More Freegold Fodder

This is a continuation of the last post. Freegold fodder for a lively and relevant discussion! Part of what makes the following comments so interesting (aside from their mind-bending, perspective-altering content) is that they were all posted in the 48 hours leading up to the Washington Agreement on Gold, the first CBGA which took place at the IMF annual meeting in Washington DC on Sunday, Sept. 26, 1999. In fact, the last few comments in this post were probably right around the time of the actual WAG signing!

FOA (9/25/99; 12:15:48MDT - Msg ID:14354)
HOF
TownCrier,
I see where I.V. Holtzman has reworked his "Street Gold" post so as to make it more on point and in context. It is a remarkably clear description of how the dynamics of a market can distort "real price reality". I think it will be a major reference item as our gold markets evolve. Therefore, (I don't often do this) I, FOA nominate it for HOF. Also consider that Another seconds that nomination (I'll ask him to make that official when here). Can someone else also second this, please? Thanks FOA

Note: for the Holtzman article see: USAGOLD (09/24/99; 13:03:31MDT - Msg ID:14297)

USAGOLD (09/24/99; 13:03:31MDT - Msg ID:14297)
Latest from Holtzman...
Holtzman here,

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More than one POG
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There are many different prices for gold. Or, more accurately, there are many different ways in which gold is formed and stored, and those differences cause prices to differ between the resulting products.

A one-ounce gold JM bar, a Krugerrand, a 1999 U.S. gold Eagle, a slabbed 1908 MS-65 St. Gaudens (ignoring for the moment that it's not precisely one ounce of fine gold), a one-ounce portion of a London Good Delivery bar, a one-ounce portion of a vault claim ticket for same, a one-ounce portion of a futures contract, a one-ounce portion of a derivative contract for same, and one ounce of fine gold formed into a piece of jewellery, all have prices which are somewhat independent of one another.

True, at their core, they all centre around what the market currently feels an ounce of gold is worth, but each has its own additional factors (premiums, risks and quantities) which cause its price to differ, often substantially, from the others.

The U.S. gold Eagle differs in price from both the JM bar and the Krugerrand because of a Patriotism premium. The St. Gaudens differs in price from similarly sized bullion coins because of a Numismatic Rarity premium.

The officially quoted Spot POG differs from the price of one JM bar bought at a coin shop because Spot POG is the price per-ounce at which very large quantities of physical gold trade. By large quantities I mean hundreds-to-thousands of ounces and upwards. Some of these sales are between mining companies and refiners or mints or jewellery manufacturers, where the buyer intends to reshape the metal into some new form, be it ingots, coins, or next month's necklace special at Marks & Spencer.

But in many cases, the purchaser has no plans to remanufacture the gold. Rather, he simply wants to own it. In such cases, the gold itself typically remains in a third-party repository in forms such as London Good Delivery bars (400 ounces), with only the Right to Claim those bars being transferred from buyer to seller.

Since these rights can be transferred electronically, this allows Spot market participants to make brief forays into the market, then retreat, with minimal overhead expense. Money centre banks are better known for their similar operations between paper currencies (buy Swiss Franc sell Yen this morning, then reverse that this afternoon, etc.), but no doubt a great deal of daily Spot POG setting is the result of trading rather than buying to own. Regrettably, I do not have detailed information on the various global Spot markets, so I have no way to discern the proportion of speculators to commercial traders.

In any event, this speculative access to Spot POG makes it susceptible to the same sorts of "professional" day trading which is usually associated with paper markets.

In addition, most of the gold sold at Spot POG has yet another factor influencing it, one which can easily place it more in alignment with the various paper forms of gold when market conditions become abnormal: the risk that the gold is not entirely under the supposed owner's control.

If you have a few gold coins buried in your back yard, and if you bought those coins anonymously with cash, you control that gold. If you have a claim ticket for a few hundred kilograms of gold held at the Federal Reserve Bank of New York, or a few hundred tonnes of proven reserves in a mine whose location is known to tax assessors, or even a few dozen U.S. gold Eagles in a unit trust, don't be so sure you're the one in control of that gold.

If or when a breakdown in the paper gold market occurs, it's quite possible we may see the officially quoted Spot POG remain in lockstep with paper prices, very possibly plummeting even in the face of blatant shortages of physical metal. But all this would mean is that a make-believe price is being impressed on market participants who are large enough to be easily identified and coerced.

If a private citizen holds the claim ticket to a London Good Delivery bar stored at the Fed, guess who has the power to insist on knowing details of any sale of said bar. Even if a private citizen takes possession of the bar and buries it in his back yard, Uncle Sam will be very keen to periodically bother him about its whereabouts. Although Spot POG is a measure of physical gold, it adheres to the paper world more so than to the physical world because of this one point: the risk of governmental intervention.

This ties in with points about gold mining shares made by Another and FOA: mining companies theoretically are at liberty to sell to the highest bidder, but governments have a way of convincing their subjects to accept less and be happy with it. If during an emergency the U.S. government were to declare Spot POG to be $50, and if Homestake Mining were to begin selling gold privately at a higher Street POG, the U.S. government could very easily make life unpleasant for Homestake.

By contrast, the government would have a much more difficult time coming after you and the handful of gold coins you've anonymously buried in your back yard. Most likely, they simply wouldn't attempt it. A wise politician never frightens his citizens too much, most particularly during emergencies. A government can achieve its goals by oppressing the majority owners (few in number) of a desired commodity while graciously allowing the minority owners (vast in number) to retain their property.

