussed before, major moves seem to happen at a snail’s pace. If you look quickly, you will see no movement. Yet if you check back later, the snail has definitely moved on!

The news reports that we see on a daily basis are but snap-shots of that snail. Remembering the news from yesterday helps provide context to see how things have moved. History is your friend. It is good to see you bring up the past so that new readers can see where the snail has been!

Many are learning more of Gold. It is good to see that you’re readership numbers are growing. I would expect that these numbers have a long way to go for the fundamental idea behind what you blog about is value. Particularly, preserving the value of human labor over time! This function has great meaning to many people and, thus, your words will spread.

Together WE as humans value gold knowing how it will function for us over time. As that understanding spreads, ALL will benefit by having a mutually common belief system. There is no need to store your wealth as shares in something that is constantly diluted. That makes a rich man poor.

As that belief system takes hold, we will look back and see that a freegold system evolved to support the new belief system.

Gold is for saving, Silver is for spending.

Andrew said...

Rewarding yet frustrating at the same time; thanks for all you do FOFOA! While I believe in the promise of Freegold and the value derived therefrom, I also find I have to reassure myself and those around me that, though this seemingly drags on for an eternity, patience will be a lifetime reward. I surmise that many of our Gold friends are in a similar position.

FOFOA and fellow advocates; what signs are we looking for to know when we should attempt to go "all-in" on Gold? I know timing is THE hardest thing to predict but there should be something that can help in knowing we are reaching the date of conversion. Has this been covered in a prior article and, if so, can you direct me to it? Maybe there is no single article on this and we continue to walk the trail with our guides in search of enlightenment.

Emotionally I know the hardest part for any monetary success is the waiting; been with this since 2001 and not going anywhere as I realize this could go for another 10 years or more. But that doesn't lessen the desire to visualize a road-map for the arrival of Freegold. Keep up the good work, much appreciated!

RJ said...

Great short movie-

http://www.youtube.com/watch?v=nNtIsSWVJBI&feature=player_embedded

Ender said...

@Andrew’s frustration…

You don’t have to believe in the promise of freegold to benefit from the function of gold. With gold in hand - acting as the settlement of ‘debt obligation’ from the system – you hold a timeless asset of wealth. Regardless of the promise of anything, your gold metal has intrinsic value paid in full to you. Today, tomorrow or any day at anytime, someone will most generously give you a medium of exchange for your assert – which you can spend.

Going ‘all in’ is a state of mind. Either you save currency, or you save wealth assets. Timing is really a no-brainer. The only complication is if you think of the evolution as a ‘western’ investment opportunity. Ask yourself, do you hold gold as a means to currency or acquire currency as a means to gold?

If you have settled society’s debt to you and have cleared your debt obligations to society, you stand relatively free of the system! As the future unfolds, your attachments to the price inflation or deflation of real goods and services will be emotionally ‘lighter’ than if you where attached to either paying or receiving ‘value’ for your currency. This reason alone should be motivation enough for most anyone to desire holding gold.

Stand strong, fellow advocate, for the function of gold is timeless and the folly of currency is always repeated. The trick is to enjoy today and simply let tomorrow happen. Strive to keep the currency flowing. Treat it as a warm potato. The day you do not ‘worry’ about your decisions, is the day you’ll understand that you have made the correct ones!

Today is a good day to understand the value of gold.

Ender said...

@Blondie and the Adrian Douglas article

That is a fine piece of investigative research, but it is still research based on the paper play. The ‘price of gold’ is different than the ‘availability of gold.’ Let the big boys trade all the paper contracts that they please, for, as FOFOA pointed out two articles ago, the fractional price of gold is pennies to the dollar against the ‘value’ of gold and the demand for gold derivatives is strong and growing.

The demand for gold derivatives can also be misleading. For if you can sell paper or buy paper or do both – you set the price of that paper. As Adrian points out, you can do a lot with a commodity if you can take unlimited losses.

On the bright side, there may, (or may not) actually be more people interested in gold now a days (we can’t tell for sure unless all buyers and sellers are exposed in a transparent manner which will never happen). If the rise in claims represents real people being interested in holding gold, that rise in demand WILL EVENTUALLY try to move into physical gold in order to enjoy the ‘value of gold’ rather than the ‘price of gold’. That is, once these real people figure out the difference that you already know.

