----- Original Message -----
From: victorthecleaner
To: FOFOA
Sent: Wednesday, March 02, 2011 11:23 PM
Subject: question about bullion banks
Dear FOFOA,
I have read a few of your postings with great interest although I admit by far not all of them. I have one question concerning the claim that it is the allocation of unallocated gold accounts that will put the bullion banks out of business. I shall be most grateful if you will help me with this question. You may know some detail about the history of the London bullion banking that I am missing.
In order to understand how a bullion bank operates, let us open one. We put down
1 US$.
assets:
cash: 1 US$
liabilities:
shareholder equity: 1 US$
Our first happy customer Alice walks in and deposits her 10 oz. Our balance sheet expands.
assets:
cash: 1 US$
bullion: 10 oz
liabilities:
unallocated gold accounts: 10 oz
shareholder equity: 1 US$
Note that we have neither credit risk nor exchange rate risk (bullion/US$). The purpose of our bank is to lend. Luckily, customer Bob walks in and asks us for a loan of 5 oz. Our balance sheet expands again.
assets:
cash: 1 US$
bullion: 10 oz
accounts receivable: 5 oz (loan to Bob)
liabilities:
unallocated gold accounts:
10 oz (Alice)
5 oz (Bob)
shareholder equity: 1 US$
We still have neither credit nor exchange rate risk. We are neither long nor short gold.
Bob needs most of this gold to purchase a new motor bike. He withdraws 4 oz, i.e. he has 4 oz allocated and then shows up at the vault and takes them home. Our balance sheet shrinks.
assets:
cash: 1 US$
bullion: 6 oz
accounts receivable: 5 oz (loan to Bob)
liabilities:
unallocated gold accounts:
10 oz (Alice)
1 oz (Bob)
shareholder equity: 1 US$
Still, we do not have any exchange rate risk, i.e. we do not make any profit or incur a loss if the price of gold in US$ changes. We are neither long nor short gold. Our balance sheet is 'balanced' in each of the two currencies (US$, gold) independently. But we do have credit risk because Bob may not return the gold.
Now Alice wants to go shopping for furniture and withdraws 5 oz.
assets:
cash: 1 US$
bullion: 1 oz
accounts receivable: 5 oz (loan to Bob)
liabilities:
unallocated gold accounts:
5 oz (Alice)
1 oz (Bob)
shareholder equity: 1 US$
Again, no exchange rate risk. We are neither long nor short. The credit risk is also unchanged. Note that our reserve ratio has become a bit stretched. Our customers have a balance of 6 oz in their accounts, but we have just 1 oz of physical bullion left in our vault.
There are two ways in which we might get into trouble.
1. Losses on our loans. If Bob defaults, we lose 5 oz of equity. Since the loss is in bullion, we suddenly have exchange rate risk - if the price of gold increases, our loss of equity (in US$) increases, too. We need to raise equity and do so in the form of bullion.
Default of one of our debtors is a solvency problem.
2. If Alice showed up again and withdrew another 2 oz, we would have to think for a minute. In order to hand out her 2 oz, we would need to recall the loan to Bob.
If our assets and our liabilities have matching maturities, this cannot happen. If the maturities are mismatched, i.e. if we have borrowed short and lent long, we have a liquidity problem. We need to borrow bullion in the market, for example, borrow US$ from the emergency lending facility of the Fed and swap these US$ for gold, which we can then give to Alice. Once Bob has paid back the loan, we can return the borrowed gold and close the swap.
The message here is that bullion banking is not at all different from commercial banking if you view gold and US$ as two different currencies. As long as we engage only in lending as opposed to proprietary trading, our risks are the same as in commercial banking: default of our debtors or mismatch of maturities. And the solutions are also entirely analogous: raising capital or a liquidity injection from the Fed.
Now you say that the allocation of accounts at the LBMA will end in the same way as the game of musical chairs. Why do you think that?
Do you know that the bullion banks had losses on their gold loans? Losses about which the public does not know? Who is it who borrowed gold from the bullion banks and then defaulted?
Do you know that the bullion banks have a systematic mismatch of maturities? Who has the long-terms loans? Who would borrow gold for the long run? We know that the gold mining industry is essentially
unhedged now.
I hope you have time to read all this and I thank you for your comments. If you like to answer in your blog and copy this email, this is also fine with me.
Victor
----- Original Message -----
From: FOFOA
To: victorthecleaner
Sent: Thursday, March 03, 2011 2:45 PM
Subject: RE: question about bullion banks
Hello Victor,
What you are describing is a typical model of fractional reserve banking. The bank's liabilities are demand receipts so the bank is always vulnerable to a run on its reserves. It relies on public confidence in its ability to cash out any customer that wants cash (or in this case physical gold). And today there is likely no lender of last resort for a bank run on bullion, especially from the Bullion Banks. The best they can hope for from the CBs is a cash backstop. And that's exactly what they will get.
No, I don't think the BBs had losses on their gold loans. In fact, most of the time when a BB loans gold, it is only loaning paper gold (bank liabilities), so it creates new liabilities on its balance sheet to make the loan, just like your local bank creates new dollar liabilities on its balance sheet to make a home loan. In the miner hedging days, the BB would lend gold to the mines which the mines would sell to market (with the BB as the sales agent). It was an all-paper deal. The mine was borrowing paper gold (BB liabilities) and was selling that paper gold into the market. So it was essentially a dollar cash loan with repayment denominated in ounces. So the BB had to sell paper gold liabilities for dollar cash to be net neutral.
There's no exchange rate exposure there because the liabilities created (out of thin air) are backed by the mine's repayment contract on the asset side. Gold denominated liabilities and assets, backed by fractional reserves. There is also little risk to the actual physical reserves from a default because no physical left the building… yet.
As far as the maturity mismatch issue goes, think about a bank that makes a home loan. It creates liabilities (demand deposits) in exchange for a 30-year note. Does it have a physical dollar bill for every liability it creates? Of course not. It relies on the fact that most people prefer bank credit money over cash.
It is not my position that the Bullion Banks are exposed to net short positions like the silver crowd (and most of the gold bug community) believes. If you like to equate Bullion Banking with commercial banking, then think about it like this: The unallocated gold, the reserves, are analogous to physical cash in your local bank. The big difference being that more cash can be printed in a pinch. Would you say that your local bank has a net short position on dollars just because it has very little physical cash? Of course not. But it can operate with very little cash in reserves as long as the public is confident that cash will be there when they want it.
Based on your email, I think you need to view (gold, not silver) Bullion Banking a little more "holistically" than you do. If we look back to the gold standard, all banks were "bullion banks," because gold bullion was international base money. Silver wasn't base money. It was a metal used in coinage, much like zinc, copper and nickel today, but it was not "a currency" in and of itself. Gold was. And it is still used that way today.
The problems with gold bullion banking in the 21st century are deep, wide and deadly. Bron posted a good quote yesterday: "Banks undertake risks on their books that they can only cover so long as they continue to have access to liquidity (funding, deposits, repos or central bank support). Bank capital is never enough to ensure performance without market liquidity for reserve assets. Banks are generally much less cautious about taking on risk, rely overmuch on incomplete models to price risk, and manage capital to optimise returns rather than ensure survival."
"Market liquidity." Now there's the real risk, isn't it? And therein lies the exchange rate exposure. A bank run on gold bullion in the 21st century will mean that all offers to exchange physical for paper have been withdrawn as zero supply confronts infinite demand. The price of physical will run to Freegold levels in the hidden backrooms and dark pools of real price discovery.
I'll give you one example of the depth I'm talking about. And this is by no means the whole story.
The genesis of my blog is that it is a tribute to ANOTHER. (Clearly stated at the top!) ANOTHER was most likely a European-CB insider described well by Michael Kosares: "ANOTHER offers one of the more plausible hypotheses for why the financial markets have acted as they have in the past few years, and therein lies his immense value to the reader, no matter who he is. Again, knowledge as is conveyed in his series of "THOUGHTS!" is rarely to be found outside the highest levels of international finance…"
The genesis of ANOTHER's writing, which started in Sept. 1997 and ran through 2001, was a revelation (leak?) by the LBMA in Jan. 1997. You can read about it here:
http://www.gold-eagle.com/gold_digest/baron907.html
Here's the Red Baron index: http://www.gold-eagle.com/research/redbaronndx.html
The revelation was that the LBMA was clearing more than 30 million ounces of gold per day. This was previously unimaginable in the gold market. Notice that these records only began in Oct. 1996 and were first made public in Jan. 1997.
http://www.lbma.org.uk/pages/index.cfm?page_id=50&title=clearing_-_statistical_table
Here are a few excerpts from the Red Baron series:
It is relevant to notice gold's average trading size per transaction, which was 29,140 ounces -- nearly one tonne per trade (32,150 oz. equivalent to a tonne). This is approximately $10 million per trade. This suggests (at least to me) the trades are non-Central Bank transactions - and more probably commercial operations related to CURRENCY TRADING. Interestingly, the average trading volume for ALL INTERNATIONAL CURRENCIES IS ABOUT $1.2 TRILLION PER DAY.
[…]
The LMBA revelations show that gold is a global currency of some substance and liquidity.
[…]
It appears that, when gold is used as a currency (and not a store of value) it is not important what LEVEL the monetary (i.e. gold price to the dollar ) unit has......only that it maintains a reasonable amount of its value in the short run; long enough to make your next transaction.
[…]
Remember, these huge volumes on the LBMA are NOT from hoarders.... these are the numbers of merchants using gold as a CURRENCY.
[…]
The LBMA change to "transparency" is a definite power play. This could be their move to push gold into a de facto currency.
[…]
It has been reasonably estimated that world volume would be 3 to 5 times this daily amount. Again, there is a huge undercurrent of gold volume, and no one is listening, especially the paper markets.
This volume is paper gold, obviously. At least I hope that's obvious. And paper gold is BB liabilities (in demand form). It's got to be someone's liability. And that's what keeps it credible, that it is a Bullion Bank's liability. Mine or corporate gold liabilities are usually time repayment contracts, "accounts receivable," not tradable demand receipts. All demand receipts are potential claims against BB unallocated gold, just like your bank's credit money is a potential claim on its physical cash.
If world volume was four times the daily LBMA clearing volume, that would have been 160 million ounces of gold trading per day back in Feb. 1997. This 30-40 million ounces per day range rose to its peak of 43.7 million ounces in Dec. 1997. At 5x world volume that would have been close to the trading of Fort Knox every single day in the global paper gold OTC arena. It was this explosion in BB credit gold liabilities that prompted the 1999 WAG as a warning from the CBs to the BBs to chill out, IMO. ANOTHER hinted at this problem in his very first appearance which was, incidentally, two years before the WAG:
From Red Baron 5 -
Posted on the Internet September 14, 1997 by "ANOTHER"
(an answer?):
This could be an answer directed to the "Red Baron"?
The CBs are becoming "primary suppliers" to the gold market. Understand that they are not doing this because they want to, they have to. The words are spoken to show a need to raise capital but we knew that was a [smoke] screen from long ago. You will find the answer to the LBMA problem if you follow a route that connects South Africa, The Middle East, India and then into Asia!
Remember this; "the western world uses paper as a real value, but oil and gold will never flow in the same direction." -Big Trader
The daily LBMA clearing turnover has dropped to 18 million ounces today. But even at today's lower amount, if the 3 to 5 estimate above holds, it is still likely to be more than global ANNUAL gold mine production that is traded (OTC) every single day. And what do you think is actually being traded as if it were simply another foreign currency?
Bullion Bank liabilities! BBs make money like any other bank, on their ability to issue "liabilities" as if they were real money, willy-nilly.
How many of these "BB liabilities" are outstanding at any given point in the 24 hr. cycle? And do you think these liabilities have any LESS of a claim on the BB physical reserves (unallocated gold) than any other? The answer is that all BB liabilities have an EQUAL claim. Whether you deposited 2 tonnes of physical yourself 30 years ago after your rich grandfather died or if you called in a currency exchange order last night. Equal ability to demand allocation.
Think about it this way. Think about Eurodollars. Think about European banks outside of the Federal Reserve System making dollar denominated loans or simply issuing dollar liabilities to FX traders. Sure they have a few physical dollars in reserve. But they don't have direct access to the Fed lending facilities. So if they find themselves short on reserves, they will have to go into the market to buy some dollars, just as you say. Which, in aggregate, could drive up the price of the dollar versus the euro. Which is why Ben arranged a $500B currency swap in 2009. To keep the dollar from spiking. Unfortunately, though, Mother Nature is not quite as accommodating as the Bernank.
If you've got $100 million in a FOREX account at one of the Bullion Banks, call them up and transfer it into gold.[1] Let me know the exchange rate they give you. Then tomorrow, call the bullion desk and ask for allocated storage of your account. And be sure to let me know the runaround they give you. If it's bad enough, you might just make the news!
Sincerely,
FOFOA
From: victorthecleaner
To: FOFOA
Sent: Thursday, March 03, 2011 10:19 PM
Subject: Re: question about bullion banks
Dear FOFOA,
Thank you so much for your time and for your detailed reply.
> If you've got $100 million in a FOREX account at one of the
> Bullion Banks, call them up and transfer it into gold. Let me
> know the exchange rate they give you. Then tomorrow, call
> the bullion desk and ask for allocated storage of your account.
> And be sure to let me know the runaround they give you. If
> it's bad enough, you might just make the news!
I think I get it. You are saying that when I call the FOREX department, they do not purchase spot gold on my behalf, but rather the bullion bank offers me an open-ended paper gold loan (strictly speaking it is an open-ended swap against US$). Well, this is maturity mismatch par excellence.
Very nice. I think, now I do understand your point:
* fractional reserve lending against a non-fiat reserve will blow up one day
* bullion banking was never intended to make sense, it is simlply an anachronism and a relic from the times of the gold standard
* the bullion banks forgot to unwind it when it was still possible
* for some reason they keep extending new loans to new customers (just called their FOREX desk, got $1427.20, tomorrow I will call the bullion desk, not sure you will read about me in the Financial Times though)
* once there is a period of strong demand for physical bullion, the system will blow up
* the time is probably now
Thanks again for your time,
Victor
[1] "At Royal Bank of Canada, we trade gold bullion off our foreign exchange desks rather than our commodity desks," says Anthony S. Fell, chairman of RBC Capital Markets, "because that’s what it is – a global currency, the only one that is freely tradable and unencumbered by vast quantities of sovereign debt and prior obligations.
In short, says Fell, "don’t measure the Dollar against the Euro, or the Euro against the Yen, but measure all paper currencies against gold, because that’s the ultimate test." [Source]
199 comments:
Victor said, (perhaps rhetorically?):
"...for some reason they keep extending new loans to new customers."
Credibility.
The moment they stop extending these loans is the moment it blows up. The proverbial rock and the hard place. Maybe they could give this guy a call?
Victor's summary is superb, no?
Fantastic post. The big question now, of course, is how many BB unallocated liabilities are out there and what is the ratio of liabilities to capital for the bullion banks? Trading volume really doesn't give the answer as much of it can be offsetting (that is, one bank creates a liability the other one may be eliminating it). I mean, much of that volume is just taking one liability and trading it from one guy to another and so on. Thoughts?
Blondine,
"Victor's summary is superb, no?"
Yes.
FOFOA,
Great post. Clear. Simple.
Costata said:
Great post. Clear. Simple.
This, in my opinion, is exactly what FOFOA's best posts are - the compression of extremely complex topics into terms that make it simple to understand. Of course, "simple" is an exceedingly relative term.
On a slightly different topic, but one which I've seen posted about here many times before, I'd like to ask the collective minds about the best place to buy physical bullion in Eastern Canada. I'm open to websites, banks, etc. - whatever the best way is to get one ounce coins, preferably of the Canadian Maple variety.
Brian,
You may be interested in this comment lifted from a discussion about a ZeroHedge post. I have posted it here before but I cannot find it. My apologies to anyone who finds the re-posting of material tiresome.
I thought this comment by 'americhinaman' was interesting for several reasons. Firstly it seemed lucid. It conveyed how difficult it was to discern a BB's position (even without factoring in the OTC markets).
BUT the thing that really struck a chord with me is that not one of the silverbugs refuted americhinaman's arguments. If you assume that GLD is used in a similar way then this applies to gold as well. IMO we cannot guess the structure of, say, JPM's book, in gold or silver, by sifting through Comex data.
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"
Continued/
\Continued
by americhinaman
on Tue, 12/14/2010 - 01:02
#803879
".... 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.
Brian,
Regarding the issue of what the fractional ratio, GATA's Adrian Douglas asserted that there is at a minimum four owners for each ounce of unallocated metal held in London (I discuss that here http://goldchat.blogspot.com/2009/10/king-of-currencies.html).
Jeff Christian, of CPM Group, said it was 10:1 in an interview with Financial Sense, but also noted that " AIG used a leverage factor of 40, so if people gave them a million ounces of gold to hold for them, they could lend out 40." (see http://goldchat.blogspot.com/2010/04/london-unallocated-fractional-fubar-or.html)
costata,
Interesting post by americhinaman, my only question is if JPM is arbitraging then why do we have backwardation in silver futures contracts?
I also commend you for wading through all the moronic posts on ZH to glean the gems. When I found ZH a few years ago the comments were mostly intelligent or witty. Now I have given up unfortunately.
I have never heard FOFOA address Jeffery Christians assertion a while ago, that the bullion banks are levered 100 to 1. As in paper vs physical. Jeffery Chriestian was speaking against GATA when he said this.
In defense of mining stocks. The way I look at it, people all over the world are buying gold bullion to store their wealth. They are not looking to speculate on anything. They don't know or care about mining stocks. There will always be a need for gold to be discovered and brought to market so considering I live in Canada, the mining finance capital of the world. That makes mining equities more available to me then anyone else.