The confiscation in the U.S. in 1933 was along such lines: the government's intent was to take direct possession of the vast majority of gold within U.S. borders (common gold coins) by pulling them out of circulation, yet not overtly injure citizens who had sentimental or numismatic attachments to specific coins. There weren't any jack-booted thugs banging on Americans' doors after midnight in search of every last gold coin, and I can't imagine any present or future administration doing so either. It's far too expensive to be worthwhile... not to mention that it's far too likely to start a revolution (or in your case, re-start one :-).

And yet, despite the very convincing scenario of complete meltdown painted by FOA and Another, I still find myself clinging to the hope that the supply/demand cycle will re-assert itself as has happened in other industries (the recent history of the airline industry being my beacon in the darkness).

I would never touch futures or their derivatives even under normal market conditions, but a small stock investment in the most efficient, best established global mining companies seems to me still to be worth the risk (note again my use of the word "small"). Whether those shares are ultimately sold for Euros instead of dollars, I still am optimistic enough to wager that they will indeed trade on some market for some price in some currency. In any event, though, I plan to keep an eye on potential warning signs that such optimism may be about to be dashed.

So where will we find a "real" price of gold amidst the make-believe? Clearly neither Spot POG nor futures POG will be realistic during a full-blown emergency, nor will the share prices of gold mining stocks. Of course, if I find myself still in possession of such papers during an emergency, their official resale value will be all too real to me.

Even under normal market conditions, the paper price of gold is not the perfect guide because it is determined by constant repetitions of FOA's analogy of the two neighbours betting over the fence. Perhaps one in a thousand participants in the daily setting of the official prices of gold plans to acquire or deliver physical gold. The other 999 participants are merely there to bet on it and claim their winnings in some other currency.

Put another way, how many people at a racetrack are attempting to buy a horse? If you want to know the going price of a physical horse, don't look to a racetrack for answers. And don't assume that being a partial owner in a horse farm (thanks FOA) in any way assures you of being able to own a physical horse at some future date.

Likewise, if you want to know the going price of physical gold, don't look to the paper chase, most especially during any sort of financial emergency when paper-related numbers will become very distorted. Frankly, even though the emergency has yet to be publicly declared, things in that arena are already becoming increasingly distorted.

Most of us here at the USAGOLD Forum do not buy and sell thousands of ounces at once, and most of us take immediate possession of our purchases. From that, it's clear where we should look to find the price of physical gold which is most appropriate for our activities: in fact, our very conversations here are being hosted by someone who spends most of his waking hours discovering that price.

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Street POG
--------------

The Cash or Street price of gold is the number of dollars (or pounds, or euros) you take out of your wallet and hand to your friendly, neighbourhood coin dealer in return for a one-ounce Krugerrand.

Why a Krugerrand? Because it's the least numismatic, most commonly encountered, least lovely form of gold. It has no numismatic premium and no jewellery premium and no patriotic premium. It's even less attractive than a one-ounce JM bar.

That makes the Krugerrand the perfect unit of measure for Street POG. Its only special quality is that it contains exactly one ounce of gold (mixed with much too much copper).

The only circumstance which would disqualify the Krugerrand would be if suddenly coin dealers were willing to sell Maple Leaves or Eagles for less than Krugerrands. But to deal with that case, let us define Street POG as the price of the cheapest one-ounce coin or wafer available for sale at that moment.

You will know that the governmentally influenced markets are becoming highly distorted when you see a Krugerrand selling on the street for significantly more dollars than the Spot POG quoted by the paper markets that day.

A Krugerrand will always have a little premium built into its price (hi, I just bought these coins and I'd like to sell them to you without making any profit at all on the sale... my, that would be daft).

At some point in August 1999 when Spot POG was quoted at $260, I bought a single Krugerrand for $268. That's within the range of normality. We're not in uncharted waters yet.

But let's say that Spot POG drops to $200 (sadly still not out of the question even with the September 1999 rise in POG towards $270). What will a Krugerrand cost on the street then? If Spot POG drops no more abruptly than has been its wont in recent months, there's a decent chance Michael and his fellow coin dealers might then be able to profitably sell Krugerrands for $205 each. In that case, the shorts and the financial ministers are still in control.

But if you see Spot POG drop below $200 while a Krugerrand selling on the street never falls below $230-$240 ... or if you see Spot POG remain at $256 yet Krugerrands leap to $300 and Eagles to $310 ... hello new gold market. That would be a clarion call that things are starting to become seriously distorted. [FOFOA: Note that things did get spooky just four days after this post. You can see it graphically in the large spike here, here and here. The price of gold jumped more than 25% in nine days, from $257 on Sept. 22 to $325 on Oct. 5. That would be like gold rocketing from $1,420 today up to $1,795 by March 24. Imagine what that was like!]

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The American Civil War
--------------

I think maybe the hardest mental hurdle for people to clear in understanding Another and FOA is this notion of two gold markets occurring simultaneously. There's an historical example (and it's Western :-) in which very much the same thing transpired...

In 1864, the USA and the CSA were reaching something of a stalemate in their war. Contrary to what most Americans learn today in (the winner's) school system, had but a very few decisions been made differently, the Confederacy would have won.

This, by the way, is why we see so many Americans (descended from both sides) re-enact Civil War battles over and over. How often (except on Monty Python) have you seen re-enactments of Pearl Harbour? The only battles worth replaying are the ones that could have gone either way.

In any event, to the average person living in Either the USA or CSA in 1864, the near term future was incredibly unclear and terrifying.