FOFOA, keep up the good work. It is a good day to be a gold advocate!

Andrew said...

@Ender

Very well stated and I am with you. And while I do enjoy the my daily life I also look forward to the day where my belief in Gold as the ultimate form of wealth will provide additional benefits besides the comfort and security I feel while in my possession. I purchase on a monthly basis irrespective of what the paper price is doing and so am further enhancing my wealth basis. Your statement "acquire currency as a means to gold" is perfect. I still can't believe that someone is willing to exchange paper for such a beautiful treasure.

And though I expect to have many years ahead of me, I am comforted that, should Freegold not materialize on my watch, then my heirs will be singing my praises throughout their lifetimes. That is not something I take lightly at all; I believe in providing for the future of my children or their children.

costata said...

Hi Everyone,

Re: Sovereign Debt

http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10425

"An increasing weight of evidence supports the global government finance Bubble thesis. But, of course, there’s nothing like the euphoria associated with rapidly inflating asset prices (in this case bonds) to embolden those dismissive of Bubble analysis. All the more reason that it is imperative that we not ignore this Bubble as we did the mortgage/Wall Street finance Bubble. The risks and costs today are infinitely greater.

As GG says:

BUY. PHYSICAL. GOLD. NOW.

Robert said...

@ costata,

Yes, I did buy, 3 more oz to my little pile of gold on Friday. I have enough to see me through hard times ahead. And enough to see our daughter through any times ahead.

FOFOA has encouraged us to buy the physical, which I have done. I only have ONE person I know who agrees with holding physical gold...

-- Out of debt!
-- Own physical gold (Ag, Pt) OK w/me
-- Arm yourselves if you are worried about TSHTF scenarios

If you have a small business, start thinking about how to survive. Our Peruvian bearing import business will survive, as we have mini-monopolopies in the sectors we serve.

costata said...

Robert,

We are close to our target level of PM. It should be adequate insurance for the times ahead.

Like you I know only two other people who have purchased gold.

I totally agree with you about debt EXCEPT that IMO people who have some debt would be much better off at present merely servicing their debts and buying gold rather than making extra payments to clear the debt.

Good advice for the small business people. In my experience many people don't recognise the difference between a crisis and events that threaten their existence until it is too late.

Big Al said...

A bit speculative, but "Another" is a perfect translation of "Acher", a famous first century rabbi often quoted in the Talmud. His real name was Elisha, but he was given the name Acher when he turned into a Biblical heretic. Kinda works metaphorically...

Jeff said...

Happy Anniversary FOFOA,

Having read your archives, I wonder if you still stand by some of the specific time predictions you made regarding hyperinflation by the end of the year (I believe you stated you were 95% sure). Have events of the last two years changed your views? Thanks.

Pete said...

Hi FOFOA,

I doubt you will get to read this, it is tacked onto the end of your comments section. Sorry, I didn't see a way to send an email.

Anyhow - I believe there is an unconsidered issue that I think would present itself if we get to $10,000 gold:

'Impact to the environment'

I'm not getting all green on you, and this doesn't involve talk of global warming. But I imagine a world where perhaps two ounces of gold could by a car. Why would people work anymore? Gold panning would be the occupation of choice, surely? Dredging, scouring the planet for every little drop of gold they could find? Speculative gold companies, popping up everywhere, sucking up fiat currency and using it to pillage the landscape?

What kind of world would that be?

I asked Antal Fekete this question (privately) in a gold seminar in Australia. He didn't want to answer me, he said it would never happen and moved on. I don't think that is a good enough answer, and I think this is something that should be considered if gold we to be revalued to a much higher value.

It is one thing to thing that us gold bugs (erm, enthusiasts) will be 'rich' or at least 'financially prepared' in a situation where gold exceeds $10,000, but have we thought beyond that?

(incidentally, when i say $10,000 gold, I don't mean extremely devalued fiat, I mean revalued gold. If $100,000 won't even buy you a car, then $10,000 gold would be similar to todays values, and defeats the purpose of my point)

Although I like your confiscation argument a lot, surely if this kind of thing started happening, gold would become nationalised, outlawed, etc. For the good of the country.

Anyway, that's just something I have been pondering and have not yet found the answer to.

stibot said...

Pete, where are all those people having gold in US who are going to be rich then? Do you know them? Because even FOFOA or users putting comments here do not know buddies owning metal.