Hello Brian,
Adding to Bron's comment, as I wrote in The View: A Classic Bank Run, allocation demands can explode that existing leverage factor beyond their target ratio of 4, 10 or 40 very quickly, with no additional lending required. So we cannot know the leverage factor weighing on the remaining unallocated reserves. But my contention was that the drain on GLD could be telegraphing that a bank run is already in progress:
"So buyers large and small, get in line to get your gold. Because we have no way of knowing who will be the last in line to get cashed out. What we have here is an explosion in the bullion banks' physical leverage factor, not through an increase in lending this time (the lending is actually declining), but through customer withdrawal of reserves, with no physical backstop. Even a bank with a conservative leverage factor can experience a bank-busting, system-crashing run. Public confidence is the only thing that stands in the way. This is how a classic bank run runs."
Sincerely,
FOFOA
I would like to highlight the known sane move of the Russian central bank: the announcement that they will buy from their banks gold in a volume of 100t yearly. Your post Fofoa brings here a new point of view.
Hello Matt,
http://www.gata.org/node/8499
Hi Bron,
"Interesting post by americhinaman, my only question is if JPM is arbitraging then why do we have backwardation in silver futures contracts?
Occam's razor? It serves their purpose.
"I also commend you for wading through all the moronic posts on ZH to glean the gems.
I sometimes trawl the comments for specific reasons. For example, to see what some factions are "thinking" and talking about.
"When I found ZH a few years ago the comments were mostly intelligent or witty."
Agreed. It also used to be a great place to learn about the workings of derivative markets etc (from actual traders).
If you are looking for a fresh, vibrant forum I would recommend the Macro Business Superblog. It reminds me of the original ZH site in some ways. It also covers a lot of material that Aussies should find relevant.
http://macrobusiness.com.au/
Cheers
Introductory statement to the press conference
Jean-Claude Trichet, President of the ECB,
VÃtor Constâncio, Vice-President of the ECB,
Frankfurt am Main, 3 March 2011
http://www.ecb.int/press/pressconf/2011/html/is110303.en.html
"...Turning to fiscal policies, all governments need to FULLY implement their fiscal CONSOLIDATION plans in 2011. Where necessary, additional corrective measures must be implemented SWIFTLY to ensure progress in achieving fiscal sustainability. Beyond 2011, countries need to specify ambitious and concrete policy measures in their multi-year adjustment programmes, so as to underpin the credibility of their fiscal consolidation targets of ensuring a RAPID CORRECTION of excessive DEFICITS and returning to a close-to-BALANCE or SURPLUS position. Strengthening confidence in the sustainability of public finances is key, as this will reduce interest rate risk premia and improve the conditions for sound and sustainable growth..."
Hi mortymer,
"The greatest shortcoming of the human race is our inability to understand the exponential function."
Professor Albert Bartlett
I wonder if the politicians are truly ready to confront reality. Are their citizens? Time will tell.
Greg Pytel's latest post (his responses in the comments are worth reading as well):
http://gregpytel.blogspot.com/2011/02/why-does-bank-of-england-not-increase.html#comments
Hi FOFOA,
Great post, ending in a nice summary from Victor.
I'm curious how the call to the bullion desk went?
That said, I never thought I would be rickrolled by FOFOA, but hey one time has to be the first :-)
FOFOA, where did you get that nice photo? I must have overlooked one of the CCTVs. Before I meet the bullion people at my bank on Monday, I think I ought to shave and take off the sunglasses.
I have two further comments.
1) Now that I have bullion in my account and can sell at spot whenever I please, I am long gold, and so my bank would be short. If they really focus on banking, they must have hedged this exposure. How? Because of all the unallocated open-ended accounts (as opposed to term loans or swaps), the bullion banks ought to be net long in the market because they are short with respect to their customers. Is this what we observe?
2) Bron, I think the backwardation shows that counterparty risk is being priced into silver swaps - the risk that the silver might not be returned.
This is particularly delicate because it started at the LBMA, i.e. it reflects what bullion banks know about other bullion banks.
Since I had serious issues trying to convince some silverbugs that there is no shortage and therefore the commodity interpretation of backwardation does not apply, I wrote a detailed explanation of why I think it is counterparty
risk:
Backwardation
Victor
Victor,
Left an expanded comment at your blog: Backwardation can indicate counterparty risk aversion or physical silver shortage, the problem is we can't tell which is causing the backwardation we see.
Also keep in mind that the calculation of GOFO and SIFO has errors (http://goldchat.blogspot.com/2010/07/understanding-negative-lease-rates.html) so is just indicative. I can confirm for a fact that actual market lease rates are not the same as those derived from GOFO and SIFO.
The reason is that the bullion bank applies a risk margin as you indicate.
@Ore em,
try Tulving.com. Hanns Tulving's company overnights your shipments and has the tightest spreads to spot.
@Fofoa,
great email from Victor, and another clear, concise response for us laymen.
On a separate note, our state of Utah is the second state to propose legislation to accept US issue gold coins as legal tender. They are usually ahead of the curve, financially speaking. I can see the coins eventually being traded at their gold weight value instead of face value, providing a temporary currency in a meltdown.
@ Joel re: tulving.com
Thanks, I appreciate that, although it looks as though I need about a 35k minimum purchase, so we shall see. Still open to all other ideas.
Ore em'
J & M coin and jewellery in Vancouver. They'll ship anywhere, no minimum order, small premium over spot.
Most importantly they have product in stock. Many dealers run a ponzi-like scheme.
Hi FOFOA,
YOU WERE SPOT ON !!!
You wrote:
"Enough, you wrote, "…seems to me the BB's have to hit the paper mkt hard... and soon, to try to keep the charade going for a little while longer..."
"After you donated today I emailed you a thank you along with a correction to your comment. I wrote, "Here, I fixed it for you:"
"…seems to me the BB's have to hit the paper mkt hard....TO THE UPSIDE ! (my emphasis)... and soon, to try to keep the charade going for a little while longer..."
"If they want the paper markets to continue, they need to drive the price quite high and soon. Every time it starts to head down I think, "is this it?" Price rising = good for paper market buying themselves time. Price collapsing means it could be lights out at any moment, IMO."
You were right. The paper gold mkt has melted up in defiance of extremely overbought "technical" condition. (I might add seemingly becoming increasingly obsolete as a tool)
The BB's have peaked the interest and recharged the gambling lust of the paper mkt players with new nominal highs and lots of press etc. It seems they have successfully extended the game.
Dont they need to temper this enthusiasm and soon before they lose control? As you have said:
"Suppression doesn't just mean price-down action. It can also mean slowing or delaying explosive up-action."
It feels like the BB's may be losing control of the situation. We've seen some concerted attempts to knock things back, especially last thursday that was completely reversed by friday.
This seems to be a very dangerous high wire balancing act the BB's are playing.
Just as the game could be ended by falling paper price, it seems this their game could also be ended by loss of the ability to manage the price via "suppression".
Do you believe we have reached that point? That the recent attempt to renew animal spirits in the paper gold game has spun out of control for the BB's and their game could be coming to an end from the other side? Being unable to successfully supress? thanks and cheers, E.
The day a dollar official status as a reserve currency starts to fade is a day when another modern currency is born...
GUIDELINE OF THE EUROPEAN CENTRAL BANK
of 3 November 1998
on the implementation of Article 52 of the statute of the European System of Central Banks and of the European Central bank
(ECB/1998/NP10)
www.ecb.int/ecb/legal/pdf/en_ecb_2000_12_ecb_1998_np10.pdf
"...The euro will become the currency of the participating Member States on 1 January 1999..."
Letter from the ECB President to Mr Andreas Mölzer, Member of the European Parliament, concerning questions on transfers to the European Central Bank,
Frankfurt am Main, 3 March 2011
L/JCT/11/210
Ref.: Questions on transfers to the European Central Bank
[Mrt: except other interesting info there is this confirmation/clarification:]
"...The ECB’s gold holdings have NEVER been used as COLLATERAL..."
~Jean-Claude TRICHET
GUIDELINE OF THE EUROPEAN CENTRAL BANK
of 3 November 1998
as amended by the Guideline of 16 November 2000
on the composition, valuation and modalities for the initial transfer of foreign-reserve assets, and the denomination
and remuneration of equivalent claims
(ECB/2000/15)
"...Article 30.1 of the Statute further provides that the ECB shall have the FULL RIGHT to hold and manage the foreign reserves that are transferred to it and to use them for the purposes set out in the Statute....
...5. Each participating NCB shall transfer gold on such dates, to such accounts and at such lOCATIONS as are specified by the ECB...
Appendix
Euro-equivalent amounts of foreign reserve assets to be transferred by each participating NCB whose Member
State shall have adopted the single currency on 1 January 1999"
~Willem F. DUISENBERG
Little bit off topic but with gold making all time high (all the time) there is more and more talk about gold in a bubble. At least here in Scandinavia.
So I found this interesting video (The Gold Bubble 2011) from January 2011, Uppsala, Sweden:
http://www.youtube.com/watch?v=PVVq2dwgFls
Forward to 05:55 and you will find some very interesting thoughts from ordinary people on the street. :-)
re ".......think about a bank that makes a home loan. It creates liabilities (demand deposits) in exchange for a 30-year note. "
1. A bank is not allowed to lend depositors money
2. A bank never lends its own money in 95% of lending
so where does the money they lend you come from?
You the borrower. A bank only extends ( your own) "credit"
Your signature is the power behind creation of the "funds" ie they extend to you your own credit.
They cant do that with physical Gold
also, some very good info contained withing this audio by Joseph P Farrell
http://www.thebyteshow.com/Audio/JosephPFarrell/JosephPFarrell_MagicOfSocialEngineering6_21Jan2011_TBS.mp3
esp banking/gold/ the EU/UK and some other snippets inc paper gold
Hello All,
Excellent links shared!
The banking language and mechanics still goes over my head, but I'm getting there with more and more repetition.
Will read 100:1 for some insights.
@ Ore 'em
golddealer.ca is reliable (located out west, free shipping over 2k$)
but perhaps you might also try goldstock(if in toronto area) - they are very reasonably priced imo, and you might even decide to go for j&m ounce or 1/2 oz bars, over maples, if you're buying a few at a time, since the bars sell for about 45$ less, the last time i spoke with them
of course kitco in montreal is a sure bet too
regards,
Julian
Thanks Julian and Blondie. Any thoughts on the size of the coins, ie. should I get ounces or 1/10? I suppose in a "breakdown" the liquidity of 1/10 would be advantageous.
Hi enough,
The key issue here is what price of gold will be high enough to temper the physical demand in the short term.
If the PTB take gold up into a new trading range (say, $1,500 to $1,700) perhaps they can continue to ply their trade, harvesting profits from the volatility. Notice how the downside has been tested and probed in the past few weeks. If we assume that the key players are now positioned on the long side in various paper gold derivatives (despite any appearance to the contrary in Comex data) then they remain in control for the next move up.
If we think of the gold market as being manipulated rather than suppressed it opens our thinking to the understanding that the BBs profit in both directions. The uptrend can continue while volatility in each new trading range generates profits for them - until it doesn't.
What could stop this game? An explosive move (US$ thousands?) upward in physical gold or a complete breakdown in the US$ perhaps.
Most institutional investors cannot invest in physical gold even if they wanted to. Should we anticipate the US$ dollar going "no bid" while every country on the planet can issue fiat currency without limit (until they cannot)? If the Euro rises against the US$ doesn't that give the ECB latitude to issue more currency in order to reduce the exchange rate?
Given that the CBs who appear to be accumulating gold, such as Russia*, are taking a disciplined approach then it is the retail market that would have to deliver an explosive rise in gold. Is the general public primed and ready to do this?
*Russia recently announced that they were slowing the rate of accumulation of gold reserves from 154 m/t last year to 100 m/t per year from domestic production.
Are the hardcore gold shrimps like us going to be the ones to iniate the transition to Freegold-RPG? Perhaps many of the shrimps, who have been accumulating physical gold for some years, are gradually hitting their target levels of gold ownership and retiring to the sidelines.
Perhaps this is a Central Banker and Currency Issuer's game which only ends when they choose to end it.
Hi Or em'
Obviously fractionals cost much more per/oz. than larger bars or coins. I just bought 2oz. perth mint 2010 lunar tigers at +40 per/oz....thats cheap....one went for $3500 on ebay tonight ! If funds are light then the 1/20 oz. lunar pigs and goats at apmex for spot+ 12 (about $83) they are a great deal...go look at ebay...they sell for like $95-$100 there !!! I have no affilation to apmex...best deal for large coins IMHO is at CSG in pheonix with 1oz. Roo's at +42 p/oz cheers
h/t Max Keiser
http://www.moneyweb.co.za/mw/view/mw/en/page292523?oid=532682&sn=2009+Detail
MASSIVE gold demand continues to break records in China
Latest reports out of China put consumer gold demand in the first 2 months of the current year at a phenomenal 200 tonnes - and buying momentum is still continuing.
Tick, tick, tick ..
Hi Costata,
Yes, I see your points.. I guess I question the rationale of the BB's creating ever more paper promises when there effectiveness is having diminishing returns.
So they temper physical demand by targeting a new price range but this is a separate issue from their biggest problem IMHO. That of increasing promises as unallocated material is diminishing rapidly.
The more promises they create whle at the same allocated acct demand rises, the closer to the precipice the BB's get.
As allocation is increasing creating more promises is dangerous enough even if its having the desired effect. If its not then its suicide.
I do understand that measuring the effectiveness of the ballooning paper promises relative to price and unallocated reserves is not mine to judge.
Just logically it seems as allocation is progressing rapidly to print more paper promise against it with diminshing effectivness brings the end of the game closer not further out.
And current events clearly could have the effect of driving even more gold owners to allocated accts. Especially with the $ on the precipice. I mean this dogs day is done. Global insurrection and $ is flat on its back near 76 low on the DXY. Waterfall event could occur with a new low below that.
In summation, the BB's trading profits from volitility, takedowns, premiums etc does nothing to stop the game of musical chairs from ending !! Thats not a matter of price. That just slows new physical buying. It does nothing to slow allocation and the expanding paper promise to unallocated pool ratio..
On CB buying... Iran announced a few months ago that they had completed a buy program of physical gold in amount of 15% of their 100B $ reserves got very little press. best, E.
enough,
I see what you are driving at and broadly agree that pressure from allocation should be a key factor in bringing this "game" to an end.
I guess my thrust is that this paper gold game can continue while physical demand can be met and it could run longer than many of us imagine.
Thanks for sharing your thoughts on this.
Cheers
European Central Bank recommendation for a Council Regulation (EC) concerning further calls of
foreign reserve assets by the European Central Bank
(ECB/1999/1)
(1999/C 269/08)
"...Article 2
Further calls of foreign reserve assets
1. The ECB may effect FURTHER CALLS of foreign reserve assets
from the national central banks BEYOND THE LIMIT set in Article
30(1) of the Statute, up to an amount equivalent to an
additional EUR 50 000 million, in case of need for such
foreign reserve assets.
2. The central bank of a Member State whose derogation
has been abrogated, or who is treated on the same basis as the
central bank of a Member State whose derogation has been
abrogated, shall transfer to the ECB a sum of foreign reserve
assets determined by multiplying the euro value at current
exchange rates of the foreign reserve assets which have
already been transferred to the ECB in accordance with
paragraph 1 of this Article, by the ratio between the number
of shares subscribed by the central bank concerned and the
number of shares already paid up by the other national central
banks...."
DECISION OF THE EUROPEAN CENTRAL BANK
of 12 December 2008 laying down the measures necessary for the contribution to the European Central Bank’s accumulated EQUITY VALUE and for adjusting the national central banks’ CLAIMS EQUIVALENT TO the transferred foreign reserve ASSETS
(ECB/2008/27)
(2009/57/EC)
http://www.ecb.int/ecb/legal/pdf/l_02120090124en00770080.pdf
"...(1) Decision ECB/2008/23 of 12 December 2008 on the national central banks’ PERCENTAGE SHARES in the key for SUBSCRIPTION to the European Central Bank’s CAPITAL (1) provides for the ADJUSTMENT of the key for subscription to the capital of the European Central Bank (ECB) (hereinafter capital key) in accordance with Article 29.3 of the ESCB Statute and establishes, with effect from 1 January 2009, the NEW WEIGHTINGS assigned to each national central bank (NCB) in the adjusted capital key (hereinafter the capital key weightings).
(2) The adjustments to the capital key weightings and the resulting changes in the NCBs’ shares in the ECB’s subscribed capital make it necessary to adjust the claims which the ECB has credited under ARTICLE 30.3 of the ESCB Statute to the NCBs of the Member States that HAVE ADOPTED THE EURO (hereinafter the participating NCBs) and which are equivalent to the participating NCBs’ CONTRIBUTIONS of foreign RESERVE ASSETS to the ECB (hereinafter the claims)...
...Definitions...
...(a) ‘ACCUMULATED EQUITY VALUE’ means the TOTAL of the ECB’s RESERVES, REVALUATION ACCOUNTS and provisions equivalent to reserves as calculated by the ECB as at 31 December 2008. The ECB’s RESERVES and those PROVISIONS EQUIVALENT to RESERVES shall include, without limitation to the generality of the ‘accumulated equity value’, the general RESERVE FUND and the provision equivalent to reserves for foreign exchange rate, interest rate and gold price risks;..."
~The President of the ECB Jean-Claude TRICHET
[Mrt: When need occurs foreign reserves are called, when new members enters ESCB adjustments are done, when new reserve assets revaluation occurs appropriate adjustments are done...]