In the pre-war USA, national government funding was handled by the levying of import/export duties. The IRS was not yet a glimmer in politicians' eyes. For a nation at peace, duties provided sufficient income to run a minimalist national government.

In time of war, however, expenses magnify dramatically. Both the remnant USA and the new CSA needed to acquire vast funding very rapidly to raise an effective military. The both of them did so in the time honoured way: they borrowed the money. Have a peek at Lincoln greenbacks and Confederate paper money sometime. They are promises to pay the bearer with gold and/or silver at some significant time following the cessation of hostilities.

These documents were by no means the equivalent of today's Federal Reserve Notes (try redeeming a $20 FRN for a St. Gaudens sometime). No, Civil War paper banknotes were the equivalent of today's Gold Futures Contracts.

Oh, Lincoln greenbacks and Confederate dollars passed from wallet to wallet during the Civil War years as if they were currency, and in the first year or so they were regarded as 1-for-1 equivalents of coin. But as 1864 drew nearer, something odd began to happen.

"Howdy, I'd like to hand you this crisp $1 greenback in return for ten silver dimes change."

"I'll give you 8 silver dimes for a paper dollar, not a penny more."

Realise that this happened in the North, in the remnant USA. It happened too in the Confederacy, but modern people remember it there only in association with the final default on paper which happened when the CSA government was extinguished.

But the sole difference between a Confederate dollar and a Lincoln greenback was that one paper issuer was still in existence in 1866 and one was not. In 1864, no one could confidently say that either government would still be there a mere two years hence.

Notice that, in this regard, not much has changed since then. In 1933 for US citizens, then in 1971 for the rest of us, the USA government voided its obligation to pay gold for paper dollars.

If you hand me silver or gold, I won't care whether the symbols impressed on it are from a reliable government, an unreliable one, or a defunct one. But if you hand me paper, I'd better be firmly assured the issuer will live long enough (and be inclined) to pay off this debt to me. Even if you hand me a paper claim ticket to silver or gold stored in a vault somewhere, I'd better be firmly assured the vault keeper is of a mind to let me take possession of that metal without the slightest hesitation.

Another and FOA, by saying wise people should avoid paper and only hold physical, are indicating that they expect the LBMA and Comex Gold Contract documents will go the way of the Confederate Dollar (or maybe more appropriately, the way of the pre-1933 paper dollar: "Yes, a dollar is still a dollar, we just won't live up to it in quite the way we used to.").

At the very least, they're saying the risk of such a systemic change is so substantial that one should not be standing too near the fault line should the quake come sooner than predicted.

What the both of them are describing is an official Spot POG (and its kindred future months' POGs) which may well plummet to $200 or even, as Another allowed some time ago, perhaps $10. Realise, though, that Another is by no means predicting that Michael will be able to profitably sell Krugerrands at $10 each. Far from it.

What Another and FOA are anticipating is a situation much like the paper money situation in both the USA and the CSA in 1864: how likely is it that the paper contract you're handing me today will be redeemable for any amount of gold by this time next year?

Tell you what, I've got a spare ten bob I feel no desperate attachment to. I'll buy your one-ounce IOU just for kicks. If LBMA completely expires, I'm out only a small amount. If LBMA unaccountably fails to expire, I've struck it rich. Of course, I may still not receive a physical ounce of gold on settlement day. I may find I've become the proud owner of a 1/400th part of a London Good Delivery bar, which I'm then told may not be removed from the vault. If I'm lucky, I might be able to sell my claim ticket for some amount of whatever paper currency is still worth accepting.

Meanwhile, those of us with less of a gambling inclination will sleep more soundly holding physical. After all, a silver or gold coin firmly in your possession remains silver or gold even after its issuer expires.

Yours,
I.V. Holtzman

FOA (9/25/99; 12:28:42MDT - Msg ID:14356)
Question?
Goldspoon (9/25/99; 12:08:04MDT - Msg ID:14353)
One reason $ilver may do better than gold in the late stages is because $ilver is also known a Poor Man's Gold... There is alot more poor people than ritch ones...Poor people generally come late to the party and buy what they can afford ($ilver) so $ilver will be a late bloomer but Oh what a flower....

Hello Goldspoon,
Could you please elaborate. Your above comment that "silver is more affordable than gold", brings my question.
Which is more affordable $100 of gold or $100 of silver? Even if gold was $1,000 an ounce, why then, at that time would $1,000 in silver be more desirable as a "poor man's gold"?

I'll be back with more. thanks FOA

FOA (9/25/99; 14:29:40MDT - Msg ID:14367)
Comment
To ALL:
When a person tries to protect their assets against the effects of fiat money, what are they really fighting against? The first inclination is to say "rising prices". Yet, it's much more than that! Most everyone agrees that interest in the bank never covers the loss of buying power brought on by price inflation. Especially the "after tax" return. It's the same old story, played out decade after decade. We must "invest our savings" (or become a day trader?) because the money will erode in value! Even at 3%, price inflation can eat away at any cash equivalents.

But, price inflation isn't the only story that impacts us. Rising prices come and go, but money inflation continues to affect us without fail. So why do people feel better when price increases slow or stop, even as money inflation runs ever upward? The good feelings usually evolve from the effects that money inflation (increases in the money supply) has on financial instruments. These assets take on the very same characteristic that the rising prices of goods once exhibited. They run up in currency price.

During these periods of "less goods inflation" another sinister form of mind set lurks in the shadows. Credibility inflation! Yes, it has been here many times before as every fiat currency alternates it's effects upon the feelings of the populous.

