Wednesday, January 19, 2011

Freegold Foundations


It has been fun to stumble across a number of sites where readers are attempting to explain my writings to others. It feels a little weird, yet pleasing. Some of you are amazingly apt at this difficult undertaking. While others I have seen fall a little short of the mark that I strive to hit. It's tough. Freegold is a deep subject with new angles each new way you look at it. I am constantly discovering this myself. And I know that a few of you know exactly what I'm talking about, while others are wondering whether old FOFOA has slipped off his rocker and scrambled his noodle.

So I thought it would be helpful to both me and you if we explore a few of the more fundamental angles (for lack of a better term) on Freegold. I am the originator of none of the conceptual perspectives I will present in this post. They all come from a few others, primarily FOA, but also Aristotle and others.

Someone wrote in the comments that I use "woolly language" (smile), meaning, I suppose, that I am unclear at times. I can only respond that I teach this thing just as I understand it. If it is not simple enough for you, then perhaps that's a reflection of your own special needs more than of the subject or presentation.

That said, in this post I will attempt to develop precise definitions where possible. But do not confuse precision with universality. If you find yourself emotionally in conflict with my words, I would point out that they are being delivered in a cold (whilst warm and inviting) calculated manner. Emotions – and/or pretentious moral judgment – have no place in this discussion. Check your ego and your dogma at the door, for none of these concepts carry a universal definition. My definitions offered here are for the purpose of this post, which is to help you understand Freegold. It could be said that my definitions are the proper ones for understanding what is actually unfolding right in front of us. If said, I would probably have to agree with that statement.

I will also tackle the term Freegold itself. What does the "free" in Freegold portend? This is an important question. More on it in a moment.

Capital

I'm not going to go into great detail on the concept of capital, other than to give you a mental exercise. Because the term "capital" can be quite confusing in our modern paper/electronic world, I want you to imagine a much simpler human civilization. Imagine an ancient Greek city. All the buildings made of stone and mud, the horse carts and agricultural tools, the linens and skins worn as clothing, the knowledge base passed down through generations; all these creations of man's intellect were the capital of the time.

Now imagine the destruction of capital. Imagine an earthquake or volcano that destroys the fruits of many generations. Or a plague or war, perhaps, that destroys the knowledge base. That's the loss of real wealth you are imagining. And it is this cycle of capital creation and destruction that tells the story of mankind throughout many civilizations.

In modern economics, the word "capital" accounts for many specific things. But I think it is helpful to consider this word in a more basic, fundamental way. Think of it in terms of capital creation, capital employment and capital consumption or destruction. Modern economics would not call consumables capital, which is why I am suggesting a different approach to the word. When we are productive, imagine we are creating this thing called capital. We may figure out a way to turn someone else's capital, combined with our own prowess, into more capital. This would be the employment of capital. And sometimes we simply consume it, or use it up.

If I build a house I have created capital. By owning and living in a home, I am consuming that capital slowly. If I were to buy a specialized tool and use it to make something new, then I have employed capital to create more capital. Is this view of "capital" clear, or woolly?

Savings

Savings are the result of one's production being greater than his consumption. Saving is the convention for deferring the fruits of capital creation—earned consumption—until later. Savings is also the way we hand off capital to the next person who will use it to create more capital. And when it is done right, saving results in the accumulation of capital throughout society at large. When it is done poorly, saving results in the aggregate destruction of capital through frivolous consumption and mal(bad)investment (the misguided employment of capital) resulting in unsustainable infrastructures built on unstable levered foundations.

Here's where it may get a bit counterintuitive. You might, if you were Charlie Munger, think that the best way to pass your earned capital on to another producer is through paper. If you save in paper notes then you are loaning your earned capital to the next producer in line, right? And if you buy gold Charlie says you're a jerk, even if it works, because he thinks you are pulling capital out of the system. But are you really? I bring this up (and please watch a minute or so of that video starting at 1:04:05) because it is the key to this discussion about savings.

We should think about the global economy in terms of production and consumption in the physical realm as opposed to the financial or monetary realm, what I like to call the physical plane versus the monetary plane. A "net producer" produces more capital than he consumes. Likewise, a "net consumer" consumes more than he produces. The global aggregate is generally net-neutral on this production-consumption continuum. I say "generally" because there are times of expansion and times of contraction, so taking time into account, we are "generally" net-neutral (or close to it) as a planet. At least that's the way it is under the global dollar reserve standard.

On the national scale, however, we are all both blessed and cursed by the presence of government. Governments are always net consumers, as it is their very job to redistribute part of our private savings into the infrastructure and secure environment that enables us to produce capital in the way that we do. Government's job is not to produce capital, but to enable and support the private production (and accumulation) of capital!

Being such that human society has evolved in this way, we private citizens must, in aggregate, be net producers so that government can net consume. And we become net producers by saving. Therefore we enable and support our own future net productivity by saving some of our past production of capital today, in the form of savings.

The financial system is really just the monetary plane's record-keeper of this vital process that actually takes place on the physical plane. In its modern incarnation, the global financial system has allowed for a strange international balancing act whereby (literally) one whole side of the planet's net production has allowed the other side to net-consume for decades on end. But this is an unsustainable anomaly, and it is beside the point of this discussion. So please push this giant, global imbalance-elephant in the room over to the corner while we continue this discussion about savings.

The question we must answer here is: Is Charlie Munger right? Are you a good person only if you put your savings into paper where it can be easily redistributed, and a jerk if you buy gold, depriving the paper whores of your savings? Is this the way it works in reality? Or is this simply the sales pitch of one with great bets riding on the continued popularity of paper savings?

The government confiscates a portion of the physical capital created in the private sector through several means. Taxation is one way, forcing you to keep a portion of your earnings in paper so that it can be easily transferred to the government and then used to buy up capital from the marketplace. This forces you to leave some of your production in the marketplace to be taken by the government, preventing you from consuming an amount equal to your productive output.

Printing money, or its modern equivalent, quantitative easing, is another way the government can confiscate real capital from the marketplace without first producing a commensurate amount. This method inflicts what we call "the inflation tax." The "victims" of this confiscation are anyone and everyone holding (and saving) the currency or any paper asset fixed to it, and the damages are relative to the amount of currency each "victim" is holding. Because this form of confiscation is spread so wide and thin, it is mostly not even noticed by the private sector.

The last way the government confiscates capital is by borrowing it directly from the net producers in the private sector. When you buy US bonds, it is you that are loaning your earned claims on capital to the government. So we can see that the government has plenty of ways to create its own claims on capital in the marketplace without first producing a commensurate market contribution (because governments are always net consumers).

In fact, the modern financial system has bestowed these same powers, creating market claims without contribution, upon the private sector as well. I'm not talking about private banks loaning money into existence, for this process has no market contribution from which to feed. It is directly price inflationary until the debtor makes a market contribution to work it off.

What I'm talking about is the private sector's ability to sell unlimited amounts of this debt to the savers, funding the marketplace claims to consumers/debtors with real marketplace capital (contributed by the savers). Private banks that would normally be constrained by their balance sheets for their own survival can now offload that constraint onto the net producers, making themselves—the banks—totally unconstrained.

The banking system sells all kinds of packaged debt to net producers, the savers. It creates this stuff at will to meet demand. And if necessary, it drums up new debtors one way or another to keep this stuff financially funded. Even corporations can dilute their paper shares to take in new claims from the savers without giving up a commensurate marketplace contribution.

This is the process of paper savings hyperinflation. It is a self-feeding, self-fulfilling, self-sustaining, self-propelling system that will ultimately lead to real price hyperinflation. When you produce capital and decide to leave it in the marketplace, postponing your earned consumption until later, and you do so in any paper investment, you are feeding this process of capital destruction through paper savings hyperinflation.

If you buy government debt you are feeding, enabling the growth of government beyond its most basic mandate, providing the infrastructure and secure environment that enables us to produce capital. And if you think an expanding government is good, just beware that all governments are stupid!

"The institution of government was invented to escape the burden of being smart. Its fundamental purpose is to take money by force to evade the market's guidance to have the privilege of being stupid." Richard Maybury goes on (in the linked video) to say that private organizations that petition government for special protections, subsidies and incentives are asking for the same privilege. They want to be relieved of the burden of being smart.

(Not since the Agriculture Adjustment Act of 1933 that paid farmers to destroy crops during the Great Depression in an attempt to raise the price of crops, has there been a more obvious example of government's propensity for destroying real world capital than the 2009 "Cash for Clunkers" program, whereby government literally paid private car dealerships to pour sugar into running car engines ensuring their permanent destruction.)

This is why, when you save in government paper, you are enabling malinvestment and the destruction of capital that goes along with it. And it's the destruction of the capital that you just contributed to the marketplace that you are feeding. The same goes for the private sector. When you save in private paper you are enabling the expansion of frivolous consumption (beyond natural market constraint) and the destruction of your capital contribution to the marketplace that goes along with it.

So what's the alternative? If both public and private paper savings contribute to the expansion of malinvestment, net-consumption and systemic capital destruction, what is a net producer to do? If one wants to produce more capital than he consumes—for the good of the economy—yet he doesn't want to work for free, what is he to do? Or if one wants to produce more than she consumes—for the good of her retirement years and her family's future—what is she to do?

The monetary plane, the modern dollar-based global financial system, has failed these individuals. So what is left? The physical plane? If these individuals trade their earned marketplace credits in for physical capital without employing that capital in productive enterprise, then they are either consuming that capital (capital destruction) or denying other producers the use of it (hoarding, also destructive to the capital creation process). This is not only detrimental to society at large, but also to the future value of your savings that depends on new capital being plentiful in the marketplace when you deploy your savings in the future.

But of course there is one item, one physical asset, that stands out above all the rest. And this isn't some new discovery by FOFOA. Man discovered that this was gold's highest and best use thousands of years ago. Once you've produced capital for the marketplace, whatever asset class you choose to deploy your earned credits into will feel the economic pressure to rise in price. If the monetary plane was volume-fixed (or even constrained), it too would rise in price as real capital is added to the economy. But it has become a system that expands in volume rather than rising in price.

This is hyperinflation: quantitative expansion of savings! If the pool of savings rose only in value and not quantity, then each new net producer would have to bid "savings" away from an old net producer, and "savings" would retain their proper relationship to the pool of real marketplace capital available for purchase.

If you choose to deploy your credits into the everyday physical plane, the tangible goods plane, prices will rise. If all the savers chose oil for example, we'd all pay very high prices at the gas pump. Or choose agriculture for your savings and we'll all have to work an extra hour to feed ourselves. No, you want to choose something that both rises in price (rather than expanding in volume) and also something that does not infringe on others or economically impede the capital creation process that feeds value to your savings. And as an added bonus, if everyone chooses the same thing, it works extra well. This is called the focal point.

But for gold to fulfill this vital function in the capital creation process, it needs to trade in a fixed (or at least constrained) quantity that will allow its price to rise every time a new capital net-increase is contributed to the marketplace. And, unfortunately, paper gold and fractional reserve bullion banking doesn't allow this process to work properly. In fact, it makes paper appear generally competitive, even to gold.

So what about Charlie Munger? Is he right? Are you a jerk if you buy gold? Well, yes and no. If he's talking about paper gold, then yes! But likewise, it seems you are a jerk if you buy Charlie's paper as well! And you're an even bigger jerk if you buy physical commodities and tangible goods without the intention of employing them in real economic activity. It seems—and correct me if I'm wrong here—that physical gold (along with a few other discreet collectible items like real estate, fine art, antique furniture, ancient artifacts, fine gemstones, fine jewelry and rare classic cars) may be the only true wealth holdings in which you are not a jerk. What do you think?

The Money Concept

Use of the term "money" in these discussions seems to be the root of most of the confusion we encounter. Especially for those of us who have spent our entire lives immersed in the last several decades of monetary confusion and change. And that would be all of us. I think it is therefore perfectly rational to define money as a concept rather than a physical thing.

So if money is a concept, then by definition it is an abstract idea or a mental symbol, sometimes defined as a "unit of knowledge," built from other units which act as its characteristics or elements. Currency is but one element of this concept. And the main characteristic of money is that it is a shared idea that enables economic activity and commerce.

Some of you like to imagine a utopian world without money (presumably to get rid of the bankers), where people freely exchange their goods and services with others and everyone sings cumbaya. I see this a lot. A beautiful, peaceful barter world! But what you are imagining is actually a world without currency, not one without money.

In this fantasy paradise you might exchange a service for a good, right? Or perhaps you would part with a good in exchange for a service from someone else. But how do you think the relative value would be determined in this world without currency? Of course "prices" would be abstract ideas or mental symbols, but surely you wouldn't pay someone for a car wash with the title to your car. So what would determine the relative value of a car wash versus a car in this Xanadu?

The answer is the concept of money. This is the ability, unique to humans, to use numbers, mental constructs, to relatively value the goods and services of barter in a way that enables economic activity and commerce. It is the enabler of economic activity and commerce. It is a primeval instinct.

FOA: So, you think we have come a long way from the ancient barter system; where uneducated peoples simply traded different items of value for what they thought they were worth? Crude, slow and demanding, these forms of commerce would never work today because we are just too busy?

Think again.

Lean back and think of all the items you can remember the dollar price for. Quite a few, yes? Now, run through your mind every item in your house; wall pictures, clothes, pots and pans, furniture, TVs, etc. Mechanics can think about all the things in the garage: tools, oil, mowers. If one thinks hard enough they can remember quite well what they paid for each of these. Even think of things you used at work. Now try harder; think of every item you can remember and try to guess the dollar value of it within, say, 30%. Wow, that is a bunch to remember, but we do do it!

I have seen studies where, on average, a person can associate the value of over 1,000 items between unlike kinds by simply equating the dollar price per unit. Some people could even do two or three thousand items. The very best were some construction cost estimators that could reach 10,000 or more price associations!

Still think we have come a long way from trading a gallon of milk for two loaves of bread? In function, yes; in thought no! Aside from the saving / investing aspects of money, our process of buying and selling daily use items hasn't changed all that much. You use the currency as a unit to value-associate the worth of everything. Not far from rating everything between a value of one to ten; only our currency numbers are infinite. Now, those numbers between one and ten have no value, do they? That's right, the value is in your association abilities. This is the money concept, my friends.


This is the concept of money. It is our shared, primeval ability to associate relative values of barter able goods and services. It cannot be destroyed by eliminating currency any more successfully than it can be bottled up and sold. It is an abstract unit of shared knowledge, not a thing. You can dispute this section based on your favorite writer's opinion about the term "money" or "honest money" all you want, but this is the proper way to view the concept of money in its original context and in order to understand Freegold.

Currency

So the "thing" in our modern monetary and financial system that is closest to the concept of "money," the holistic (largely mental and lately derivatized) concept, is the system of institutional bookkeeping accounts of credits and debts. The currency element, alternatively, provides you the "in your hand," "on the run," "money to go" element, so that discrete (and discreet!) "amounts" ("amount" being a truly strange concept as applied to such a non-dimensional item) of said money-system can be transferred among individuals conveniently while operating temporarily outside of the institutional monetary ledgers. (I realize I'm getting a little woolly here, but bear with me.)

Hence, gold was never "the money." It was only ever a barter item, or else a currency item. Similarly, the term "fiat money" seems somehow bogus. Money is a commercial and economic enterprise. It exists even in the absence of a functioning currency. The term "fiat" ought to apply only to the system of "currency" that the government has organized as a suitable non-dimensional yet unitized and standarized "on the go" representative hand(/wallet)-friendly form of "the money system."

"fiat money" = NO
"fiat currency" = YES

And for all the many reasons discussed on this blog, a worthless token fiat currency is a better systemic component than a precious gold currency. Gold is too precious to capital creation and accumulation in the savings function to be squandered in the currency role. And the CBs now know this too!

F A Hayek: I do believe that if today all the legal obstacles were removed… people would from their own experience be led to rush for the only thing they know and understand, and start using gold. But this very fact would after a while make it very doubtful whether gold was for the purpose of money really a good standard. It would turn out to be a very good investment, for the reason that because of the increased demand for gold the value of gold would go up; but that very fact would make it very unsuitable as money. You do not want to incur debts in terms of a unit which constantly goes up in value as it would in this case, so people would begin to look for another kind of money: if they were free to choose the money, in terms of which they kept their books, made their calculations, incurred debts or lent money, they would prefer a standard which remains stable in purchasing power.

I have not got time here to describe in detail what I mean by being stable in purchasing power, but briefly, I mean a kind of money in terms which it is equally likely that the price of any commodity picked out at random will rise as that it will fall. Such a stable standard reduces the risk of unforeseen changes in the prices of particular commodities to a minimum, because with such a standard it is just as likely that any one commodity will rise in price or will fall in price and the mistakes which people at large will make in their anticipations of future prices will just cancel each other because there will be as many mistakes in overestimating as in underestimating.

http://mises.org/daily/3204

So, the point about currency is, and mainly for those of you that fret over a NWO currency, or "whatever currency," an Amero or SDR or euro-whatzit... chill TF out! Currency is no big deal. Currency is not the issue that matters here. What matters is what we, as a planet, choose to save.

RS Comment: So often in commentaries of this sort that propose a “solution”, the author is strangely obsessed with the notion of replacing the dollar (as a reserve currency unit) with simply another institutional emission of similar ilk (such as currencies of other nations, SDRs, bancors and whatnot). Their avoidance of any meaningful discussion of the most obvious remedy is almost pathological in the extreme. To be sure, we don’t need to invent any manner of universal reserve currency to fill the role of a unit of account because that role is already served in a fully functional capacity for any given country by its own monetary unit.

What IS desperately needed, however, is a universally respected reserve asset capable of filling our current void with a reliable presence that serves as a store of value. And far from needing to be conjured or created by complex international committees, that asset is already in existence and held in goodly store by central bankers and prudent individuals around the world — it’s known as gold. From amid the ruins of a chaotic financial crisis that was brought about by its own complexity, a degree of sanity will prevail, and gold as a freely floating asset will arise in stature as THE important element of global monetary reserves. The floating aspect is the vital evolutionary improvement over all previous structural monetary failures which tried to use a gold standard at a fixed price (i.e., unit of account) perversely joined to the very elastic money supply of any given country’s banking system.

R.

Gold as a Barter Item

Hard money advocates, or as FOA and Aristotle dubbed them in jest, "Hard Money Socialists," will readily explain to you how gold naturally emerged as money in antiquity. But as FOA argued—in great detail—this is not really the case.

In antiquity, gold was merely a barter item, a physical good for trade. In some cases it was the best, most efficient barter item and in others it was not. For instance, within the locality of one's home, oil might be a more common barter item. Gold was reserved for "on the road" trade, because it carried the most exchange value in a portable item. But at home, you'd be more inclined to perform the labor required to create some of your own capital for trade rather than to part with some of your precious gold.

Eventually gold emerged as a common unit of account. But the physical stuff still wasn't money, or even currency. It was still just a (somewhat standardized) barter item and a physical store of value, an "asset," a "tradable wealth item." It is this role that gold is returning to today, believe it or not.

FOA: We were first alerted to the "gold is money" flaw years ago. When considering the many references to gold being money, in ancient texts, several things stood out. We began to suspect that those translations were somewhat slanted. I saw many areas, in old text, where gold was actually more in a context of; his money was in account of gold or; the money account was gold or; traded his money in gold. The more one searches the more one finds that in ancient times gold was simply one item that could account for your money values. To expand the reality of the thought; everything we trade is in account of associated money values; nothing we trade is money!

The original actual term of money was often in a different concept. In those times barter, and their crude accounts of the same, were marked down or remembered as so many pots, furs, corn, tools traded. Gold became the best accepted tradable wealth of the lot and soon many accountings used gold more than other items to denominate those trades. Still, money was the account, the rating system for value, the worth association in your head. Gold, itself, became the main wealth object used in that bookkeeping.