Did you consider almost noone owns gold in US (in west)? Gold is being shipped to asia and ME.

It is not allowed to be rich today? It is very common to be hundreds of thousands dollars in debt today, so what is wrong with fraction of them eventually become hundreds of thousands dollars rich?

Mike said...

i agree stibot, i've heard this way to many times before as if everyone in the world will get rich in a revaluation of gold.
i only know a few people that have gold also more so with silver in fact, and the rest point and laugh and say real estate is king here.

even if people do have them how many own 5% of their net assets in real gold?

Mike said...

Pete

here is a comment i found by FOFOA in the comment section of one of his articles in May (Reflection) that might help you out.

that is the great thing about gold, there isn't enough for everyone to have :) even though there is enough in oz's for each human to have one but most is unavailable hehe...

est 160,000 tonnes are out there, est 30,000 tonnes are with CB that we know of. this doesn't even include what the Saudi's have been getting in return for their oil since they don't declare it or even what the Chinese really have.

the rest is in the hands of very wealthy families, religion(Vatican), etf's (some real ones i would guess lol which you can own a stock share o boy), jewelery which a lot has been traded in for cash at least in the west and the retail class (you and me)

here is FOFOA's quote

What I have always written about, and what Another and FOA wrote about, was the free market organism resetting the price of gold when it is finally "set FREE" from the restraining factor of paper gold. Ie. Freegold.
...Remember that A/FOA always said "you will not know gold's price as it slices through $10,000" and "gold will go into hiding". And it will later emerge in the stratosphere at a physical-only price. This is what I'm talking about. I am simply pointing out that the price physical will emerge at, might be a lot higher than we even think or talk about. Because whether we realize it or not, we automatically, subconsciously apply "Western Thought", economic restraints, technical analysis and ratios we have lived with our whole lives when we make projections. And the true fundamentals of gold tell us that none of these things will apply.

What will apply is the debt, and the gold stocks to flows. Flow is velocity. It tends to lower relative value. But the thing about gold, as Fekete says, is that "in terms of the ratio of stocks to flows the supply of gold is far and away greater than that of any commodity." This is what sets gold apart from everything else as the only real modern wealth consolidator. Or as Another put it a different way, "spend your time in the company of truly wealthy ones, see how they make gold lie very still!"

As debt fails, what will happen is the price of gold will rise to the point that the flow of gold will be credibly sufficient to supply the exchange of any and all debt for physical gold. And this includes real debt that's hidden off the books. This is a difficult (or impossible) calculation to make, but it is very high and it has nothing to do with the total stock of gold, nor the total stock of transactional currency. It has only to do with the flow of gold (that prefers to lie very still) and the number of IOUs on the poker table.

And for those that like to read voluminous posts, this was an inspiring article for me with regard to the arbitrary nature of the future price of gold. It is, in part, responsible for my Ultimate Un-Bubble post:
Why the global financial system is about to collapse - Part 1
Part 2

Lastly, for all of you that think this will never happen because a few poor people will become super rich overnight, think again. Exactly how many people out of the 6.8 billion do you think have transferred more than a percent or two into physical gold? In fact, most people are dishoarding their future windfall today by mail, through Cash4Gold. I finally convinced someone close to me to buy some physical. He has a nice retirement nest egg. Know what he bought? 2 coins! Wow!

And of those that even read this, how many do you think will go all in? A good estimate is that over the next week 20,000 people will read my post. That's .0003% of the global population that will read this post. And of that .0003%, how many will take the step that merely retains the present value of their savings? How many will double their nest egg? And how many will laugh and do nothing?

Museice said...

I shake your hand and say, 'Well done my friend. Well done.'

dojufitz said...

Where i work i have convinced 3 people out of dozens to buy pms....only 2 had pms that i know of....

The ones that have bought have bought Silver - they view Gold as too pricey....

Almost everyone is a slave to an overpriced mortgage....(here in Melbourne Australia - seriously stupid prices for homes - we have negative gearing for home investers - neg gearing is illegal in most sane western countries)

They all believe homes are an investment....it is hard to convince someone there might be another way.

I'd like Freegold to occur next year if that is ok.....

Pete said...

Thanks for the responses guys.