FYI
http://www.foxnews.com/politics/2011/03/04/utah-house-passes-recognizing-gold-silver-legal-tender/?test=latestnews
greenspan on gold:
http://www.youtube.com/watch?v=1r13hACqxj0
@ Wendy
I have bought some from Bank of Novascotia mainly because I walk out with gold in my pocket.
I didnt think the prices where that bad
@ Ore 'em
Beware, if you're in canada and you buy gold/silver (probably PT and PD too) from the USA, canada customs will most likely try to charge you duties and taxes. DO NOT pay this, just tell them to double check the rules.
In order to avoid any of that, buying within canada might be a good idea if you're just getting started.
Happy saving!!
- Julian
HISTORY, ROLE AND FUNCTIONS BY HANSPETER K. SCHELLER; SECOND REVISED EDITION 2006
www.ecb.int/pub/pdf/other/ecbhistoryrolefunctions2006en.pdf
(1/4)
The Governing Council has adopted rules on the basis of Article 26.4 of the Statute for accounting and financial reporting in the Eurosystem8. Under these rules, the accounts of the ECB and the NCBs are prepared on a historical cost basis, modified to include MARKET VALUATION OF MARKETABLE SECURITIES, GOLD AND ALL OTHER ON-BALLANCE-SHEET and OFF-BALÖANCE-SHEET ASSETS and LIABILITIES denominated in foreign currency...
...Given the large exposure that the Eurosystem bears in foreign exchange holdings, particular attention is paid to the issue of prudence. A prudent approach is applied particularly to the different treatments of UNREALISED GAINS and UNREALISED LOSSES for the purpose of recognising income. Thus, REALISED financial GAIN and ALL (realised and unrealised) financial LOSSES are recorded in the profit and loss account; UNREALISED financial GAINS are credited to a REVALUATION ACCOUNT. The mutual claims and liabilities of the Eurosystem central banks are offset against each other so that the consolidated financial statements reflect only the Eurosystem’s position vis-Ã -vis third parties...
...Since then the ECB’s foreign reserves have fluctuated markedly as a result of transactions and exchange rate and price movements. At the end of 2005, they stood at €41.5 billion. BOTH foreign CURRENCY reserves and GOLD holdings declined in VOLUME terms, reflecting the ECB’s intervention sales in the autumn of 2000 (see Section 3.2.1) and some sales of gold in 2005 and 2006 in conformity with the Central Bank Gold Agreement (see Box 14), respectively. These decreases were FULLY OFFSET by the higher market value of the ECB’s GOLD holdings...
(2/4)
...Furthermore, Article 30.4 of the Statute of the ESCB entitles the ECB to make FURTHER CALLS of foreign reserve assets beyond the amount of the ceiling on the initial transfer. Such calls are subject to secondary Community legislation. To this end, on a recommendation from the ECB, the EU Council adopted a Regulation8 allowing the ECB to make further calls up to the amount of €50 billion. The ECB would only make these calls to REPLENISH depleted reserves and NOT TO INCREASE its reserve holdings. If deemed necessary, additional transfers of foreign reserve assets to the ECB may also take place on the basis of further secondary Community legislation...
Management of the ECB’s f o reign exchange holdings The aim of the ECB’s foreign reserve management is to ensure that, at any point in time, the ECB has an amount of liquid resources sufficient for any foreign exchange intervention. This implies that liquidity and security are the basic requirements for the investment of the foreign reserves. Subject to these constraints, the ECB’s foreign reserves are MANAGED in such a way as TO MAXIMISE THEIR VALUE...
(3/4)
...The ECB’s gold holdings
In line with the Central Bank Gold Agreement (see Box 14), the ECB’s gold reserves ARE NOT ACTIVELY MANAGED...
...The NCBs’ foreign reser ves
The foreign reserves that HAVE NOT been transferred to the ECB continue to be held and managed by the NCBs. NET of exchange rate changes, the foreign reserves held by the NCBs DECLINED steadily between 1999 and 2005; at the end of 2005, they amounted to around €279 billion, of which €111 billion was in foreign exchange assets and €168 billion in gold, SDRs and IMF reserve positions. Since intervention on the foreign exchange markets is effected through the reserves held by the ECB, the foreign reserves of the NCBs no longer serve foreign exchange policy purposes. As explained above, however, they may be subject to further calls on reserves by the ECB.
Article 31 of the Statute of the ESCB states that foreign exchange operations carried out by the NCBs with their foreign reserves ARE SUBJECT to prior APPROVAL by the ECB. This requirement ensures CONSISTENCY with the SINGLE monetary and exchange rate POLICY of the ECB...
...Observer status of the ECB
Given the respective mandates of the IMF and the ECB, it was considered essential for the ECB to be represented at the IMF on those issues which fall within the ECB’s fields of competence. On 21 December 1998 the IMF Executive Board decided to grant observer status to the ECB. This was a pragmatic solution that avoided the need to amend the IMF’s Articles of Agreement, which restrict membership to countries. The arrangement extends a standing invitation to the ECB to participate as an observer in all IMF Executive Board meetings where issues of direct relevance to the ECB are to be discussed. These issues are the following agenda items:
• Article IV consultations on euro area policies;
• Article IV consultations with individual euro area countries;
• the role of the euro in the international monetary system;
• multilateral surveillance, i.e. the biannual discussion of the IMF’s World
Economic Outlook and the Global Financial Stability Report and regular discussions on world economic and market developments...
...In addition to the standing invitation, the ECB Observer may also be invited to attend meetings on an ad hoc basis for agenda items which both the ECB and the IMF consider to be of mutual interest for the performance of their respective mandates. It has now become common practice for the ECB Observer to be invited to attend Article IV discussions concerning EU Member States that have not yet adopted the euro, given that the ECB is involved in monetary policy coordination procedures with the NCBs of these countries. Likewise, the ECB Observer attends annual Article IV consultation discussions on the United States and Japan.
Also under the observer arrangements, the President of the ECB is invited to attend, as an observer, meetings of the International Monetary and Financial Committee (IMFC). The IMFC meets twice a year alongside the IMF’s spring and annual meetings to advise and report to the IMF Board of Governors on the supervision of the international monetary and financial system. It also provides guidance on the policy work of the IMF Executive Board...
...5.4.5 Bank for International Settlements and central bank fora
Established in 1930, the BIS is the world’s oldest international monetary and financial organisation. A major objective of the BIS is to “promote the cooperation of central banks” (Article 3 of the Statute of the BIS). The ECB
takes part in all BIS-based cooperation activities, including statistical work.
Since 2000, the ECB has also been a shareholder of the BIS with voting and
representation rights at its Annual General Meeting...
FOFOA/All
I have been digesting this paper of late and it brings up a few questions post $IMFS.
There have been one or 2 “forceful” comments directed at this angle so I thought it instructive to go back to a time that rhymes with this one for more clarity. When reading through these points we know what has happened but its interesting to see what should have happened.
Some of the solutions Freegold would address were meant to be addressed by the floating exchange rate system according to this analysis. I would say that floating exchange rates failed in the first 3 instances and failed in the 4th when talking dollars and a globalized world. The fault imo is the underestimation of the power of the dollar in its reserve role which has stymied many of the proposed effects. But when countries can hide the debasement of currency from their populace, traders can attack currencies causing wild fluctuations, the dirty float etc, how could or would Freegold mitigate any of these.
Float the Dollar
We could have a system of flexible exchange
rates. In other words, we could cast off
the gold anchor, float the dollar, and let the
price of foreign currencies be determined in
the open market. To do this we would discontinue
U.S. Treasury purchases and sales of
gold at a fixed price-in effect demonetize
gold. Foreigners seeking to buy our goods and
services would have to buy dollars at whatever
price prevailed among foreign exchange
dealers (banks) at any point in time. Conversely,
U.S. citizens and corporations seeking
to buy imports or other foreign assets
would have to pay the same prevailing rate
to acquire foreign currencies. The rate would
fluctuate from day to day, depending on the
forces of supply and demand, and would seek
a level which would equilibrate the forces of
supply and demand.
The advantages of a flexible rate are very
real and obvious:
1) A country with a floating rate could
never have a disequilibrium-a deficit or surplus-
in its balance of payments. If outpayments
exceeded inpayments, the price of foreign
currencies would rise, i.e., the local currency
would fall in international value. If
inpayments exceeded outpayments, the foreign
currencies (and goods) would become
cheaper and the local currency would rise in
international value. Depreciation or appreciation
would be automatic and open, and would
not have to be concealed by exchange controls
and other restrictive devices.
Anyone care to speculate on the ongoing oil/gold nexus? Looking at the US fiscal/monetary options it looks increasingly like the only strategy left is to mask dilution in a multilateral basket other than assuming a successful controlled inflation or on the flip side default. With these the obvious alternatives now trickled down to the likes of Beck - is there the remote possibility of a golden/black (oil) swan out there? To wit, and assuming Freegold opposition is opposed relentlessly, what if any options lie outside of moving to a super sov currency?
Thank you, Blondie-
that is the largest pool of black gold I have seen.
Did you notice how it was collected? With a metal detector. no digging or tunnel, or cyanide etc don't even need a mining claim to do that.
just going for a walkabout, dear; be back a millionaire.
So, under freegold would collecting gold in the most environmentally friendly way possible ((picking up whatever's mine), as freegold troubadour Tom Petty sings in "Running Down a Dream")) be criminal or heroic? Orthodox freegold holds this mate as a criminal of the state, he has deprived the collective of its birthright. Only the elite rulers can decide who may poison the earth for gold, it is the freegold way (orthodox)!. Ha Ha HAve it your way, I'll have none of it.
/Cont
2) Not only would a floating rate produce
prompt short-run payments adjustments, it
would automatically set in motion the right
kinds of longer run economic adjustments
both at home and abroad. A falling rate
would expand exports and depress imports.
But these adjustments take time. Export markets
have to be developed and foreign exporters
must adjust to a reduced state of demand.
Conversely, a rising rate would stimulate imports
and depress exports, and the opposite
adjustments would have to be made in the
production and marketing of goods. With
fixed rates, reserves move from one country
to another, and the needed adjustments in resource
allocation at home and abroad are
long delayed. Since the purpose for foreign
trade and investment is to secure a more efficient
use of resources and greater world production,
flexible rates have a decided advantage.
3) A floating rate would end (or reduce the
strains of) the game of musical chairs played
among nations with gold or other international
reserves. Instead of shifting reserves
around the world, or having them pile up
over protracted periods in a group of surplus
countries, the price system would work continuously
and effectively to prevent surpluses
and deficits.
4) Flexible rates would make it possible for
countries to pursue independent domestic
monetary and fiscal policies (which they are
bound to do anyway) without artificial constraints
and difficulties imposed by “balance
of payments” considerations. Different countries
obviously have different domestic priorities
and goals-high employment, price level
stability, etc. They will pursue and meet these
goals with varying degrees of success. Under
fixed rates undesirable repercussions are transmitted
rather quickly from country to country-
especially from the bigger to the smaller
(i.e., they export recession or inflation). Under
flexible rates some repercussions would still
be transmitted but on a much smaller scale.
A country which inflated at a rapid rate
would also have a falling rate of exchange,
which would help sustain its export markets
and prevent too large an influx of imports. A
country which maintained a stable price level,
with inflation proceeding elsewhere in the
world, would have an appreciating currency.
Each country would be free to pursue its own
interests without being unneighborly.
Hello ad,
Interesting paper. Papers (discussions) of that type were not uncommon at the end of the 1960s and early 70s. And they almost got it right! The thought was, if we just demonetize gold and let all the currencies float, the adjustment mechanism for imbalances will become gradual and automatic.
But something was missing. What was missing was a true independent benchmark against which the free market could judge the floatation of the currencies. As it turned out, the U.S. dollar became that benchmark for the next 40 years. But why did that happen? What did they do wrong?
At the time it was thought that the demonetization of gold simply meant casting it out of the monetary system into the world of everyday commodity trading. But there were a few problems with that view. The first was that more than half the world, including the giants and central banks, refused to accept this new perspective on gold. They still wanted it, kept it and demanded it.
The second was that gold, if it was going to be a commodity like any other, had to have its price controlled to keep the fiat currencies functioning. Currencies function because they can buy necessary commodities. And if a commodity starts rising in price too quickly, it will be hoarded as a store of value rather than sold to producers in the market. This is as bad for the function (and value) of a currency that needs to be able to buy commodities as it is bad for the economy that needs the flow of commodities in order to thrive.
This is why CBs and governments resist the hoarding of commodities as a store of value in any way they can. And it is why, in 1980, the Hunt brothers were crushed by the system operators.
Theoretically, your paper had it almost right. It said, "With fixed [currency exchange] rates [which you had in the gold standard], [gold] reserves move from one country to another [flowing and accumulating in one direction, out from the US Treasury and into the rest of the world], and the needed adjustments in resource allocation at home and abroad are long delayed [and result in economically painful crises, like 1933 and 1971]."
But over the last 40 years we have witnessed the same thing. (Physical) gold has flowed and accumulated in one direction, from West to East, and now we are facing another crisis in a string of economically painful adjustments. So what went wrong? Was the floating exchange rate theory fundamentally flawed? Or was it simply missing an essential element? Can a global monetary theory function properly in an asymmetric world where less than half the world accepts the main premise?
Sincerely,
FOFOA
FOFOA poses a question that is loaded in such a way tthat it demands a succint answer. Can a house divided stand? No.
Dear FOFOA, first, let me thank you. You, FOA and Another are my guides, and I appreciate what you have done for me and others. Gracias.
My question has to do with a comment made by Another. He wrote "The nature of the coming crisis will make the taking of investor property a piece of cake. You see, because gold is a commodity, you will be compensated at the commodity price of return + a fair profit, of course. "
I live in the States, and I am deeply concerned ( even though you told me not to be) about the threat of confiscation, once the Gubmint realizes the scale of the crisis. What thinks Ye?
Regards,
Themagicbusguy
That's an interesting theory, about JPM creating a phantom silver short squeeze. The problem with that one is that it is saying, then, that JPM is deliberately manipulating the silver market for evil purposes. That is certainly believeable.
But if you look at the performance of the two monetary metals, gold and silver, since the start of QE2, gold is the one that seems out of whack. It is just meandering sideways with a slight upward bias during outright deficit monetization. Bizarre.
Silver and just about everything else are performing about how one would expect.
So if I was desperate to float a conspiracy theory, it would be about gold prices, not silver.
Pipe,
IF and that's a big IF, JPM was trying to distract investors from buying gold by making silver look like the winner, wouldn't creating relative weakness in gold (G/S ratio from 60 to 40) be an integral part of that manipulation/diversion?
Themagicbusguy,
the way I see it, the "Gubmint" has already confiscated the gold, many just don't realize it yet. But they will... once they try to take "delivery" on Comex, GLD and all the other paper gold contracts.
You see the government has the physical gold and the majority has paper gold and in paper they will be paid just as it was 80 year ago.
Casper
themagicbusguy,
I'm depending on my ever failing memory here, but I believe your quote of Another referred to gold mining companies,not individuals.
You're right Wendy. But what's to stop our Fearless Leaders? If property rights are set aside, and the rule of law suspended, the only thing standing between them and my gold is...wait for it...Me!
Adequately covering the issue of prospective government confiscation of private property might require a grant (or two) from The Ford Foundation and a few years off for research.
Having said that, the increasingly low esteem with which citizens of the U.S. hold The Federal Government, such that it will likely take less than one imagines before large numbers of the populace treat authorities in an adversarial manner, make it unlikely that confiscation efforts of the sort I think you have in mind would succeed. I'd like to think-in flights of fancy I admit- that as grasping and prone to over reach as government tends to be, that even they will realize the necessity of a mostly hands off policy.
To Enough,
I can't fault your logic. But it [discouraging gold buying] doesn't seem to be working. Every gold writer and their uncle barely mentions silver except to say "don't buy silver, it's overbought".
So since gold bugs don't appear to be on board YET, who is buying all the silver? A few brave souls say "China", and the poster above says, in effect, no one is buying real silver, only JPM arbitraging paper silver.
It doesn't make sense to me. If JPM wanted to pound gold lower, the best way would be to pound silver lower, since the two metals track each other, at least up until last August.
Also, why would JPM take an action that screams "hyperinflation". I don't think The Bernank would approve that message, lol.
Casper-I agree, and I would go farther. There are actually three levels of confiscation. No. 1 was covered in your post, the ultimate conversion to pure paper of gld.
No. 2 is a bit more subtle. At a gold:silver ratio of 70:1, which has been in play, give or take, most of the 11 year precious metal bull market, silver is obscenely undervalued, and investors should be way overweight silver. But they are not. So someone big is gobbling up the all the free silver, and collapsing the gold:silver ratio.
Think about it: just since August, gold owners have lost over 40% of their silver buying power, (with gold:silver now 40:1) and they don't even realize it. gold:silver is going to 10:1, and gold-only holders will have lost 85% of silver buying power at the end game. That's 85% confiscation when they institute a bi-metal system.
No. 3 is a 1933 style confiscation, but with an important difference. In 1933 they for confiscated gold, paper dollar for gold dollar, even Steven. This time around, they will pay huge premium. Why? Because they don't want a lot of trouble. And they have shown a tendency to create fiat units out of thin air in the trillions, so what is one more trillion?
"That's 85% confiscation when they institute a bi-metal system."
I strongly suspect that you have not read FOFOA's posts on why a bi-metallic standard will not occur.
I suggest you do. Does the fact that silver will not become part of a bi-metallic standard mean silver can't go to prices that will leave many in a state of absolute awe?
No.
Ahh, the silver debate again.
(thin smile) Brrrilliant... (sigh)
Ed said, "I strongly suspect that you have not read FOFOA's posts on why a bi-metallic standard will not occur."
If you can't briefly summarize the most valid reason for this in a short post, and apparently you can't, then Occam's Razor says you or FOFOA are most likely wrong.