This all worked well for hundreds and perhaps thousands of years as fiat was never so well used or considered. Over time, society became accustomed to speaking of gold in the context of money accounting. Translations became all the more relaxed as gold and money accounting terms were mingled as one in the same. It was a subtle difference, then, but has become a major conflict in the money affairs of modern mankind; as gold receipts became fiat gold and bankers combined fiat money accounting with gold backing.


(Read more of FOA's historical account starting with "The Gold Of Troy!" found on Gold Trail III – The Scenic Overview.)

Gold as Currency

At some point along the evolutionary trail of the money concept, gold was employed by the power of government fiat and stamped into currency. As I have written before, this was done for the purpose of profit (for the government). The official stamp on these coins designated the overvaluing of the underlying metal. Otherwise there would be no profit in it. And sooner or later, that profit ran out and the gold content had to be debased.

These gold coins were the first fiat currency! Not fiat money; such a thing doesn't exist. The money concept is the creation of private enterprise and finance. Government can only create currency, the portable "on the go" element of the concept.

In the more recent past, while gold shared the currency role along with many national paper fiats, and before we had a globally integrated, computerized, efficient and trusted system of payments (notice I said "payments" and not store of value) gold was the go-to currency for certain payments, especially among less trusting trading partners. And among these, certain "super-producers" accumulated quite a lot of this gold currency.

Do you realize that somewhere out there, there is perhaps four billion (with a b) ounces of gold in private hands (in many forms, including coins, bars and jewelry)? A lot of this gold was accumulated by families over many generations. It is only in modern times (and in the West) that we think of our "nest egg" as something that should be deployed into the marketplace in search of a yield. That we must trust it to a "manager" who we pay to churn us an ROI. This is a very modern and Western view. The rest of the world (the rest of time for that matter) views wealth a little differently.

ANOTHER: This brings us back full circle, to the problem of "digital currencies" and the "mind set" of much of the simple ( and rich ) third world persons. To many of these people, wealth is the surplus of life's work that you pass on after death. Currency is something you, spend, trade or hold for a few years. It isn't wealth.

When Another spoke of "rich third world persons" and "old world giants," what quantities of gold do you think he was talking about? Mr. Gresham asked him once:

Mr. Gresham: "We who read here generally buy the coins, one ounce and less. The "Giants" you speak of are usually buying the large bars (100 ounce?), yes?"

ANOTHER: "I ask you, how many of your bars in tonne? This is the small purchase size."

Good question. How many 100 ounce bars are in a tonne? The answer is 321 and a half. Or 32,150 ounces. And this is a "small" giant! 4 billion ounces in private hands. Let's take just half of that and wonder how many of these "small giants" there might be in the world. 2 billion divided by 32,150 = 62,208. So I'm going to go out on a limb and say, conservatively, that there are probably "tens of thousands" of these so-called "giants" in the world. That 4 billion ounces is out there somewhere, in private hands, and that kind of family wealth doesn't necessarily show up on things like the Forbes list.

So what is my point? My point is that today is not just the sum of the last 10, 20 or 30 years, like it probably seems to most Westerners. To the giants, to the world outside of the West, today is the net sum of centuries of production minus consumption.

Some in the West might argue that the overweight value of Western "paper capital" is justified by the overweight capital contribution from the West for the last half century, reflected in the high development of the developed world, the West. But Another observer might point to that same high level of development and call it capital consumption from the effort to use debt to rebuild the West following WWII. And he might point to Wall Street and suggest that the accumulation of "paper capital" represents real capital consumption, destruction and malinvestment.

The West believes it has much wealth stored in paper promises of never ending debt service, but it hasn't actually been paid yet. The West is hoping to be paid someday. But there is a whole other world out there that, for centuries, has already been paid in full, in gold.

Gold in Modern Bullion Banking

In the not-so-distant past, gold shared the currency role with various national fiats. Gold was a currency, more or less, right alongside this paper. And because the two traded at a fixed parity within the banking system, there was no such distinction as a Bullion Bank.

Modern bullion banking is a carryover from this past. When Nixon abruptly took the dollar off the gold standard in 1971, the billions of ounces in private ownership didn't just disappear. They weren't cast into the streets in disgust. And these giants with 100,000 ounces or more didn't take those tonnes home to the basement. No, they stayed right there in the bank vaults and literally JUMPED in value.

In fact, the banking system never really stopped "banking" with all that gold, even though Nixon demonetized it. While gold was currency, deposits of gold generally went into unallocated accounts just like your deposits of physical dollars do today. Putting gold in an allocated account in the past would be akin to putting cash in a safety deposit box today. Sure, it happens, but it is not common because it has a cost associated with it.

And what is it that banks do with unallocated accounts? They make loans to generate income for the bank, and they use fractional reserve accounting to juggle the deposits and (hopefully) keep everyone happy. And in the rare situation where they come up short on reserves, the Central Bank stands ready to backstop their fractional reserves with a loan of extra reserves.

Even today, a few of the biggest banks still have bullion departments where they can take deposits in physical gold. These banks are what we now call the Bullion Banks. This bullion banking practice seems very foreign to us shrimps with a little gold in the family safe. But yes, just like the billions of ounces that existed during the gold standard era, this practice of bullion banking still exists.

And today the bullion banks still operate with fractionally reserved unallocated gold. Some reports put the remaining amount of unallocated gold being juggled within the banking system at about half a billion ounces, or 15,000 tonnes. But so far, this is apparently enough to support the meager delivery demands on the spot gold trade as well as the allocation needs of the bullion bank-operated ETFs. (More on this in a moment.)

Things have changed in the last decade. The Bullion Banks no longer have the same income-producing uses for this unallocated gold on deposit that they did in the 80s and 90s. Back then they lent it out to hedge funds and mining operations. For mines, a gold loan made great sense because it carried a lower interest rate than a dollar loan and could be paid back with just what they pulled out of the ground. For hedge funds, it also made sense with the low gold interest rate. Funds would just sell the gold into the market for cash and buy it back later, called the gold carry trade. But today, with the rising price of gold, gold loans no longer make sense for anyone. And in 1999 the WAG ended the CB backstop for this Bullion Bank lending practice.

So guess what income-producing activity the banks found to do with some of this unallocated gold today? As the mutually reinforcing factors of rising prices and termination of mine company hedging and waning carry trade activities in the wake of the 1999 CBGA left bullion banks with their full store of unallocated gold deposits but a shrinking base of usual customers for their gold lending services, the ETF mechanism provided the ideal means to relatively safely put these deposits back into play. By delivering them into an allocated account with the ETF in exchange for ETF shares that could be lent or sold for cash, these same Bullion Banks found a new path to dollars that could then be used to churn an income.

I don't think the issue is whether or not the gold in the ETFs actually exists, but rather, how many claims exist on that gold and who (of the claimants) has an actual pathway to take possession of it?

Where do you think the 40 million ounces allocated to GLD came from? Were they purchased on the spot market? And who can withdraw actual physical from the ETF? Here's a hint: Authorized Participants can exchange shares for physical. And who are these "authorized participants?" You guessed it, other Bullion Banks that allocated gold to the ETF.

And it seems that some of these authorized participants are doing just that…

Jan 14th, 2011 08:27
"… large bullion-backed exchange-traded funds continued to see outflows."

[source]

RS View: Silly reporters. Instead of calling these “outflows” from the ETFs, it should be called what it is — a redemption of a basket of shares for physical gold by the Authorized Participants (e.g. bullion banks). Such share redemptions would actually be a bullish sign because it entails a reduction in the global supply of paper gold while at the same time signifying a preference by the redeeming party for having the metal over the ETF shares. That is, of course, unless the drawdown in physical gold merely represented the routine sales of the gold inventory that occur to cover the ETF’s administrative expenses.

And why do they do this? Because more and more of those "small giants" are converting their unallocated accounts into allocated accounts. This very act stretches the Bullion Bank's fractional reserves ever thinner. So there is a sort of tug-of-war on those scarce gold bars in the Bullion Bank's vault, between the unallocated account holders and the ETF shareholders. And the unallocated accounts outnumber the shareholders by a large margin. Furthermore, they have an actual pathway to physical redemption while the shareholders do not.

And as this fractional reserve rubber band is stretched thinner and thinner, how confident are you that all of the "authorized participants" are following the rules to a T? And since you have no recourse to the actual physical, as an ETF shareholder, how sure are you of the ETF denouement come Freegold, which will be a physical-only market for gold? Will shares still trade at par with physical when that comes? I don't know, but it is a valid question.

Bullion banking is no different than regular banking. They do what all banks do. They take unallocated deposits and loan them out for profit. Then they juggle their fractional reserves to keep everyone happy. And if they ever get in trouble, the central bank comes to the rescue. But no longer for physical gold. Only for fiat currency. That will likely be the denouement of this fractional reserve conundrum, and it is what Another and FOA both predicted. You will ultimately be settled out in cash and told to source your own physical in the physical marketplace.

And for those of you that think all bankers, by nature, are anti-gold, guess again. A better way to view banking versus gold is that "the past" was anti-gold, but "the future" is pro-gold. The first Central Bank Gold Agreement in 1999 (the CBGA, aka the WAG) signaled this change.

The Washington Agreement is most well-known for its cap on central bank gold sales. But much more important than the sales cap was the cap on gold lending! From the Joint statement on gold (the Washington Agreement):
1.Gold will remain an important element of global monetary reserves.

2.The undersigned institutions will not enter the market as sellers, with the exception of already decided sales.

3.The gold sales already decided will be achieved through a concerted programme of sales over the next five years. Annual sales will not exceed approximately 400 tons and total sales over this period will not exceed 2,000 tons.

4.The signatories to this agreement have agreed not to expand their gold leasings and their use of gold futures and options over this period.

5.This agreement will be reviewed after five years.

And from ANOTHER:

Date: Sun Nov 16 1997 10:20
ANOTHER (THOUGHTS!) ID#60253:

In today's time the CBs do not sell physical gold with a purpose to drive the price down. They sell to cover open orders to buy what cannot be filled from existing stocks. Look to the US treasury sales in the late 70s. They sold 1 million a month using open bid proposals with much fanfare. If the CBs wanted physical sales to drive the price they would sell in the same way.

The sales today are done quietly with purpose. The gold must go to the correct location. That is why these sales do not impact price as they occur, there is a waiting buyer on the other side…

Banks do lend gold with a reason to control price.

And...

Date: Sun Apr 19 1998 15:49
ANOTHER (THOUGHTS!) ID#60253:

If they sell gold, a way is clear to "bring gold back" for the nation! Canada has local mines, Australia has local mines, Belgium has South African mines! If they lease gold, it is for a purpose…

This is the real significance of the Washington Agreement! The end of the CB's backing (through lending reserves to the BBs) of the fractional reserve gold practices of the Bullion Banks.

Paper Gold

My purpose here is not to pick on the gold ETFs. Admittedly, all gold ETFs are not created equally. But they are all a reasonable current example of "paper gold" in that they are (for the most part) just claims on gold held by Bullion Banks, not gold itself. The paper markets exist because the public believes gold is a commodity like any other. And I say, paper markets schmaper markets, it's not really about the paper markets, it's about gold being a fractional reserve in the banks.

It is much less important to Freegold that the investing public believes gold is a commodity. Those that really matter already know it's not. And the paper markets and the public's misunderstanding of gold simply help the banks manage their fractional reserves to keep everyone happy.

Yes, the paper markets by their very nature, and only because gold has the highest stock to flow ratio, automatically act in harmony to suppress the price of the actual product. And yes, they do provide a means for the banks to occasionally control the price of paper gold in an effort to manage where their fractional reserves of the real thing actually go.

But the actual physical portion of the paper markets is tiny compared to global gold. COMEX does not project its price discovery globally because it is so powerful. That price is accepted, not projected, because the Bullion Banks choose to use it in their fractional reserve gold banking. The paper markets are markets for claims on gold held by the BBs, not for gold itself.

To put it another way, if the Bullion Banks and their fractional reserve gold banking is a dog, then the COMEX (or "the paper markets") is its tail, not its heart. And the tail doesn't wag the dog. Paper markets will be the price discovery mechanism for gold as long as fractional reserve gold banking exists. Simple as that. Will beating on the tail of a dying dog kill it faster? I don't know the answer to that question. Never tried it.

Also, I'm not here to ask you to avoid "paper gold" on moral grounds. Buy paper gold or ETFs if that's what works for you, by all means. I'm only saying that when you hold "paper gold" you are the same as those that held (external) dollars from 1970 right through until 1972. Dollars were once paper gold too.

There may be a very high price to be paid in the future for the high liquidity of paper claims on gold held by the Bullion Banks today.

FOA: Somehow, the BIS and the major private gold holders know the total claims, as does Another. The Euro group is going to force those claims into real bids instead of just claims!

From this...


into this...


(The illustrations are from my post Relativity: What is Physical Gold REALLY Worth?)

The Gold in Freegold

One question I see over and over and over and over again is this, presented in its most recent email incarnation:
Another has stated, as have you, that behind the scene, gold trades between the giants for many times what the posted price is. If this is so, then when the phase change comes, and gold is used to recapitalize the central banks and to redress trade imbalances, could it not continue to be used for those purposes behind the scene at inflated values, with the “posted price” remaining at much lower prices?

The Central Bankers NEED gold to be precious in the hands of the people, fiat currency NEEDS Freegold, just as much as gold needs fiat currency in order to be set free from the fractional reserve practices of the bullion bankers, a carryover from the gold standard. Let the bankers play their fractional reserve games with fiat currency, backed by the CBs as their fiat lenders of last resort, just not with precious gold, and certainly not with the backing of the most precious CB asset.

This isn't about anyone financially screwing anyone else. That stuff happens regardless. This is about the emergence of a stable foundation on which the global economy (and central banks) can operate. To date, there isn't one, only the U.S. dollar.

The same thing that has given the dollar exorbitant privilege all these years is now bringing it down. And that thing is the self-referential foundation on which it is built. It is the mountain of debt, highlighted by China's pile of Treasuries, but also including every dollar denominated savings in the world. That pile of "implied dollars" no longer has a recoverable relation to reality. Freegold provides this base, this stable foundation, for the fiat currency system of the future.

Gold trading behind the scenes at a much higher price was never the CBs way of excluding us from the fun. It was their way of protecting their assets from what is inevitably coming. For the CBs to redistribute their gold among themselves in preparation, it made sense that gold's value (future price) was more than its present price. What Another described was never a parallel trading universe. It was merely preparation for what is coming to everyone.

Nothing is gained for the masters of fiat (the CBs) by having gold trade at a suppressed price, fractionally reserved by bullion bankers, except systemic instability. This is why Another told us that in the future your government will ENCOURAGE you to save in gold. That's because this will bring monetary stability back to a world that has just experienced (past tense used for a future event) the worst INSTABILITY ever.

It's not a gold standard. It is saving your earned credits by buying a physical asset, outside of the currency. Buying a currency asset provides a temporary privilege to the currency issuer, but it ends in collapse. Buying a physical item transfers that purchasing power to the physical plane by exerting upward pressure on physical things and downward pressure on the currency. Buying gold isolates, contains and focuses that pressure on one point for the benefit of all.

The Free in Freegold

Okay, here it is. What you've been waiting for patiently, I presume. This is what gold will be freed from: The fractional reserve banking practice, which is a carryover from the gold standard.

This is the free in Freegold.

A Final Word

As you can probably tell from this post, I believe that understanding Freegold requires a slight shift in your perspective. It is not sufficient for me to simply describe it in terms as they exist within our present financial and monetary paradigm. I know that some of you think I should be presenting a simple, fully articulated scenario. But I have tried this before. It does not work. It doesn't do a lick of good. It's not an easy task to explain something that requires a totally different point of view (before it actually happens; after it happens, of course, everyone gets it… but too late to act on it). My grandfather once taught me that anything in life that is really worthwhile will not be easy. This applies to Freegold.

Some of you have wondered why I am the only one talking about this. Why are none of the other well-known gold analysts acknowledging Freegold? Well, the reason should be self-evident. I am anonymously trying to share that which is easily ridiculed from within the current paradigm. But I will share with you this. Some big names in the gold analyst community have let me know (indirectly) that they are fans of this blog. Take that for what it is worth. But if I told you the names, you'd probably say, "no way!" Way.

Others of you are here looking for "concrete, actionable advice." Fine. Here it is: Buy. Physical. Gold. Now. Simple is as simple does.

Sincerely,
FOFOA

201 comments:

1 – 200 of 201   Newer›   Newest»
Tyrone said...

I love the smell of FreeGold in the morning. It smells like… Victory!

BTW, I’m hearing rumors that “I suck” and that “I’m slow”…
Rubbish!

Cheers!

BTW, does anybody else think the comments here are devolving? And being monopolized? Just sayin’.

Brian said...

I absolutely loved this piece. It made perfect sense. I won't even call it long. I will call it necessary. I found myself stopping and re-reading a couple of woolly parts. After wiping a small amount of drool from the space bar I was able to continue and comprehend what you were trying to say.

I will say this. I ain't selling my silver for gold. But I will be buying more gold. Thanks again.

Pete said...

The comments have been devolving Tyrone. There are the old commenters, like Costata and Desperado (and others) that are good value, but some of these new comments are a bit 'simple'. Arguments like 'gold standard is better than freegold', or 'how about freesilver?'. They are missing the point so severely. I think if a few of them actually read the articles here the comments would be a lot better.

DP said...

"My grandfather once taught me that anything in life that is really worthwhile will not be easy."

We should have taken a lot more notice of our grandfathers, because I think a lot of our fathers were too busy looking for the easy way in life and fell asleep at the wheel. Perhaps we can collectively learn from unfolding events quickly, and be better guides to our own children.

Thanks much, FOFOA.

radix46 said...

Oh bloody hell, now I've got to go and buy some more gold.

forwhatitsw0rth said...

Thank you for this excellent article - you have outdone yourself again!

I am what is considered a recent gold bull (2years old - jumped in end of 2008), but this 'freegold' has given me yet another angle to gold.

The more I learn from you, the more it is like a puzzle within a puzzle.

Can you tell me if Another or FOA are fit and well? I really wish them the best, they were far ahead of their time.

Regards,

fwiw

mortymer said...

Relevant to article:
6/14/98 ANOTHER (THOUGHTS!)
"...What else can a person of small wealth do with a currency but "spend it"! Outside your country, small persons, large traders and Central Banks hold the dollar, not for spending, but for the "reserves" and "store of value". It is held in much more quantity than exists inside your borders. Many of these persons think and know, that in last resort, the dollar, it can buy "oil" or "Gold" anywhere in world. In the real world, this is the "real backing" behind the dollar held in many lands! Today, the same "system" that makes this dollar "strong in gold and oil" does destroy the native currencies of many peoples! You may list for me, as perhaps the Canada, Mexico, Japan, Africas, all of Asia, come to mind! I ask you now, what gain these countries to maintain a "system" of "currency reserves", that breaks the local savings and economies? In a world that finds many nations "hungry" for a "reserve currency system" that correctly values "gold and oil" for the benifit of "local currencies", this Euro will change many thoughts..."

g. said...

Thank You Fofoa for the "new angle."
Si "Un Autre" vit encore, bien à vous, et un grand merci!

Tyrone said...

Video:
Greenspan on CB and Gold

Enjoy!

GoldSilverClub.ca said...

Another good one...

I would go out and buy gold today (good price) but I am already invested and have no spare money.

I am selling my summer sport car for gold... am I crazy?

Xavi said...

Thank you FOFOA for this interesting post!

I'm new to the Freegold crowd so I'm slowly reading trough all of the Another and FOA archives for the first time. I've also read all your 2010 posts and hope to find some time to finish all of it.

What amazes me most is that Another saw this 13-14 years ago! I was just a teen then and now I discover all of this and I still can take part in it. It's fantastic. But if they managed to extend their paper play for so long it's hard to deprogram your mind and see everything as clearly as you see it. Especially if you have been born in this system and nobody taught you anything else. Thank God we still have the Internet... and there may be some hope for those we have been searching truths out there!