I still don't think anyone has answered the question fully - won't people go 'gold crazy' and start raping the land for gold? And won't the Govt. then be 'forced' to step in and police it, even perhaps ban the private exchange of gold to keep order?

I am definitely a gold bull and own some PM's myself, especially being in Australia we have the benefit of potential gains merely through change of exchange rates.

But, I do question whether some people on this forum think that gold will reach $10,000, merely because that would suit them. Just because we want something to happen, does not mean that it will.

Can't we think one or two steps further (yes, jumping to conclusions) and think of the repurcussions of the effects of $10,000 gold?

I also wonder, if everyone is in debt, who would buy $10,000 gold? Perhaps people would just settle for other tangible items instead.

And I do get that paper gold liabilities may translate into astronomical gold prices - but I am not sure that it is entirely realistic to expect that people will pay those prices. Perhaps in time they would be forced to, but I think that people would be repulsed by the sudden jump in prices, particularly if they seem 'unbelievable'. The public would be used to fairly slow growing bubbles that give ample time to jump on the speculation train and make money before the growth gets exponential and then blows up. But growth going from 10% to 90% in one swoop? I think that would frighten a lot of people off.

That said, I am probably missing some macro point to do with banking, global exchange, chinese gold standard or something like that aren't I?

I still stick behind my point about environmental damage though, until someone can offer a considered rebuttal.

Love this blog BTW, good quality comments too.

- Pete

Paul said...

@Pete

"won't people go 'gold crazy' and start raping the land for gold?"

Yes, probably. What's new? Ever heard of gold rushes?

This planet is being, and has always been, raped by humans attempting to gain mineral wealth. Look at the Gulf of Mexico. Didn't see too many Governments stepping into the oil industry, attempting to stop environmental damage, or even borderline genocide in African countries cursed with oil. Why should gold be different?

"I also wonder, if everyone is in debt, who would buy $10,000 gold?"

Same people buying $10,000 of any other "investment vehicle". That's the point. Those people will be selling (or trying to sell) bonds, currencies, shares and Diversified High Growth International Bullshit Funds, to buy gold.

And we'll all be saying "How could we have ever thought High Growth International Bullshit Funds were worth $10,000?"

Paul said...

Regarding the potential value of gold, I know I have struggled with the idea it could eventually trade at multiples of thousands of dollars.

To most Westerners it just doesn't feel right. Who would pay that much? That's the reaction I always get from people I talk to.

I guess for me a comparator "product from the earth" is oil. Just as oil is stored compressed energy, gold is stored compressed wealth.

Estimates of the cost of production of Saudi Oil are around 50c a barrel (for now). It just gushes out the ground. Yet it sells today for $73 a barrel. That's a 14600% mark up. But people have no real problem with that. They still buy it.

What's the average cost of production of gold? $400, $500 per ounce? What's a a 14600% mark up on $500?

Ender said...

Reflections on an old conversation

For those of you looking to learn a little about my understanding regarding Freegold, I would point you to the comment sections of a couple postings that FOFOA made a while back. You’ll see my first comment here: http://fofoa.blogspot.com/2008/09/freegold.html. The following conversation with FOFOA expands upon the function of currency.

There is a little more under this posting: http://fofoa.blogspot.com/2008/10/freegold-is-like-giant-sponge-that.html that talks about settlement. The comments under this article: http://fofoa.blogspot.com/2008/10/freegold-is-not-solution-it-is-only.html hint at re-monetization of gold.

Yet, in the reading of those old posts, I was once again struck by these two little posts (both can be found here http://fofoa.blogspot.com/2008/11/100-year-clearing.html).

The first by Ivo Cerckel:

The old gold standard did not provide for the possibility that an increase of the ounces, kilograms, or tons of gold held in reserve by the bank administering the currency would lead to an increase in the currency’s value.

Hence, gold held in reserve by the bank administering the currency was not considered as a freely trading financial reserve thereby preventing that each increase in the price of gold and thus increase in the value of the gold reserves of the currency would bring about an increase in the value of the currency itself.

Currencies can however only remain competitive if their value is not a fixed quantity of gold but is dependent upon the amount and value of the gold their administering bank holds in reserve.

In that case, the more gold the administering bank has in reserve and the more the price of gold increases, the higher will be the value of the currency administered by the bank.

That’s FreeGold.

For the Saudis, this creates the problem that the value of the currency is then not intrinsic in the currency.