Silver is going up because people believe it is money. If gold is money and silver is not, gold should be going up much faster, a hundred times faster, not slower.
Isn't it amazing? Silver has been eating gold for breakfast, lunch and dinner for over 6 months in a row, and still 95% of gold bugs are in complete denial. What could be possibly be more bullish for silver?
At a gold:silver ratio of 30:1, a few gold bugs will finally throw in the towel and start buying silver. Most will wait until 25:1 or 20:1. Way too late, but better than fiat, I suppose, lol
pipe --
Why are you here? To taunt supposed "gold bugs", or to read, learn, and decide for yourself what to believe?
Pipe,
Someone is certainly in denial; since you haven't read FOFOA on silver maybe that someone is you?
@pipe: "people" today don't think silver or gold are money, they think both are commodities. Those that bother to think about them at all, think the supply/demand fundamentals of silver indicate it should outperform gold.
When the day arrives "people" realise gold isn't a commodity, when they price the Dollar in gold rather than the other way around, that's the day gold leaves silver behind.
FOFOA
I agree and no it cant function correctly until everyone accepts the main premise and the "essential element".
I think it was just a result of WW2 and the power that the US had amassed that enabled the push for the $ for the reserve role, after all it was as good as gold.
Mike-Why am I here? Because I love gold, and own some. Mainly by luck, I guess, I happen to be way overweight silver.
I posted that I thought that the 'JPM phantom silver short squeeze' theory was very strange. Do you buy that theory? 'Gold is not reacting to QE2 because silver is up so much'?
And I'm not taunting anybody. Somebody else started the 'confiscation' mini thread, and it is also releveant in terms of the original post, to an extent. Have you ever done any ewave analysis? Love it or hate it, when you (or others) use it attempt to predict a future price, there is always price point in the wrong direction that nullifies your wave count. What is the gold:silver ratio point that nullifies your 'silver isn't money' view?
I've read maybe three of these FOFOA threads, and the JPM 'phantom silver short squeeze' is the first mention of silver I have seen. Don't get me wrong, I love a good gold conspiracy theory, but that is too much for me to swallow, not that I wouldn't put it past them. It just doesn't pass the smell test as being possible.
I sincerely would like to know why gold has been under performing almost all commodities for several months. If the main poster here is correct, it probably won't be until they have stolen all the physical from gld.
Since the start of QE2, the crb index has outperformed gold by a significant amount. I very much want to know when to move from other commodities back into more gold.
What indicators are you using to indicate that gold will reverse this under performance and start outperforming?
Indicators, schmindicators.
You can't just come to a blog like this and start posting incendiary comments after reading three whole, big posts, pipe. Not without expecting to receive a wall of derision, and [hopefully before very long has passed] the silence of just being ignored.
Read some posts. It will definitely provide a very handsome return on time invested, far better than you have got anywhere else I think.
O.K. Post a link to what you think is the most concise in this group of posts/blogs about the gold:silver relationship. I have read an average of 25 articles per week about gold over the last 10 years, so I think I have that covered.
Quite frankly, I'm surprised you guys are talking about the theft of physical from etf's. Everybody else in the gold community has covered that ground a million times since they started gld. Everyone and their uncle knows they are a complete scam. All you gotta do is read the fine print in the prospectus. I do appreciate some of the technical background and detail here, but it doesn't really change the big picture: those etf's were a scam from day 1, in my opinion and that of just about everybody else I've read at the major gold web sites.
pipe, DP, Mike:
My opinion, for FWIW, is that GLD and SLV were created solely for the purpose of using investors' money intended to invest in the metals, as a tool for the JPMs and HSBCs to harness that demand for the intent of setting up a way to divert that demand into derivative instruments, with the bonus of having rules that only allow the giants (and a few astute small giants) to actually take physical from them. Sorry for that long sentence.
As for the silver:gold ratio, it seems to me, and has for some time, that JPM is now in a position of needing the silver price to rise, to keep the game of musical chairs going--lower prices cause physical seekers to take delivery--rising prices force the longs to pony up more money in order to take delivery, dissing leverage. FOFOA has said the same thing as regards gold, but silver, IMHO, is more pressing, due to the shortages. Yes, shortages as prices are still not high enough to disgorge the tons and tons of silver sitting in pretty teapots, candlesticks, rings, necklaces, belts, trashed cellphones, computers and other electronics dotting landfills.
This, too, shall come.
Read 25 articles/week from this blog, and you'll make up for your misspent decade;)
In your case, you might choose to start with Focal Point (or perhaps the one I directed you to earlier), but I recommend them all.
DP-
I assume the misspent decade was meant for moi.
As a point of interest, I bought (physical) gold in late 1998 and it has risen 4.5 times initial value over those 12 years. To diversify, I bought silver in 2003 and it has risen 7 times its initial value in 8 years.
I do intend to do the silver-for-gold shuffle, as all freegolders endeavor to do, but as for now, I am happy with my misspent decade.
No, littlepeople, that one was all for pipe :)
@ Pipe
Allot if commodities, whether it is silver or cotton, have beaten gold over the last 6 months.
Just validates the point that gold is in for a 2 to 4000% jump.
@pipe
Don't come to this blog to ask when to roll all of your commodities (that you don't actually own, but hey, everyone lies on the net) into gold.
Casey on gold and pensions
-Global pension assets are estimated to be – drum roll please, $31.1 trillion.
-bases his estimate on the fact that commodities represent about 3% of the total assets in the average pension fund. And of that 3%, about 5% is devoted to gold.
-If they doubled their exposure to gold and gold stocks – which would still represent only 0.6% of their total assets – it would amount to $93.3 billion in new purchases.
-The assets of GLD total $55.2 billion
-The market cap of the entire sector of gold stocks (producers only) is about $234 billion. The gold industry would see a 40% increase in new money to the sector. Its market cap would double if pension institutions allocated just 1.2% of their assets to it.
-If these funds allocate just 5% of their assets to gold – which would amount to $1.5 trillion – it would overwhelm the system.
-Throw in insurance companies, sovereign wealth funds and retail and we're looking in the rear view mirror at $100 trillion.
Re: Gold Confiscation and Taxation
This article presents a clear, succinct explanation of the reasons why a 1930s style gold "confiscation" would not be on the agenda today.
http://www.financialsense.com/contributors/richard-mills/no-reason-today-for-gold-confiscation
This has been in the news recently.
Utah Pushes To Accept Gold, Silver As Alternative Currency
http://www.zerohedge.com/article/utah-pushes-accept-gold-silver-alternative-currency
I note this sentence in the ZH report (my emphasis):
"It would also exempt the sale of gold from the state capital gains tax."
@Ore em
http://www.bordergold.com are in Whiterock BC, just south of Vancouver.
Their premiums might be slightly higher versus others, but they tend to deal in uncirculated straight from the Royal Canadian Mint.
I've also successfully purchased from http://www.kitco.com; they ship from a Canadian address.
Dear FOFOA and Friends,
coming back to the question of silver raised above, make a bold step right into the Hornet's Nest and propose the following:
We may be witnessing the advent of what you ought to call Freesilver, even before we see Freegold.
I read Kicking the Hornets' Nest, and I share some of the critique raised there, but I would like to argue the point in my own words:
From reading a number of the old postings of Another and FOA, I take it that there are two main conditions, say a master plan (1) and a trigger (2). I had thought about (1) before I discovered Another, FOA and you, and so I will formulate (1) as I would have originally explained it:
(1) If there exists an inner circle of wise and benevolent central bankers and politicians who have a secret plan to put the global monetary system back on a sound foundation, they might wish
(a) to increase the price of gold sharply (against the interests of the commercial and bullion banks) to some target price between 5000 US$/oz (if it can be done in a calm environment), $15000 US$/oz (my best estimate) and up to 50000 US$/oz (if it happens under pressure and in a chaotic situation in which the price overshoots)
(b) while (a) is happening, to try to cap the price increase of industrial commodities in order not to cause too much inflation along the line (for this, I thought, (a) must happen extremely quickly)
(c) set up to two-tier system of currencies, a gold-backed one for the preservation of purchase power (I would have called this 'money') and one for transactions (I would have thought of commercial notes, and would have called them 'notes').
When I found the archives and your blog, I was very pleased to see that others have had similar ideas. I thought that (1) would be close to impossible without creating a huge inflation. Imagine central bankers printing even more US$ in order to purchase as much gold in the free market as they can. From you, I have learnt what might be the trigger that would do the trick - although I still think the resulting inflation would be substantial as many small fish will realize their windfall and spend it:
(2) A run on the physical gold reserve of the bullion banks which disconnects gold from the rest of the financial system.
Why gold and not silver or even something else? First, (1) suggests that the central banks prefer gold because it is their reserve, and they might wish to limit the price increase of silver in order to keep inflation in check. Second, many big and important savers (you call them giants) have made a decision in favour of gold. Silver, on the contrary, has been less in favour as a store of value, although there are a number of small to medium giants that have been well-known silverites.
continued...
... continued
But the point (1) above starts with a big 'if'. In fact, after watching the PIIGS crisis in the eurozone unfold, and realizing that the ECB played a substantial part in creating this mess in the first place, I doubt the assumption of (1) is tenable.
What might come to the rescue? Of course, (2) might occur regardless of an official plan, and it might force the hands of the central bankers. Therefore, for me, (2) is much more interesting and relevant than (1). In the absence of (1), I have to be pragmatic and open minded and willing to consider alternatives.
Therefore I consider that right now, we might be witnessing a run on the physical silver reserve of the bullion banks. How would that look like? If these banks are overwhelmed by requests from investors to have their accounts allocated, but cannot recall their loans quickly enough, so that their physical reserve in insufficient, what options do they have? They cannot ask some central bank or the BIS to swap them some silver, simply because the officials do not hold any silver reserve.
So their only choice would be to perform a synthetic swap of US$ for physical silver in the market, i.e. purchase physical silver in the spot market and sell the future (with a maturity to match that of their silver accounts receivable). So you would see
(I) buying pressure in the physical spot market (observed indeed)
(II) short-selling the futures (observed indeed)
(III) collapse of the contango or even backwardation (observed indeed) [Note: If you swap US$ (lend) for silver (borrow), you receive a premium that equals the contango which is usually equal to the risk free interest rate of US$ plus the carrying charges for the silver. But if someone needs to swap large quantities quickly and under pressure, this will drag the contango down into backwardation so that the banks eventually have to pay for these swaps rather than earn a fee.]
Now the silverbugs observe this and think
(I) we told you so
(II) the bullion banks manipulate the market
(III) silver is getting scarce
thereby getting all three points wrong of what is a perfect run on the bullion banks. But it is a run on their silver division rather than on their gold division.
Eventually, the silverbugs - at least the original ones - got one thing right:
Buy silver because the central banks do not have any, and so they cannot stop the run on the hard money.
In the case of gold, whenever an analogous condition was observed in the gold market (buying pressure in the spot market, sharp increase in short-selling of the futures, collapsing contango), the central banks took some measures to save the traditional bullion market. In the 1999-2001 period, there are the sales by the UK, Switzerland and Canada (think HSBC, UBS, Scotiabank?). After the winter 2009/10, there is an obscure gold swap in the annual report of the BIS. But in the silver market, they simply cannot intervene because they don't have any physical. What you thought to be a disadvantage of silver now makes it particularly interesting.
...continued
... continued
Of course, what I am interpreting differently here is that the central bankers are the bad guys rather than the good guys.
Even if you disagree with my interpretation, I hope you agree with the technical observations (I)-(III), i.e. that we might be witnessing a test-run in silver of what you are have long been expecting in gold. What will the ultimate value of silver be? No idea. But when the market says that silver is money and starts hoarding silver, then there is no way of predicting which one is worth more per ounce: gold or silver. Even better, while the officials apparently still fight the revaluation of gold to a level at which it can support the financial system, thousands of small investors might free silver and achieve the same.
Please, do not just stone me to death for heresy (in fact, before you even think of doing so, better take a look at that photograph of mine at the top of FOFOAs posting). I will certainly be grateful if you point out the facts that I got wrong or that I am missing.
Yours truly,
Victor
Victor,
many thanks for your confirmation. It’s exactly how I figured it out before getting too entangled to Freegold. The great advantage of silver is that the CBs don’t own any.
Freesilver is there, it will only get freer in the next days.
Those who wanted to make a quick buck, speaking of shrimps, are getting closer to their
target. In the long run, who knows, a very long run, gold will recover and will remain the stronger metal. It’s the CBs that determine the value of PMs and not the people. It might even be that they will accept a GSR of 1/15 in short term before they consolidate their intentions, positions in gold.
There must also be another rationale behind all that why they accept silver to go that high (except that they don’t have enough silver) even if it hurts the industry. Unfortunately we can’t figure it out but I am sure there is a plan how to manage silver and eventually gold.
I congratulate all silverbugs by now, respect! They have been tough on their positions and that worked out for them. I was well invested (20%) in silver but then I panicked (Irland, haircuts, euro) and swapped it to early, which of course brought me a huge loss in gold. But to say that was a “confiscation” is quite stupid. It was my poor speculation and fear.
Anyway, interesting that the GLD grew by 7t on Friday. How does that work? I thought it should be depleted.
Victor, it’s a pity you didn’t show up here earlier. Same with Enough. This blog needs also some pragmatic voices not only BIS/IMF quotes. And of course FOFOAs corrections from time to time.
>There must also be another rationale behind all that why they accept silver to go that high
>(except that they don’t have enough silver)
If my interpretation is right, they simply cannot no anything about it. The silver-consuming industry would be collateral damage. Luckily, they typically use only tiny quantities. Silver is probably the only commodity than can hugely increase in price without much impact on consumer prices.
If the oil price doubles, it crashes the economy. If silver doubles, so what.
Secondly, in my interpretation, the central banks today are as mismanaged and clueless as the commercial banks in 2007/8.
I wish I were wrong.
Victor
@vtc: IMO there is one more interpretation of the sudden 3000 c. increase on COT. That if they would not do it the market would get out of hands. Fever, spike up, collapse later. Bad for all involved, shorts or longs.
Concerning Freesilver - no, too many facts working against.
What I wander is:
"How is ECB&otherCBs gonna do their quarterly MTM of reserves revaluations?"
When marketmaker - (LBMA, COMEX) goes offline and there is no price discovery, how is ECB gonna to price its wealth reserve? They can not have suddenly in their quarterly revaluations a gap. Could someone elaborate?
Does this signalizes rapid/brisk 3m max event some time in future? Preferably shortly after the quarter entry in accounting?
(lets not forget that: "...ECB’s foreign reserves are MANAGED in such a way as TO MAXIMISE THEIR VALUE...")
Victor,
what you describe here is short term trading. The majority of what was written here was meant to be a guide to understanding of the emerging monetary system based on free floating price of local currencies in gold.
I don't think that anyone here discourages trading gold, silver, ... based on speculation of future prices in currencies, even I do it. But you can never know when exactly the lights go out. That is what has to be considered.
My take on rising prices is that it's a major bull trap forming in front of our eyes. The pain the politicans are feeling right now is growing. You can bet that they'll transfer this sensation to bankers and they'll do what they do best... secure physical wealth or with other words, collapse paper markets.
There is a great read if you haven't done it yet from "Flatliner" on one of the links FOFOA posted a while back.
http://www.usagold.com/goldenchalkboard/gc_monetary_system.html
Pay a particulary good attention to the part where the "securing physical assests" is discussed when a player has a large amount of paper wealth in paper markets.
I'm not suggesting that this is the 100% the case with silver currently, just saying that not everything is what it seems to be in paper world.
But as a fellow trader a say "No pain, no gain".
Casper
Hello Victor,
If we are going to have Freesilver, do you believe that silver will become money again, with all the attendant problems of trying to tie silver to currency? Or do you think silver will be the wealth reserve par excellence, even though giants and central banks have already chosen gold, and cannot and will not switch to silver? I think you cannot make a case for silver until you address these questions.
After solving these problems you must overcome the stock/flow issue addressed by FOFOA. Have you noticed that many silverbugs are eagerly waiting to swap to gold? Or that they view silver as an 'investment' which they intend to sell for paper profit? It seems many silverbugs have their fingers hovering over the 'sell' button. Could all that pent-up supply affect silver velocity? Are the giants going to scoop up silver? I don't see any 'We buy silver' signs in corner shop windows.
I hope you can solve some of these problems Victor. If you can I may join you in the silver camp, but you have a lot of work to do.
@mortimer
when you hear of a deal, where a company purchase some stocks at a premium. What happens to the price discovery?
What forbid any CB to disclose a gold deal and its value?
Would make headlines...
@Gabriel: Nice. Subtle. I wonder where you meant that transaction might have taken place, and in what sort of price range... :)
Anyone in need of further hints though, may want to revisit Relativity: What is Physical Gold REALLY Worth?
Victor-Thanks for presenting your take on the silver price explosion. Obviously, we're not in 1980 any more, when the US Treasury still had a billion ounces of physical silver at the mint.
I'm surprised silver isn't dragging gold higher with it. This isn't the normal one month or two month up cycle. It has gone on now for over 6 months. One possibility is that they are shorting gold in every way imaginable in order to try to exert some influence on silver in that way. But if this is a nascent 'free silver' situation, as you suggest, that might explain why it isn't working.
Regarding your pondering as to whether the central banks are the good guys or the bad guys, that sort of implies that they know what they are doing, while they are doing it. Given the magnitude of the dot.com and housing bubbles, I find that difficult to believe. Are you suggesting that they deliberately pumped up those massive bubbles for some evil (or good, in the long term) purpose?
Could one of the silverbugs please define 'Freesilver' so that we can all make a comparison with 'Freegold' without misunderstandings and wasted polemical argument?