Fiat currencies must, by definition always expand in quantity. Their continued usage and acceptance is always obtained with the bribe of "more wealth to come"! Without that bribe, humans would never fall for holding a debt to receive the same goods in the future if they could get the real thing today. Human nature has always dictated that we buy what we need now instead of holding someone's IOU to receive it later. That nature is only changed through the "greed to obtain more". Like this: "I'll hold my wealth in dollars currency if my assets are going up. Later those increased assets will buy me a better lifestyle as I purchase more goods and services than I could buy before".

This is the hidden dynamic we see today and the exact antithesis of the past price inflation's. Just as destructive as "goods price increases", "credibility inflation" impacts our emotions to "hold on for the future", more is coming! In every way, "credibility inflation" is just as much a product of an increase in the money stock as "regular price inflation is. As cash money streams out to cover any and all financial failures, we begin to attach an ever high credibility to the continued function of the fiat system. In effect, the more money that is printed, the higher we price the credibility factor.

Onward:

ORO, the GDP is one of the great deceivers in the Fiat money world. During the last century (??) or so, some form of GDP has always been used to measure the great mass of human endeavours. Yet, throughout this time, some form of fiat currency has always been in effect. Even during the Gold standard, fractional reserve banking expanded "gold note money" more so than the "gold money in existence. Prior to 1929 this effect, if not creating outright "price inflation" during a time of Gold standard policy, was creating "credibility inflation" in the minds of investors. Using the backdrop of a growing GDP, people bought into inflating financial assets and ignored these signals as evidence that the fractional currency system was failing. Even though the dollar contained a policy statement to supply gold, back then a gold loan was still only good until everyone asked for gold.

The same thing is happening today. People destroy the currency structure by thinking it can deliver more than reality will allow. Instead of all debt failing slowly with each upward march of price inflation, prolonged "credibility inflation" snaps all at once as investors try to suddenly revert to a "buy now mentality". The inability of government authorities to contain the fiction of "good debt" is usually the feature behind the investor mood change. A currency run induced by an IMF stalemate would qualify as just such a function change. The "snap back" into a sudden "real price inflation situation" caused during this stage by a currency failure always breaks the whole structure. We approach this end today!

Further:
The GDP has been the relative gauge to mark all other measurements against. Even so it's numbers reflect little more that the result of an "expanding fiat money supply". Yes, there have been recorded downturns in GDP, but these contractions would have been worse if measured in real (gold) money. In opposite fashion, expansions paint a much brighter picture as all financial liabilities seem less a threat if held against a rising GDP. I submit that the GDP figures offer little more than a way to entice investors to increase their "credibility image" of our monetary system. Fiat moneys are always on a long term upward expansion, and they can hardly do less than bloat the picture.

Someone I know said; "your wealth is not what your money say it is"!

What should we be looking at to see the real picture? Be back a few hours from now.

Thanks FOA

FOA (9/25/99; 19:11:59MDT - Msg ID:14375)
Comment
ALL:
When it comes to silver, I agree with all of you. But then "along comes reality"! Many of the current analysts persist with their analogy that "silver is used to make change and small transactions". A concept I completely agree with, only if we sink to that point? The valuations placed on silver will mostly be established by the kind of "currency turmoil" we experience.

Look at today's US paper currency. It's all dollars and yet $100 bills are used readily right alongside $1.00 bills. It seems that we found a way to create ever smaller denominations of dollars to satisfy the demand for making change. I don't see anyone carrying around Canadian currency for the small purchases a US $100 would not work for.

My point is that gold has in the past and will again in the future be broken down, "if needed", into alloyed coins for the very smallest of transactions. One can easily carry a one gram gold coin that is made the size of a quarter. Even a 1/10 gram will do the trick. As Mr. Gresham points out, someone will always be around to create money change. Be it in silver or gold, the most efficient money will rule the day. In the worst of war like conditions, paper money is traded. German marks were spent as the booms fell!

My question of which is more affordable $100 in gold or $100 in silver? A poor man will accept and use either that is offered, no contest.

Again, the future demand for "Metal money" will be established by "how the currency markets evolve". I believe (and have written on this before) that throughout all that is to come, US dollars will continue to circulate as will most all the established currencies today. "Come what may", we will use them for whatever value and efficiency they will offer. Just as the much lesser moneys of the world presently circulate, while their citizens hold dollars, gold and silver, so too will we act in a similar fashion.

The question for our immediate future is in what form will you hold metal money to represent the "bulk" of your tradable wealth? As all the currency and economic turmoil swirl around us, the pressure will be to not only hold reserves that will not be at risk, but hold them in the largest "tradable form". Gold and it's high future price will certainly fit that bill. Again, contrary to what many think, when the dollar falls off the reserve currency tower, most everyone will still be getting paid in dollars. Yes, they will be greatly devalued from price inflation, but buying your gas with dollars will still be a weekly chore.

The future will see the Euro currency as the value reserve all other currencies will trade off of. Beside it will trade a "free gold" market denominated in Euros. The implications of this will be for US nationals to continue using dollars while holding gold (or Euros?) for a bulk, risk free tradable reserve. One can see that in this picture, the purpose for silver is greatly diminished, no?

Got silver? Don't need it, cause I got gold!

We shall see, back in an hour or so. FOA

FOA (9/25/99; 20:31:48MDT - Msg ID:14388)
Comment
Gold Dancer (9/25/99; 18:36:32MDT - Msg ID:14373)
Silver/Gold/

Hello Gold Dancer,
I think I paralleled some parts of your thinking. Thanks for offering your reasoning.