There is a Hadith of Prophet Muhammed in the Sahih Muslim which teaches:
“Abu Said Al Khudri reported Allah’s messenger as saying: “gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt. (When a transaction is) like for like, payment being made on the spot, then, if anyone gives more or asks more, he has dealt in riba (usury), the receiver and the giver being equally guilty.”

This Hadith of Prophet Muhammed establishes two things:

ONE ‘money’ in Islam is either precious metals such as gold and silver, or commodities such as wheat, barley, dates and salt.

TWO when gold, silver, wheat, barley, dates and salt were used as money, their value was ‘inside’ and not outside’ the money. Hence, it is established that ‘money’ in Islam must possess intrinsic value.


And the second by Anonymous (which later revealed himself in some postings):


When one can afford to have goldmetal-wealth-reserve in the vault,...WHAT DOES THAT MEANS !?

Answer : I am a good and stable wealth producer.

This goes for small and big private individuals as for nationstates.

What does it mean when one can increase one's goldmetal-wealth-reserve ?

Answer : I am better than the others who have to sell their goldmetal-wealth-reserve. My currency is a better store of temporary wealth than the other currencies. The rise in goldmetal tonnage shows this for everyone to see.

As simple as that.


Continued …

Ender said...

Continued …

The second comment may make a little more sense if read within the context of the conversation (in other words, read the old postings in order).

I have to admit that the foundation upon which I’ve built my understanding of the function of gold is definitely western. Both of these posts expose the concept from a different (non-western) angle which should not be overlooked.

Looking closer at the first posting, the logic still feels upside down and backwards but I will attempt to piece it together from a different angle.

Money must have intrinsic value – the value is inside the money not outside. In my words, money is not what someone says it is, but that it is. It has value all on its own; no one has to tell you it has value.

If a bank holds gold as a reserve asset, that asset is the intrinsic value of the currency. Gold is the value which makes the currency legitimate.

If currency is linked to gold in a receipt manor (old gold standard), we no longer have intrinsic value behind the currency, for the currency is one and the same with the reserve. It is exchangeable directly. The currency acts as if it is gold. Because of this link, any rise in the value of gold (measured against anything real) is directly transferred to the linked currency and any increase in the gold on reserve at the issuing bank simply means that it can issue more currency (that acts like gold). If you really think about it, there is no way for the currency to gain or lose value against gold. It is gold.

This provides problems when you deal with modern economies. Economies need ‘money’ supplies that can grow and contract while providing the medium of exchange as its key function. Banks need to be able to issue more currency (or less) at critical times to maintain the all important liquidity needed to ‘settle’ contracts. When gold is linked directly to the currency, and the money managers honor the one-to-one relationship, the currency quickly breaks down as not being functional.

Thus, every time a gold back currency is issued, it’s forced to become fraudulent with regards to its relationship with gold through fractional reserve banking or it quickly dies.

Yet, it doesn’t need to be this way. If money managers could simply create a currency that had intrinsic value, the currency could be made more valuable by increasing what it is that is intrinsic to the currency. With something like salt, dates, silver or gold, there is nothing that can be added to them to make them more valuable than what they currently are. They are what they are.

Continued …

Ender said...

Continued …

A currency is not as simple as a date. The most important aspect is that the currency mainly gets its value from its function in the economy. As long as confidence can be maintained that the currency is managed reasonably, the people will use that currency as their medium of exchange. This calls in the credibility of the managers for if it’s managed poorly, the assets accumulated by the management will surely reflect that fact. This is where gold provides its function and is seen to provide intrinsic value for the currency. If the managers can use the currency to build a gold reserve, the currency’s function is proven.

In this case, we have a functioning currency where the managers hold gold which acts as the intrinsic value of that currency. It doesn’t take much intrinsic value for the function of the currency carries the bulk of the weight of its use. And, more importantly, what values what’s used as the ‘intrinsic value of the currency’ happens in the open market independent of the currency issued.

Thus, what’s held on reserve by the management banks, that gives credibility to the currency is something that can be independently valued in the market. When gold is used as this asset, we get something that’s affectionately known as Freegold.

Now, if these words make sense to you, the second comment (contained herein) should make a little more sense.

At this point, it might be worthwhile to ask, which currencies have intrinsic value?

Yet, more importantly, how can you as an individual grow your intrinsic value?