I think that most of us only want to have a happy life, working in what we love and being able to have a family and a place called home. Some people took it too far and robbed the rest of their dream. At the moment, my life plans are halted because of the housing bubble and the bad situation with jobs in my country. Meanwhile, FOFOA has to consider flipping burgers for a living. What a tragedy!

I hope we can meet all here after the transition and make a great party. You seem to have a very eclectic taste for music :D

Take care.

Joel said...

FOFOA,

Thanks for yet another great article. I agreed with the original poster that some of the commentary on this blog is "wooly", and I cannot speak for the original poster, but my comments were directed towards some of the other unnamed bloggers, who imho should be writing poetry, not blogs on economics and gold. I find your writing to be very clear, although I may have to reread them a few times to really grasp them (I am a businessman, not an economist.)

I really appreciated your last post, as it addressed directly some of the questions I posed on ETFs in the open forum. A great explanation, but it begged two questions from me:

One, you state that ETF shareholders are outnumbered by giants with unallocated accounts converting to allocated accounts. Yet the GLD's gold is already held in allocated accounts. I don't see how that conversion by the giants puts ETF shareholders in a subordinated position relative to them, if their accounts are already allocated, as per their prospectus.

Secondly, you state that authorized participants are exchanging shares for physical. Clearly, being an authorized participant gives them more access to the physical than the ETF shareholders, and when it comes to redemption they will be first in line. But after all, it was their gold to begin with. They simply paid for their shares in gold. But their redemptions don't reduce the NAV % of gold in the fund in relation to the market cap of the fund, does it? We should always see outflows of gold when shareholders are redeeming shares. Yes, the amount of gold goes down, but so does the number of shares outstanding, keeping the percent of gold backing constant. If they sell those shares to someone else, they simply take that cash and buy more gold somewhere else. If at some point and time, due to physical scarcity, they become unable to purchase enough physical gold to maintain their physical backing as defined in their prospectus, I would think they would have to immediately cease selling new shares.

ETF risk, to me, seems to boil down to be how secure their allocated gold is, both legally and physically. I agree that as a shareholder you have much more risk than if you own it outright, as you are relying solely on the ETF to protect your position, both legally and physically.

Your point about how conversions to allocated accounts and a rapidly dwindling number of paper trades will apply serious heat to the fractional reserve system is well taken, just trying to weigh whether the ETF's gold backing structure will withstand the storm.

I am interested in examining in the safety of ETFs because, like many others here, I have already maxed out my liquidity in physical gold, but would like to continue to participate in the upside with IRA and other non-liquid investments. Miked posed the risk of subcustodian shenanigans, but again, it is still supposed to be in allocated accounts, which are not a bank asset. If they simply disappear, a lot of folks should be going to jail, right?

I would appreciate your thoughts on what I might be missing here. Thanks again for a great blog.

--Joel

westcoast2 said...

FOFOA, I have been following along for a while and enjoy reading your blog. When encoutering these concepts the words do seem 'Woolly' or even like 'Riddles', yet are apparently obvious and straight-forward.

This seeming paradox is part of the process. In a paradigm shift (overused word I know but as close as I can get), those in the new paradigm (freegold) can see both the old and new paradigms. Those in the old paradigm can not see the new one, they are literaly blind to it. Thomas Kuhn discusses this effect.

Questions from the old paradigm seem odd to those in the new. Words and replies from those in the new seem 'Woolly' to those in the old. Patience is required on both sides and bridges from old to new, such as the current well written piece, are needed and helpful.

I am still confused, though as someone else said 'After confusion comes enlightenment'.

(ps for Wendy - I am in London (UK))

Tom said...

I think I'll have get rid of some more silver and trade for some more yellow stuff.

matt said...

FREEGOLD was mentioned on Peter Schiffs radio show on January 19, yesterday. The conclusion was...

Schiff has never heard of FOFOA or freegold.

Schiff believes all fiats float against gold already

Schiff is not sure if the paper gold market influences physical clearing all that much.

But, he also believes that the world economy can function without the USD as the reserve currency.

golden tube said...

@xavi re "....FOFOA has to consider flipping burgers for a living. What a tragedy!"


no he doesn't, just make a donation, i have, its worth it.

while you still can

golden tube said...

All ETF's are fiction, and anything can happen ( or made to happen) to a fiction. Physical gold in your hand is real.

no contest really

Trade if you dare, but when the music stops, he who holds the (physical) gold wins, paper holders of fiction ....well, they will weep.

measure your wealth (savings) in troy ounces not anything that is written on paper

golden tube said...

QUOTE of the Year
Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants - but debt is the money of slaves

-Norm Franz, "Money and Wealth in the New Millenium

thedeadfauvi said...

Global monetary system needs to change -ECB's Noyer

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Analysis & Opinion

* The rise and rise of capital controls

PARIS | Wed Jan 19, 2011 9:23am EST

PARIS Jan 19 (Reuters) - The global monetary system needs to change to reduce currency misalignments and excessive volatility in capital flows, France's European Central Bank governing council member, Christian Noyer, said on Wednesday.

Greyfox "It's the Debt, Stupid" said...

FOFOA
Thanks again for producing this really great article. I truly appreciate your time and labors and the enlighten results. The Russians have a saying that “you can’t put appreciation/thanks in your pocket”. I fully agree with this Russian saying and will personally respond accordingly, hoping others will follow suit to demonstrate and enhance their appreciation with more substance.

ken said...

@matt

"Schiff is not sure if the paper gold market influences physical clearing all that much. "

That is sad if true.

Jonathan said...

"This is what gold will be freed from: The fractional reserve banking practice, which is a carryover from the gold standard.
This is the free in Freegold."

I have appreciated reading on this topic, and mostly agree as my understanding has increased. However is there not a difference between Freegold as defined above, and a system of Freegold par excellence economics being implemented. There seems to be a massive disparity between the two. Hence one could have Freecommodity if it is not allowed to be manipulated anymore, which does not necessitate honesty in political and monetary structures and science.

erik said...

I believe the ancient measurement of the ' Talent' or 9 years of skilled years of labor.....better describes modern capital. The ancients had a far better idea of human worth than most realize.

http://en.wikipedia.org/wiki/Talent_%28measurement%29

VictorE said...

FOFOA, bless you brother!

golden tube said...

Chinese puzzles

"There is one possible solution to the puzzle posed by China over its strategic use of precious metals: she has far, far more gold and silver than we commonly believe. To understand why this conclusion makes sense, we must try to understand her political objectives and where her manipulation of bullion markets fits in......"



http://www.financeandeconomics.org/Articles%20archive/2011.01.21%20Chinese%20puzzles.htm

freegold ! yep!

mortymer said...

Very nice g.t.; Here is the rest:
http://www.financeandeconomics.org/Articles.htm

This one took my attention:
http://www.financeandeconomics.org/Articles%20archive/2010.10.22%20Gold%20unallocated.htm
"However, there are 35 banks listed as full members of the LBMA, and it can be assumed that nearly all of them offer unallocated account facilities[ii]. It is also possible, even likely, that the fractional reserve multiple for many of these banks is higher than 10, because banks have been generally reluctant to hold the one reserve currency that pays no interest.[iii] Furthermore, some of these banks are among the largest in the world. Taking all this into account, it is possible that LBMA members are short of over 20,000 tonnes on their unallocated accounts."

Radek said...

Dear FOFOA,

It is a very nice post like many others. I see you took the comments from Trace Mayer seriously. They were harsh and your effort to make your writings clearer really shows that you are an amazing person.

I never had too much problems to understand your writings before. This posting may be a bit easier to understand but I fully agree that even if you provide definitions people may misinterpret what you were trying to define.

One aspect in which you keep scaring me in a positive sense is how well you understand my psychic. Those mental calculations you mention I do them on every day basis. I am more aware of them because I lived for a long time in 4 different countries and it is funny how you translate the prices in the new country using the currency of the previous country. It is funny to come back to the previous country after some years and be shocked by the price inflation because the brain/memory has not been adapting to the price increases and the shock helps to understand quiet inflation.

In less than 5 years people will be shifting their mental calculations from paper fiat money to physical gold.

For a moment, a person who does not know you may misunderstand you that you support NWO, by not objecting their currency. I know this is not the case.

However, agreeing to NWO global currency is very dangerous. For one simple reason, people are easily fooled and they will again be convinced to use fiat money as a store of wealth. One global currency is a much worse solution than many nation controlled currencies. One central entity controlling "mean of exchange" will become a single point of failure that may cause the downfall of our civilization. This is what I am most worried about. What will happen when dollar - a world reserve currency - goes bust and many countries around the world without sufficient stockpiles of gold will not get their food imports?

The globalization and the complexity of supply chains and economy coupled with a failure of a mean of exchange will cause immense perturbations.

best,
Radek

Museice said...

Forget the Gold.
All Problems Are Solved!

World needs $100 trillion more credit, says World Economic Forum

jthoma6 said...

"...where were they going without ever knowing the Way..." (so awesome).
Who said "I am the Way, the Truth, and the Life"? Enlightenment and Guidence oft times use the road less traveled. My Trail Guide never fails me, after all He led me here, to follow in the footsteps of giants. And what a long strange trip its been!

oldinvestor said...

Re; Mental Calculations

While I very quicly accepted the inevitabilty and rationality of freegold, I took me almost a half year of reading FOFOA before my internal thinking transformed to thinking in terms of prices in oz, not dollars

Now, whenever I spend $30, I immedialey think in terms of “ I have just spent one oz of silver that I now do not have available to put into my wealth conserving stash”

While I no longer buy silver, I mentally think of a silver oz. as a sort of intermediate step to mentally convert small purchases into oz.

Then, concurent to that, I also have the mental thought that after having spend the equivalent of two tubes of silver, I have just spent one oz of gold.

This way of thinking did not happen all at once, but came on gradually as I was continually exposed to the incredible writings of FOFOA. As you can imagine, it has changed my buying habits considerably. I am no longer one of Bernanke’s
good little consumers, as I now spend as absolutely little as possible.

costata said...

Radek,

In the same way that the Euro currency has severed its ties to the nation state and gold (via a fixed exchange rate) gold will sever its ties (chains?) to the nation state (USG/US$) and float against all currencies.

IMO the NWO and one world currency theorists have built their mountain on a real mole hill. There is a kernal of truth in their fevered imaginings. There will be a NWO. The absence of the $IMFS ensures that. The Euro Freegold sponsors have presented their model of the new system. Whether they succeed or not there will be a new system.

IMO there will be a supra-national one world "currency" too - gold. Gold will be able to transit through any currency into purchasing power in any region of the world at any time. As it does so it will "pass judgement" on that currency's value with every transaction.

National currencies of countries with low, or no, gold reserves will still receive their imports of essential items. The price will be set according to the exchange value of their currency against gold.

Those countries with over-valued currencies today will pay more tomorrow and vice versa. The concern you raise would only be realistic if their currency had no value, as in zero, then gold would be helpful but not essential.

Even in that extreme scenario a country could cease to issue a national currency and allow any currency to circulate as legal tender. The citizens would select their preferred medium of exchange and unit of account. We could call this the "Zimbabwe solution". The results of that "field test" are in, it works.

Museice said...

"A similar type of move would clearly put silver well above its previous high. What this backwardation shows is that there is a disconnect between the physical and the paper markets in silver. As I said previously, the silver shorts simply cannot hold the paper price down here any longer without seriously discrediting the paper silver market as a price discovery mechanism."

Silver is in Backwardation

Blondie said...

@ costata,

Exactly. What a succinct comment.
Countries will not need gold reserves as such, they will need to supply a currency which can purchase gold.
Ideally, their own. Over-issue it, and it will buy less gold, and by extension less of everything.

costata said...

Hi Blondie,

Thank you.

Museice,

".... there is a disconnect between the physical and the paper markets in silver..."

Ah yes, but in whose favour, paper or physical.

Meanwhile reports surface of gold shortages, and rising premiums, in the wholesale market. While silver shortages emerge in some retail markets. IMO that could prove to be a crucial difference as events run their course.

Museice said...

Little Giants store gold with Bullion Banks. Bullion Banks go fractional because that's what banks do. Central Banks allow this because they need Fiat Currency stronger. All the while the Central Banks are trading gold between each other for the real price not the fractional price. As is inevitable fractional gets out of hand so Little Giants want their gold allocated. Rubber band...

The event is the worldwide disclosure that GLD has no 'claim' on physical and is therefor worthless. (I write this because I'm trying to grasp it. It's not easy FOFOA)

So the Central Banks allowed all this and for an ending there has to be a trigger point, a flash, because final transition is not something that is done slowly.

costata: Who will the disconnect favor, paper or physical? Do you mean what will the price of physical silver be after the fall of SLV and after the world recognizes Reference Point Gold? Will the price of physical silver cost more dollars to purchase than today? I guess I should figure out what silver is used for after Freegold.

Jonathan said...

erik said...

I believe the ancient measurement of the ' Talent' or 9 years of skilled years of labor.....better describes modern capital. The ancients had a far better idea of human worth than most realize.

http://en.wikipedia.org/wiki/Talent_%28measurement%29

Erik I was just thinking before seeing your post how that people throughout history view their productive wealth in labour expended, and what they can get for it. We value things in relation to our effort and savings (stored labour). Hence for gold to become the only thing worthy of real money status, it would become self destroying as people vote towards other commodities with greater value opportunities. The system is set up to deceptively minimise people's productive value/cost, hence the solution FOFOA outlines could only be implemented by a dictatorship, those already who happen to own giant gold holdings - banking cartels otherwise known as central banks.
FOFOA seeing the end of paper claims on gold is one thing, but getting a liberty enjoying people to value their labour with regards to the reference point of (remonetised) gold and only gold seems fanciful. Surely this system would have to be imposed upon them, by the very ones that have cornered the market for gold.
This new freegold paradigm has never existed in history, however people valuing their own labour, with all the deceptions, has never ceased.
Freedom from paracytic banking, expansionary monetary paradigms and cleptocracies remains the core issue.
However the issues that Another and various others bring forth in relation to fiat currency, valuing oil etc, is incredibly important and worthwhile. Thank you FOFOA for your contribution.

Museice said...

‪Gold standard now supported by Alan Greenspan the person who help destroy USD‬

gideonmandoma said...

Clearly gold is in a long term secular bull market, and I am definitely on board with the physical in any case. And, you have a very nice theory. And, there are certain unusual statements being made by some highly ranked economists which might support the Freegold theory. However, I am by nature somewhat of a skeptic, and I still wonder if you have any proof that this is going to happen? That it isn't just a theory, but you know for a fact that this is in the works. Part of the reason I am skeptical is that when I read FOA/Another's originials writing they seemed to think freegold was just around the corner, and this was in 1998, so I think they kind of expected it would have happened already by now, so maybe they are wrong? One thing that might be more persuasive would be if FOA, Another, whoever would come out and say that he/she is a high level banker in the know(anonymously of course), and not just postulating.

mortymer said...

1/ Does there exist "Silver for cash" to mobilize silver reserves? NO.
2/Timing, evolution, sum:
Ist default - floating prices (?)
IInd default - floating currencies
IIIrd default - floating reserve asset

Dimmed aurum said...

FOFOA
Thank you. Another superb writing!
Still, sir, I do not understand why this carryover (fractional reserve lending in gold) from the past was allowed to continue for so long. Giants falling into this scam just like the Bill Gross into bonds, equities (read malinvestments). Unallocated gold/deposited gold now possible only at gunpoint persuasion!?


@ mortymer
In Bulgaria there exists "Silver for cash". Formerly it was called you give it to us we smuggle it to Istanbul(Turkey). Now it is called uh... too risky better we smuggle it directly to London.
I am not joking;there is a certain obscure entity buying silver through proxies refining it and illegally channeling it via airplanes to London. I sold some silver this way 50% coins mostly, too bulky you know.

Dimmed aurum said...

cont...
And I sold some 10kg scrap jewelry not sure whether to regret this move or not.
I could have melted it to conserve space.
There is still enough space to store a metric ton of gold though ,you stupid little giants you, LOL.

Greenie said...

Hello, This is Another. I am a high level banker in the know.

Does that help?

fletcher said...

"...This is what gold will be freed from: The fractional reserve banking practice..."

Brilliant. I wonder, does this also portend to an end of ALL fractional reserve banking or just within bullion banking?

Museice said...

Here is a fun mental exercise.

Every time you read an article in print or online and the the words 'price of gold' appear, in your mind read 'price of paper gold'. Force yourself to do it. Over and over put in 'price of paper gold' because you know the fractional paper gold market price is the number that is being represented and not what a 'Giant' would sell their gold for.

Ender said...

http://bcove.me/ifaxskht

Cramer talking about paper, but still hasn’t figured out GLD. From my point of view, he has hedged his investments (like a prudent investor) but he’s missed the concept of wealth reserve asset outside the banking system. Much more of this is on its way.

The Freegold Concept requires a change in perception (and understanding) from what we witness in this video. Carmer echoes the mindset of a western investor, that still ‘thinks’ in a dollar centric world. Once someone starts to think in terms of being ‘paid in full’, they start to see the difference between what is real and what is just another claim in the system.

For those of you that are paid in full, losing claims in the system means nothing.

As more of the western investor world (sheep) move towards Cramer’s point of view, we will witness a great shearing! Remember, paper will be found to be worthless – thus what would you expect shares of GLD to be?

My fellow Gold Advocates, if you understand this – you are not part of the herd.

Lighten your load; speak to your friends in the context of metal.

dojufitz said...

Hi FOFOA,

is there anyway to expand the comments window...? i find it a bit annoying - i'd prefer it to expand to a full window rather than a small fraction.....thanks Dom

FOFOA said...

Hello Dom,

Try right-clicking the "Post a Comment" link and then select "open in a new tab" or "open in a new window." That should give you a full window.

Desperado said...

Hello Ender,

Perhaps you might help me with a problem. You write:

"paper will be found to be worthless – thus what would you expect shares of GLD to be?"

My current dilemma is determining exactly what is paper gold. How close to physical are Bullionvault and Goldmoney? Are they really more redeemable than PHYS? What about gold storage at a non-bank repository in an unallocated account that offers physical delivery, is that better or worse than PHYS? How does that compare to an a large allocated account in a bullion bank?

One of the biggest advantages of emoney is its liquidity. Physical gold in a safe deposit box or buried in the back yard is certainly not convenient, and not anywhere near as liquid as GLD. Finding a suitable way to keep gold savings liquid requires planning and thought. How would you recommend storing "liquid gold"?

Ender said...

I’m sure there are many here that can answer your questions better than I!

From my point of view, gold is a wealth reserve asset. It is like owning a fine work of art or an ageless bottle of wine. Parting with it (spending) is to no longer own it.

If liquidity is a prerequisite for owning gold, it would appear that gold, to you, is a means to currency. A little more realistic thinking, one that may serve you better, is to life a life where currency is a means to gold.

My personal stand is – spend what currency you make in exchange for your services on a good life! If you are fortunate enough to have a surplus of currency you may be able to enjoy the finer things in like – gold. If you truly believe that you’ll have to sell the finer things in life before too long, it would be foolish to buy it.

If you have read any of my previous comments (found in the archives) you will know that I advocate physical gold in your own possession. Every other form of what appears to be gold ownership is simply a book entry that signifies that someone owes you gold. One of the key functions gold provides is payment in full. By holding gold, no one else owes you anything.

If this does not help, I’m sure someone will chip in something that makes sense for you.

Good day!

Ender said...

@ Desperado

You ask - What is paper gold?

Our gracious host (fofoa) has written many articles going into great detail on this topic. I certainly hope that a surplus of time finds you and with that time you invest in yourself by reviewing previous articles – and the associated comments. There is a wealth of knowledge recorded on this site that may change your life in many different ways!