Goldspoon (9/25/99; 15:37:33MDT - Msg ID:14370)
Some have suggested confiscation....possibly. --

Goldspoon,
I think the confiscation item has always been blown completely out of proportion. Some even go as far as saying that there is no use in holding gold if it gains a lot because it will be taken away from you. Then in the same context, it's offered to buy gold stocks to gain from a more reasonable increase in the gold price! In addition, for the same reasons they see silver as an item that will not be touched. One has but to review "Holtzman's "More Than One POG" #14297" to get what is his beautiful rational and reasonable retake on what confiscation would really mean:

--------If during an emergency the U.S. government were to declare Spot POG to be $50, and if Homestake Mining were to begin selling gold privately at a higher Street POG, the U.S. government could very easily make life unpleasant for Homestake.

By contrast, the government would have a much more difficult time coming after you and the handful of gold coins you've anonymously buried in your back yard. Most likely, they simply wouldn't attempt it. A wise politician never frightens his citizens too much, most particularly during emergencies. A government can achieve its goals by oppressing the majority owners (few in number) of a desired commodity while graciously allowing the minority owners (vast in number) to retain their property.

The confiscation in the U.S. in 1933 was along such lines: the government's intent was to take direct possession of the vast majority of gold within U.S. borders (common gold coins) by pulling them out of circulation, yet not overtly injure citizens who had sentimental or numismatic attachments to specific coins. There weren't any jack-booted thugs banging on Americans' doors after midnight in search of every last gold coin, and I can't imagine any present or future administration doing so either. It's far too expensive to be worthwhile... not to mention that it's far too likely to start a revolution (or in your case, re-start one :-).-------------------

Thanks Holtzman, incredible job!

Again, if you think silver is going up because of currency turmoil, is it reasonable to believe it will increase as it did during the 70s style Hunt fiasco? I'm not sure that event wasn't but a one of a kind move. Everyone considers that performance (the only one we have had ) as an example of how silver moves when gold goes up. However, it's entirely possible that that gold move was but a minor side show and in the future gold will dwarf any percentage rise in silver. We didn't know silver could move like that until it happened and we may find that few will understand how gold can outperform everything in the future. As I offered earlier, the coming currency transition may render the "many present reasons" for holding more silver than gold useless. Especially if currency stays in circulation as the demand for industrial silver falls from a economic contraction. If such is the case, the percentage move will fail to match gold.

I know many own silver. I offer this as a balance observation. Good luck to all of us, may we all win! FOA

FOA (9/25/99; 21:11:01MDT - Msg ID:14392)
Reply
Leigh (9/25/99; 19:36:56MDT - Msg ID:14378)
Do you think silver is worth holding as a commodity, the way you would hold platinum? Don't you think the prices will go very high as silver reserves as depleted? Or do you think gold will rise the highest?

Hello Leigh,
All of the investment attributes for these metals are conflicting. On a commodity basis, silver would be the best. Warren B. bought it in his company name expressly for its industrial prospects. He views it in the same light as a stock investment. I doubt he took it for any of its monetary reasons.

Again, invest to make a return. Take your best shot. But for today buy gold to preserve what you have during a global dislocation of currency systems. Because the future may play out as I have outlined, gold will out-perform (on a real basis) most any past investment made during the last 30 years. Not because it's a good investment with great prospect demand, but because it will again perform its ages old function as the world's money. Something it hasn't done in stand-alone fashion for perhaps 60 years?????? That return to money use in this modern world is the attraction that drew in the Giants, in whose footsteps physical gold owners now walk. The rise will make most people feel very foolish not to have purchased at $1,000 while it was cheap (smile)! We shall see.

Thank you and good day FOA

[FOFOA: Next is a short excerpt from Twice D that is relevant to FOA's reply below. It is similar to complaints I hear all the time. "You don't know the future. No one but God can know the future." I like FOA's reply.]

Twice Discipled (9/25/99; 20:40:54MDT - Msg ID:14390)
FOA - Dollars/Gold/Silver

I try not to understand your perspective to hold all knowledge of the future (only One in the universe can make that claim), but to gain an understanding of how we may be required to manage and use that which we have put away for future use.

FOA (9/25/99; 21:12:34MDT - Msg ID:14393)
Reply
Twice Discipled (9/25/99; 20:40:54MDT - Msg ID:14390)

Point 1)
If my above interpretation of your suggestions is correct and the events play out as you see them then with further thought I may come to agree with your remarks regarding silver.

Hello Twice D,
There is actually quite a large group of people that see things this way. Nothing is written because they are very private. [FOFOA: "quite a large group of people (Giants) that see things the A/FOA way!"]

--Point 2) If we move to an environment where bartering becomes the standard, then I would still think silver would be appropriate in some degree because of the smaller value associated with it. I would also ask who I would trust to take my .1867 oz Napolean III and melt it down into a 1 gram gold coin – definitely not the government, I would never see it again. I would also be skeptical of any other organization given that history shows us examples of "shaving" whereby the gold content of coins was reduced.------

-------Of course, when the time arrives we will no longer speculate, but participate in what transpires.--------

Twice,
I agree! Indeed, if history is any guide, we are walking a well-worn trail. After this weekend, Another may have to update his view of current events. Things are moving now! [FOFOA: "Moving now!" –the WAG was signed the very next day! What did FOA know when he wrote this?]

Sorry for the short reply as I must go now...........thanks FOA

Aristotle (9/25/99; 21:28:58MDT - Msg ID:14394)
Hi FOA
I just finished reading the posts of today and your latest. On this debate about Gold and silver you might want to consider one thing that you might be seeing past in your discussion.