Gold is for saving, silver is for spending!

Pete said...

Thanks for your response Paul.

I guess we'll just wait and see what happens. Of course I want some 'wealth' or at least wealth preservation, hence the reason I am into PMs already. And I like the ideas put forward for gold, here and elsewhere.

The thing I don't totally agree with is all of the assumptions we make. A world with $10,000 gold might not be a very nice one. If it brings war with it, perhaps the only thing that will be legal to trade locally will be some type of war bonds.

But there's me making assumptions too :)

Cheers,

- Pete

samix said...


There is a Hadith of Prophet Muhammed in the Sahih Muslim which teaches:
“Abu Said Al Khudri reported Allah’s messenger as saying: “gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt. (When a transaction is) like for like, payment being made on the spot, then, if anyone gives more or asks more, he has dealt in riba (usury), the receiver and the giver being equally guilty.”


In the above hadith the Arabic word Riba has been translated as usury.

Though this is a commonly accepted loose translation in non Arabic lands, Riba actually means "unfair increase"

usury is not Riba, rather a form a Riba.

There are many transactions that fall under Riba.

for further clarification:
http://www.islamic-world.net/economics/riba_usury.htm

Fauvi said...

Pete, do you think that a world with 30% returns is better?
Gold is money and VALUE!

David said...

Everyone, take a look at this video. Rare gold coin found in Isreal-- the coin was worth a 1/2 a years salary at the time. Was this Freegold?

http://www.cnn.com/video/#/video/world/2010/08/17/israel.rare.coin.unearthed.cnn

Sigo Plapal said...

Pete, as for your question about who would buy $10k gold, I think everyone will get a rapid education when the time comes. From what I see, most people can't view gold as anything other than a commodity. When their nest egg starts going up in flames, they'll have to quickly learn how to put out the fire. They'll start to see that gold is the best extinguisher.
Also, many people will be too late to get in. For liquidity purposes, I now tell everyone to think fractional sizes. Coins in 1/10th oz or even 1/20 oz will be in high demand, IMO, because it puts it within more people's reach.

Sigo Plapal said...

Samix,
I've got to tell you that I really appreciate your comments. The Islamic point of view is quite significant and you are most helpful in shedding light on things.

Pete said...

@Fauvi
I don't think speculative/bubble-style returns are better at all. Speculation typically misallocates capital from its best use, and distorts economies.

But I am not trying to choose between two evils to decide which is lesser. I don't like fiat currency at all, I am certainly a gold bull, and I like the idea of a gold standard or freegold. But I do question whether it's implementation or execution will be as ideal as some people on this blog make it out to be.

The 'power' of money will flow from those with fiat currency, to those with gold. Surely this won't be done without a fight? People tend not to relinquish a position of power easily.

A lot of people believe that guns will trump gold every time. Then I guess the army would trump guns.

I'm getting off track here, but I doubt there will be a smooth hand-over of wealth from non-gold-holders to gold-holders. And just like any redistribution of wealth (like a housing bubble perhaps) there will be unforeseen effects on the rest of the economy/country - such as a despair felt by workers receiving fiat wages, and a rush to prospecting and destroying the land for quick, probably illegal, profits.

@Sigo Plapal
You may be right. Mostly I prefer 1oz or half oz, because 1/10th and 1/20 oz have a very high minting premium. But I guess if no-one can afford to trade a 1oz, then it makes it tricky to use it? Something for me to think about I guess.

intuitivereason said...

Minting premiums are paid in fiat and can thus be ignored :)

But seriously, if we are working at $50k as proposed here, 1/20th is still $2,500. Big chunk of value. While they cost a bit more, not having a shrapnel set is probably an error.

I think silver will step up for lower values, a we will see smaller fractionals in silver, rather than even smaller fractionals in gold.

A 1/20th in silver may end up at between $20 and $50, well in reach for savings purposes.

Otherwise the only option is alloy mixes. A 1% gold 1/20th gives a $25 coin.

Paul said...

I think we're getting freeGold confused with a gold backed currency.

I personally find it hard to imagine popping down the shops with a bag of gold and silver coins. That's a gold backed currency.

Way I see it, we're headed for a shortish period of financial chaos, worse in some countries than others. The other side of that chaos, we'll still use fiat currency. That's what you see over and over again. Russians still using roubles, Argentians still using pesos. Post chaos, debt and savings are wiped out, because they must be. And we'll borrow and save differently. Save gold.