Yet, my understanding on this topic comes down to this: When it sits in your hand it is real. When someone says that they will hold it for you and they give you a book entry that it’s yours, it is not real. Ultimately, when someone stands between you and your gold there is a path of failure that may separate you from your gold. Is that clear?

When default occurs, will that banker be responsible for delivering something he doesn’t have?

No need to complicate your life. A lifetime of surplus can easily fit in the palm of your hand (or two)!

Dimmed aurum said...

@ desperado
I am sorry for the interference but why should gold be “liquid” prior freegold. It makes no sense for me. If one needs to “sell” any physical possessions now, moreover using the bankster`s paper “price” it means the culprits (banksta et. al.) have found a way into one`s nest egg savings:
http://www.youtube.com/watch?v=niKaxduCfhA
Besides such “trades” leave a long and stinking paper trail (digital equivalent) and it may be a mess in the RPG transition.
@ Dom
Try also enlarging your browser screen, so that only the comment section fits in (ctrl+).
@ FOFOA
Since you are fast to answer, sometimes, I assume you could help me with this. I know you are a brave one and do not buy in conspiracy theories etc. Nonetheless IF there is the slightest chance to sabotage RPG would that not be a digital only worldwide trade currency based (why not) on the initial CB gold holdings for example. Is it not that the digital world we are living in a curse in disguise, I mean the pro debtor “class” / the commercial banks able to see all comings and goings (expenses etc.).
AND HOW CAN I CONTRIBUTE to you if I do not have a credit/debit card?
Thank you in advance.

enough said...

Hi ALL ! Does anyone here have any thoughts on the recent "private placements" of euopean periphery countries bankrupt debt with China is in some way connected to Freegold? It seems to me that Chinese support of these countries represents a strong message of support for the euro and E.U. Either China knows that Freegold makes the debt, money goods could mean its a simple business transaction. Or that this in some way a step in the deliberate and inevitable march toward freegold ? I read somewhere that the 2 countiries with the highest % of its reserves are portugal and Italy. cheers

enough said...

last line should have been "in gold"

Wendy said...

With all the new freegoldish experts blah, blah blahing about POG, global economics, inflation vs deflation etc etc, I decided to go back and learn from the Master.

I've been hiding out/camping out in the basement, rooting through the archives of ANOTHER.

It was quite the experience, although please excuse my dusty stinkiness. I've returned to shower and repack, as I'm soon off to camp along the gold trail again.

Before I head off I would like to offer up a couple of points for discussion. First is the whole concept around gold going into hiding after a revaluation:

Date: Sun Oct 19 1997 09:42
ANOTHER (THOUGHTS!) ID#60253:
…The economic game is ending now and has been from the start of 1997! Watch closely as the world currencies and markets fall one by one. Watch in absolute wonder as the demand for oil plunges and it's price goes thru the roof. Yes, oil stocks will crash with the markets. And gold? You will never know it's price. It will stop all trading as it slices thru $10,000+…..


Date: Sat Oct 25 1997 10:24
ANOTHER (THOUGHTS!) ID#60253:
…The big buyers fully well expect gold to stop all trading as the governments enact DRACONIAN MEASURES to deal with a worldwide currency problem. The public in general will ask for these measures and to that effect, all paper connected to bullion will become "fair game"!


Date: Sat Nov 01 1997 23:55
ANOTHER (THOUGHTS!) ID#60253:
….I tell you now, when the currencies are at nuclear war, GOLD WILL NOT TRADE


but more specifically for how long will gold not trade? We haven't discussed this idea very much, and when we have we talk in terms of months! But read this:

Date: Sun Nov 16 1997 10:20
ANOTHER (THOUGHTS!) ID#60253:
The BIS will not allow the distribution of all gold to settle claims. The mines of the world will be forced to sell to the BIS at the "locked" existing commodity price of gold. This will happen over many, many years as no other "official" market outside the BIS will exist.

Date: Sat Nov 22 1997 23:32
ANOTHER (THOUGHTS!) ID#60253:
One new day gold will begin a rise that will end it's use as a trading medium. This reevaluation will end a tradition in London. No gold house will make a market that has no sellers, official world gold trade will end for many years!

These are only a couple of examples of Another describing a trading freeze for YEARS! But less that a year later he talks about the value of gold in currency terms taking about a year to understand:

9/3/98 ANOTHER (THOUGHTS!)
... However, at some point, when the dollar market is destroyed, noone will know the currency value of gold thru an official market. Paper gold will not do well as the currency world is at war! The true surge of gold in dollar terms will not show until perhaps a year has gone by.....

I find myself wondering: does gold go into hiding for a few months, a many years or a year??

Wendy

FOFOA said...

Hello Dimmed Aurum,

Is that a bribe for a response that I smell?

To your question: "AND HOW CAN I CONTRIBUTE to you if I do not have a credit/debit card?"

I assume you have a checking account, even if you don't use plastic? You can help support my ability to keep blogging using a regular check through Paypal. I've received a few of these. It comes through to me as an "e-check" and shows up with a "hold," a clearing time of about a week, or until the check clears. I assume you would just enter the check number and amount, etc., into Paypal and then void the physical check in your checkbook. Paypal would then treat it just like a regular check.

The answer to your other question, "IF there is the slightest chance to sabotage RPG would that not be a digital only worldwide trade currency" is a resounding no for the many reasons already discussed here. There are several problems with your question, mainly that it appears to ignore any shift in point of view. "Slightest chance to sabotage?" Once you shift your viewpoint, there is obviously no reason for anyone to sabotage it, therefore the "slightest chance" is irrelevant. But it is difficult to see this without shifting your perspective, IMHO. "Digital only worldwide trade currency?" I have discussed before in detail why this is an impossibility, even if some people think they can imagine it from their ground-level perspective.

I generally try to conserve my energy and focus on questions that, in my opinion, warrant a complete answer. But I'll be happy to expand on this one once the check clears. ;)

Sincerely,
FOFOA

Wendy said...

FOFOA,

Please forgive my bad manners for barging in with my own version of BLAH, BLAH, BLAH, without first saying thank you for your efforts and thank you for the new post :)

Wendy said...

mortymer,

"-> So it seems this crises has been maintained or postponed. "

Do you have any Thoughts about this crisis? was it a "lead up" to the washington agreement?

I would appreciate your help in understanding the cause and effects of this meeting.

Thank you,
Wendy

Wendy said...

Laszlo,

"I doubt the Bundesbank instigated the betrayal, right under the noses of BIS"

I'm confused at what you call a betrayal, would you please explain further? Is it a betrayal or a surrender?

to all:

I feel as though I'm talking to myself (serial posting). I live in pacific standard time. This means that in my evening on my computer, most of the world is asleep or at work.

Wendy

Desperado said...

@Ender, Dimmed aurum

Re: Why "liquid" gold

One reason, in a nutshell: country and region risk. Marc Faber once said that Switzerland could end up seizing the gold of her citizens. I don't rule out there ever being another war in Europe. I could conceivably want to leave Switzerland with my family and head to a region that offers more stability.

This ZH article illustrates this concern: Egypt Proactively Preparing For Tunisian-Style Rioting: Airport Intercepts 59 Outbound Gold Shipments Worth Tens Of Millions

Wealthy Egyptians are finding out about liquidity the hard way right now.

Goldmoney allows you to select the physical location of PM that you choose to store your money in. If these Egyptians had stored their gold there, then in one click they have moved it from London to Hong Kong.

PHYS allows the physical retrieval of minimum 100oz bars. This means that an American with $140K invested in PHYS (or something similar in PSIL), in a time of acute instability, could drive across the border, retrieve his PM's and have a reasonable existence for a couple of years in Canada until the problems settled down back home.

There is also unallocated storage of PM's in a toll free zone that is also a step further from the hands of the Swiss government. Additionally, there is no VAT on gold AND silver stored in a toll free zone in Switzerland. Silver is also a hedge against certain risks in an otherwise pure gold portfolio.

Another reason is just plain liquidity. What if the crash is upon us quicker that we expect? What if a once in a lifetime opportunity presented itself in the peak of a crisis, and you had to go through the extra hurdle of turning physical gold into emoney. It might cause you to miss that opportunity.

And, of course, another reason is theft.

Please don't think that I don't have physical as well. But as the proportion of my savings allocated to gold increases, I don't want to suffer what the Germans call "Klumpenrisiko".

So as the amount of PM's in one's savings increases above a certain level other methods for storing them become more interesting. The problem is that every other venue has its weaknesses.

Shawk Nixon said...

I noticed a Newsweek article interviewing Robert Zoellick this weekend.

http://www.newsweek.com/2011/01/23/no-return-to-the-gold-standard.html

Here is a snippet of the article where they ask him about gold:

"Would a return to the gold standard be beneficial?

I think gold is already being viewed as an alternative monetary asset because holders of money perceive uncertain prospects in all countries and currencies other than China, and the renminbi is not free for exchange and investment. The antidote is for major economies to pursue sustainable, pro-growth policies based on structural reforms, open trade, and sound money. This is not the same as a gold standard, nor would I recommend a return to that standard or the old Bretton Woods system. We need to move toward flexible exchange rates and autonomous monetary policies for major economies in a new multipolar, international economy. This world economy is likely to evolve toward multiple reserve currencies, with the U.S. dollar still dominant, but not exclusive. This system will need norms of monetary and broader economic behavior with the IMF as a "referee," [and] gold might be an informational, not operational, tool to assess markets' confidence in underlying growth and monetary policies."

----

I would appreciate any thoughts, comments and analysis from anyone.

FOFOA said...

Hello Desperado,

What you are talking about is a risk assessment exercise. Here is how I see it. "Unallocated" and "fractionally reserved" are not the same thing. There are some paper gold investments that are unallocated yet fully reserved. Also, in certain cases, gold can be "allocated" to a company whose business model is to own physical gold in full reserve, but you owning a share of that company only makes you a creditor. So to you, the gold is still "unallocated."

In the case where you are an unallocated creditor, whether fractionally reserved or not, there is a fee in order for you to convert your share into physical possession or allocated storage. If you are in this kind of an investment, then your paper gold, even if it is denominated in ounces, is still only a paper claim until you pay that fee.

If there is ever confusion surrounding "the price of gold" (**which there will be, see below), then that fee will be where it is reflected. These conversion fees could go astronomically high, and if you refuse to pay them, then your only option may be to sell your shares at the going share price for cash and to buy your physical elsewhere. This is where shifting to a Freegold perspective is helpful in assessing the risks.

This could potentially apply to all unallocated pool accounts, even ones that are fully reserved. This is where trust comes in. How much do you trust your debtor (remember, you are the creditor) to do the right thing, when doing something legal but not quite right could result in a huge Freegold windfall for your debtor?

This is where I have written in the past on this blog that if the potential windfall is big enough, I wouldn't even trust my own sister with such a temptation, let alone a stranger, a corporation, a bank or a government operation.

So, other than physical in your own possession, the next best thing is fully allocated (to you personally) gold. That is, gold where you have paid all fees up front, and the company is merely storing it for you. Ask yourself this: "Can I walk in and take possession of my gold without paying a dime in conversion fees?" If the answer is yes, then you have the next best thing. But I would also remind you about the gentleman Jim Rickards spoke of who reportedly had to wait a month to take possession, from a Swiss bank. We don't know the details of the case, but I think it demonstrates a potential risk, even for allocated gold.

** Confusion surrounding the price of gold ** And Wendy, this is for your first comment as well...

As Wendy posted, Another wrote, "However, at some point, when the dollar market is destroyed, noone will know the currency value of gold thru an official market."

This does not mean that gold will not be traded during this time. It will. Only there won't be a published price for physical gold. There will be a sort of "on the spot auction" for pricing physical gold that must be sold, or for paper gold conversion fees, as the case may be. Think of it like the Mona Lisa. There is only one Mona Lisa, so there is no way to know the price unless and until you hold an auction. Physical gold will trade locally in a similar way since there will be a void where there was once a globally known price.

Another quote that Wendy posted also applies to these "fully reserved unallocated accounts"...

ANOTHER: "The big buyers fully well expect gold to stop all trading as the governments enact DRACONIAN MEASURES to deal with a worldwide currency problem. The public in general will ask for these measures and to that effect, all paper connected to bullion will become "fair game"!"

Like I said, other than physical in your possession, any paper claim on gold is a risk assessment exercise.

Sincerely,
FOFOA

costata said...

Desperado,

"So as the amount of PM's in one's savings increases above a certain level other methods for storing them become more interesting. The problem is that every other venue has its weaknesses."

This issue has been on my mind lately as well. I think FOFOA has it right here. The issue is risk assessment. That requires knowledge, imagination, logic and vigilance.

Shawk Nixon,

IMO the key word is "informational". Information about what?

"This system will need norms of monetary and broader economic behavior with the IMF as a "referee," [and] gold might be an informational, not operational, tool to assess markets' confidence in underlying growth and monetary policies."

Information about the soundness of a currency and the monetary policies of the issuer perhaps?

"The antidote is for major economies to pursue sustainable, pro-growth policies based on structural reforms, open trade, and sound money."

costata said...

FOFOA,

Deja vu 2008?

h/t GATA

"Unusual COT Action: Bullion Banks Cover Shorts, Swap Dealers Hammer Gold"

http://www.gotgoldreport.com/2011/01/unusual-cot-action-bullion-banks-cover-shorts-swap-dealers-hammer-gold.html

Wendy said...

Thanks for the response FOFOA. I've seem to hit a dead end in terms of how long gold might lay quiet, and what events/actions would be needed to resume an open market.

I feel that the more I learn the less I really know. I was mentally jotting down points to freegold today:

-Washington Agreement postpones but starts the uptrend in gold.

-Inspite of the Washington Agreement, Central Banks have become net purchasers of gold since 2009.

-Useage demand for the $USD is declining as contracts are being enacted using local currency.

-China and Russia selling US tresury (Another said that if any country sold US debt it would be game over).

-world wide Soveriegn debt crisis ongoing.

-US cities and municipalities bankrupt

-US states trying to find an avenue to bankruptcy

-horrible and increasing unemployment, poverty and homelessness in the US

-a foreclosure crisis for both reisidential and commercial proerties.

-riots and protesting regarding food shortages, austerity measure, government corruption

-liquidity injections, stimulus packages (plus pork), QE1, QE2 ....

-India/Iran gold for oil

-paper fires burning everywhere.

I'm sure I've left some out, but I can't beleive what the tipping point must be, and what colossell destruction awaits.

Blondie said...

@ Wendy,

All you really need to remember is that without an objective Reference Point, the economic supply and demand dynamic simply does not work equitably for its users, we the people (markets).

Gold will lay quiet for just as long as we can do without it, and not a moment longer.

"There is nothing more powerful than an idea whose time has come."
- Victor Hugo


Even Kudlow, whoever he is, was (I have this from a reliable source ;) ) just heard to utter on air:

"I think the dollar and the yuan should both be referenced to gold. That's Robert Mundell's solution. In any case, we definitely need a reference point."

I kid you not. He may be confusing Zoellick and Mundell?

Maybe that time is closer than many would think?

Wendy said...

Blondie,

Thank you for your Thoughts. I agree that time is close.

My concern is that many who visit this site, and many , many other sites that I visit, come with their "rose coloured glasses", and envisage a eutopian existance after a revaluation, because they own gold.

I really don't think that's how it's gonna work. I know FOFOA doesn't envision a "mad max" senario .... I don't know who max is, but the "mad max thing" over and over again has kinda clued me in.

I don't know that I agree!

Blondie said...

Kudlow, who sounds like he's reading from a script here, but anyway:

Kudlow podcast click here

@1h11m30sec:

"We should... create dollar, a King Dollar that is as good as gold and stable. We should negotiate out a deal between the Yuan and the Dollar, and both should be referenced to gold, if you ask me, that's Professor Robert Mundell's solution. Right now the Yuan is too cheap, we'd have to have new reference points."

mortymer said...

You might of noticed the action of Russia, they want to increase the reserve holding of Canadian and Australian currencies. But not yuan and not yen and nothing spoken about Euro. So while increasing gold holding some other reserve currency has to decline.
Personally I wander how is it with those countries who are experiencing inflation. Another has warned that countries offloading reserve dollars will experience inflation. Is that the case here now? Isnt this what is China also doing?
Wendy, back to your q later.

Museice said...

costata: ".... there is a disconnect between the physical and the paper markets in silver..." "Ah yes, but in whose favour, paper or physical?"

When moments like this happen I feel very unknowledgeable and thankfully there are people like FOFOA (yes Dimmed aurum, if you financially support FOFOA he will personally guide you:)

I believe I might have been looking at Silver from a distorted angle. I'm now thinking what if there is plenty of physical silver, what if Silver Wheaton does have contracts for future delivery below $10, and what if the supply that is being drained is only silver in stamped form?

The paper aspect of your question costata I still fighting through.

Tyrone: I'm trying to evolve, as are many people who attempt to walk this incredible path and understand FOFOA's teachings, but I will be the first to admit that these are very difficult concepts to incorporate into my 'Cash is Money' upbringing. Each time I think I understand something FOFOA has lead me to another layer appears and I become confused trying to incorporate this new information into the 'this is how the world works' system I believe. This is a strange two steps forward one step back process but... I try.

I guess I'm writing this to encourage others who sit on the sidelines passively reading, wanting to ask a question, longing to be involved in these discussions but are afraid or intimidated. I watched for months and when I finally asked a question FOFOA answered it with a question (of course that is not what I wanted, I wanted a 'It's 2+4=Gold Silly) but he answered and I began my STUMBLING:)

There is no doubt the world needs a reference point for freely printed fiat. Period. So if you have questions for FOFOA or the other incredibly intelligent minds that regularly post I suggest you jump in soon. Now is not the time to be left with questions.

mortymer said...

Lets return a little in time:

http://www.financeandeconomics.org/Articles%20archive/2010.08.02%20GoldBIS.htm

..and try to figure out what was it about Portugal taking the USD loan, about the strange gold swap, about the IMF selling of its hoard, etc...

We may not know details as those are classified but Yes, it seems (at least to me now more clearly) that the statement about unallocated gold to be under fraction reserve is indeed true. Lets look at it as if we now know that here is this leftover from past gold standard and see how this fits or where it does not.

mrbeyond said...

http://vimeo.com/14481537

mrbeyond said...

http://www.ted.com/talks/martin_jacques_understanding_the_rise_of_china.html

ad said...

@mrbeyond,

Thanks for the link, didnt know that Charles Eisenstein had videos, I enjoy his writing. I like his angle on the monetary plane and how it animates the physical.

Money and the Turning of the Age

golden tube said...

http://www.xtranormal.com/watch/8285688/

This explains the gold price suppression very well,


Yes, master!

BlackSea said...

Greetings everyone, this is my first time posting here.

I thought it was relevant to continue to piece together the declarations about the new financial system as it's being planned.

Sarkozy today:

Sarkozy, speaking at a press conference at the Elysee Palace, spelled out France's ambitious agenda for tackling global financial instability, growing payments imbalances and the institutional monetary order.

However, "France has no desire to call into question the U.S. dollar," he said. "The dollar plays a prominent role and should be strong."

Noting the dollar's disproportionate weight in world currency reserves, he said it was and will remain "the preponderant" currency of the world. "But preponderant currency does not mean the only currency," he said.

"Who could think we could replace the dollar with the [IMF's] SDRs?" Sarkozy said, dismissing a proposal raised last year by some major emerging countries, including Brazil and Russia.

Though it is important to reform global monetary relations, it is a misconception even to speak of a world monetary system, Sarkozy argued. "When people talk of currency wars, the truth is that we have been living with the instability of the international monetary non-system since 1971," he said, referring to the year when U.S. President Richard Nixon severed the dollar's tie to the gold standard. "To say there is a monetary system is an error. We haven't had one since 1971."

But he quickly clarified that, "France does not want to return to a fixed currency regime."