First of all, I am in nearly total agreement with you in regard to Gold and its use for currency, with no need for silver. Your Canadian dollar as change for US $100 was brilliant in its clear simplicity.

But here's where you might not be seeing eye-to-eye with some of the others and their silver comments (though not all, because some are interested in silver for yet other reasons too varied for my limited imagination). When they are talking about using silver to make change for small purchases, it seems to me their primary focus must be on some kind of infrastructure collapse as would be a worst-case post-Y2K situation. Only if there were no means to use modern conventional transactional tools such as checks and plastic would anyone be floating the idea of paying with coins. In such an environment (which makes me shudder) silver would certainly be handy as they describe for short term trading. But all roads lead to Gold, and as things got back on their wheels, we will all discover that the same small amount of Gold will be able to buy ever-increasing amounts of silver as time goes on.

Barring any Y2K problems as described above, you've got it nailed down. Gold will outperform silver many times over, and it's easy to see why it would even be in the governments' best interest to support higher values for Gold--they all hold Gold, but no silver. Their Gold stockpiles (savings) could last forever with a high enough valuation. The key, as you well know, is Gold's new VALUE. Its currency price doesn't mean a damn thing. Instead of talking about the future dollar **price** of Gold versus a future price of silver (to see where one's dollar "profits" would be greater), we should be talking about their future **value**. This could be expressed in terms of something like loaves of bread. Here's the example:

Let's say we had four equal stacks of dollars and we today took one stack to buy a year's supply of bread, and then spent two of the remaining three stacks to acquire a pile each of Gold (small pile) and silver (large pile). Right now they are all equivalent values...the dollars, the bread, the Gold, and the silver. Roll the clock forward, well beyond any Y2K mess, or lacking that, simply past the day of reckoning when the dollar folds, and let's re-examine our pile of equivalents.

Ok, our year supply of bread is gone, because we ate it. The remaining stack of dollars will now only buy us a two-week supply of bread, the large silver pile will buy us a year supply of bread, and the small Gold pile will buy us enough bread to last for twenty years.

Certainly, these numbers (two weeks and twenty weeks) could be something else, but I hope I've at least expressed my point clearly for any future discussion on the matter. If we quoted prices in terms of loaves, we would actually be talking about value. A dollar price is somewhat meaningless, wouldn't you agree?

Gotta meet a friend for a brew. Hey you guys out a Peter's place--I'll be thinking about you!

Gold. Get you some. ---Aristotle

Aragorn III (9/26/99; 2:53:37MDT - Msg ID:14408)
Mr. koan, perhaps you might elaborate, or else reconsider?
I shall speak only with the universal language of mathematics...

You said in your post "Silver only has to go to $10 to double. Gold has to go to $500 to double."

Good Sir, my scale is broken this day, and therefore my currency knows nothing of weights and measures. I am told that the silver held in my left hand was purchased for 10 dollars, while the gold in my right hand was purchased for 10 dollars. To "double" (to equate with your example) they must each "go" to $20. How is it that this silver knows the shorter path and may travel the faster, easier road? Consider when you answer that at my feet is also $10 scrap iron. Per ounce, the price of scrap iron is quite low...is this then the "gold" for the most wretchedly poorest of poor men, as you say silver is "gold" for the wealthier version of poor men? Does scrap iron therefore know the shortest path to double and beyond?

To be sure, Black Blade makes a point of psychology that must fit into an equation to be considered. Is this also your unstated rule of mathematics, or do you contend simply that the dollar will lose one-half purchasing power against silver more quickly than against gold because the purchased silver load is heavier to bear? Surely then scrap iron is the best investment of all? Or must we ignore the weight, as often it does not apply as we see here: does the low salary of a blacksmith double more quickly than the high salary of an engineer? I look around, but I see little demand for blacksmithing these days. When did you last read of silver in the national or international news?

You will likely agree that all things are subject to changes with changing times. Perhaps we will need blacksmithing again, and the few that do work for museums will then command a high price on such a day, indeed.

It holds true today, and perhaps always will, the modern use will define the value. Consider that the IMF and BIS, the ECB, and yes...the BOE (even as a seller-in-distress), and frequently our good Federal Reserve Chairman; they all speak only of gold, but never silver. Please be aware they can move the gold price further with a small finger than you or I could ever move silver with a crane. The path has become increasingly clear with the IMF moving to mark to market a portion of gold holdings...an easy addiction with more to follow??? I would say we might hold our breath on this one and yet not risk turning too blue.

Pursue silver if you must do so for your own appeasement. It will certainly serve you better than dollars in a dollar currency crisis. I believe the picture painted by Aristotle on this issue in his recent post was quite reasonable, and worthy of consideration for the two sides. I say only two sides because if you extend the prevailing rationale of our many posters, platinum is right out of a role.

got choices?
got gold?

FOA (9/26/99; 9:54:32MDT - Msg ID:14425)
Comment
Aragorn III (9/26/99; 2:53:37MDT - Msg ID:14408)

Hello Aragorn,
Nice application of clear logic! Let me see it I have this right for a future context:

"Get your scrap iron now because gold and silver have already run up in price. Iron is the only affordable metal for late buyers. You get many more ounces per purchase because the gold / silver / iron ratio is so far in the favour of iron. When the teaming masses can no longer afford "real money" they will most certainly buy iron in 1/10 ounce form to use for small purchases"

I expanded your post with my slanted view to drive home a point to others. From the time that silver ran in the 70s, on one ever had any historical precedent that it could move so much. Yet, from 1980 on, every silver promoter has used the Hunt squeeze as the basis that it will rise again in just such a fashion. It has been the ideal "leveraged sell" for every boiler room to sucker in paper traders. I bet there are many who have lost the most money by taking on silver as a leveraged play.