No idea what that chaos period will be like, who does?. Maybe gold and silver small change just for that specific period. More likely to be barter and Army food trucks if things really go pear shaped I would have thought.

Blondie said...

Paul said:
"I personally find it hard to imagine popping down the shops with a bag of gold and silver coins. That's a gold backed currency."

That's gold as currency.

A gold backed currency is a currency redeemable for a fixed amount of gold, eg USD 1933-71 @ $35/oz.

Two different things.

Freegold is different again:

"For a monetary system to work, anyone, anywhere, must be able to exchange the currency for gold at a floating rate. We call this FREEGOLD."

samix said...

@Sigo Plapal, Its my pleasure!

Ivo Cerckel said...

SPAM
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elaborating on my comment quoted above by Ender
August 23, 2010 11:36 PM


1st World Conference on Riba

Date : 1st & 2nd November 2010
Venue : Tun Hussein Onn Hall
Putra World Trade Centre
Kuala Lumpur
http://www.worldribaconference.org/
SNIP
The global economic crisis continues to spread worldwide, despite reports of ‘green-shoots’ appearing here and there. Unemployment is still significantly persistent in major economies – in Europe, America and Japan. Many quarters, including even the Vatican, are voicing their opinion that Islamic solutions seem worth considering. The global monetary structure that is fundamentally based on interest or riba has been blamed, by some quarters, as the root cause of the whole global chaos.
UNSNIP

Speakers include the quoted
Sheikh Imran N. Hosein, Imam, Author, Trinidad & Tobago Prohibition of Riba in Islam

who teaches, as quoted, that

the Hadith of Prophet Muhammed in the Sahih Muslim which teaches:
“Abu Said Al Khudri reported Allah’s messenger as saying: “gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt. (When a transaction is) like for like, payment being made on the spot, then, if anyone gives more or asks more, he has dealt in riba (usury), the receiver and the giver being equally guilty.”

establishes two things:

ONE ‘money’ in Islam is either precious metals such as gold and silver, or commodities such as wheat, barley, dates and salt.

TWO when gold, silver, wheat, barley, dates and salt were used as money, their value was ‘inside’ and not outside’ the money. Hence, it is established that ‘money’ in Islam must possess intrinsic value.

Ivo Cerckel said...

Riba literally means increase. As a technical term, it means usury and interest, and in general any unjustified increase of capital for which no compensation is given. Derivatives from the same root are used in other Semitic languages to describe interest. (1)

The definition of riba in Islam also includes transactions that are based on deception and which give to the deceiver a profit, a gain to which he is not justly entitled. In American vocabulary such a transaction is described as a “rip-off”. (2)

Riba is also at work when wealth is sucked from the masses through legalised fraud involved in the use of artificial paper money which has no intrinsic value. The value that is assigned to artificial money loses constantly value over time, as the system was designed to make it happen. Banks are the major actors at work in forcing a decrease in the value of money and banks make the most profit when such occurs. As money loses value, the value of everything is decreased. Prices rise and wages lose value. Labour is then imprisoned in slave wages. (3)

http://bphouse.com/honest_money/2008/10/05/paulson-riba-and-sarkozy/

NOTES

(1)
C.E. Bosworth, E. van Donzel, W.P. Heinrichs and G. Lecomte, assisted by P.J. Bearman and Mme S. Nurit,, eds., (under the Patronage of the International Union of Academies), “The Encyclopaedia of Islam”, Leiden, E.J. Brill, 1995, New Edition, vol. VIII, verbo “riba”

(2)
Imran N. Hosein, “Jerusalem in the Qur’an – An Islamic View of the Destiny of Jerusalem”, Long Island, New York, Masjid Dar al-Qur’an, 2002, p. 210–211

(3)
Imran N. Hosein, “Jerusalem in the Qur’an – An Islamic View of the Destiny of Jerusalem”, Long Island, New York, Masjid Dar al-Qur’an, 2002, p.218-219

intuitivereason said...

One question that I haven't seen addressed anywhere is how a hyperinflation of the USD will affect the rest of the world.

My thoughts are that the effects will be somewhat related to the degree to which other countries currency is backed by USD, the degree they are covered by gold, and their own current debt levels.

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