This isn't some kind of trap, I'd really like to know exactly what system or set of circumstances is being referenced when the term 'Freesilver' is used.
DP-I read the Focal Point article. I'm not completely convinced by the author's arguments, though he does make some compelling points. Regarding his main anti-silver point, I would argue that if silver is chosen as the one and only money, other substitutes will be found for industrial silver applications. For example, digital photography has already replaced halide silver nitrate.
Regarding the 'choice' game at the beginning of the article, imagine playing a similar game with a huge group of people that represent a fair cross section of the planet. Instead of picking blue or red squares, however, they must pick either gold or silver to be money. If some large percent of the group, say 90% or more, choose one metal, they all get a very nice prize. If the split is more even, they get nothing.
You then explain that if they pick gold, almost all transactions will be by debit card, or some other electronic means. If they pick silver, the tiniest transactions might not be payable in cash, but stuff that now costs the equivalent of a couple of hours of wages can probably be purchased for cash (silver coins).
People's love of freedom will prompt the vast majority to pick silver on that basis alone. Then, you get into historical biases, such as the fact the word for silver is the same as the word for money in many languages, and I think you will find that we are headed for a silver standard.
Pipe
here is a part of the article that FOFOA wrote in http://fofoa.blogspot.com/2010/12/kicking-hornets-nest.html
Here's the thing about silver and Freegold. If you really think about it, Freegold is the pure embodiment of Gresham's law. The masses are never going to demand silver money, only the modern Silverites are. The masses always want easy money. And that's because the masses use money mostly to pay expenses and service debt (in case you haven't noticed). And also, if you haven't noticed, there is a big overlap between the silver movement and the various easy money movements like Bill Still and The Secret of Oz.
But the easy money camp has a newer and better easy money in fiat currency today. Silver was out of that job a long time ago. Perhaps that is why it re-trained and found a new job in industry. I doubt that silver will voluntarily go back on "benefits" to please the silverbugs. It may not feel inclined to "lie very still" under a bridge drinking moonshine.
In Gresham's law there is good money and bad money. There are two moneys, not three. Good and bad, not good, so-so, and bad. The bad money drives the good money out of circulation. In other words, the bad money circulates (and becomes the medium of exchange) and the good money lies very still (becoming the store of value).
I find the silverbugs to be heavy on rhetoric and unsupported claims and light on argument and rational analysis. The rhetoric I see also tends to be the same oft repeated phrases, "common wisdoms", merrily scattered hyperbole and not-so-truisms.
Pipe,
I think you overestimate peoples desire to use physical medium of exchange in everyday life. Why waste resources of value on something like a medium of exchange when anything can be used in that role, regardless of its value.
I don't think we're headed back to that system, so people that desire freedom will only be choosing a store of value and clearly silver has been struggling in this role for more than a century as people have chosen gold and gold only.
Casper
@Mike
100% agree with that quote from FOFOA.
Also what are the chances that central banks dump their gold and go to silver...or even start holding silver as reserves? Practically zero just in terms of the logistical, financial and legal nightmare to change or add to what is actually already in existence. For what? To do a job that gold can already do well enough?
Fiat [or an equivalent based on technology] is here to stay, as is gold as the store of value.
FOFOA notes that fractional reserve bullion banking is an artefact of the gold standard. It follows then that fractional reserve fiat banking itself is an artefact of the gold standard. Fiat is treated as a commodity today because it was the representation of something tangible in the past.
Technology has enabled us to record value far better than paper yet we still cling to the notion of a means of exchange in commodity form. Technology itself is a unit of account and the means of exchange and can accurately track the claims in the system. Essentially that is what we are doing today with modern banking except fiat is still viewed as a “thing”.
Locally we use an internet based community exchange system [CES]. Value given or received is recorded in open bank accounts. It isn’t necessary to create money for these transactions, there is just a simple debit or credit of value given or received. This is the solution to money in unrestricted amounts; there can never be too much or too little. Sure there are a few problems with people colluding to game the system, they are not worse than the way people can game the system today.
This system also creates a meritocracy and it’s interesting to see so many parallels with Freegold. I have come to see that the store of value needs to be based on scarcity, not the means of exchange.
@pipe: Hello again my new friend. I think you must have misunderstood FOFOA in Focal Point, if you came away thinking his main point was industry. That is certainly A point, but his main point was silver just isn't money. I'm not going to stupidly attempt a redo of the article here; much better to read it again if you feel it's necessary.
My view is silver is being allowed to run higher, because this diverts much interest away from gold. "Thank God they're only after the silver. They don't know about gold." h/t Mantis (smile)
Sure, silver is going higher, along with other commodities, from here. But it isn't money, and won't enjoy the infinite demand that gold is going to, once people return to seeing it again as money rather than a commodity. You and your silver buying friends are going to have to work very, very hard to keep earning enough money to support the price of silver, indefinitely. Meanwhile, people holding gold are going to get a free ride on the coat tails of the true giants, people that the rest of the world, including you and I, beg to buy product from and will continue to do so. People who have already selected their Focal Point... and it ain't silver (or Baseball Cards).
You're thinking "OK but I will just swap over once I see that starting to come into play", but guess what? You won't have time, it'll be over real quick. Too quick. You'll either be ready, or sorry.
You're also looking at the objective of holding your silver until some point where it reaches some price, or indicator level, at which time you will sell it and use the currency to invest in something else instead. Am I right? Some news: so is everyone else. This is where gold differs from silver markedly. There are some parties that accumulate and have no intention of ever parting with their gold.
If you don't share this view, that's fine. You should know that many people, probably most in fact, at this blog admit to starting out with pretty much the same initial view that you have. Among them not only myself, but also many of the other commenters you will have seen here, and the host himself. We all needed to become convinced of this alternative view in much the same way you do, and we have become so convinced. That doesn't mean that you will too, but I thought you might find this an interesting consideration. We didn't all fall out of an alien spaceship together, loving gold and hating silver. I think I can safely say we [almost?] all like silver too, just not in the same way as gold. I still have some silver remaining. But not for long and I haven't bought any in quite a long time, nor will I be any time soon - I'm selling. I've got something else I allocate any excess fiat to instead.
I reiterate my earlier suggestion, that you would do well to read 25 articles/week at this blog (including the comments), in order to make up for your misspent decade. (As we have!) I don't think you would regret it. If you haven't got too much to unlearn, it might not even take you more than a month to share this view. However long it took, it would be worth the wait.
Sincerely,
DP
Jeff,
> If we are going to have Freesilver, do you believe that silver will become money again, with all the attendant
> problems of trying to tie silver to currency? Or do you think silver will be the wealth reserve par excellence, even
> though giants and central banks have already chosen gold, and cannot and will not switch to silver? I think you cannot make
> a case for silver until you address these questions.
My point is not to promote a new grand philosophy in which silver is the only money. I just observe that what we are witnessing in the silver market right now, might be the silver analogy of what you are waiting for: a run on the bullion reserve of the banks which eventually disconnects the metal from the old financial system.
Why is it silver rather than gold? The technical reason might be that the central banks are still successful in defending the status quo with respect to gold, but since they do not have any silver reserve that they can 'abuse' for this purpose, they are losing control over silver first.
Is this good or bad? I do not have to choose, do I? Take it as the grand dress rehearsal for gold if you wish, get some popcorn and watch how it plays out.
Another interpretation is that some of the recent buying pressure in silver comes from the sale of Eagle coins to Joe Public (in fact, the sales of the US Mint went up from perhaps 2% of annual world silver supply to around 5-7% within a few months - this alone might have been enough to tip the small silver market over the edge). Ordinary people are demanding hard money. If they are able to free silver from the financial system and choose it as their store of value, why not? The market is right.
If I wanted to criticize your point of view, I might say 'Gold is the dictatorship of the old elite' - 'Silver is democratic money'. I do not literally mean it that way, but there is some valid point here.
>I don't see any 'We buy silver' signs in corner shop windows.
Wait a few months. The majority have not yet noticed what is going on.
Pipe,
> Regarding your pondering as to whether the central banks are the good guys or the bad guys, that sort of implies that they know
> what they are doing
I meant 'bad guys' in the sense of clueless, unprepared and fully subject to pressure from commercial bankers and deficit-spending politicians. They will defend the status-quo bullion banking by all means and fight gold as a store of value as long as they are in office.
Gold has a preferred tax treatment in Europe (no sales tax) and is exempt from capital gains tax in some countries not because there is a secret plan to elevate gold to the only official store of value, but rather because they have not yet figured out how the collapse of the old system will play out. Once they figure it out, they will fight gold by all means: expropriation, 90% capital gains tax calculated mark-to-market in fiat, whatever it will take. They will also not hesitate to sell-off the gold reserve cheaply to the Asians if this helps to keep them in office for a couple of additional years. They will screw the domestic giants just as badly as everyone else.
FOFOA and Mike,
> The masses are never going to demand silver money, only the modern Silverites are.
I am not so sure. Don't the sales of the US mint suggest otherwise?
Again, I am not saying that I have a 'better' philosophy. I just observe the facts and try to understand what is happening in front of us.
Victor
I don't know why people are bashing Silver....i have both Silver and Gold.....Silver is good value and needed......end of story.
"The masses always want easy money."
This assumption is where the problem of Freegold is. The truth is THE CONSUMERISM-ORIENTED MASSES always want easy money. THE PRODUCERISM-ORIENTED MASSES do not want it. If you have been to Asia a lot on business trips and observe their spending habit you’d easily understand what I’m talking about.
Producerism environment is where wealth is generated. Consumerism environment is where wealth is squandered. A healthy economy needs to promote producerism rather than consumerism as David Tice put it simply when talking about the problems of US economy, “Why are we all consumers? Why aren’t we producers? ”
The way to promote producerism is via hard money not easy dilutable money. If I have some extra wealth that I’d like to invest in new business I would not be motivated to convert my gold into FIAT that a banker can siphon away using printing press, which would be a covert tax on me that I cannot escape.
To revive this economy, we need to do the exact opposite - make sure the consumerism masses, or put it simply debtors, unable to access easy money. Sounds draconian but necessary.
Victor,
Thanks for your reply.
You say 'we may be witnessing...a run on the bullion reserve of the banks which eventually disconnects the metal from the old financial system.'
My question is; and then? If you break the paper chains of silver it has to either become money, wealth reserve, or an industral metal, correct? You say silver will be the store of value for ordinary people. I am curious how that will work. Industrial needs will compete with store of value needs?
You say 'ordinary people are demanding hard money'. I see no evidence of this. I see speculators trading the price of silver for paper gains. But if silver is going to be money it won't also be a wealth reserve will it? I think we still need a definition of Freesilver.
Let’s play a variant game of poker called “one card draw” where the highest card wins – winner take all. The unusual variation is that the high card is only decided after the draw by majority vote. High card could be anything but you’re sure it’s gonna be either King Silver or Ace Gold. You’ve been playing this game for a while, so you hold an Ace! But there has been a lot of talk recently about how Kings are the new Aces. You heard the people at the next table are playing blackjack and even say Aces are low! So - do you keep your Ace, hoping Aces are voted high again, or vote King-high, and discard, hoping to pick up a King to share the prize?
You look around the table. Well, Dallas never has any Aces left at the end of a game. But Jean Claude probably has an Ace up his sleeve. And Xia Bin over there is looking inscrutable – he’s making plays for Kings, but might well be bluffing. I’m terrible at poker, so by the look on my face you can tell I think I’ve got a winning card. There’s a lot of other players at the table – if the majority vote Aces high, you’ll win, but if they vote Kings high, you’ll lose everything. So do you vote Aces high and keep your gold, or Kings high and try to swap out into silver?
I hope that didn't sound too condescending. It's just meant as a bit of fun. For a serious discussion of the game theory that
Pipe and other were alluding to, try this discussion of gold
Rui
The masses are never going to demand silver money, only the modern Silverites are.
I am not so sure. Don't the sales of the US mint suggest otherwise?
Again, I am not saying that I have a 'better' philosophy. I just observe the facts and try to understand what is happening in front of us.
how many times have you heard the silverbugs say, when the mainstream gets on board and buys the price will soar. well thats enough for me to know that the masses are not in silver. like FOFOA has said, the masses have found the easier form of money and the giants have found the hardest form. there is no in betweens.
if you want the truth from what i read on silver forums and blogs, the same people who put most of their savings into silver are also the people stocking up on ammo, guns, food etc.. they are the dooms day people.
i think some of these people who run these silver blogs have major personal issues, like some sort of hate for the system like they are going to change it. the people who comment on them are just as bad.
now this is not to say everyone who has some oz's of silver are like that but it does seems like the silverites are.
from a physical standpoint, i think silver sales will be dropping just because of the price. the money to be made is in the paper trade just like in the 80's. there aren't enough rich people out there that are stupid enough to buy silver over gold so its going to be tough to have the middle class support this physical price at perhaps say $45.
but if you are going to speculate, then why silver? why not stocks? its even easier to do so.
you dont speculate with gold.
DP-I'm overweight silver, but I have about 25% of my non real estate, non farming portfolio in gold related investments. Most people would say that qualifies me as a gold bug.
BTW, most gold and silver bugs own a substantial amount of both metals and/or both gold stocks and silver stocks. We don't know for sure how this gonna play out, so it pays to diversify.
Someone posted about the masses wanting easy money. That is very true. Imagine Bush or Obama or the next clown saying "we want to start another war, and to pay for it, we are gonna confiscate all the Americans' gold, except of course the top 1%, who need their gold to buy their next island...". That wouldn't fly, so they just keep going farther out into the future, borrowing our children's savings, our grandchildren's savings, etc. It is now game over. When people find out (very soon) how horrible 'easy money' is, we are going back to metal coins that are worth equal to their face value. Debt as money will vanish. Wait until folks find out their ss checks will buy a pack or two of cigarettes per month, max.
Silver is acting very much like money. If the argument is that JPM and the CBs are letting it run, to taint gold as not worth watching, then they think silver is money too.
Silver's biggest single industrial demand source was for photographic silver nitrite, and that demand source is in terminal decline. Why isn't silver tanking like natural gas? Because it [silver] has a monetary component.
Here's another way of looking at the same thing (an item having both a 'money' component and a commodity component). Why is housing dropping, while the cost of the things to make it are going up like crazy? Because a house has commodity features (glass, bricks, nails, etc.) and a financial component, which is the tremendous financial leverage that is used to finance it. According to one web site I read, some can still get FHA loans (I think) with only 3% down. Even if it is 10% down, that is 9 to 1 leverage.
pipe
what kind of money trades 13B on the Comex on average everyday vs that other kind of money which is at 21T per day on the Comex.
and if we included the other world markets ie LBMA, silver would look even worse.
how big is the forex market again? would you say this is the easy money of the masses or do we still think silver is.
looks like silver has a lot of catching up to do before we can call it money or a store of value.
frankly it doesn't stand a chance. it looks like a commodity to me and will most likely continue to be so, not before it goes up more in price but not value.
maybe you missed that comment FOFOA posted at the end of this article. here it is again and notice how it doesn't seem to include silver.
"At Royal Bank of Canada, we trade gold bullion off our foreign exchange desks rather than our commodity desks," says Anthony S. Fell, chairman of RBC Capital Markets, "because that’s what it is – a global currency, the only one that is freely tradable and unencumbered by vast quantities of sovereign debt and prior obligations.
In short, says Fell, "don’t measure the Dollar against the Euro, or the Euro against the Yen, but measure all paper currencies against gold, because that’s the ultimate test.
Jeff,
> You say silver will be the store of value for ordinary people. I am curious how that will work.
> Industrial needs will compete with store of value needs?
I am not at all religious about it. How can you tell this is happening? If Joe Public exchanges some of his fiat for silver and hoards the silver with no intention to sell for a profit. Would he care about industrial needs? Of course, not, why should he?
The industry would learn to live with the new situation, just as there are some industrial processes that need gold which would run into problems if all gold was withdrawn from the commodity markets.
> I see speculators trading the price of silver for paper gains.
If you are right, you can comfortably keep sitting on your gold. I am not going to enter a religious debate about which one of the metals is better for philosophical reasons.
I am just saying keep your eyes open. The masses might (right now or at some point in the future) create facts and force the hands of politicians and central bankers.
Right now, the gold-silver ratio is about 40. In a new monetary system after the transition, will it be more or less?
> Let’s play a variant game of poker called “one card draw” where the highest card wins –
> winner take all.
There is a third strategy: do not play.
Victor
Victor
You write
“The masses might (right now or at some point in the future) create facts and force the hands of politicians and central bankers.”
Do you know “masses” of people interested in PM and more in silver?
I don’t. Those I know in persona are only interested in gold and these are not “masses”.
So who’s going to force CBs and giants to change their strategy? People owning 1000oz of silver? In Germany you can buy silver as much as you want. I had a banker two years ago who told me to buy silver. Why? To make some paper profit in short term and he was damn right for the time being. Maybe I’m ignorant but could someone name me a moment in history of advanced societies when people could impose their will in monetary matters?
For me “Freesilver” means that it is escaping the price control or/and is less suppressed. There are many reasons for that. It also doesn’t mean silver can achieve the status of wealth preservation as it doesn’t have a competitive quality of advocates compared to gold. When the notorious Roths… will hoard silver… well, then I might think about it.
I also wouldn’t say that bankers are stupid. They monetary intentions long term cannot exactly be translated for now and together with MSM and politicians they are quite successful in manipulating a great part of the population in the advanced economies.
"Silver's biggest single industrial demand source was for photographic silver nitrite, and that demand source is in terminal decline."
http://www.silverinstitute.org/
Silver has a wide variety of industrial applications and though, as yet, I have not found details regarding the percentage of total industrial use silver enjoys in, for example, electronics, it seems clear that whatever terminal decline silver may be experiencing in the realm of photography will hardly dent the global industrial use of silver.