I say all of this as the proud owner of some silver! Just as Aristotle (and yourself at other times) pointed out, in a complete "currency: breakdown, silver will be needed and used. Yet, in this modern day and age, ironically, inflated fiat currencies will most likely continue to be used for most purchases. I bet CMAX could add some light on this as he is in an "inflating country"!

Further: During the run-up in gold during the late 70s, the governments were selling gold all the way up. In the same light as we look at the YEN today, gold buyers were always afraid of the "next" intervention. Yet, even with the official gold sales, gold soared. During that time silver was never the application of any widespread major sales. Today, we must consider the effects on gold that a major 'Official" policy change would do. While everyone is waiting for the next big sale, others are anticipating the total withdrawal of government selling/ leasing from the markets. Indeed, if the ECB or oil or china start buying official stocks through the BIS, the results will be the reverse of the 70s markets. "Street gold" will be the percentage out performer!

We must bear in mind that there will be a big difference between Official BIS buying through the CBs as opposed to them buying paper gold on the LBMA. I think Mr. Holtsmans "More Than One POG" #14297 will be a hated factor for many current gold mine owners for years to come. With BIS buying from all CBs, the supply of gold will collapse, forcing the "street price" through the roof. Falling demand (buying) for paper gold will drive those securities to the floor because of their inability to secure and deliver enough physical gold. This dynamic will absolutely force the IMF/ dollar governments to lock the trading price of paper gold at below most production costs until new mine supplies can work off some of the paper commitments. Even though cash settlement (at the locked price) will be used, it will cover but a fraction of the outstanding paper. Counter party default will rule the day. No doubt, the majority of the mines in operation today will close, thereby forcing an extended workout period.

It's a simple choose of what is more important to the majority of people? Save the major portion of the banking system whose menders are the who's who of the LBMA, OR save the worlds gold mines? No contest!!

This is where we will see competitive revaluation's upward of IMF and existing CB gold stocks. These source of new equity will be needed to cover aid to failing countries (some from shut down gold mines) and back the massive loses a collapse of the dollar reserve currency will bring.

For years everyone looked for the nations to block any large rise in gold, so they invested in assets that would benefit from what would be perceived as a reasonable gold increase. One that the governments would begrudgingly allow. Of course we think of Gold stocks. Yet few considered the true ramifications if countries suddenly revalue gold not as money, but as a world reserve asset! We approach this dynamic today as world dollar debt has reached its limit. Exciting times for those that "walk in the footsteps of giants", awful times for those that have invested in the gold industry. It's not too late to change course and sail with the wind. With the direction of someone that understands, I have done just that!

With the wind...........we are on the road now!!! FOA

FOA (9/26/99; 11:22:32MDT - Msg ID:14430)
Reply
Leigh (9/26/99; 9:50:43MDT - Msg ID:14424)
Questions for FOA

------------When you and Mr. Holtzman talk about a black market for gold, do you mean an illegal black market? ----

Hello Leigh,
If I answer for both Mr. H and myself, it may get him riled up enough for him to post more of those great works. So I'm going to do it this one time! (smile) Also, it will be best to stay in close contact with Michael Kosares, as he will know the very first changes in the markets (if they occur).

However, in my view: I bet we end up with a very strong "dealer market" with companies like Centennial Precious Metals in the forefront. The difference will be in that they will price their product based on the real investor supply and demand as these dealers trade among themselves. Yes, an official gold market will be in effect, but "street gold" will carry a huge premium over the official "trading price". A premium that will not be profit for the dealers, rather a reflection of the true price of gold.

(TownCrier, you had a great explanation of this somewhere, no?)

Over time most dealers will slowly disregard all paper trading. The present major banking houses that trade bullion and paper will most likely drift far away from the gold business if their loses in that arena build. So; It won't be a black market like in the movies. That will only come about if things "really get out of hand". Something I doubt will happen, even during a Y2K breakdown.

----Do you think it is possible transactions in gold will be outlawed? That wouldn't do our government any good, would it? -----

Outlawed? No possible way! The thing everyone forgets is that during the 1930 gold call in, the governments were trying to place gold in a tight price range. They still had a good dollar system and wanted to keep it for the world's sake. Today, the problem is different in that they have created so much dollar based debt that it can't be serviced any more without a blowing up the world reserve money supply and hence the system. The US knows it's over and must accept a partial defeat. To accomplish this, in opposite fashion from the 30s they must raise the price of gold, not keep it down.

It works like this: To keep the gold price stable you have to get your hands on more of it. Then use that physical to balance existing dollar claims (as in the thirties) or sell it into the marketplace (as in the last 20+ years). For today; To make the price rise, you don't need more physical to use as supply, you simply withdraw supply from the marketplace and revalue what you have. [FOFOA: Note that the WAG was being signed right as FOA was writing this. Curious coincidence.]

The US treasury has some 8,000 tonnes ++/--. They can't back the same dollar with gold that they removed from the gold standard in 71. Major legal problems there (BIS???). Nor can they create a new dollar with the Euro on their backs. They can follow the ECB and the IMF lead and begin to revalue the existing US gold stock to use as equity against the massive reserve loses that are coming. No it won't cover even half the liability (even if it's over $10,000), but it's the only fallback asset any nation has. It will prevent a total World and US contraction.