Full link at: http://imarketnews.com/node/25457

Blondie said...

@ Museice,

"...these are very difficult concepts to incorporate into my 'Cash is Money' upbringing."
If they are incompatible, perhaps one, or both, are incorrect. Either way, something must give.

"... I become confused trying to incorporate this new information into the 'this is how the world works' system I believe."
Logically, at least one of these points of view needs to be discarded then.

"There is no doubt the world needs a reference point for freely printed fiat. Period."
Do you believe this, or your 'Cash is Money' upbringing? You seem to be answering your own questions.

“The definition of insanity is doing the same thing over and over again and expecting different results." - Albert Einstein

Belief is not an easy thing to alter, because it is often completely subconscious and non verbalized. Beliefs are not often consciously selected, more often conditioned, or subjective responses to misunderstood events which were all about you (if the world no longer revolves around you, it did when you were younger, which is when a lot of your foundational beliefs were laid).
You cannot alter that which you do not know exists, not consciously, at least. You (Museice) have clearly articulated a juxtaposition of views here however, and this may be the same difficulty many others have understanding RPG too. It was for me.

This is price vs value again.
This is where the penny drops and the light goes on, or not.

We are raised in a society where price is our conditioned reference point. Another is simply pointing out that value is, and used to be used as, the fair and equitable reference point.

This is why gold was, and will be again, selected by the market as the master proxy for value and as such the "real world" reference point, and in this role acts as the fulcrum in the return of fair and equitable economics. Gold in this role brings objectivity to the monetary system.

Monetary systems are all and only about the flow of value, and for this flow to be nourishing for all users there must be an objective reference point. Currently many users of the monetary system are malnourished, while a few are malignantly cancerous, insatiable in their appetite for it all. Cancer is terminal. If you cut it out but don't alter the system, it will grow back. This is the evolution of a system, a global human organism, and for the first time we, as that organism, are aware of the evolution, and our control over it.

I am aware that I have left many of you behind as I shifted paradigm, through the focal point that is gold and out into the new paradigm on the other side. That does not mean that the view I am describing is not real, however.
My apologies to any who find it too poetic, woolly etc. You may one day decide that it was simply some of your beliefs that were blocking the view.
My apologies also to those who feel I am monopolizing the comments. There is a link below for anyone to post a comment, and it is my understanding that this function is available to all. No one can monopolize the comments, except FOFOA, who has the power to delete them.

Perhaps complaints of monopoly are based upon too many comments in conflict with one's beliefs?
In that case, why not present the case for your own thoughts? Silence creates a perception of monopoly perhaps?


@ Wendy,

The very existence of rose coloured (optimistic) glasses implies the existence of the opposite (pessimistic) perspective too, no? Without acknowledging this possibility, it is possible to be using the pessimistic view unawares.

IMHO, Mad Max is as real as a unicorn sliding down a rainbow.

Blondie said...

Reference Point Gold

costata said...

Muse,

A snippet on silver from the Perth Mint blog.

"Before anyone suggests we’re running out of metal – simply not true. It’s manufacturing capacity that is the issue here." (My emphasis)

http://www.perthmintbullion.com/blog/blog/10-12-17/Some_Silver_Bullion_Coins_Suspended_As_Perth_Mint_Focuses_On_Most_Popular_Weights.aspx#comments

Bear in mind they also supply the US Mint with blanks.

"At The Perth Mint, the silver coin presses are now at maximum output. In fact, we’re at the stage where we may not be able to completely satisfy wholesale demand, circumstances we were forced to confront during the GFC." (My emphasis)

The "structure" of the physical gold and silver markets are as alike as chalk and cheese.

Nigel Moffatt, Treasurer of the Perth Mint (talking about the wholesale market):

"Moffatt said premiums for physical gold had "doubled" in the past week, but declined to provide any figures. (My emphasis)

http://www.perthmintbullion.com/blog/blog/11-01-12/Interview_With_Dow_Jones_Newswire.aspx

costata said...

Jim Sinclair's jsmineset reports:

"Trader Dan sends us this intriguing article.

Russia Central Bank Plans To Buy 100 Tons Of Gold A Year
Mon Jan 24 09:10:31 2011 EST

MOSCOW (Dow Jones)–The Central Bank of Russia plans to buy from domestic banks 100 metric tons of gold a year in order to replenish the country’s gold reserves, Deputy Head of the bank Georgy Luntovsky said Monday, according to the bank’s press service.

In 2010 Russia’s gold reserve increased 23.9% to 790 tons, or 25.4 million Troy ounces."

costata said...

Extract from an exchange of e-mails with a friend a few weeks ago:

Senator Reid's legislation requiring the US Mint to continue supplying silver eagles, from US mine supplies, came into effect in July 2002. The silver price began a gradual rise beginning in June 2003 from a base of around $4.50. Presumably during this one year time lag the remainder of the US Defense stockpile was exhausted.

I don't think a comparison with prices from any earlier period is valid. The decades long period of supply overhang was unique to silver. Silver is currently sitting on $29.31 for a rise of 651%.

Dr Copper began to rise at about the same time as silver from around 70 cents a pound in mid 2003. It is currently around $4.37 for a total rise of 624%.

The silverbugs could argue that gold has a similar history. If we did not know what we know about gold that would be a fair argument. However given what we know the behaviour of gold (mimicking commodities) is more likely confirmation of manipulation than not. In relation to silver there appears to be no evidence that it's price behaviour from 2003 to 2006 requires any other explanation than a broad based commodity super-cycle.

Over the last four years there has been a huge marketing push, by US bullion and coin dealers such as Hommel, for silver as an investment. Perhaps the premiums on silver versus gold explains their enthusiasm.

March 23, 2010
http://www.marketoracle.co.uk/Article18109.html

"For the purposes of this study, we have included only the most popular gold coins: the one ounce (by gold weight) US Mint Eagles, Royal Canadian Mint Maple Leafs, and the grandfather of them all, the South African Krugerrand. Over the past seventeen months, gold's average spot price has been $975.15, and its average premium per ounce for an order of twenty ounces has been $58.18. The percentage of premium to total (again, defined as 'spot' plus 'premium') is 5.6%. This percentage peaked in November of 2008 at 9.4% ($760.86 spot + $79 average premium) and currently sits at 4.2% ($1,119.85 spot + $49 average premium)."

"Over the past seventeen months, silver's average monthly spot price has been $14.51, while the average premium for an order of 500 ounces of government coins has been $3.53. The percentage of premium to total is 19.5%. This percentage peaked in December of 2008 at a whopping 36.8% ($10.28 spot + $5.99 average premium) and currently sits at 12.9% ($17.17 spot + $2.55 average premium)."

costata said...

Blondie,

Thanks for the link. Nice compilation of quotes and snippets.

IMVHO it's time for a blast from the past, the one and only GG:

BUY. PHYSICAL. GOLD. NOW.

I'll stop monopolising the comments now.

FOFOA said...

Wendy,

"…when the dollar market is destroyed, noone will know the currency value of gold thru an official market." – Another

The key to his statement was "thru an official market."

Why are you worried about how long gold will "lay quiet?" Are you worried you won't be able to sell your gold to cover your expenses? Au contraire! You will be able to sell your gold! You just won't be able to buy. FOA wrote, "dealers would mostly be making a market on the buy side only."

You won't be able to buy any more gold, unless you are willing to outbid (pay more than) all the other bidders for the scarce scraps that are being liquidated by a few shrimps like you to meet personal expenses.

APMEX will report "out of stock" on everything. There will be no known price to advertise, even if they had inventory. You will call several dealers when you are ready to sell and ask for their bids on your Maple Leaf. They will either spit out a bid that will take your breath away, or they will say they'll call you back after they get bids from their buyers. You will sell to the highest bidding dealer, but you won't buy any gold unless you, yourself are the highest bidder.

An official market transmits an official price because somewhere on the supply chain a dealer won't pay more because he can get it from the official market maker at a known price. Or, he won't sell for less because he can sell to the official market maker. Dealers won't be selling their own inventory while gold is in hiding. They'll only be bringing buyers and sellers together through the "auction process" and they'll be earning a spread. The dealer will pit his buyers against each other just like you will pit the dealers against each other.

Through this process will emerge the "dealer network" that I have written about that will last until Another "official market" emerges. When this official (physical only) market finally emerges there will once again be physical gold available to purchase at a known price because it will be at a price established at equilibrium between gold and fiat, each valued at a sustainable price relative to long term capital deployment risks and opportunities. This is what will bring gold back into the market in quantities large enough to make the established price global once again.

And this can only be driven by the giants that do not need to sell scraps to cover their expenses, like us shrimps. This official market will probably be run through the BIS. And given that things didn't fall apart in 1997, it will probably emerge relatively quickly, like a few months. The "many, many years" quote you posted was pre-euro. It was the outcome if the market failed before the euro. This was the threat at that time, "…gold will never trade on an open exchange again, in our lifetime!"

But today, the BIS could launch a physical-only official market in a matter of days I would guess. Here are some of Another's words about the BIS as the market maker:

"One day gold will start up and BIS will deal with it… the BIS knows gold in the many thousands. The future "reset value" of gold is the key… the governments will form some kind of real gold market. Perhaps, the BIS will make the market for the world, in much the same way as the LBMA. …the BIS transactions do create a gold market that is "not as before"! We watch this new gold market together, yes?"

Sincerely,
FOFOA

Wendy said...

Blondie:
"The very existence of rose coloured (optimistic) glasses implies the existence of the opposite (pessimistic) perspective too, no? ..."


NO! FWIW I think we come against an issue of semantics:

Rose coloured glasses: with an attitude that things are better than they really are

vs pragmatic:
advocating behaviour that is dictated more by practical consequences than by theory or dogma; or
Dealing or concerned with facts or actual occurrences; practical.

as opposed to pessimistic vs optimistic.

I probobly could have been clearer by not saying: "colossell destruction awaits"
but used rather: "Where does the ongoing collosel destruction end?"

Wendy said...

FOFOA,

What you suggest makes alot of sense. I can't say that I was "worried" about it, rather than I was curious about "gold going into hiding", and somewhat surprised that I couldn't find others that had asked Another or FOA to elaborate.

I appreciate your well thought out ideas.

David said...

FOFOA,

"...Through this process will emerge the "dealer network" that I have written about that will last until Another "official market" emerges. When this official (physical only) market finally emerges there will once again be physical gold available to purchase at a known price because it will be at a price established at equilibrium between gold and fiat, each valued at a sustainable price relative to long term capital deployment risks and opportunities. This is what will bring gold back into the market in quantities large enough to make the established price global once again."

Do you think this is when the revaluation to approx. $55,000/oz will occur?

DY

Museice said...

FOFOA: You said, "This official market will probably be run through the BIS. And given that things didn't fall apart in 1997, it will probably emerge relatively quickly, like a few months."

and then you said, "But today, the BIS could launch a physical-only official market in a matter of days I would guess."

So what can happen in a few months?

Museice said...

Blondie: When I saw your link I thought you were leading us to

Reference Point Gold

but then again it could be

Gold Reference Point

the public hasn't decided yet

FOFOA said...

Muse,

You can read my comments as "ranging from a few days to a few months."

David,

Yes.

"And gold? You will never know its price. It will stop all trading as it slices thru $10,000+." –Another Oct., 1997 (Gold was $324/oz. at the time)

"…in terms of today's currencies, gold will be "upvalued" to perhaps $10,000 to $30,000 an ounce." -Another March, 1998 (Gold had dropped to $295)

During this time, after the paper market has failed, that GIANT sucking sound you hear when you call your dealer and mention that you have some gold for sale will be the CBs and Giants somewhere at the other end of the dealer network with their unlimited currency, their insatiable demand for gold, and their standing over-bid acting like a giant concubine sucking a golden golf ball down a tiny hose. Let's call these Giants and CBs "the buyers of last resort" for gold. Another said they stand ready to buy any and all physical gold offered for sale.

On the other hand, that sound of thousands of telephones ringing in the background, when you call your dealer to sell your silver, will be all the other shrimps placing their sell orders at the same time. And this is a serious difference between gold and silver. The few giants in the paper silver market are in it for the liquidity and the volatility. It is doubtful that they want to actually hump around 1,000 oz. bars. FOA said that when the paper markets fail, the big money in silver will be selling like crazy to cover the losses in paper gold and scramble into physical gold.

So assuming the paper silver giants are not standing as the buyers of last resort for physical silver at an unknown price, who will be? Will there even be a standing buy order? Or, perhaps, will there be a standing sell order from one giant ETF hoard or another? Will China stand as the silver buyer of last resort, at an unknown price, after nationalizing its own silver mine? Will industry place a standing bid for investment-grade silver after stocking up inventory in preparation for volatility?

You see, the Freegold paradigm doesn't bode well for silver. Paper silver has brought in some pretty big money chasing the volatility trade, driving the price of paper silver way up, imputing that price onto physical investment pieces. But without that pricing (gambling) arena, where will all that big money flee? Will it flee into heavy silver bars (those suckers that the big money buys weigh 68 lbs. each) to support the legion of toy soldiers?

FOA: "…at the very least, the first $10,000 of that figure would represent the current purchasing power of the dollar today. We will most likely get there long before price inflation jumps way up. Once the current dollar gold market fails and gives way to a free physical price, we will see that figure even as our economic function drives all other hard money metals into the toilet. I talking about .50 cent silver. while gold races past its first grand. When we see it we will understand it." (April, 2001 – Gold was at $260)

Don't shoot the messenger. I'm only bringing you the view from the Freegold perspective. Feel free to hedge your bets against my view. I won't hold it against you.

Sincerely,
FOFOA

Wendy said...

Nicely said FOFOA!!

I'm not going to go anywhere near that silver hornet's nest.

Just wanted to say you sound more like FOA everyday ;)

Mantis said...

For all of silver's virtues, which are many and profound, the general populace is less inclined towards silver than the ruling class is inclined against it.

FOFOA said...

Mantis, my friend. Good to see you. You stay away far too long. I had to look it up. It's been 14 months since your last comment. But even that is not as long as you stay away from your own masterful blog. To all, Mantis is a poet and an intellectual artist of high order. Check out his blog. His posts are even more rare than they are short, but always worthwhile.

Wendy said...

A link would be very nice :)

Blondie said...

Click his profile.

Wendy said...

Thank you Blondie,
I didn't know about that

Mantis said...

Thank you for your kind words, FOFOA. 14 months is too long, but I have enjoyed every one of your posts. You see, I chose 2010 as my year to listen. Really listen. No blog posts. No blog replies. Deep reflection and observation. Travel. Conferences. Symposiums. Listening. I want to deeply understand the world of economics and monetary science. Now that 2011 is here, I am recommencing with many endeavors, such as my blog, my investment fund, and other business interests.

Keep up the great work. Your blog is a wonder.


Much more to come on my blog over the next few weeks.
http://anatocism.blogspot.com/


For spot junkies, relax. Wave 5.v should arrive soon.

mortymer said...

By MK: "How gold became politically correct"
http://www.usagold.com/amk/newsletter0211.html
Thanks all who pushed the pram for so long, now it seems the golden baby did its first steps.

DP said...

Wendy, meet Max.

I trust everyone is enjoying these new, improved, quieter, undevolved and unmonopolized comments so far..? I would have liked to turn this into a work of poetry while I was about it, but sadly I'm not up to it.

Wendy said...

Yuk DP .... I don't like the look of that at all!!
I can't ever imagine a Max-like world for our future.

Thanks for the education though.

DP said...

It's probably what we get if we don't get to RPG first, I guess. Nice.

Museice said...

Wendy: One of the things to remember about a Mad Max world is you must have a pair of football or bmx shoulder pads:)

Wendy said...

Does anyone have an opinion with regards to the huge drop in open interest, as well as big ETF outflows yesterday?

Could we be witnessing the break down of the paper markets?

Wendy said...

AHHHH muse, I'll get me some right quick ;)

Jeff said...

If giants will have an insatiable appetite for gold at much higher prices why do dealers have inventory at such low prices today? If giants buy tonnes, why would they be interested in my little maple in the future but not today?

FOFOA said...

Hello Jeff,

At least you did differentiate between "today" and "the future" in your question. So there must be some change coming, some transition, that will cause the giants to move from off market transactions that do not affect price to open market bids at any price, right?

Here is "today" described:

FOA: "I don't think the BIS wants to be seen as a currency destroyer so they are doing the buying quietly."

ANOTHER: "…real gold would bankrupt them in a minute. You see, a country can buy all the paper gold they want as that gold remains on deposit at the BIS controlled CBs. But, if they try to buy real gold outside the LBMA system the price would explode and the BIS would not come to rescue their currency."

"You will not see 80% or more of gold deals. If it was done with all to see the discount value would be lost as the world price would explode. This is not the realm of any public "wall street". At one time it belonged mostly to the Barron. Now it is large with the BIS and super rich."

And here is the transition to "the future" described:

ANOTHER: "In our present system, all currencies are backed by the US$. As long as the US$ is on an "oil standard" of backing, no other country can change. The BIS would destroy their economy in a second of storm. Many think that a country may sell or cut its CB/US debt backing at will! They cannot, they will not! Oil will not accept another system as long as the oil/gold bond works and the world currency system is somewhat in order. [Here comes the change part…] If a crisis erupts and gold breaks the bond with oil, then a change must take place!"

[Here comes the "at any price" part…] "We will no doubt see a mass run of CBs into gold at ANY price! This I know! As for now, each person must protect worth, as the nation/state is locked from change." [The giants are locked from change until the "crisis erupts"]

True giants can never convert the percent of their savings into physical gold at today's prices as we shrimps can. If they even tried, the price would explode and they would only get a small fraction converted, and they would become the pariah of the global monetary system. So their options are a) play the paper gold game and take a little physical at a time, or b) large off market transactions at a much higher price:

ANOTHER: "Think that I a fool, because I trade gold for thousands US an oz.? You will think much on this in the future."

"Make no mistake, the BIS knows gold in the many thousands."

"If you had oil in the ground, that over time could be worth over one trillion US$, would you buy gold for all to see? No. If you had this much wealth, would you want others to see you as getting "rich" from oil sales? No. How could you hold and build your massive wealth over many years, but still have everyone view this people as "in debt and just making it"?"

"Several very large physical buys were made in the off market as a warning. At that time the CBs started a slowdown in lending and sales. The market came close to a major resolution. In Jan. the BIS was close to a large open move, it would have caused a paper panic."

Continued...

FOFOA said...

...

FOA: "If we look back thru the writings of Another, we find an old post that says something to this effect, "You think I am a fool because I trade gold for thousands US$ an ounce". It was a strange statement, but stranger still that no one asked about this… It is a real shocker for lesser eyes… "

ANOTHER: "But, how can this be, you ask? It is done, "right before your eyes" and we see it not! … 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."

"It is known, that a switch to trading of gold to "physical terms" of the same volume as today, would not only bring a huge revaluation in price, it would also destroy the market. The large dealers of today, could not raise the reserves needed to trade a physical market of many thousands an ounce! It is this "possible switch" to "physical trading" that would drastically devalue all currencies, including oil, that much worries the CBs."

"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!"

Perhaps a shift in perspective would be helpful:

ANOTHER: "I think, that gold will be viewed as money by the USA government. Its new, much higher price will offer a "way out" from many economic sins. In that day, persons will not try to "buy" gold, as it will already be used "as currency". To ask, "how can one afford $30,000 gold" would sound as today as "how can anyone afford $30,000 in savings account"? One does earn money, not afford it, yes?"

Are you starting to get the picture, Jeff?

Sincerely,
FOFOA

costata said...

Jeff,

(I typed this comment before I saw FOFOA's response. Here's my 0.02 FWIW)

Arbitrage will bring some portion (probably a very high portion) of the tonnage gold price to your maple.

It will be the currency issuers who will be the market makers (providing the bid and offer) locally. Internationally it may be the BIS as A/FOA suggested.