@ Mike
I think you were replying to Victor rather than me, right? He might not realize that.
Either way you can define me as one of the "dooms day" nut as I own PMs, 1 year of emergency food, batteries, water and so on, and I think everyone should prepare for the run away inflation and a sharp dollar crash. Not stocking up on daily necessities seems complacent IMO.
Bravo victor! I have surmised the same. I have read ALL of Another, FOA and FOFOA and there were two things I never grasped. Well there was a lot I didn't understand, but primarily I never got the trinity's position on the euro and silver. I will skip the euro and focus on silver.
Victor's post was so elegant, I can add almost nothing. One thing that was puzzling me about the Freegold scenario is that I do not understand how gold trumps silver without government intervention.
As the physical and paper price of gold diverges, the same will happen with silver. In fact Victor posits as much. In that case, there is not really any difference between the two as both are looked at as stores of value, as wealth assets. If the market revalues gold "once" it will do the same with silver.
I believe FOFOA will proven correct if/when gold is reintroduced into the MONETARY system. In that case, there will be only one. The giants hold gold and that is what they will choose. There is no denying that gold is money, however, Victor's thesis is completely valid so long as gold and silver remain wealth assets outside the monetary system.
Silver, however, will not rival/equal gold when introduced in the monetary system. Again FOFOA is correct, there will be only one. But doesn't the difference between gold and silver depend on HOW it is revalued, or rather, WHO does the revaluing? The market chooses both gold and silver as wealth assets. The government will choose gold only as money.
So my question then is, if you think that gold will be remonitized does not that very fact prevent us fom achieving Freegold? If the government revalues gold (and they may to help extinguish their debt), by monetizing it, would not gold still be subject to fractional reserve lending and thus shackling gold once again? I gathered Freegold as divorcing currency from money - differentiating that which is saved from that which is spent.
I suppose in such a scenario those holding gold would make out very well and much better than those having silver. Perhaps someone can help me with this.
The fact that the central banks and the Giants are holding gold (rather than silver) seals the deal for me.
The CBs and the Giants have all front-run us. They made their choice a long time ago: gold!
The Giants... Maybe that would be an interesting topic for a future article, FOFOA.
Mike,
> from a physical standpoint, i think silver sales will be dropping just because of the price.
> the money to be made is in the paper trade just like in the 80's. there aren't enough rich people out there that are stupid enough
> to buy silver over gold so its going to be tough to have the middle class support this
> physical price at perhaps say $45.
Again, I am not very religious about this. But now that you offer numbers, I cannot remain silent.
Annual production of silver including recycling is 26000 tonnes. Let us assume that industrial use goes down to 50% of that. That leaves 13000 tonnes or 418 million oz for saving. North America, Europe and a few others together have a population of about 800 million. That leaves us with 1/2 oz per head per year.
What do you think is a reasonable savings rate in today's US$? Say GDP per head per year is 20000 US$ and people save 2% of that, i.e. 400 US$ per head per year.
That would perfectly well support a price of silver of 800 US$/oz in today's US$. I am not saying that this will be the future. But I do not see any contradiction in these numbers either.
Victor
Klaverius,
You are way ahead of me in the readings of Another / FOA / FOFOA as I am still working through FOFOA at the moment, but I did catch one thing that may help your thinking. You mention "if the government revalues gold (and they may to help extinguish their debt), by monetizing it..." from what I have grasped it will be the opposite of monetizing gold and a complete demonetization. Not a revaluing done by politicians / bankers (perhaps other than a starting point at which it would 'float' to the needed price to achieve it's store of value role). Again, I could be way off but that may aid you in your thinking.
- Nick
Nick,
I appreciate your comment. My question, however, was really in reference to gold v. silver.
There is almost an animosity toward silver in the FOFOA community and one which I never understood. I am agnostic or as Victor says "not religious" about the two.
If gold is truly free then silver will be as well, "free" meaning "float". The only thing that would severe the link between gold and silver in that respect is if one was chosen and monetized by government declaration. Doing so, prevents any "freedom" in the metal as value then becomes a product of the overlords' decree.
If gold and silver are both set "free" to find their true value in the market place, the FOFOA community should not so readily dismiss Victor's explanation.
Victor said "we might be witnessing a test-run in silver of what you are have long been expecting in gold. What will the ultimate value of silver be? No idea. But when the market says that silver is money and starts hoarding silver, then there is no way of predicting which one is worth more per ounce: gold or silver. Even better, while the officials apparently still fight the revaluation of gold to a level at which it can support the financial system, thousands of small investors might free silver and achieve the same."
I find FOFOA and his predecessors quite compelling. I am not convinced by their argument regarding silver in a "free" environment. Should the environment not be "free" then gold undoubtedly comes out on top. But this is predicated on the giants maintaining control. Should the giants lose control, well, Victor is probably vindicated.
Another didn't talk that much about silver as the word really wasn't in his dictionary, from his perpective.
To him, I believe gold vs silver was like trying to compare uranium and lead. You might know alot about one and very little about the other.
When prodded Another did say that he thought the silver market was too small, but that $150/ ounce might allow for silver to assume a wealth researve role.
Iin all fairness, I don't believe silver was part of his repitiore of knowledge
I believe FOA or someone like FOA mentioned that silver would/could be used as a store of value if "the masses" (that term again) demanded it.
Perhaps tha "masses" are using silver as a store of value today; we shall see!
Regarding the card game analogy, I view it more as poker. A royal flush beats both 4 aces and 4 kings. Anyone suggesting that ALL the eggs should go in one basket is begging to lose his eggs. Personally I save in both metals and I also generate income using multiple streams. It's not a black and white world. Picking a side is not necessary or in my case even desired. Gold v Silver is a pointless debate. Do what you are comfortable with.
Klaverius,
I think that many silver advocates see the rising price of silver as a sign of masses pouring its savings into this metal. I don't think that is the case right now but can change in the future.
What Victor suggests is that humanity returns to barter which, if you study history, is exactly what coins (gold or silver) for food, energy is. This not only means lights out for the current financial system but also civilization as we know it today.
What is suggested here is an evolution of a financial system as we know it which has become a "barbarous relic" just like gold standard as Keynes has suggested decades ago.
What if prices of Silver are manipulated higher rather than lower? Just because JPMorgan/HSBC carries a large short position on Comex doesn't mean that they are net short. As Mike has written earlier, the amount of gold traded each and every day totaly eclipses the amount of silver traded in the same time span. This provides one of the most important aspects of a good store of value and that is liquidity.
One more important thing that for some reason totaly blinds silverites is a fact that they just can't see that you can not only spend 40USD on silver but also on gold, you just don't get an ounce of gold. But who cares, what I get is a store of value with a huge network (effect) and the largest liquidty the world has ever seen.
There is nothing special about an ounce of gold or silver, what is important is value that they store. The only way an ounce would become important is if an ounce would actually be a medium of exchange which what Victor is suggesting and would in my opinion be a Mad Max scenario.
Casper
Thanks Wendy, that is a good point. I never found a/foa/fofoa to be anti- silver per se. Take the "hornets nest" for example. Basically what I got from the trinity is that the giants hold gold and silver is not gold. I guess I never found a satisfactory reason for not holding silver. I suppose one may hold whatever one wishes.
The only scenario I see where fofoa's prediction of gold outstripping silver comes to pass is through the political system. However, I think that it is equally plausible that the people will gravitate toward silver because it is more accessible. Again I am agnostic about the two, I hold both. I just am not sure why cannot silver lie very still too?
Ps I recently discovered the comments section. I mean not to display any trollish behavior.
@pipe: Good morning.
I'm overweight silver, but I have about 25% of my non real estate, non farming portfolio in gold related investments. Most people would say that qualifies me as a gold bug.
Yes, most people would. Not most people here, but most people.
You are of course free to do as you see fit based on what you have learned to date, and I wish you all the very best of luck for the future. I hope that you will stick around, read, and think long and hard on what you find in the posts and comments. Because I wouldn't want you to learn the hard way later, not when you've come so close to true wisdom.
Sincerely,
DP
No one has commented on the falling GLD etf holdings while SLV etf holdings are rising. This seems a rather portentious development. Thoughts?
@Jeff: A good point, well implied. ;-)
Out of respect for DP I will limit my posting here until I have read a few more articles in the archive.
Regarding the question of what is meant by 'free silver', I was just parroting Victor, so I will retract my use of the word, and let him elaborate, should he choose to do so.
Obvious, industrial silver has little reason to rise faster than the crb, and I would say it should under perform for reasons already stated. Therefore, if its present parabolic advance is due to willing buyers bidding it away from willing sellers, there is a strong monetary demand for silver right now. 'Monetary demand' meaning people are buying silver with the intention of hoarding it as a store of value.
I like to compare silver to unleaded gasoline, to see where it stands as a store of value. Last Summer an ounce of silver ($18) bought 7 gallons of unleaded regular at $2.60/gal. Even with the explosion in gasoline prices lately, silver has presently about 50% more gasoline buying power, at 10 gallons per one ounce of silver. But this is just for convenience, and a basket of common products would obviously be better.
If we get a collapse of the dollar, we want to know how much gasoline and other common products we can acquire with an ounce of gold or silver. If the present trend is any guide, it would appear the answer might be many, many times as many gallons of gasoline per ounce of precious metal. Maybe 30 gallons of gasoline per ounce of silver? But probably less than 300. You have to make some intelligent, well informed calculations as to how many gallons of gasoline (or equivalent energy sources) are needed to dig an ounce of silver (or gold) out of the ground.
test, test ...
Blogger is being unusually troublesome lately. I have not had a single post go through when posted, and I'm pretty sure I see others having trouble as well.
Let's see if this one sticks ...
Wendy
wasn't it said that people can save into anything they want too ie real estate, stocks etc...
silver is no different.
the only difference with all these other supposed store of values vs gold is that their supply can be unlimited whereas gold is fixed along with the highest stock to flow ratio of all real things and to mention gold is the only one that has its supply fall as prices rise.
i am sorry, silver is not the storage of wealth for the masses. it is just a trend that is in right now.
it is such as small market and considering it is getting a major push in the paper market more so in the volume than anything, it is still too small. like i said 13 billion traded everyday is peanuts for a market.
Victor,
if industrial usage goes down because of rising price, this gives even more reason why silver will fall in price because it will be harder for the investment class to support silver prices. i dont get how you came up with 800/oz but i dont want to discuss the technicals of that.
have you read enders explanation about the strong dollar policy?
commodities must stay cheap otherwise currency has no function.
gold is the only way to free up commodities.
like fofoa said, producers want there products to be cheap.
There is this idea out there that if you have a paper investment market for a commodity that is larger than the physical units backing it (fractionally reserved, so to speak), that the commodity's price must automatically be suppressed by the market. This is simply not true unless we are talking about money masquerading as a commodity.
A paper market brings in investment demand and leverage (borrowed money), two levitating factors that would simply not be present if the paper market disappeared. And these two factors, "the speculators," can take a commodity's price well into overvalued territory. Just look at oil for an example. Even the sellers of the physical stuff say they prefer a lower price than right now, not to mention during the all-time high in 2008.
You'd think the sellers of a physical commodity would love a higher price driven by speculators. But they don't, because it is only a real price if all the investment participants have a real use for, and ability to take possession of, your physical commodity. Otherwise it's just a casino.
pipe:
"we are going back to metal coins that are worth equal to their face value."
Here is an interesting statement.
When you say "face value", do you mean "commodity melt value", or "stamped monetary value"?
If by face value you mean the stamped value, then you are back to the coinage of the ancient times. The stamped value is necessarily higher than the melt value, and gives the government the seignorage revenues for coinage. Invariably this roads leads to clipping coins and debasement.
In fact, it has happened recently with the silver US small coins (pre-1965) and it is about to happen again with US nickels.
If by face value you mean melt value, then, how well does the coinage fulfull the 'unit of account' function? Would we have to look up the spot price of metals at the grocery checkout line? How would the government finance itself, and what would happen during a financial crisis?
One more thing, pipe. Has anyone pointed you to the 'flatliner' article? If you haven't, please read it. I would post the link but then blogger would eat my post.
I think it begins to answer your question of "why has gold lagged other commodities lately"? It also talks about oil and gold.
@Michael H: Your comments are getting through, but they are backed up in the SPAM box awaiting our host's intervention.
Thank you, DP.
I was pretty sure they were getting through since they appear momentarily and then disappear.
Unfortunately, I am stubborn and require the instant gratification of seeing my thoughts plastered on the nets for all to see.
victor:
Regarding the numbers you cite for silver production: this goes back to FOFOA's point about stocks vs. flow. What percentage of global silver stocks does 13,000 tonnes make? Annual gold production is a few percent of global gold stocks, which is good for a store of value because the savings are not being diluted by newly available metal. If new silver is flowing at a higher percentage of global stocks, is that not similar to saving in a currency that is being inflated faster?
My 2 cents regarding gold and silver:
In the long term, gold is it. In the short term, silver could outperform gold, potentially by a large margin (as, in my view, it is possible for TPTB to attempt to inflate a silver bubble to keep the game going a bit longer).
BUT, the big problem is that the transition between short-term and long-term could be abrupt, and we don't know when it will happen. So most people here prefer to find their golde chairs well before the music stops, instead of risking being left standing and holding the silver bag.
Have I mixed up and butchered enough metaphors yet?
Here is an anecdote regarding the 'money concept'.
I visited a museum in my area located in a late-eighteenth century farm house. The hosts wear period dress but are not in character. One of the talks was about commerce within the town in those days.
Since gold and silver was the coinage of the republic at that time, and since gold and silver coins were scarce, the townspeople devised their own system. Each townsperson kept a notebook with a ledger page for each of his neighbors. Any purchases were recorded in the ledgers and given a dollar value, although no coins changed hands. Note that these were 'purchases' and not 'exchanges' in the traditional barter sense -- they were one-sided and not immediately offsetting.
Periodically, each townsperson would meet with his neighbors to square the accounts -- to add up the transactions and decide who ows who and how much, and then to decide how to address the imbalance. I assume that either a payment plan could be worked out ("how about you deliver a few gallons of milk to my place each week for the next month") or an item of value could be offered. The period between squaring accounts could range from monthly if the parties didn't trust each other, to many years between good friends.
When a person died, an inventory of the estate would be conducted, and any remaining ledger balances were addressed out of this estate. These invetories are how we learn much about the typical possessions of households in that era.
Unfotunately, I did not ask about the handling of import/export transactions. Were coins used for the shipping trade? Or did merchants simply trade imported items for exported items as they unloaded and re-loaded their ships?
:))
>>>
I’m often asked by people when do I think they should sell their gold? I tell them this time around it’s going to be easy because you are not going to sell your gold, you’re going to spend it. In other words, gold will once again become currency
>>>
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/3/8_James_Turk_-_Forget_$8,000,_Gold_Headed_Much_Higher.html
Mike, DP, Pipe, VTC:
First, let me say I believe in the freegold process that is slowly unfolding. Apparently, the PTB have not yet aligned their ducks so as to take major advantage, or else the fraudulent paper markets would have been closed by now.
So, until that happens, we are left with the markets as they currently exist (fraudulent, but becoming more free).
I too believe that the reason silver is rising is because the combined industrial/investment demand has overtaken supply, and their is not much deliverable silver to keep prices under control. Silver and gold must both be controlled, else people smell a rat. Silver is becoming uncontrollable.
It used to be that the BBs could create as much "silver" as desired by selling that which they don't have on COMEX and in other swap arrangements. Now, that gig is up.
The U.S.G.S. has said there is only enough silver in the earth's crust to last another 20 years or so, based on current reserves. However, over 40 billion ounces have been mined to date, with much of it still hoarded in candlesticks, teapots, silverware, coinage, etc.
Remember that silver is an extremely important ingredient in the manufacture of modern weaponry. I read that a single smart bomb has up to 10# of silver in its circuitry. So, the military/industrial complex has a vested interest in silver supplies now and in the future.
What is the best way to disgorge all the billions of ounces of hidden silver? Certainly they won't send hordes of agents to confiscate candlesticks . . . how about much higher prices?
The governments of the world did not anticipate the changing dynamics of silver usage/necessity--to them it was a useless lump to be discarded a few decades ago. Now, there is lot more to the silver story.
I think the freeing of markets as the paper controls burn away will see both silver and gold rise and rise. But, for different reasons. For long-term wealth preservation, I still see gold as the ultimate winner, however.
I should emphasize again that my starting point is the observation that the silver market shows all symptoms of a run on the bullion back:
Unambiguous backwardation both at the LBMA (for about 7 weeks now) and at the COMEX (about 4 weeks), buying pressure in the physical spot market, and selling of the futures.
Precisely what you have all been expecting in gold, but a lot more obvious.
Then you start thinking about this observation and what follows from it.
Victor
Sorry, I meant run on the bullion bank of course.
By the way, how do you edit an old message?
Victor
As Jeff said, if there really is a run on the bank in silver, why aren't those easy pickin's at SLV being, well... easily picked? Like those at GLD.
The snippet below is from an article published today at Seeking Alpha which was reposted over at USAGOLD.
by H.J. Huneycutt
March 9, 2011 (SeekingAlpha) — In his book “The Alchemy of Finance,” George Soros revealed his theory of “reflexivity,” a major prong of his investment strategy. … If you understand Soros’ views on reflexivity, then you can better understand his seemingly contradictory view on gold. Soros has proclaimed that “gold is the ultimate bubble,” while at the same time, Soros Fund Management has been making astronomically large bets on gold. Some have called Soros a hypocrite, but the reality is that Soros has always bet on bubbles.