The trading and owning of "street gold" by the US public will be encouraged, not outlawed. Any demand that raises the gold price further will be welcomed as a "new concept" to save a contracting economy. This was the real reason the Gold Eagle program was started in the first place! Political bases covered when the time comes.

---Wouldn't they want us to spend our gold so that eventually they could get their paws on it?---

No Leigh, in the future they will ask you to spend "your" gold, but not for their accumulation. They have plenty of gold and will just devalue the dollar further by raising the gold price in stair step fashion. Your spending will be to build the economy again. In reality, you will be selling some gold to a dealer for depreciated dollars. Then spend those dollars internally, within the country.

Gold coin sales will be a hard act to follow as we cross this valley of money transition. Mine owners will be screaming for controls of the street price so they can sell into the defunct LBMA at a higher price. It won't happen. Later, everyone will be glad they bought physical while the going seemed rough. Needless it's going to be interesting as this all unfolds. Eventually, paper gold will be out of the way (covered) and a real "mining boom will ensue". That's when we sell some of our gold to buy gold mine stocks! (big smile)

Get ready for that time............buy gold now!

Thank You FOA

FOA (9/26/99; 16:16:08MDT - Msg ID:14449)
Comment
Leigh (9/26/99; 11:58:37MDT - Msg ID:14432)

---- One more question: Will the government tax us gold owners to death, since we'll be among the few who have any money?---

Ha, Ha,,,,,,, Leigh, what do you think?

FOA (9/26/99; 16:18:59MDT - Msg ID:14450)
Comment
koan (9/26/99; 12:32:58MDT - Msg ID:14433)
Silver and gold - relative appreciation - a theory

-----If silver goes to $10 per oz you just doubled your money i.e. now you have $10,000 (1,000 oz times $10). That other $5,000 you put into gold for 20 oz will need to go $500 per oz i.e. 20 times $500 = $10,000.) Elementary my dear Watson.-----------

Mr. Koan,
Watson wants to know why gold can't double at the same time that silver doubles?

He still wants to know why a poor man will buy $100 worth of silver before he'll buy $100 worth of gold?

Does that also mean he will buy ten pounds of dirt for a $1.00 first, if one pound of sand is also selling for a $1.00? Hmmmmm!

I have a few dumb friends but they are not stupid. Seems the most "dumb" among them always understand the relative worth theory better than most any PHD scientist. I also know I'm smarter than they are, even if they have more money than me? (smile)

It's going to take a whole world of "special people" buying silver to make this work out. I'll watch here with everyone to see how this works out. Thanks FOA

FOA (9/26/99; 16:59:38MDT - Msg ID:14456)
Comment
Chicken man (9/26/99; 15:30:12MDT - Msg ID:14446)
FOA @ The Tale of the Golden Egg..

C Man,
That was a good one!
One of the reasons I advocated buying Goldfield stock was to support their actions. I Know most didn't understand, but burning a property deed (or stock certificate) in some cultures is synonymous with stating "you will never sell the investment".

Here, this company does an industry supporting move and no one (even GATA) advocates investing in that company for their strong anti-gold selling stance. Instead people see what happened and went out and bought ABX (or as much)? This Goldfield action was the major catalyst that sparked new interest in the gold arena. It called into attention the delicate nature of the paper gold position if physical is taken out. If everyone starts charging the auctions, this paper gold market will close in a hurry!

Goldfield buys and everyone comes out of the woodwork to proclaim a new bull market for reasons other than what happened. Then they direct new buyers into more paper gold investments, regardless of whether they are controlled "shorters" for the BBs. The Goldfield action clearly stated that they alone (along with Anglo) are independent from the paper control. I support management that take "right minded stands" whether my investment will pay off or not!

Chicken Man, watch this market run for another ten or twenty and see what happens to it! With the G7 fiasco concluded, we may get a blow-out this week! [FOFOA: Oh, boy, did they ever!]

Thanks for your reasoning....... FOA

FOA (9/26/99; 17:11:30MDT - Msg ID:14458)
Reply
Golden Truth (9/26/99; 16:56:35MDT - Msg ID:14455)
TO F.O.A, TIME TO CHANGE SILVER INTO GOLD!!!!!!!!!!!!!!!!!!
Hello F.O.A tomorrow i will be taking all my SILVER Maple Leaf coins and exchanging them for GOLD.

Golden truth,
Don't forget the iron bullion! (SMILE)

-----One question i do have is, could you please explain the comment you made about the "massive reserve loses that are coming" what will cause this? and possibly when? I,am sorry, i know this is a basic question but i have some trouble with figuring this one through Thanks as always G.T -----------

GT,
One of many examples. You are a foreign CB that is holding 100 billion in US treasury debt. The dollar loses half of its value. Treasuries now worth 50% less! The US declared "foreign exchange controls". Good thing you held gold that has now more than ?????? gone up! Throw the treasuries in the trash and forget about them. Now the ECB is offering to buy gold with Euro treasuries, if anyone wants a "special relationship" with europe. You know the rest!!!

I have to go now..........This week will be something..... FOA

Sincerely,
FOFOA

PS. I only posted the comments by FOA and a few others here, but there are many more on those pages. Bear in mind that there is a lot of chaff mixed in with the wheat, but I suspect that a few of you will agree more with the chaff than FOA and Aristotle. Here are the links: Sept. 25; Sept. 26.

It's also fun to read the comments from the following three days after the markets opened post-WAG and gold went into extreme backwardation while the price rocketed.