The higher prices will come from the recapitalisation of the IMFS. It won't be a supply/demand driven investment market. The currency issuers will be pursuing a completely different set of aims and objectives to those of investors. These aims and objectives can be summed up as currency stability.

The "price" of gold will be irrevelant to them. Gold will be their economic thermometer (or speedometer if you prefer).

In the future they will be watching the total fiat currency stock and other economic indicators and adjusting their settings with the aim of maintaining a stable gold "price". This is turn will provide a stable currency exchange value (currency stability).

Blondie said...

RS View:

"I’ve said it before and I’ll say it again now, the reporters are getting it wrong when they equate outflows of gold from the ETFs with “sour” investor sentiment. What they need to work harder to understand is that these are NOT actively managed funds whose gold inventory is tweaked to ebb and flow based on public sentiment in the shares. Instead, the ETFs are more like a central coat-check room in which the various bullion banks have temporarily hung out their own inventories (i.e., meaning, their unallocated stock which they hold loosely on behalf of their depositors). And whereas the claim tickets (ETF shares) may freely circulate on the open market, any significant outflow of physical inventory is simply and primarily indicative of a bullion bank reclaiming the original inventory based on a heightened need or desire for physical metal in a tightening market — for example, to meet the demands emerging from Asia."

costata said...

Wendy,

Could we be witnessing the break down of the paper markets?

I think the answer is yes and no. If you think as A/FOA and FOFOA do then the breakdown is a process with an inevitable outcome.

Is that outcome going to happen tomorrow? FWIW I don't think this is likely. IMO the "bad guys" are firmly in control of the paper markets and they still have levers they can use to achieve their aims.

FWIW I think the game has changed in the paper gold market. Taking the "price" of gold to higher levels is the only way to dampen physical demand (by weight) now. Sudden price drops will serve to help them in fleecing the paper gold traders but it will simply be seen as a discount to the Asians and other physical buyers.

Again, this is merely my considered opinion, but I think the story in silver is completely different. IMO the "bad guys" have the paper silver market and the physical silver market firmly under control regardless of appearances to the contrary.

Again, this is merely my opinion but I think a "pump and dump" is a high probability for the silver Comex over the next few weeks and months.

radix46 said...

Costata,
I'm with you on the silver pump and dump. I have seen a lot of people advocating switching all of your gold for silver to 'crash the bankers'. This looks to me like an excellent way to take buying pressure off the yellow stuff.

I've decided to play fast and loose with a few junior silver miners, hoping for some big moves on the back of this silverbug euphoria that seems to be gripping the precious metals sphere. Then switch to physical gold, letting it run as long as my nerves can stand it. Only with 'spare' cash (whatever the hell that is!) though. I'd never get rid of any of my physical gold now, unless it was life or death.

Museice said...

From Harvey Organ:

"Please note that in the slowest month of the year for deliveries we have so far got total notices representing 3.615 million oz. I just cannot wait until March and see who will be taking on these crooked bankers. Judging from the March comex figures, the long holder refused to budge like their cousin, gold.



There have been rumours that certain hedge funds and sovereign wealth funds are willing to take possession of all gold and silver. In gold it is the February month and in silver it is March. If this is true, the game is over as there will be a default at the comex

which will bring on defaults at the SLV and GLD, and then a default at the Bank of England, and then all the banking system in the USA. I will be watching this closely.



So in the conclusion, we saw a massive contraction in OI with respect to gold, which is in itself extremely bullish as the cartel washed away all of our weakest longs. Those that are now standing after a month of pummelling are in strong hands.

In silver, we saw no liquidation. If the long holders here are sovereign wealth funds, then they are also in strong hands and quite capable of bringing down the usa financial system."

Edwardo said...

I'm not necessarily disagreeing with the thesis that "the bad
guys" are in control of both the paper and physical silver marts, but could those of you who hew to that view perhaps provide some evidence, or, at least some further ideas, to buttress that assertion.

costata said...

PRECIOUS-METAL-INVESTMENT,

I posted a comment on the previous thread to complement Tekin's response to your question.

It concerns the sale of 167 m/t of gold in 1997 by the Reserve Bank of Australia that drove the gold price to an 11 year low.

costata said...

Edwardo,

By way of background I'm going to post a recent exchange of comments from ZeroHedge. The first one explains how the game is played and the second explains why JPM's book is completely unreadable from the Comex data. In other words their true long short position cannot be discerned from Comex data.

by fmxconnect
on Sun, 01/09/2011 - 21:22
#862851

A few observations on the mechanics of taking/making delivery, one of our staff having done so on 50 contracts on more than one occasion.

1- first notice day- the day you, as a long must declare if you want to take delivery or not. shorts declare nothing, they wait for the exchange to tell them someone wants metal.

2- you can declare you want delivery and will then be obligated to put up the actual cash value for the metal in a number of days. The difference between first notice and actual expiration day being that time frame to come up with the money.

3- between first notice and expiration, you may also sell your metal in the futures market thereby "reissuing" your claim for delivery

4- the game has always been this- you decide if you will take delivery or at least declare that you will take delivery if you believe the contango between the front month and the next future will come decrease in a few days. if you believe that the contango has been exacerbated by too many funds mandated to roll over their longs, than it is a good trade totryto capture that contango collapse, provided you dont have too much open interest yourself to get out of afterwards.

as expiration day approaches, the comex seeks to match up buyers and sellers. if there is an imbalance of either side, that side must close its risk in the thinning futures mkt.

historically this game was won by the shorts, who went longthe second month adn short thefirst i nanticipation of the funds having to roll their positions, adn not being permitted to take delivery. much like ETFs today ,they were a captive audience who HAD to roll or puke, and the bullion dealers front ran them in anticipation of the trade. nothing criminal about it. its bayesian probability. Guy keeps doign something the same way mechanically, you fade it. than game ended when Buffet though Phibro said,"I 'm standingfor delivery" and the mkt went bonkers. Producers and bullion dealers had gotten comfortable not only playing theshort front mont side, but they alo added to and rolled shorts borrowing metal for actual delivery when they could. so this massive complacent lopsided shortphysical mkt was rocked by Buffet.

the shorts had to get their spot metal back and rollled out 1 year at a backwardation equal to a 40% lease rate. And so Buffet caught them with their pants down.

that is how it would be done. otherwise its jsut the inverse of what used to happen, shorts get squeezed for a week adn then get their metal back. lease rates go up and the problem is solved.

Continued/

costata said...

\Continued

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by Arius
on Sun, 01/09/2011 - 21:31
#862868

thats ancient history...now shorts are being really slaughtered...but hey goodluck

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by fmxconnect
on Sun, 01/09/2011 - 22:20
#862933

Spreads do not reflect a short squeeze. keeping in mind we are short silver spreads and short bonds as an interest rate hedge betting on the squeeze. we just dont see it yet.

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

by New World Chaos
on Sun, 01/09/2011 - 22:03
#862901

APMEX is selling six COMEX deliverable bars for as low as $0.29 over spot. They have been there at least a couple days, and I have never seen this many at once:

http://www.apmex.com/Category/518/Silver_Bars_Secondary_Market__New.aspx

I know physical silver is in short supply and even APMEX is a drop in the bucket, but it seems like COMEX would buy these bars plus any others selling for less than 20% over spot, just to avoid bribing the longs. Why are these bars still for sale at this price?

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by fmxconnect
on Sun, 01/09/2011 - 22:26
#862944

Exactly. Cant find any silver... unless you are an individual looking, then its everywhere.

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

by Stuck on Zero
on Sun, 01/09/2011 - 22:05
#862910

So, if you're a Goldman Sacks or JPM analyst and you are reading Zero Hedge what do you do tomorrow morning?

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by fmxconnect
on Sun, 01/09/2011 - 22:27
#862947

you fade the flow, like always. if your clients are buying, get long in front of them... if selling, hammer it before you take the call.

costata said...

Edwardo,

I found this while looking for the other comment from ZH.

"This report is of data only the US silver futures market, a small corner of the global derivatives market for the precious metal, which is centered in London and largely traded via private over-the-counter deals. As we have said many times before, this data only covers up to 5% of transactions in the physical market. (My emphasis)

We have had this confirmed by COMEX itself. The market’s opinion is that J.P. Morgan's large short positions on New York's COMEX exchange, a division of NYMEX, were hedges for the bank's long positions in physical silver and London's over-the-counter market."

http://news.goldseek.com/GoldForecaster/1292551200.php

costata said...

Edwardo,

Here is the second extract from the ZH comments. Not one of the silverbugs there refuted his analysis.

by americhinaman
on Tue, 12/14/2010 - 01:02
#803879

i'm new to this forum, but it's been impossible not to note the optimism for silver on ZH. while i'm sympathetic to the argument that monetary debasement leads to the need for alternative stores of value (real assets, which historically include precious metals), i think the JPM stories perpetuated here have made a heroic assumption that i can't find any evidence of.

i've done a lot of research on the ETFs and ETNs from a previous job at a big wall street bank. from the ishares docs, i see that JPM is both the custodian of the silver in the trust AND an "authorized participant" (which means they are a market maker who can create or redeem units of SLV shares in exchange for the silver represented by such shares). this puts them in a unique situation where they can effectively arb the various silver markets... between SLV, SI- futures, and spot silver.

i can tell you for certain, that the desk-level traders who run the arb are not authorized to accumulate naked short (or long) positions. if there is a naked short, it would come from the top... a head of trading or above. but based on the evidence, i cannot conclude that they have such a short. what i see is that JPM is running a 3-legged arb involving:

1) physical silver

2) SI futures

3) SLV shares

as needed, they take positions in zero-coupon treasuries with maturities matching futures expiry, to manage leverage and cash with the above.

my conclusion is that JPM probably does have a massive position in the futures market... which causes headlines which might annoy the NYMEX or the CFTC. but JPM's unique position as the custodian of one of the largest physical silver stockpiles in the world (i.e. they could easily manage physical deliveries with little marginal cost) AND as one of the AP's that regularly create/redeem SLV for silver, means that they are in a unique position to run arbitrage positions using silver futures against their other silver holdings. without further evidence, i would guess that JPM is indeed running a massive arbitrage between the 3 silver exposures listed above and NOT a naked short.

i would be curious if you can find evidence in the financial statements, suggesting that they do not have offsetting long positions as i assume. if not, i would be very careful buying into what i see as a phantom short squeeze.

Wendy said...

Thanks all for your contributions to my inquiry. I found this quote to be timely:

ANOTHER (11/19/98; 06:43:15MDT - Msg ID:1031)
THOUGHTS!
It is the rising US
equity markets and falling inflation that so indicates the last days of the
dollar! Many say this is a sign of strength for America, yet they know not
what time of life the dollar has attained. The "old man" has he become even
as persons place their financial horse upon his shoulders. The world debt
structure of this "old man" is such that the true pricing of gold in a new
currency, will bring such a weight as it will end his life!

costata said...

Edwardo,

So the starting point is that Max Keiser's tin soldiers are attempting to crash their "opponent" JPM armed with data about 5% of the silver market, while JPM and the other BBs collectively have up to 100% of the available data at their disposal.

The tin soldiers have only one avenue in which to wage their war ie. physical silver bullion (which represents about 1% of the trade on the Comex). If they were buying Comex silver contracts and standing for delivery perhaps their campaign might make some sense.

If americhinaman's analysis is accurate standing for delivery would not assist their campaign either.

I'm trying to outline a base case for the argument that "they (the BBs) can screw the silverbugs". If you want to pursue it we can then move onto the arguments that suppport the assertion that "they will screw the silverbugs".

Sorry for monopolising the comments.

Ender said...

@Museice (and others)

What it is that Harvey Organ brings to us today? The beginning of time? Or a carrot dangling at the end of a stick?

To anyone willing to investigate, or if you simply look back at the words of Another, the COMEX is a side show. It is NOT where the game is won or lost. The COMEX is a paper market that is made to look … physical.

For the same reason that Russia is not buying on any market other than their domestic market and China is buying from its domestic market, these ‘rumored’ hedge funds will not find the metal they are looking for. Big traders have been locked out. Anyone thinking that they are big enough to break the system (wide open) are not aware of the problem.

The only game that is left (and has been for years) is to unwind carefully. I would fully expect that ETFs are designed specifically for this purpose. Any observer could notice that the responsibility to deliver has been offloaded to entities that cannot meet their obligations and, frankly, have not been setup with any intention of meeting these obligations. These claims are meant to be broken.

The end game will continue as long as man (the ants of the world) continue to ignore physical gold metal. As it stands today, man values paper. When this consciousness changes, so too will the value of the base of our monetary system.

Now, if I could dawn a gold-foil cap, I would predict that we have a physical buying opportunity just ahead of us. I’m guessing 1265+- a little as a paper price, yet the value and function of physical gold remains unchanged! Regardless of the paper price, to someone in need of getting paid in full, there is still gold available what can make this happen.

We watch together…

enough said...

Ender...you've just insulted earth's ant population !!! Ants are organized, efficient and work together seamlessly. Humans can't hold a candle to ants.

ANOTHER: "Think that I a fool, because I trade gold for thousands US an oz.? You will think much on this in the future."

so Another was/is not just an observer or someone in the know but a "participant" in this hidden gold world. Never knew that

Joel said...

FOFOA, some questions on Another's posts as they relate to current events:

"Oil will not accept another system as long as the oil/gold bond works and the world currency system is somewhat in order. [Here comes the change part…] If a crisis erupts and gold breaks the bond with oil, then a change must take place!"
and:
"Gold is cornered. Plain and simple. No complicated theories, no options problems. The commodity value of gold was forced so low in paper currency terms that all of the new mined gold, going out some 10 years is spoken for. Between the third world buying physical gold and the jewelry industry ( same people buying ) there is none left for the oil states! They do value oil in terms of gold, but not IN the paper currency price of gold! How much is gold worth in terms of oil value? Just stop supplying gold to them in ultra cheep US$ terms and you will find out by watching the currency price of oil! In any event, LBMA has traded so much paper/oil/gold that any rise in the currency price of gold will implode them. The CBs must become the full primary suppliers of gold or the system as we know it is done."

1)So, is the oil/gold bond now broken, i.e. have all the gold for oil deals now expired, and no longer are any entities supplying them gold in cheap US dollar terms?
2) We know the CBs stopped selling after the Washington agreement, and are no longer the primary suppliers of gold, so why hasn't the portended implosion happened yet (especially given the fact that gold prices have now quadrupled since his posting in 1997)?
3) Oil prices have risen greatly in the last 14 months, even though we are in the midst of one of the largest demand drop offs (1.7 MM barrels per day) since the Carter era. Do you believe it is happening due to the occurrence of number one and two above, as per Another's prognostications, and we are now at the beginning of the end, or is it simply due to the devaluation of the dollar?

Like Wendy, just trying to understand current events in light of Another's posts and get your thoughts.

FOFOA said...

Hello Joel,

To your questions, I will try to answer them as I see it:

1. The "oil/gold bond" is clearly not yet broken. But the "gold for oil deals" have expired. The expiration of the deals can be seen in the post CBGA unwinding of mine hedge books and the ending of CB backing for the BB gold leasing. These were what was keeping the deal "funded." However, it was the Western gold bug fascination with paper gold over physical that was "enabling" the deal.

So, are there any entities supplying oil with gold now? I suppose one possibility is that this is where some of that GLD gold is going with the "bullion banks reclaiming the original inventory based on a heightened need or desire for physical metal in a tightening market." See Blondie's comment here.

2. Why hasn't the implosion happened yet? I suspect that some of the important players (meaning the BBs) actually got the message of the CBGA in 1999, reaffirmed again in 2004. That they cannot count on CB backing anymore and that they had better reduce their paper gold exposure or else suffer the consequences.

I suspect that they have been unwinding "paper gold" slowly over the last decade. The price of "paper gold" has certainly risen partly due to rising demand (for paper gold), but also on shrinking supply (of paper gold) relative to that demand. And as the price of "paper gold" rises, the demand on "physical gold" measured in weight (not dollars) falls relative to the demand measured in dollars. In other words, the same amount of dollars buys less physical by weight at a higher price. So a rising paper price tends to "stretch" your limited physical stockpile (as it relates to everyone except oil).

Also, every Western gold bug that has invested in a Bullion Bank ETF is essentially supporting the extension of the system.

So now we have seen the draw down of CB gold selling and lending. Check. We have had the draw down of BB gold lending. Check. We are in the middle of the draw down on paper gold supply. The gold ETFs are providing a potential pool of physical gold to be taken out by oil and the Asians. The silver ETFs, meanwhile, are providing a pool of physical silver for the BBs to arb the silver markets and churn a bank profit off the silver bugs.

Things are progressing toward the end IMO.

Continued...

FOFOA said...

...

3. What's up with the oil price? Nothing really. As I answered your #1, the oil/gold bond is clearly not yet broken. The right column is the bbl/oz. ratio since 1990:

1990 -- 17.738
1991 -- 19.847
1992 -- 19.161
1993 -- 23.433
1994 -- 26.252
1995 -- 24.122
1996 -- 18.795
1997 -- 17.374
1998 -- 24.681
1999 -- 17.461
2000 -- 10.596
2001 -- 11.959
2002 -- 13.754
2003 -- 13.340
2004 -- 11.010
2005 -- 10.236
2006 -- 10.692
2007 -- 11.271
2008 -- 9.394
2009 -- 18.033
Today it is 15.43.

So you can see that the oil/gold bond is still perfectly intact. Another predicted that when this bond breaks and gold assumes its new physical-only role in the monetary system, that ratio would go to something like 1000 bbl/oz. I agree with this assessment as you can see here, from my post Gold: The Ultimate Un-Bubble. But this ratio cannot go from 15.43 to 1000 in a smooth gradual manner. It will have to be abrupt.

So like I said, I believe things are progressing toward the end. And at that end will be something abrupt, and pretty much unexpected outside of this blog. That's how I see it anyway. And that's why some "are wondering whether old FOFOA has slipped off his rocker and scrambled his noodle."

So take it or leave it I say, it's only the Freegold perspective I learned from ANOTHER and FOA.

Sincerely,
FOFOA

Edwardo said...

"If you want to pursue it we can then move onto the arguments that suppport the assertion that "they will screw the silverbugs"."

By all means, Costata, make the case. And thank you very much for providing me with more grist for the mill.

Edwardo said...

Pardon me for not making this part of my last e-mail, but FWIW, I see Stewart Thomson is a bond bear and, as a result, at least for now, a gold bear.

Mantis said...

The COMEX often diverts attention away from the LBMA, which is the heart of on-the-books physical gold trading in the West.

LBMA GOFO/LIBOR rates can be found here:
http://www.lbma.org.uk/pages/?page_id=55&title=gold_forwards&show=2011


GOFO is the difference between the cash price (i.e. spot) and the forward price. GOFO is the theoretical rate at which a bank will sell gold for the cash price and sell the same quantity of gold for forward value. In other words, it is the cost of borrowing dollars with gold as collateral. GOFO is also referred to as the contango bid or the offer rate. Gold is exchanged in real time, and arbitrage can exist as dollars are borrowed at a more favorable rate than the LIBOR rate. LIBOR minus GOFO is the theoretical rate at which banks lend gold.

Hannes Tulving is still selling kilo gold bars for spot.

Don't expect anything extraordinary to happen in these markets until the price of crude unmistakeably breaks out of its trading range.

Mantis said...

"Gold were as good as twenty orators."

-William Shakespeare,
Richard III

Wendy said...

mortymer and lazlo,

I hope you don't mind me reposting my questions noted above:

Wendy said...
mortymer,

"-> So it seems this crises has been maintained or postponed. "

Do you have any Thoughts about this crisis? was it a "lead up" to the washington agreement?

I would appreciate your help in understanding the cause and effects of this meeting.