What makes gold even more subject to “reflexive” processes than conglomerates, the mortgage REITs, and most other investments is that there are no market forces that tend to pull it back down. … Gold has no similar natural correction mechanism. Unlike with banks and mortgage REITs, there are no loans to go bad. While there are a small number of industrial applications for gold, the demand for this is so small as to be meaningless. Indeed, almost all of gold’s comes from investment and jewelry users.
… For this reason, Soros’ claim that gold is “the ultimate bubble” is completely accurate. No wonder he’s betting so heavily on it, because it is about as a purely reflexive investment as one could find.
… Silver, on the other hand, is a different beast than gold. Approximately 50% of demand for silver comes from jewelry, silverware, and investment. The other 50% comes from industrial uses. This makes silver a rather unique metal.
From the perspective of “reflexive” markets, silver is driven by reflexive processes, just like gold. Yet, unlike gold, silver may have a check on its prices, in that industrial users are much more likely to be cost-sensitive than jewelry consumers or silver investors. Moreover, silver is much more affected by weakening demand from market downturns. While silver speculators can create a self-reinforcing process for the metal, at some point, the prices become high enough so that the industrial users get squeezed and reduce their consumption. Or alternatively, perhaps commodity prices in general become too high, reducing overall demand for the end-products of silvers’ industrial purchasers.
The only way for prices to continue to go up in this situation is for the speculative investors to gobble up an increasingly large share of the silver pie. If that doesn’t happen, reduced industrial demand may push prices back down rapidly, which then could create a self-correcting, self-reinforcing process in the opposite direction. In this sense, silver’s “boom/bust cycle” may be more typical than gold’s, as there is at least one major check on it.
--Aaron (previously known as Jenn until I blew my cover last night. And yes, I am a dude, not a chick)
I don't know how you got the 21T Dollars in daily gold trading @ COMEX.
On a good day there are 200K contracts traded at COMEX. Each contract is for 100 OZs, which gives you 20M OZs paper gold traded everyday. 20M * 1.4K = 28 Billions.
Silver is about half as much.
sorry you are right Rui, too many 0's to count lol.
then we should include the rest of the gold exchanges which still puts it out of reach.
not to mention how much gold gets traded that we dont know about at the CB levels and valuations.
Victor,
You cannot edit posted comments.
DP:
You asked . . . "why aren't those easy pickin's at SLV being, well... easily picked? Like those at GLD."
For one, I do not believe that all the "silver" SLV claims to have is the element Ag.
Let me restate that . . . the Ag SLV claims to have could also be owned by several other people, through unallocated (or even allocated ones, depending on how deeply fraudulent it actually turns out to be) accounts. This is referred to as "fractional reserve bullion banking."
SLV is almost assuredly counting as its assets silver sitting in several locations, and with ownership claims by more than one entity. It is a sham, IMHO.
The Ag at SLV, like the Au at GLD, is *allocated* to the trust. If you own shares in SLV/GLD, the metal backing it is legally owned by the trust and present somewhere in the BB vaulting system.
It's the *unallocated* buyers elsewhere in the system that have bought claims to that which doesn't exist.
The problem, for GLD/SLV shareholders, is only that (a) they can't ever touch or take away "their gold", unless they have enough shares to take it out one or more baskets at a time ("are giants, not shrimps"), and (b) since they are stuck with the shares and they are tracking the paper promises market price, not the physical market price, then the bid on the shares will be much lower than the offer they would have been able to extend to buyers if they had the physical instead.
The concern most people have about GLD/SLV being "scams" because they don't have the metal, is just a red herring. They do. *You* just won't be able to ever have it is all. That's the scam.
Since we have previously discussed how the drawdown at GLD is not because there is a lack of demand for gold, but to the contrary the BBs are redeeming GLD baskets to retrieve the allocated gold that is being demanded by their *allocated* customers. The question remains... why are we not seeing the same dynamic at SLV, if the problem is there is right now a run on the BB silver? This is the question Jeff was asking.
The answer I am coming up with is, the BBs are not having any trouble coming up with the volume of silver required of them right now after all. It's a pretty good distraction from their real problem though.
DP:
If you really think the silver (element Ag)bought by SLV is "allocated" to SLV, and there are no other claims on that (element Ag) silver, I have a bridge to sell you . . .
Here's a video of a guy reading into what stuff like SLV is cooking. His interpretation is not 100% accurate but good enough.
http://www.youtube.com/v/_-dBQd16cvg&hl=en_US
DP:
Here is an intersting take on SLV, if you want to see the "small print." Harvey Organ also has some Youtube stuff on it.
http://www.youtube.com/watch?v=_-dBQd16cvg
Morally, yes other people *think* they owned "that metal" too. But *they* don't. They can't give you a bar serial no to point their finger at while they coo 'Yeah! That's mine, that one over there! That art bar with the faces of Elvis an Jesus imprinted on it, specially for my mom, cuz she jus loved Elvis an Jesus, yessir'. So they own nothing but paid the BB the price of metal for that nothing. Sure they do still have those velvet art pictures of Elvis and Jesus at home on the bathroom wall of their trailer though - aint nobody gon take those away. Not 'thout a gun anyways...
Still, they saved the storage fees, so they're smarter than your average bear huh?
Why is this blog increasingly being hijacked by silverites?
The subject of this blog is Freegold, the works of A/FOA and hyperinflation. That is why I come here, to discuss these topics with like-minded people, as do the majority here. This is a very wide and deep subject, anchored in history, economic theory, human nature and projection of these topics into the future to determine the nature of a transition in the monetary system.
Coming here and discussing silver is like going to a blog on Ferraris and discussing Porsches. Why do it? If you so desperately want to discuss silver, can't you do it on a silver blog?
Silver may or may not have merits as an investment. Good luck to all in their investment decisions. I have no gripe with anyone who wants to invest in silver. It is none of my business.
This blog is 'A tribute to the Thoughts of Another and his Friend' (the clue is in the title), can those who are not interested in this subject please have the courtesy to leave the comments for those who are?
Before I get accused of sour grapes and being jealous of the gains happening in silver right now - I don't care if you make money, lose money, keep money, burn money, stick money where the sun don't shine, whatever.... I'm not. I couldn't give a monkey's. What I give a monkey's about is 'A tribute to the Thoughts of Another and his Friend'.
Please can we have the blog back?
radix46:
What happens with silver, whether you like it or not, is part-and-parcel of what happens with gold, and when freegold might become reality. Teh financial world is interrelated, and very little is so interrelated as is gold and silver--until they're not.
You can learn from (almost)anything and everything, if you have a desire to do so.
here's some practical info
I do not work for any bullion dealer...just scour the web looking for deals
apmex has 13 "scruffy" 1/20 oz pandas at spot + $5.99 dirt cheap....put scruffy in search bar and they will pop up. I've bought too much this week so I'm done
Enough and others,
This might sound silly to you, but I would never buy a chinese panda. I would never risk storing value in something made in China. If there were ever a rumour that any/a chinese panda contained tugstun, that would be it for their store of wealth.
I remember the tainted dog food, toys and a couple of other items from China a couple of years ago. The thought crossed my mind then, and I wouldn't be surprised if these products had been sabatoged after they left China. But the damage was done!
As I said, although perhaps silly, it's a personal policy.
@Jenn,
It never occured to me that you were a women, you talk like a guy
;)
Hi Wendy....hard to imagine getting tungsten into a teeny weeny little 1/20th and a reputable dealer would know if it was foul...hey Pandas trade at higher premiums than maples. Anyway I heard all the tungsten bars were in Ft. Knox :-)
I never jump into the G vs. S debate but I do have a comment now.
I just sold 2 monster boxes and now I need a chiropracter. If you use silver as a store of wealth better have a store of naproxin as well. I'll never hump 40LB.s worth of silver to the post office again. :Play silver via physical etf/s and hold physical gold. One monster box filled with silver is worth about 20k......fill it with gold and it's ligher and worth 500k
......the defense rests !!
If anyone comments..why didn't ya have UPS pick it up? UPS charges almost $300 while USPS registered is $100...thats why !!! Also UPS is not allowed to trasnsport "money" you've got to claim its a "collectible" and its a very gray are if it goes missing..........
Enough, I see the panda thing the way Wendy does - people around me are pretty skeptical about the prospect of fakery, and Pandas would be the number one suspect in their minds. I think I'd struggle to sell them if I tried.
My two cents about silver being discussed on this blog - I think it's very good to have some discussion about the issue here, as it's likely to be one of the very most common concerns for silver bugs who are wondering about Freegold... As FOFOA has said before, most of the people here were once persuaded to buy silver over gold, and now have changed their minds. As long as things don't descend into bickering (and really, why should they?) I don't see a problem. And to be honest I think it must look to casual visitors as though Freegold adherents are somewhat 'fanatical' about the concept along the lines of "if you don't think like us you're not welcome." Hey, I've certainly been wrong about things before, and I think it's good to have our beliefs / assumptions / decisions challenged and tested.
On another note - I've been observing that here in my non-US country silver is selling for above 10% premium to spot in private (i.e. non-dealer) transactions, to the point that it's possible to exchange silver for gold at a ratio of 35:1 or even better, if you're clever. Does this have some significance? I've taken it as evidence of a brewing bubble in silver, but maybe more enlightened minds than mind can extract something more from it?
Enough, you're right about the silver storage issue, of course. Even with a modest amount of dollars converted into silver, even at today's prices, it's heavy and takes up a lot of room! Funny how poor people look at gold in a negative light because it's so 'expensive' (compact store of value) and those with more think it's great for the very same reason...
I have another question for FOFOA and followers - I know it's been discussed before a little, but I'm still curious about how much silver convinced Freegolders are holding onto. FOFOA once mentioned an ounce of silver for every ounce of gold e.g. 100oz gold ($142800 today), 100oz silver ($3700 today). To me that seems very light on the silver even when considering it speculative (for me, in terms of how many ounces of gold I *may* get for a little stash of silver held onto e.g. if this runup somehow went to $50 or $75 silver without a huge movement in gold) or TEOTWAWKI insurance. Do others here have thoughts about what they (very hypothetically, of course!) would do in this regard e.g. 100oz Au / 1000oz Ag, or 100:500 ounces? Perhaps part of this is an index of the degree of certainty about the Freegold hypothesis.
Um, Enough - how does a monster box filled with gold weigh less than a monster box filled with silver?! ;)
Hey John...
you can be skeptical about Panda's but fact is 1 oz. Panda mkt is +25 bid to +65 offered and maples are spot bid to +45 offered....
the mkt bid is better for pandas then maples...not suggesting you should prefer them just that the mkt does not share your skeptisism.....
lastly sold my monsters at +2.50 p./oz which is 7.3% premium and thats the best bid around here...cheers
john....
monster box of silver = 500 oz. x $40 = 20k.........350 oz gold x $1450= over 500k weighs less...cheers my friend :-)
I was thinking of the *same* monster box, gold being a lot more dense than silver - guess I am showing myself to be a truly shrimpy shrimp, never having clapped eyes on a monster box of gold! Perhaps before I die I will see one... But wait, maybe Freegold will make that a lot less likely :(
I assume a monter a monster box of gold would also have 500 oz's. Like you John I will never have a offical sealed monster box of gold maples or eagles...but I'going to get as close as I am able...still quite a ways to go :-)
My point was that so much more wealth can be stored in the same space....Do you think Mubarak, Quaddafi etc are going to grab the silver or gold?
I fully agree with this blogs thesis that gold will be the store of wealth par excellence. I'm sure silver will do ok....I personally want my store of wealth to be portable.
Not in a hummer but on my person !!
radix46 asks:
Why is this blog increasingly being hijacked by silverites?
The reason why so much time is invested in the silver vs gold topic is simply because there are so many similarities in the forces driving the two metals. You see silver isn't merely a trade, a "call option" on gold as Stewart Thomson maintains.
Consider these ten (10) striking similarities:
1. Silver is rising in price because it is scarce. Gold is rising in price because it isn't scarce.
2. Silver is rising in price because there is a shortage. Gold is rising in price because there is no shortage.
3. Silver will soar to an incredible price because it is consumed. Gold will soar to an incredible price because it isn't consumed.
4. The price and value of silver is supported by the enormous (and growing) industrial demand for silver. The price and value of gold is supported by the miniscule industrial demand for gold.
5. Silver is real money, so it will benefit from the rejection of fiat currencies by the man in the street. Gold has been de-monetized so it will benefit from the continuing acceptance of fiat currency by the man in the street.
6. Silver is a commodity metal so it has risen in price over this commodity uptrend cycle along with most commodities. Gold isn't a commodity metal so it has risen in price because it didn't want to feel left out.
7. Silver is rising in price because Central Banks and government Treasuries do not hold it as a reserve asset and therefore cannot use their reserves to manipulate the price. Gold is rising in price because Central Banks and government Treasuries do hold it as a reserve asset and therefore can use their reserves to manipulate the price.
8. Silver's rise cannot be capped because recycling will not increase at any price and billions of ounces of sterling silverware and silver jewellery will not come to market at any price. Gold's rise cannot be capped because all of it is already recycled and it has absorbed a doubling in the supply of scrap since 2006 while still managing to rise in both price and tonnage demand.
9. The fortunes of gold and silver are bound together by the gold silver ratio (GSR). A bond so strong, like those of Uranium-235, the GSR, unlike the gold-banana ratio, can never be broken.
10. Gold will soar to an incredible price because currency issuers will use it to recapitalise the IMFS. Silver will soar to an incredible price because the "people" will force it to despite the opposition of all industrial silver users and without the assistance of currency issuers who, like the honey badger* couldn't give a shit about silver.
Cheers
*h/t Mencius Moldbug for the video clip
Hi Wendy-
@Jenn,
It never occured to me that you were a women, you talk like a guy
;)
Thanks for your comment Wendy -- I figured as much. FOFOA said something to me long ago that got me thinking. Jenn was simply an account I had been using to avoid spam not knowing the repercussions of posting on Blogger and it occurred to me perhaps some might thing I have some interest in hiding my gender. Not the case.
I have only one focus on this blog -- and that focus is my enrollment in the school of Freegold!
--Aaron
I once was a silverite myself, but I never found it necessary to hijack this comments section and try to turn it into an extension of zerohedge, where silver and TEOTWAWKI rule OK.
I abandonded ZH and made this my home due to the wider and more considered perspectives of the likes of Aleksander, Ender, Costata, Mortymer, Wendy et al (I don't mean to leave anyone out, but lists are dull).
I appreciate the time taken to understand an immense subject - money, throughout the ages and try to weave together a story from the nuances of a multifaceted topic. Silverites talk about COMEX manipulation, supply shortage and some apparent love of freedom by the amorphous masses (which they certainly don't seem to demonstrate in my view, they seem to prefer bondage), all without much backing from rational and factual analysis.
If they want to do that, then fine, but why does it have to be here? Many of the comments show that most of these people have either not read or not taken the time to research and understand the main topics of the blog.
If they had done, they wouldn't post as they do, or would at least understand the futility and rudeness of hijacking a conversation with irrelevancies (irrelevancies to the topic of the blog).
@radix46: We have evolved on that issue so far as to now have a post or two specifically related to that discussion. We can now link people to there when they show up (they will show up more and more, because more and more people are going to find this blog and some percentage of them will always be silverites -- it will only become a bigger issue as time passes I believe). The issue seems to be that we link them to there, then they just come back and comment in the latest post again anyway.
Do you think it would be a sensible idea for us to not only link them to a more relevant post thread, but at the same time request that they raise their further comments on that discussion over there as well, rather than returning with them?
This seems like it might enable the discussion to be continued, for those that are interested by it, without at the same time diluting the discussion of other topics in more current posts.
I'm interested to know what you think of this suggestion? Also of course our hosts opinion, which carries far more weight than mine or yours.
DP,
I certainly think that it is a good idea to have an area for the discussion of silver. If this were a forum on precious metals, with Freegold and the Thoughts of Another and FOA as a sub-topic, then silver discussions would no doubt be moved to a relevant area by a moderator.
Well, this blog could be seen as a specific discussion area within the forum of economic, social, historical and political matters with other blogs covering more or less specific areas. Interestingly, as an aside, I would say it would be difficult to put it into a subtopic within that forum. It would probably shoved under a "precious metals" umbrella, but this wouldn't be accurate (which is a big reason why I don't think that silver discussion fits here). Under what heading would you put it in a forum?
It disrupts the flow of conversation and draws discussion away from the core topics when silver is discussed. Regular posters spend their time rebutting silverite arguments or explanations, rather than engaging in their usual, more enlightening, more searching and analytical debate.
I am sure that this above mentioned style of debate is also stymied as posters wishing to engage in this way are put off by less interesting topics.
I have noticed that other such quality niche discussion areas suffer from this effect as the discussion matures and necessarily becomes more popular and visible.
Introductory statement to the press conference (with Q& A)
http://www.ecb.int/press/pressconf/2011/html/is110303.en.html
"QUESTION: I have a question on AUTOMATICITY. You are stressing the importance of automaticity in the realm of fiscal policy and also in the general monitoring of economic developments, and I was wondering why you seem to be more cautious in applying this principle as regards having private creditors participating in the cost of crisis resolution, where you say you are following the IMF approach, which does not call for the automatic participation of private sector bondholders in any debt restructuring. Why are you against automaticity in this domain?"
TRICHET: "...I must confess that I am amazed by the question itself. What we are saying when we speak of “automaticity” is, in particular, that the excessive deficit procedure should start as automatically as possible in order to avoid interference, with all the considerations involved, which has proved in the past to be extremely counterproductive. And again, I don’t want to tell you how disappointed we were by the attitude of governments in 2004 and 2005 and the extent to which we expressed our grave concern at the time and the extent to which we have been vindicated in our judgement at the time by what has happened since then. We are in exactly the same position; we fear that with the reasoning being too short-term, we will miss out on what is necessary in the longer term. It is a work in progress. It is being examined at the level of the European Parliament. As I have said, we are also counting on the Parliament to send this message to national governments. Automaticity as regards private sector involvement is absolutely counterproductive..."