Thank you,
Wendy

January 22, 2011 9:53 PM
Wendy said...
Laszlo,

"I doubt the Bundesbank instigated the betrayal, right under the noses of BIS"

I'm confused at what you call a betrayal, would you please explain further? Is it a betrayal or a surrender?

costata said...

Edwardo,

Before returning to silver I would like to add a few points to FOFOA's check list of gold milestones.

Since 2007 there has been a huge increase in the volume of scrap gold coming to market. Mine supply had a spike in one year in this period but it has now resumed its glide path downward.

There is no quantum leap in technology on the horizon to lower the cut off grades or lower the cost of recovery of gold from mining. That revolution occurred around 1990 when the heap leeching technique came into wide use.

The increasing price of gold basically killed the gold fashion jewellery market over the past year or so. (According to one report I saw gold outsold silver 80:20 in the fashion jewellery market.) I'm using the word "fashion" to differentiate this market from the bullion "jewellery" market where gold is sold by weight and purity and there is no premium for design.

The buyers of physical gold have managed to absorb the extra supply with ease and still bid up the price. If, as I suspect, the supply of scrap gold has peaked then the supply of physical gold entering the market each year has now hit a hard ceiling. The only tools left to manage the demand for physical gold are price and emotion.

As FOFOA said earlier:
"In other words, the same amount of dollars buys less physical by weight at a higher price. So a rising paper price tends to "stretch" your limited physical stockpile..."

I would add a small caveat to this statement. Physical gold prices and the paper gold price can, and have in the past, diverged. My argument is that the need to control the price of physical gold will be the imperative that drives the paper gold price from this time forward.

costata said...

Edwardo,

Back to silver. Have you seen this analysis of the gold silver ratio? If not, I suggest you read this and then we can continue to discuss this matter if you wish.

Gold / Silver ratio reconsidered by Tom Szabo

http://www.24hgold.com/english/news-gold-silver-gold--silver-ratio-reconsidered.aspx?contributor=Tom+Szabo&article=3274732008G10020&redirect=False

answer2me said...

Here is a break from the heated debate, and now that FOFOA is commenting again i thought everyone would enjoy this little story i made.





The true history of Gold
(An Allegory)


Long, long ago in the past, perhaps millions of ages ago, at a time beyond human calculation, there was a realm of light, wherein resided the Essence of Gold. Her body was like the sun, and the living rays emanating from her filled the universe with glory. Matter of a fiery and ethereal kind, such is unknown to man, filled all space, and the light coming from the essence penetrated the realm of matter and endowed it with life and sensation. Gradually this matter began to cool, centers of attraction were formed, around these centers more matter condensed, and they grew into revolving globes traveling with lighting velocity through space, being guided by the essence of gold. Upon these globes stones, vegetables, animals, and human beings grew.
But in proportion as this matter became dense and solid, it became impenetrable to the light coming from the essence of gold, and men born therein groped in darkness, until they discovered a luminous substance in the caves of the earth which gave forth a glowing appearance after being exposed to the sun, and they called it Gold. By the light of this stone they were able to see their surroundings. Men and animals used this stone, but in the hands of men it shone brighter than when animals used it.

answer2me said...

But the light they now possessed threw a false glitter upon the objects which it illuminated and caused them to appear distorted and not as they actually where. The Essence of gold, pitying mankind on account of their ignorance and darkness wherein they lived, resolved to descend to them; but being able to make herself visible to men, because their eyes have become petrified and blind, she attempted to manifest herself by assuming a more solid shape in their souls.
She entered the Heart of Man and found it to be a stable, filled with animals of all kinds. There was an ox called the will, tied to the yoke of passion, and an ass called reason, led about by erroneous speculations. There was a hog called Intemperance, and a goat called Lechery, and around the door prowled the tiger, the wolf, and the hyena, seeking a gain of admittance, while snakes and poisonous reptiles were wriggling and crawling through the cracks on the roof. The stable was full of impurities, the windows covered in cob webs that prevented the light from entering; but in spite of these disgusting surroundings the Essence of Gold remained there and attempted to clean it and transform it into a cathedral, fit for her to reside therein.
She attempted to make her presence know to the proprietor of the stable, but for a long time her calls were not listened to; for besides the noise made by the animals in the lower part of the building, there was a great noise made in the upper story, which was occupied by traders of all kinds, by lecturers and preachers, scientists, theologians and bankers, of whom each one tried to make himself heard above the rest.
By some accident the voice of Essence attracted at last the attention of the proprietor, but he could not understand what she said, for the language seemed foreign to him. He therefore sent a commission to examine the claims of the Essences. Deception and Superstition, the daughters of Ignorance, and a fellow named Logic, an illegitimate son of a woman called Experience, arrived, accompanied by a dog called Selfishness. They listened to the Essence and wrote down what she said. They then asked her for her certificates, her being pure, she had none to show, and wanted to dispute with her; and as she did not answer their arguments in a manner comprehensible to them, they shook their heads and did not believe what she said. The animals clamored that the strange visitor should be ejected, for her presence disturbed them in their comfort and ease. Moreover, the Essence having begun to assume a material form needed some nourishment to acquire substance and strength, and she abstracted blood from the animals in the stable and nourished herself with it.

answer2me said...

Such a state of affairs appeared intolerable to the proprietor of the house, and he resolved to banish the intruder. He was afraid to attack her openly, because he feared the power that shone from her light. He had in his employ two servants in whom he trusted, although they where two thieves, who continually robbed their master of his most valuable treasures whenever any opportunity offered itself; but he knew it not, and believed them to be his faithful assistants. The name of one of these thieves was Credulity, and the name of the other was Skepticism, and both were the greatest enemy of the Truth.
One evening the Essence went into the garden that surrounded the house. She succeeded in transforming, by her magic power, some of the animals into men, and they followed her; but the proprietor hearing of her whereabouts, sent his servants to have her arrested. But Credulity and skepticism had never seen the Essence of Gold and did not know her; they therefore applied logic, who by a certain trick of argumentation, which he had learned from a sorceress in the west, whose name was Curiosity, managed to come very near to the Truth, and kissed her, and (they) then treacherously overpowered the Essence of Gold and caused her to be banished. But the Essence, being immortal, could not die; the men who attempted to banish her merely destroyed her purpose for humanity, and thereby rendered themselves incapable of seeing her outward expression, and the Essence of Gold returned to her eternal home, to descend again and again into the hearts of men and to repeat the same process forever and ever, by being reborn, remembered, and banished. Such is the Essence of Freegold

Jeff said...

Thanks for the replies FOFOA and costata.

Maybe the giants have found a way to buy physical gold without driving the price up. Cash4Gold has been going for years, and no one ever says where all that gold is going. I suspect either CBs (China) or maybe giants? Thoughts?

mortymer said...

“the dreams and impractical plans of one generation are often the political and economic
dogma of the next” (Keynes 1936)

RESURRECTING KEYNES TO REVAMP THE INTERNATIONAL MONETARY SYSTEM, 2008

http://dea2.univpm.it/quaderni/pdf/310.pdf

"...Triffin (1960) was the first to
recognize the fundamental flaw of the gold-dollar standard. Given the relative fixity of
monetary gold, the demand for international liquidity was primarily satisfied by the
reserve country issuing short-term, liquid, dollar-denominated liabilities. Yet, two
moneys linked by fixed official exchange rates fall prey to Gresham’s Law. Under
Bretton Woods, gold became the scarce money.1 The dollar conversion clause became
increasingly non-credible as dollar liquid liabilities rose relative to the U.S. owned gold
stock.2 Attempts to share the burden of the dollar conversion clause with other central
banks, through the operation of the Gold Pool, did not last. Ultimately the burden fell
predominantly on the United States. A Gentlemen’s Agreement of not exercising the
conversion clause had also ephemeral effects. The incentives of each player to deviate
from the objective of preserving the system were overwhelming...."

2 enough - did you got further in your research? Good spot.
2 Wendy - keeping your q in the mind.
2 Costata - sorry for not editing, again but just reposting. :o)

mortymer said...

-> this article is really a good reading.

"...Bretton Woods, in full operation, lasted a little more than a decade, from 1958 to 1971 The new Bretton Woods is likely to break down sooner. The second is that, today, the world has in the euro an attractive alternative to the dollar, whereas under Bretton Woods the alternative to the dollar was a moribund pound. The exit of a dollar standard is less costly today than in the sixties. The third is the weaker commitment of the center country to preserve the value of its liabilities. Under Bretton Woods the United States was committed to convert dollars into gold at a fixed price; no such commitment exists today. In fact, US policies can be best characterized as benign neglect with respect to the exchange rate and external deficits...."

Wendy said...

Ender: "The end game will continue as long as man (the ants of the world) continue to ignore physical gold metal. As it stands today, man values paper"

Although "western man" values paper, those in Asia and India are demanding "payment in full" in massive numbers.

How much stress might this be causing in the physical market?

Ender said...

@Wendy, I am sure we are experiencing the stress it causes.

If you think back a short while, you will remember the announcements of ETFs in Asia. The demand that gold bugs expected has been fractionalized into these new investment vehicles. Yes, there are some Asians that are getting paid in full, but the real demand is being deflected.

Weak hands hold paper and the value of that paper is suspect (it is not payment in full).

When man values physical gold in his possession as payment in full, the true value of the paper will be exposed. This happens one coin at a time. No single big trader has, or will challenge, the current system. It will take a collective all.

This is where you and I come in. The current system will fall to its knees only to be replaced by the currently developing system one nugget at a time.

Wendy said...

Thank you for reminding me Ender, I had forgotten about the introduction of the ETF.

insteadofablog said...

Buy. Physical. Gold. Now. Simple is as simple does.

I don't recall where I read this since I've been jumping all over the archives but someone mentioned that the transition to Freegold might see something like a drop in the gold price to $200 (or something really low) as people start to realize the problems of paper gold. What I'm unclear about is why wouldn't someone who believed in Freegold not just wait until this big drop comes to buy all the gold they planned to buy with their dollars? Is it because it's expected that once people realize the problem to that degree, the physical will be hard to find? If it's a slow decline, might there be a window of opportunity before physical markets go into hiding for a while?

I guess what I'm getting at is, does anyone expect that gold prices will go much lower before they go "Freegold high" (i.e. while the paper gold market still sets prices for physical)? I ask this because the Freegold strategy is just to buy now, whenever now is for the reader. But that kind of imperative suggests at least some probability is being placed on a sort of "overnight" scenario, i.e. that Freegold might happen too quickly to play catchup. But if Freegold theory actually expects there to be a window of time before gold can't be bought "at any price" but after the paper price slips, why not wait?

My apologizes for butchering the theory. I'm learning.

Wendy said...

Looks like gold and silver are reacting to the Fed's recommittment to QE2

"To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability."

http://www.usagold.com/cpmforum/

Jeff said...

Insteadofablog,

A collapsing paper gold price would signal the breaking of the paper/gold bond. While the price of paper gold falls the price of physical will skyrocket or gold will 'go into hiding'.

At least that's the orthodox view here. :)

Edwardo said...

Costata,

I am sorry I haven't responded yet to all that you have laid out. I should be able to post something in a day.

The Dork of Cork said...

A truely impressive article - the triangle of relationships between the bullion banks , CBs and the ETF mechanisms - with the junior holders of this claim somewhere in the ether, this seemed to ring true to this non insider.
Must reread this again

Joel said...

Thanks so much FOFOA for the clarification. Went back and read FOA's 2001 posts as well. Both he and Another believed that the ME oil suppliers, having what the alternative of a more stable currency in the Euro, would eventually punt the US dollar in favor of the Euro, and even if the Euro fails, they will demand that oil is priced in gold. This was clearly one of the watershed events he said to to look for, the other being the implosion of the paper gold markets, which you addressed in my last post.

In your mind, will it take the loss of the dollar as reserve to set off the paper implosion, or could a physical shortage stop out the paper shorts, making gold jack against the dollar and triggering the ME to abandon the dollar for gold to price their oil?
Another clearly predicted the coming hyperinflation of the US dollar, but he probably never would have guessed we would be able to print another 2 trillion dollars and went 14 T in debt without the oil producers already bailing on the dollar. It just seems strange to me that the ME producers have been this patient with the dollar and haven't bailed yet, as their gold revaluation would clearly cover their loss on US dollar reserves.

mortymer said...

Wendy: 9/3/98 Friend of ANOTHER - "Michael, I'm looking for a large default in the paper gold market. With the major CB only buying now something is about to give as the most extended shorts can not cover. A default is most likely part of a game plan to get the ball rolling. This spike in gold will no doubt crush the dollar. The next few months will offer the last period of time to roll out of dollar assets at a good price. Of course, all of this is my opinion from and for the most part, Another's." + other similar comments between those 2 posts.

Patrick said...

Joel,

You should read this one and i think your question will be answered

http://fofoa.blogspot.com/2010/10/its-flow-stupid.html

Pete said...

@insteadofablog

+1 for what Jeff said.

One way to think of it is that the price of gold, is the price of 'paper gold', and for now, the bullion sellers are going along with it.

When the price of this 'paper gold' plummets, the bullion sellers will no longer use that mechanism to price their gold.

I think it would help to try thinking about these rise/falls in prices, not in fiat currency, but just in overall value... as a store of value. Eg, if the price of paper gold plummets, then it isn't a very good store of value is it? At the same time, the 'value' of the real stuff will increase, as the paper gold is revealed to be a ruse and demand soars.

costata said...

FOFOA,

I just saw a great line in a comment from rabble babel referring to the:

"Precious Paper" price .....

You have to work that in somehow.

Cheers

costata said...

Robert,

I saw the DCRB "press release" over at ZH. Congratulations.

The Dork of Cork said...

Are all goverments stupid ? - surely this is a gross simplification.
Now when I think of goverments I think of the princely class rather the high priests that dominate todays executives but I digress.

What motivated Paris to start Nuclear expansion back in 73/74 after the new petrodollar $IMF system was being cemented ?

Surely in a world where capital was grossly undervalued by the merchants of Venice to sustain their income stream it would be naive for a goverment to spend fiscally and incur gross debt on overvalued paper to sustain real capital growth in its economy - yet Paris probally in conjunction with some rebel bankers persued this endevour for many decades with the constant tut tut from London and their loads of money culture.
Now the UK is in a titanic energy nightmare with its oil resourses spent on 1980s cultural icons and France while also in deep trouble has some internal capital resourses to fall back on.
The world is never quite as simple as some Austrian acedemics image in their textbooks.

mortymer said...

@TDoC:
- maybe you noticed the new energy deal of GB with Russia.
- The other issue, well self interests first,... go to history of Compagnie Française des Minerais d'Uranium, it was founded by same family who is involved in banking and yet another - mining business :o)

Joel said...

Have read that one, Jeff. But again, it doesn't answer my question on timing. Arguably, all three of the criteria described enticing a big ME producer to offer "the deal" have already been met:

1) "Because either they have enough gold to buy the world at the new price";
estimated Saudi gold 8000-10000 tons--mission accomplished.

2) "There is a crisis in which they feel it is to their advantage to do this ( such as a US$ crisis )"
mission accomplished by our (US)big government/big entitlement/union captured Congress, 14T in debt and printing money like Zimbabwe/Weimar. Worldwide socialist tendencies have created similar debt situations across the globe.

or 3)"they might have a geopolitical rational."
Mission accomplished--worldwide currency failure possible, as even the Euro could fail under debt load of PIGS nations.

Just seems to me like the time has more than passed for the Saudi's to give up on currency and demand physical gold, yet "the deal" hasn't been offered.

The post did answer my other question, though. It seems they believe Saudi demands for physical gold will trigger the paper collapse.
Thanks for the heads up Jeff, always good to go back and read past posts again. I seem to get more out of them in subsequent readings.

FOFOA, thoughts on Saudi timidity?

Joel said...

Sorry, I said Jeff, but it was Patrick who gave me the heads up.

The Dork of Cork said...

@Mortymor
Thank you for the info - I always have to remind myself that there are two types of Banker in this world - the guys that provide finance to build windmills to drain the fields and the bankers who sell the tulips in the new fields at inflated prices.
One creates capital and the other destroys it.

S said...

@Joel,

On the Saudi issue, it is curious that after 2 yrs in an undisclosed location Bandar Bush makes an appearance. This is curious only becasue some reports had hgim running insurgency in Iraq and other in jail in an attempted coup. All rumors of course?

It is about the time of Bandar appearance that the King decamped to NY pres for some surgury on his back. He is now reported to be in Morrocco recovering from the 2 month recovery.

As for Egypt, the single greatest lesson is that a 30yr plus regime ended in overnight.

Wendy said...

Mortymer,

Do you think that Buba rounded up the gang to tackle and throw Uncle Sam off a cliff? Then as a group of arrogent adolescents off they went to report their scandalous behaviour to Big Daddy BIS. Big Daddy threatened to drag each and everyone of them, by the hair, out to the wood shed if they didn't fix the mess!

Lazlo doesn't agree that Buba was the ring leader. Perhaps the Dragon via the orient express to Berlin?

And what of this Washington Agreement? It was presented to the market as a good thing to put a floor under gold ..... the market concerned that the CBs would dump their gold. But at that time the CBs had shut off the gold faucet and where calling in their loans as well.

I'm getting a bit confused here. Was the Washington Agreement enacted to ensure that physical gold would continue to appear to flow? Was this necessary to prevent "all out war"?

Ok, I think I've been over-studying this last week, and my brain is in massive meltdown mode. Time to take a break ;)

Edwardo said...

Costata,

Interesting piece on the gold silver ratio especially with respect to how it behaves in short periods of time within the context of blow off moves in the PMs.

If I may, I would offer that a key component of the core argument for gold becoming vastly more valuable than silver is a compelling one, predicated as it is on there being the exact same players, i.e. central banks, and shadowy giants, maintaining their already immense position of authority, but, merely, well, not so merely, acting in relative concert- but not without a certain amount of tumult and upheaval- to alter the monetary landscape in such a way that the three functions of money are no longer formally the province of any officially recognized exchange medium.

Having said that, the events in Tunis and Eqypt and elsewhere, may, however dimly, be presaging a very different outcome to the globe's presently fast decaying monetary architecture.

To be less windy, it is possible, however, unlikely at may seem at present, that not only will the monetary architecture be altered, but we might have an entirely new set of actors making decisions about what it is we value, and how we value it. In short, political revolution may cause a very different set of outcomes that, as yet, can not be predicted, but, could have the potential to vastly alter the present freegold RPG scheme proffered on this site.

mortymer said...

KNOWLEDGE is a weapon.
It could be used many ways.
Those who seek destruction of others will be destroyed themselves no matter how high they stand.
In this world there is no cover.

EABH
- look at its members
- Look what sources it is using
- Look who went through
- Look who was and is its chairman now

David said...

Yeah, like what's gold worth versus iron (predator drones)?

DS

mortymer said...

Wendy, I have not made my mind yet.
I do not know.
DoC: What plants do you think are they watering now?
2003 merger of 2 houses
2004 out of LBMA

Robert said...

Thank you costata for your kind words. Two days in, and I am holding fast!

As I (as DoChenRollingBearing) mentioned at ZeroHedge so should I thank everyone HERE at FOFOA's blog for helping (egging me on?) me buy gold at a faster pace than I already would have. I have been a buyer of gold (and some other PMs, mostly platinum in $ value as well as some silver and a tiny palladium spec) since the 1980s. I have reached a comfortable level of having gold vs. my total assets (8% $ value in gold, 2% total of Pt, Ag, Pd).

I feel like I have front-run the world!

Of course, if gold zooms down to $1050 (the "India Put" as some smart replier at ZH wrote) AND if gold trolls like "Johnny Bravo" re-appear preaching doom to gold buyers, well then, I reserve the right to buy more...

I have been buying gold, and even researching it, a long time. But, I had NEVER run into such interesting insights as when I stumbled onto FOFOA's blog.