[Mrt: this part I find interesting]
"...We have a global doctrine in this regard. If the Europeans were inventing a doctrine for Europe which put Europe in a vulnerable position by comparison with the rest of the world, this would be a very bad move. By the way, this has been avoided, because the doctrine adopted by European governments – which has been made public – sticks to the global doctrine, the IMF doctrine..."
[So Blondie, the answer is "Yes, no, in some issues, depends" they cooperate, in some areas, in some other areas they do not :o)]
@Costata, good article, thanks, been sick so not reading much, back soon.
@Gabriel: Your example is unfortunately not appropriate to the situation or available possibilities.
@Radix46: You overestimate me, just trying to improve knowledge and share interesting findings.
@Q: Silver is rarely discussed in relation to Platinum, Palladium, Copper, etc :o)
Radix46: It disrupts the flow of conversation and draws discussion away from the core topics when silver is discussed. Regular posters spend their time rebutting silverite arguments or explanations, rather than engaging in their usual, more enlightening, more searching and analytical debate.
Completely agree.
But in the case of the current post, however, silver was touched on by FOFOA, which does unfortunately invite further discussion of silver/gold relationship right here in this list of comments. Hmmm...
I also note that the first commenter to mention silver in this post was costata - hardly a silverite troll accidentally driving in on his lawnmower from the trailer park for the first time.
DP,
That is true, FOFOA did mention it in passing and that reknowned silverite costata is always going on about it! ;)
I suppose the lines are blurred here, but the general thrust of my point still stands. There are ever more frequent hijackings....
I will concede that in this case, some mention may be warranted, but it then quickly becomes an extension of the other silver discussions. I'm starting to sound like broken record here, so I'll leave it. My point is aired.
Forget silver. The real money is to be made in US Nickels!
Joking aside, I've been reading that the melt value of nickels is now above their face value. People of 'TEOTWAWKI' bent are looking to stock up on these coins to fight inflation.
Looking at the logistics of investing in nickels is eye-opening. I imagine that a similar thought process occurs to the giants when they are thinking of saving in silver vs. gold.
One tonne of nickels has a face value of $10,000, and a melt value of $13,500.
Suppose the Hunts had loaded up their three 707s with 1245 tonnes of nickels instead of silver. They would have carried a melt value of 16.8 MILLION DOLLARS! (Insert Dr. Evil pinky gesture here).
Seems to me we are near the point where only freegold can salvage what's left of the world's fiat systems.
Bond market is going south (PIMCO just sold all the USGs out of its total return fund), so interest rates are going up. The derivatives monster (including the paper shackles on gold (and silver . . .) will get really ugly as rates rise, destroying the zombie banks entirely, as home values plummet to new depths due to rising rates.
2008 was just the preliminary event, which was a near-disaster. Since then, the PTB have done evrything monetarily possible to hold things together so as to gain time . . . if freegold is going to happen, it will be soon. The ystem could unravel VERY quickly form here.
Michael,
1981 and earlier Canadian nickels are worth almost triple face value today. When nickel hit $25/pound a few years ago, these nickels were worth five times face value.
Flatliner: "Having seen that central banks all around the world are treating gold as the reserve currency of choice, if the investment overhang were to flow into commodities in any way to trigger a situation in which the commodities would be hoarded, gold will be used to counter that other commodity. It only makes sense. The central banks would strengthen their positions and work to keep the other commodity flowing."
Gee, I wonder if there are any commodities at the moment that are being hoarded, that the CBs might at some point take action to free up, using their golden hammer.
DP, are you saying you are front-running the central banks by buying gold first?
Wendy,
Thank you for the info on Canadian coins. Are they still bulky to save? Is it legal to sell them for melt value?
pipe,
In my earlier comment I was incorrect to say that one would have to look up the spot price of metals if trade was conducted at melt-value of coinage. In that case, of course, the coinage itself would be the numeraire and one would not look up the melt value. It would be like looking up the price of a dollar today.
However, if two or more metals were used in the coinage, would their relative worth shift over time?
One more thought regarding my 18th century farmhouse tour: I also did not gather if their system was sophisticated enough to clear multi-party imbalances. In other words, if A owed B $10, and B owed C $10, and C owed A $10, would they have been able to figure out that they were all net even?
@MH: I might be...
I might also be saying I am in the process since last night of swapping my final remaining 220oz of silver bullion coins for gold ones via my usually very obliging coin dealer friend, again front-running them. (Fauvi, I think I recall you wanted to know when any of us were making such a transaction, so there you have it buddy. ;) )
I'll still have those cupboards full of silverware of course. Maybe I can't eat that either, but at least I can eat with it... :->
Michael, yes they are bulky at todays value, but the more they are worth, the less bulky they become.
Yes we can sell them for melt value, or whatever someone is willing to pay, but, it is not legal to melt canadian legal tender.
I know it wasn't in response to my question, DP, but thanks for mentioning silver to gold conversion :)
Anybody else feel like making purely hypothetical statements about what they WOULD do if they had gold and silver to 'rebalance'? As I mentioned above, it sounds like a lot of us are keeping back some silver, and I'm very curious to know what others think about the number of silver ounces to hold onto...
John, a newish silverbug in the process of gilding himself
DP,
>Gee, I wonder if there are any commodities at the moment that are being hoarded,
>that the CBs might at some point take action to free up, using their golden hammer.
Take a look at the CCI (Continuous Commodities Index) and its components. This chart tells it all.
For example, between Nov 2010 and today, a number of countries have purchased way more wheat and rice than they normally would, basically as much as they can store. In China, individuals and small companies hoard copper. They even use it as collateral for loans.
The hoarding of commodities started around 2005/6. The crash of 2008 caused some temporary distortions, but the story is basically intact. Just take a look at the CCI.
To me it looks as if the CBs are in the process of losing this 'battle' although I am not sure they are even committed to fight.
John,
> Anybody else feel like making purely hypothetical statements about
> what they WOULD do if they had gold and silver to 'rebalance'?
I have silver because I do not trust the CBs. I agree with you that gold is the true long-term asset to hold, but the period in which the CBs are on the wrong side may last longer than you wish and longer than you are able to tolerate, say if it is more than 5-10 years. I think it is definitely worth considering that silver makes you independent of the CBs.
Victor
There are 2 kind of people of one sort on this blog:
-> All of them search for information.
1/ Those who still try to position themselves the best and just search reasons from others or try to reason out why their choice is the best.
2/ Then observers and commentators who are fine with their done preparations, live their life in peace and just follow up on events as they happen. Could be tomorrow, could take some time... If there will be some game-changer then they will know and change direction.
- Both groups believe in Freegold and a trigger event or slow switch from 0-100% probability. Nobody is trying to convince here anybody. If you are polite you can get help, info and you study and YOU decide. Hopefully for others you bring new point of view, experiences, information, etc.
Sometimes people fool themselves into believing things that are not true. They see the world distorted and won´t let themselves to see what they believe is wrong.
I learned 2 important things
- To reconsider. As this area opened new dimensions to me and allowed me to connect many dots they way I have not thought before could be possible. So I learn.
- No question is silly, it is important to answer why is that.
Does this site have any primers that would be good to spread. As a bullion dealer, I talk to many people about this site and usually after I am done explaining (which more understand) they want more information and I can't seem to find some primers of the good articles to send as links. Am I missing them? I remember reading them, but am having trouble finding them again to send to people.
Victor,
Let me paraphrase: "I have gold because I do not trust the CBs."
You seem to look at it still with the eyes of a "Western mind": More than 5-10 years means too long for you but you know that the long term wealth travels trough generations...
You want to be independent from CBs but is Silver that or Gold I ask you what is standing outside the box? Isn´t it that denominator is what one needs to focus on? Does silver really have the power to turn tables meaningfully? |open questions|
Yes, silver looks like a good investment but will present fundamentals keep it that way?
Your view of events resembles the Wiemar rep. but keep in mind that silver there was also devalued in gold terms. Last, as you may know often after the wave in commodities it is gold what catches up. I think I Krasimir Petrov has one nice series of lecture about it: http://www.petrovfinancial.com/?page_id=46 (Investment Analysis + IA on gold)
Stratfor RedAlert just out
Red Alert: Saudi Police Fire On Protesters In Oil Hub
Saudi police have reportedly opened gunfire on and launched stun grenades at several hundred protesters March 10 rallying in the heavily Shiite-populated city of Qatif in Saudi Arabia’s oil-rich Eastern Province.
The decision to employ violence in this latest crackdown comes a day before Friday prayers, after which various Saudi opposition groups were planning to rally in the streets. Unrest has been simmering in the Saudi kingdom over the past couple weeks, with mostly Sunni youth, human rights activists and intellectuals in Riyadh and Jeddah campaigning for greater political freedoms, including the call for a constitutional monarchy. A so-called “Day of Rage” of protests across the country has been called for March 11 by Facebook groups Hanyn (Nostalgia) Revolution and the Free Youth Coalition following Friday prayers.
What is most critical to Saudi Arabia, however, is Shiite-driven unrest in the country’s Eastern Province. Shiite activists and clerics have become more vocal in recent weeks in expressing their dissent and have been attempting to dodge Saudi security forces. The Saudi regime has been cautious thus far, not wanting to inflame the protests with a violent crackdown but at the same time facing a growing need to demonstrate firm control.
Yet in watching Shiite unrest continue to simmer in the nearby island of Bahrain, the Saudi royals are growing increasingly concerned about the prospect of Shiite uprisings cascading throughout the Persian Gulf region, playing directly into the Iranian strategic interest of destabilizing its U.S.-allied Arab neighbors. By showing a willingness to use force early, the Saudi authorities are likely hoping they will be able to deter people from joining the protests, but such actions could just as easily embolden the protesters.
There is a strong potential for clashes to break out March 11 between Saudi security forces and protesters, particularly in the vital Eastern Province. Saudi authorities have taken tough security measures in the Shiite areas of the country by deploying about 15,000 national guardsmen to thwart the planned demonstrations by attempting to impose a curfew in critical areas. Energy speculators are already reacting to the heightened tensions in the Persian Gulf region, but unrest in cities like Qatif cuts directly to the source of the threat that is fueling market speculation: The major oil transit pipelines that supply the major oil port of Ras Tanura — the world’s largest, with a capacity of 5 million barrels per day — go directly through Qatif.
Visit STRATFOR to learn more »
Latest from: http://www.group30.org/workprogram.shtml
"Macroprudential Policy
In February of 2010 the Group of Thirty established its Working Group on Macroprudential Policy, led by Roger W. Ferguson Jr., to address the role that macroprudential policy may play in enhancing future financial stability and the resilience of markets and financial institutions to global financial crises. The result is a new special report entitled, Enhancing Financial Stability and Resilience: Macroprudential Policy, Tools and Systems for the Future.
The report and its recommendations address four key areas. First, it seeks to define what is meant by macroprudential policy. Second, it underlines why macroprudential policy must be made available to central banks and supervisors worldwide. Third, the report lays out a series of tools that can be used to achieve agreed macroprudential policy goals. Forth, it highlights a number of important challenges facing policymakers with respect to the implementation of these recommendations.
The final report by the working group offers an in-depth analsysis of macroprudential policy and its importance in today's uncertain times.2"
-> Was found here:
http://www.scribd.com/doc/39141433/Group-of-Thirty-Macroprudential-Policy-Tools-and-Systems-for-the-Future-October-2010
Do you think Rossi and Focardi's 'cold fusion' system is real? They claim they will have a 1 megawatt plant operational by October.
I think ALL coinage is good to hoard. Here is my reasoning. First, I think a hyperinflation is baked into the cake, as does FOFOA. During the hyperinflation, of course, coinage will be worse than useless. When it takes $100 to buy a loaf of bread, your quarter will of course be useless.
However, it is After the hyperinflation has run its course, and new money is issued, with perhaps 3 or more zeros loped off , that coinage will come into its own.
Paper money can and will be reprinted, with people exchanging many hundreds of old, inflated dollars for 1 new, hopefully stabilized dollar.
But coinage is different. It takes decades worth of minting of coinage to supply enough to run an economy. So, what will probably happen is, that the old coinage, which we can get now for even par to the old currency before hyperinflation, will probably still be used and at par with the new currency, which will be worth may times what we originally got it for.
So 4 quarters, purchased now for one old dollar, will still probably be worth one new dollar, which will be worth untold numbers of old dollars after the hyperinflation has run its course.
John:
you said, "Anybody else feel like making purely hypothetical statements about what they WOULD do if they had gold and silver to 'rebalance'? As I mentioned above, it sounds like a lot of us are keeping back some silver, and I'm very curious to know what others think about the number of silver ounces to hold..."
I have said before, and I will reiterate, that to me, it makes good sense to have a silver coin "buffer" to protect your gold holdings through what could be a rough entry to freegold. There is no guarantee that things will be smooth--my feeling is bloodshed is not only possible, worldwide, but likely. Unlike some posters here, who see things unfolding in a gentleman-like manner, I do not hold such views. Some fiat cash, in smaller denoms, will probably be useful as well, early-on. MHO.
mortymer,
thanks for your remark. Yes, I agree that the best information we have is a solid history lesson.
In 1922/23 Germany, the dominant hard currency in Europe was the British pound, on a gold standard at that time. So gold was official currency. All the Germans had to do is trust the Bank of England, and they had their reference point and medium of exchange at the same time.
The question is whom to trust today.
Victor
PS: Did I say pounds or pounds sterling?
oldinvestor,
Interesting angle on coins vs notes. You could also argue that in a garden-variety inflation an increase in the melt value would help to underwrite the coins as well.
This is a great site for determining melt value of US coinage. I believe he has a Canada page as well listed under the countries drop down.
http://www.coinflation.com/
PS - I believe there are 2 of us posting as John on this blog. I will be signing with JohnW at the end of my posts to differentiate.
- JohnW
Yes Costata, I agree.
Old investor, very interesting, I would have never have thought of that.
Interestingly, in Canada, we do not have one and two dollar notes, they are coins now.
I'll keep squirelling away my nickels and maybe a few loonies ($1) and twoonies ($2) as well.
Thank you for that.
John W, yes that is a very helpful site, and they do have a page for Canadian coins as well.
Date: Fri Jan 23 1998 19:46
ANOTHER (THOUGHTS!) ID#60253:
Mr. Aurator,
Silver will always be part of "gold money". But, is far too small a market for large, modern economies. Silver will do far better than any paper asset, only it will serve better as a "personal holding" than as a major money. If it is of your way to balance wealth, then silver will show value.
[...]
Wendy,
Oldinvestor's coin strategy is predicated on hyper-inflation and issuing a new US currency series unless I have misread his comment. It might work for US coins but not for other countries/currencies.
So if you are not expecting hyper-inflation in Canada then collecting US coins would be the play with a view to converting them to a new US$ at parity.
If you expect the Canuck buck to rise against the US$ prior to, and during, hyper-inflation in the US then that would probably be the time to buy US coins.
Date: Wed Feb 04 1998 19:37
ANOTHER (THOUGHTS!) ID#60253:
[...]
Silver is good, but always to small. Perhaps at $150us it would work?
[...]
Coins and hyperinflation
I think it's far more likely that after the introduction of a new currency all payments in "old" coins is going to be forbidden. You'll most probalby be able to exchange them for new notes, but my guess is few would want to separate from them since they just experienced a hyperinflationary event that anihilated their savings. The only thing of value in their posession would be market value of the metal in the coin.
Casper
hi victor,
I think you are shooting yourself in the foot with these extracts. For example:
Feb 04 1998
$150us (perhaps it would work?)
In 1998 silver was around what? 3 or 4 dollars. Consider how much more currency has been issued and debt piled up since 1998.
If the silverbugs are right then silver is even more "scarce" now and there are "shortages" at US$35.
Extrapolate:
March 2011
US$ silver?????
According to this analyst:
http://www.financialsense.com/contributors/julian-phillips/what-is-driving-the-silver-price
Still, it continues to be mined as a by-product of base metal mining with little need for solely silver mining alone, until now. Today, we find that the number of silver miners is growing fast as the metal costs only around $4 per ounce to produce. At a current price of $36 this makes it a dream metal to mine. But it will take some time for silver mining to catch up to growing demand, a few years at least. While there are huge supplies of silver still untouched [whereas replacing the gold mined is getting an increasingly more difficult task] we do see the flow of silver supplies growing fast in the future. (My emphasis)
The stock and flow issue is a doozy. And it is merely one issue that knocks silver out of contention (if it was ever a contender) for the role designated for gold by the Euro sponsors.
Then you need to overcome this little hurdle:
This is fine and is bringing gold into focus as the one and only metal asset the official sector is trying to work with.
FOA (10/10/01; 07:07:06MT - usagold.com msg#119)
At the Trail Head parking lot
Casper,
I think it's far more likely that after the introduction of a new currency all payments in "old" coins is going to be forbidden.
I wouldn't be so quick to make this assumption.
Any lift in value of the circulating coinage would be chickenfeed to the PTB. Think about the logistics of recalling the coins and minting a brand new series. Why would they bother? To prevent a few shrimps picking up a small profit?
At some point I'm guessing that a new issue of coins might be on the agenda as a result of shortages due to hoarding because of the big increase in melt value of the existing coinage and the debasement of the face value purchasing power of the coins.
I imagine a new issue would take time to arrange and allow a window for the exchange that oldinvestor is suggesting. If someone hoarding old coins left their run too late they could run into a choice between selling on the blackmarket for melt value or exchanging at the official rate for the new coinage.
Costata,
I suspect you are right, there will be a window of opportunity to make the exchange I am suggesting before new coinage is developed.
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