Bravo! Bravo! Bravo!

blubs said...

fofoa please read this artical

http://www.thetrumpet.com/?q=7874.0.132.0

free gold.... coming soon...?

Jeff said...

I am relieved to read the comments here, seemingly the only gold blog without gold trolls who shriek about every price fluctuation. I am curious to see how low we can go. Is this a chart based pullback or the beginning of something we have looked for? How much pressure is physical demand applying as price drops? Where is the pain threshold for paper gold sellers?

DP said...

I don't know about you, Jeff, but I for one am about ready to buy some more at this point. Computer says yes.

http://stockcharts.com/h-sc/ui?s=$GOLD:$xbp&p=D&yr=1&mn=0&dy=0&id=p59074728278

Patrick said...

With all of these manifestions getting closer to the oil producing countries.; it is safer to hold the metal instead of the paper... paper accounts can be frozen... metal can be shipped.. this could be the reason for the paper selloff we are witnessing the last couple of days..

Patrick said...

Joel,

The events which are now happening in the arab world are important.. they could even crash the paper market for the reason I mentioned above

Greyfox "It's the Debt, Stupid" said...

It's been a really good several weeks as the paper gold price has corrected to the downside. Be thankful for the opportunity to rid yourself of additional Yankee dollars in exchange for the premier wealth reserve.

Joel said...

I agree on the ME events adding to the geopolitical drama, and I am already there on the phys. vs. paper. After much thought and re- reading of Another's 1997-98 posts, got nervous on ETF's and took profit at 1390. Ready to lag back in with physical, getting my courage back up to re enter. Mad I didn't sell at the top for a couple days, but glad now, lol...

Wendy said...

mortymer,

Let us "cultivate our garden" as Voltaire said, and seed it well with gold, against a Time of Troubles.

what is DoC?

from the forum:
Jacob Marley (4/15/04; 12:05:34MT - usagold.com msg#: 119976)
Rothschild has not left gold! But his leaving the paper driven circus is a portent for those who remain.

The Dork of Cork said...

@Wendy
The last time i checked I was not a inanimate object although some may disagree

Wendy said...

;) DoC

Blondie said...

@ Jeff,

That would be because this may be the only blog where the value of gold is understood, making the "price" and its movements irrelevant.

I have had a few good chuckles of late, thinking how the recent price gyrations would have made me feel before I came to understand the perspective gifted us by Another and his Friends.

Trolls can only upset those with weak conviction, people who only understand and value gold via "price".

ad said...

@Mortymer

The LBMA/SA connection

1996:Formed in 1917 as South Africa's first home-based public limited company, the Anglo American Corporation of South Africa Limited (Anglo) has become a unique multinational group. It is the world's largest gold-mining organization and, through its 32.5 percent share in De Beers Consolidated Mines Limited and 29.4 percent share in De Beers Centenary AG, has a major interest in the distribution of some 80 percent of the world's rough-diamond production. At the same time, it dominates South Africa's domestic economy, with interests in an estimated 1,300 South African companies and control of at least one-quarter (and possibly as much as two-fifths) of the South African stock market. Its founding family, the Oppenheimers, has remained closely involved in the daily running of the group, although direct family control has become somewhat weakened.
Anglo American History

2004:Norilsk Nickel, one of the world’s largest mining groups, bought Anglo American’s 20% of Gold Fields in 2004

2009:Cash-seeking Anglo American plc is now completely out of gold, a precious metal that has been synonymous with the iconic South African-rooted diversified major since its inception in 1917.
Article from 2009

Blondie said...

Daniel Amerman presents another very logical and compelling account of the necessary and continuing response of the US govt to the seemingly intractable fiscal difficulties it faces, linked here. A very good read, IMO.

He does make one glaring omission which I would (loudly) question though: other nations, alarmed at the potential loss of value from their USD reserves, and the decreasing competitiveness of their exporters, will engage in devaluation of their own currencies (they will I'm sure), but no mention of alternative responses? That's their only option? (Amerman also seems to assume a US victory in this currency war.)

An obvious (and familiar to PGA's) response is a new currency valuation/monetary system, with physical gold as the central reference point, with gold given the freedom to float as high in value as the market requires in order to find equilibrium, leaving all nations with a completely level playing field economically, and a self-adjusting, self-regulating system (and no currency war required).

The beneficiaries of this would be all who do not benefit from the current $IMFS (a large group which includes all the creditor nations). USD holders who also hold physical gold are automatically recapitalized. The US may not like it (esp if Fort Knox is empty), but they are clearly in the minority (and the biggest debtor). Last I heard, it was the creditor who calls the shots, unless they're being blackmailed.
The article linked by blubs above (also linked here) illustrates this angle quite well.

Of course those overweight physical gold would benefit extra, underweight less.
The idea isn't perfect. /sarc

The value of the level playing field to all should not be underestimated. For individuals (and everyone as a whole), this is the real prize.

Edwardo said...

And the gold silver debated continues,

http://jessescrossroadscafe.blogspot.com/2011/01/salinas-price-world-is-waiting-for.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29

Wendy said...

Really great article blondie, thank you! So now Japan is abandoning the US in favour of Europe? WOW!!

costata said...

Mortymer,

"2009:Cash-seeking Anglo American plc is now completely out of gold...."

This was news to me. You are a fountain of valuable information. Thank you.

Wendy,

"So now Japan is abandoning the US in favour of Europe? WOW!!"

Sadly, to paraphrase an old saying: "a day late and a dollar too many". Japan's economic subservience to the USA is a fatal disease that will kill their economy and IMO China will make sure that Japan cannot escape its' fate.

costata said...

Edwardo,

I think the tumult makes the outcome more certain. To make a transition from the $IMFS to a new system requires preparation and planning.

In the absence of a viable alternative the politicians will seize the "bird in the hand". The Euro Freegold-RPG system is the only one that is ready to roll.

Wendy said...

I have to agree Costata, but symbalically it was such a WOW!

Mantis said...

Contrary to the conventional haze one finds suspended over the commentaries of upstart silver sensationalists, silver has some resilience against a backwardizing curve. Although physical silver supply is likely dwindling at an unsustainable rate, it is not uncommon in a time such as this that has physical supply available for silver lease rates to exceeded eurodollar rates, thereby causing forward silver to trade at a cheaper price than spot silver. Warehousemen know this phenomenon well. It happens from time to time in nearly all commodities.

Except gold.

Jeff said...

A good and lenghty article on the LBMA:

http://tinyurl.com/4vm67vb

Golden said...

@ FOFOA

Just to add to your reply to Jeff regarding oil vs gold price ratio...

If you read this analysis below at

http://vizwiz.blogspot.com/2009/08/do-oil-prices-really-have-direct.html

the question posed by the author...

Since the price of gold is typically ahead of the price of oil, I wonder if futures traders use this to set the price of oil or at least predict its direction.


Also I downloaded the workbook as reccommended and some interesting correlations were shown:

1.
P-value: < 0.0001
Equation:
Gold = 6.86868*Oil + 171.603

The trend line model used for the geeks out there :-)

Trend Lines Model

A linear trend model is computed for sum of Gold given sum of Oil. The model may be significant at p <= 0.05.

Model formula:( Oil + intercept )
Number of observations: 142
DF (degrees of freedom):2
Residual DF:140
SSE (sum squared error): 478329
MSE (mean squared error): 3416.63
R-Squared:0.901303
Standard error: 58.452
p (significance):< 0.0001

Individual trend lines:
Pane(r,c) p Equation
(1,1) < 0.0001 Gold = 6.86868*Oil + 171.603


If you do a simplistic calculation and calculate the price of gold from the equation as of today...

You get

6.86868*($86.35) + 171.603= $764.713518/oz.

Reminds me of Anothers post of the oil price going sky high whilst demand plunges!

ORO

DP said...

As the world stops worrying about the Eurozone, what will they see when their attention returns to the US (and UK)...

Wendy said...

test!

Wendy said...

hmmmm...........surprisingly quiet!

Jenn said...

Hi Wendy! The comments section is still alive! Now where did I put my lucky Eagle? Key bin by the front door? Nope. Maybe I left it in the car again. I have to remember to stop doing that.

--Jenn

Wendy said...

I’ve been trying to make sense of this Washington Agreement of 1999.
Why?
No reason other than it got stuck in my head, and is bugging me.
As I said above about the Washington agreement: It was presented to the market as a good thing to put a floor under gold ..... the market concerned that the CBs would dump their gold. But at that time the CBs had shut off the gold faucet and where calling in their loans as well.

Another was very clear that he expected a default in London, and the whole casino to shut down….. But it didn’t! It had spent at least a decade making paper gold in support of the “strong dollar policy”

I imagine England’s gold sales at the request of the US , and the Swiss’s “intent” to sell gold, bought some time.

Then the announcement of the almighty Washington agreement in Sept 1999 ….. Gold bugs were celebrating like it was Dec 31, 1999, for surly this would finally send gold to the moon ….. It didn’t!

One name that keeps popping up is Evelyn de Rothschild

He was the founding chair in 1990 of the European Association for Banking and Financial History, and held this position until he retired in 2004.

The house of Rothschild was also one of 4 (?) bullion banks that fixed the price of gold in London 2 X a day.

Evelyn Rothschild was “instrumental” in putting together the Washington Agreement.

Evelyn Rothschild also pulled his bank out of the paper gold market in 2004, smelling like a rose!!

On a side not Rothschild spent several years in the US as a teenager during the second world war. Also the family was Jewish with many escaping Nazi Germany before WWII to London .. But an Aunt or cousin died in a concentration camp a couple of weeks before the liberation!
………… I know we talk BB or BIS or Fed etc, but the fact is these institution are run by people with distinct personality characteristics formed by their experiences and education. I think this always needs to be factored into any evaluation when possible.

I wonder if the purpose of the Washington agreement was really to allow the expansion of the paper markets (and they did expand), while at the same time allowing the POG to be “managed” upward.

I think the writing was on the wall for the USD reserve status, and the best the US could hope for was more time and a means to debase their currency.

I’m interested because now we are somewhat back to square one: Central Banks - net buyers of gold, but with a twist ….. The four letter word GOLD has entered the politically correct area. So where to from here?

Wendy

Wendy said...

Completly off that subjuct to:

If you felt that you had to leave your country during a time of ecomic upheaval where would you go and why?

Uraguay is still on the top of my list, I remember jimmy describing it as a country of gentle and hardworking people with strong family ties.


I know desperado has at least tried to give up his american citizenship at huge costs......how have you done desperado?

I'm kinda curious, because I often hear that American would migrate north. I think if exiting the us was required, Canada would not be in much different shape.

FOFOA said...

Hello Wendy,

ANOTHER seemed to know the pertinent details of the Washington Agreement (and shared them on a public internet forum!) a full 22 months before the actual announcement (which temporarily sent gold into backwardation).

Date: Wed Nov 12 1997 20:41
ANOTHER (THOUGHTS!) ID#60253:

A BIS meeting was held and from those doors the world did change. The Bundesbank has now made clear to all what will now be policy for CBs. A crisis is at hand! All physical gold sales will stop. All gold lending will wind down.


Do you think ANOTHER might have been in the Rothschild family? And if so, was his public posting sanctioned or renegade? I'm truly not suggesting anything. Just asking your thoughts.

Sincerely,
FOFOA

Wendy said...

No, I don't think that Another was /is a Rothschild.


I believe that Another was/is related to the BIS. Hence his surprise at the "betrayal.

But frankly FOFOA, I've only been following this "freegold thing" for only a little while, so honestly, I know almost nothing

FOFOA said...

Hello again, Wendy,

On your other subject, I just thought I would throw in my two cents. I live in the US and I'm staying put. I agree with Richard Maybury on this one. Here's what he wrote about it last September:

Get your loved ones out of the county?

For at least 20 years my wife and I have been agonizing over that question. We have friends who have left the country, and in recent years, as economic conditions have deteriorated, we’ve been mulling over the pros and cons ourselves. We’ve finally come to a decision.

The pertinent facts should be divided into two categories, economic and political.

The economic threat

In my opinion, economic history shows that a century of insane monetary policy is nearly certain to end in a revolution. The shakeout of America’s malinvestment is already very disruptive, and it has hardly begun. I think it will create widespread feelings of despair, and desperate people do desperate things.

Economic conditions may become much worse in America than in a lot of other places, because America has long been a bastion of Keynesianism and therefore contains an immeasurable but certainly gigantic amount of malinvestment. Also, the US government has accumulated the largest debt in world history.

However, you can survive a bad economy. All of your ancestors for tens of thousands of years before the 20th century survived economic conditions that were far, far worse than anything reasonably likely in the coming crisis. Most lived their entire lives in constant fear of starving to death.

Take a look at the movie “Gone with the Wind.” That was America’s worst time, and you may have ancestors who went through it. What we will experience will almost certainly not be as bad, although I think it will be as big and important.

Before you make a decision about leaving the country, watch the intriguing PBS video called “The 1900 House,” which you can get at www.netflix.com. This film series shows what life was like for the typical urban middle class family in 1900. If you don’t know much about economic history, you will be appalled.

Then try to imagine what life was like two centuries ago, three centuries, four, etc.

Granted, I do think things in the US could become worse than 1900 for anywhere from a few days to a few months. But if you’ve made preparations, stockpiling life’s necessities, it won’t likely be more than a scary inconvenience to you.

The worst we will face for a long period, meaning more than a year, I believe, will be a drop in our standard of living to the 1940s.

A very important point…

…is that this crisis is global, and the world is interconnected. No matter where you go, you will probably experience a steep slide in your standard of living for a while. It won’t be as bad as 1900, at least not for very long, but it won’t be fun. Be prepared.

Since the crisis is global, for me the deciding factor is not the economic threat but …


Continued...

FOFOA said...

… the political threat

2,500 years of economic history show clearly that when governments get themselves into this much trouble, they go bananas. The reason is psychology.

Take Obama, or any other president in the world. Although he is an ordinary human elected only to do a managerial job, he lives like royalty, and is admired and even loved by tens of millions. He is told repeatedly in a thousand ways that he is a superior form of homo sapiens.

He has grown accustomed to this exalted position, and to a feeling of self-esteem beyond that of a Greek god.

Then one day, after the country has been in economic turmoil for years, he looks out his window and finds a mob. Ten thousand enraged people hate him so much they want to kill him.

Imagine the emotional whiplash the politician feels.

In an effort to save his neck, he panics and pulls out all the stops, trying one desperate measure after another.

The desperate measures make things worse. (The $1.4 trillion federal deficit shows we are already in the early stages of this.)

In a few months, the mob of ten thousand has grown to fifty thousand. Then a hundred thousand.

Now paranoid, the ruler levies draconian measures, turning the country into a police state. Gestapo and storm troopers are on every street corner.

I am entirely convinced that if our global Keynesian economic crisis continues along the path it is on, a lot of very nice countries will end up with dictatorships and concentration camps. That’s why…

…we’ve made a firm decision…

…to stay in America.

This isn’t to say you shouldn’t have a prepared refuge in one or more other countries. If you have the resources to do it, you should. New Zealand, Switzerland and Canada, in that order, would be my top picks. A superb tool for selecting the best places to hide out is the Freedom Index at www.freeexistence.org.

But I’m talking here about your primary country of residence — the place where you have your dog and your treasured keepsakes.

Why is America our choice?

With the exception of Switzerland, no country has the principles of liberty engrained in its political DNA as deeply as America. Thank heaven for Thomas Jefferson. Every American grows up reading Jefferson’s statement that all men are endowed by their Creator with certain rights, including life and liberty.

Your rights do not come from the government. They come from a Higher Authority, and cannot be revoked by humans.

For now, to most Americans, Jefferson’s words are mere platitudes. But these words are in their heads, and the speeches and placards at a Tea Party rally I attended last year convinced me the words are in the early stages of again having real bedrock meaning.


Continued...

FOFOA said...

Revolutions are not started…

…by revolutionaries. They are started by governments. A revolutionary cannot gather a following unless a lot of the population is enraged at the government’s behavior.

In the US, the disgusting behavior of the democratic and republican parties in recent decades has triggered a desire to look back to our libertarian Founding Fathers for guidance.

We should also give thanks for Patrick Henry, who pressured Madison and the other Federalists into adopting the Bill of Rights. These include the Second Amendment — the right to keep and bear arms. A remark often attributed to Admiral Yamamoto in WWII is, it would be senseless to try to conquer America because “there would be a rifle behind every blade of grass.”

Whether Yamamoto actually said this is beside the point. Every power junkie understands the truth of it and has no desire to find out if his body armor actually works.

I wonder, is there more behind the June 28th Supreme Court decision about the Second Amendment than meets the eye? Did someone whisper to the justices that the economy is so bad the Constitution will be entirely erased if the justices do not put the teeth back into it?

This is not to say America is about to be, in Jefferson’s words, transported to liberty in a featherbed. We have hard times ahead.

It is to say that, in my opinion, except for Switzerland, the country that has the best chance of emerging on the other side of the economic crisis without a fullblown police state, including jack-booted government thugs and concentration camps, is America.

Summarizing,…

…most people can withstand a terrific amount of economic hardship, especially if they are physically and emotionally prepared.

Political hardship is an entirely different breed of cat. We’re talking housecats vs. mountain lions, and I’d rather wrestle a housecat.

I think economic conditions might be harder in America than in many other places, but our ancestors survived much worse, and we can, too.

What counts most, by far, is the country’s political psychology. In my opinion, except possibly for Switzerland, America has the best chance of avoiding the jackboots and concentration camps, and eventually regaining the road to liberty and abundance.

We’re staying here.♦

Wendy said...

FOFOA, I hear you and understand "staying put".... but if that doesn't work at the end you and your family have a room very close. I will consider the rest of you post tomorrow. It's way past our bedtime.... goodnight!

Paul said...

FOFOA

agreed on the preparng part. everyone should be. I look at my stockpile and I feel insured. Don't know if I ever need it, but it is there.

moneywise everybody here agrees on gold.

But assuming the USA will be one of the best places to survive the comming storm is not very smart at all IMHO. When we all agree the dollar is going to hyperinflate bananastyle, the euro probably won't, wouldn't it be much smarter to stay in the EU ?

history repaeats itself, but never exactly in the same way, there will be concentratoncamps, sure, but I do not fear them over here in the Netherlands. We have been there ! We didn't read about it in a book. we will not let that happen again over here.

But look at the USA. look at guatanamo bay. look at the fussion centres. look at TSA, that looks just like Germany 70 years ago, you are already moving in the directions. can and will be dangerous for bloggers too ...

you can have your constitutional DNA, but when the cancer is there, the DNA is broken !

I would suggest to think again ...

my choice would be norway/sweden/finland when the shit hits the fan over here. way up north. much to cold for most anyway, probably also for me haha

Wendy said...

FOFOA,

I do agree with Paul, and have watched the USA become increasingly authoritarian since 9/11. Your constitution is repeatedly stepped on in the name of "homeland security". The new buzz phrase appears to be "anti american" for AMERICANS that voice dissagreement to present policies. Even peaceful protest is becoming a thing of the past. I see this also in Canada to a lesser degree.

As you mentioned I believe it's important to prepare, but north americans lack any real experience to guide those preparations. With this in mind, I think it's really important to pay attention to the changes as they come, and be prepared to alter our dogma as required (easier said than done) - prepare to authenticate what today would be unimaginable.

That's my very very naive .02

Wendy said...

Oh yeah, re Washington agreement. I forgot to ask >>> HELP.
Does anyone know more about this European Association for Banking and Financial History? What is this organization really about? I see that chairmen are often the same indivual that are the president of the ECB at that time.


???? all comments and criticizem is appreciated.

ad said...

Wendy,

Here is a piece on the BIS written in '83 for Harpers by Edward Epstein.

I found the article through his book on diamonds and the doccie on diamonds: Artificial Scarcity for those who are interested.

Wendy said...

Thank you ad, I had read that sometime in the past, it was good to read again :)

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