Monday, July 18, 2011

Forum 1600











Date: Tue Mar 31 1998 08:32
ANOTHER (THOUGHTS!) ID#60253:


Now, with the world awash in "US dollars" and "gold paper", a new asset is being formed to "draw" the oil producers closer to Europe! The offer is the "exact opposite" of the "US dollar agreement", this new offer will drive gold to a value that will allow it to become "the world oil asset and currency".

Date: Sat Apr 25 1998 23:35
ANOTHER (THOUGHTS!) ID#60253:


There will come a time when gold and Euro are as "the same". Not in price or value, but as used for "real money".

Money is not what you afford, you earn it! In the near future, gold money will buy more than dollar money, much more! It is as to compare a one dollar bill to a hundred dollar bill, both money, just one buys more!

Many think the only way gold can rise in dollar terms is if USA prints too many! Truly, they have printed too many already. Gold will rise in dollar terms, many thousands even if treasury inflates currency no more.

6/14/98 ANOTHER (THOUGHTS!)

From Sam: For whatever percent backing by gold, will the Euro be convertible to physical gold, and by whom (i.e. all or limited)?

ANOTHER: Your question of Euro gold backing? The Euro will not be backed or fixed in gold. It will be the first "modern currency" to hold true "exchange reserves" in gold. It is important to understand that "exchange reserves" of gold are much more powerful a tool for currency defense than gold backing!

8/10/98 Friend of ANOTHER

The Euro will not replace gold, it will evolve into a gold transactional currency. It will also price Euro gold very high, perhaps $6,000 in current dollar terms buying power. However, in actual dollar terms of the future, $30,000 US will reflect the American debt as the negative reserve asset it truly is.

Monday, August 6, 2001 - GOLD @ $267.20 - FOA: "The result will be a massive dollar price rise in gold that performs over several years."

Michael H: "Who says that events since 2001 haven't played out as A/FOA expected?"

Tuesday, January 1, 2002 - Launch of euro notes and coins
Friday, February 8, 2002 - GOLD ABOVE $300
Monday, December 1, 2003 - GOLD ABOVE $400
Thursday December 1, 2005 - GOLD ABOVE $500
Monday, April 17, 2006 - GOLD ABOVE $600
Tuesday, May 9, 2006 - GOLD ABOVE $700
Friday, November 2, 2007 - GOLD ABOVE $800
Monday, January 14, 2008 - GOLD ABOVE $900
Monday, March 17, 2008 - GOLD ABOVE $1000
Monday, November 9, 2009 - GOLD ABOVE $1100
Tuesday, December 1, 2009 - GOLD ABOVE $1200
Tuesday, September 28, 2010 - GOLD ABOVE $1300
Wednesday, November 9, 2010 - GOLD ABOVE $1400
Wednesday, April 20, 2011 - GOLD ABOVE $1500
Monday, July 18, 2011 - GOLD ABOVE $1600

284 comments:

1 – 200 of 284   Newer›   Newest»
Oz said...

FIRST!

Boricuadigm-Shift said...

FOFOA, I'm not sure how could the EURO survive after the PIIGS.

If it does, it will be without these countries.

M said...

Quote from the latest FOFOA post

-"Many think the only way gold can rise in dollar terms is if USA prints too many! Truly, they have printed too many already. Gold will rise in dollar terms, many thousands even if treasury inflates currency no more."

Not to honk my own horn, but thanks to my FOFOA education, I was saying the same thing before I knew Another said it. Here is a part of an email I sent FOFOA last week.

My Email to FOFOA- "These deflationists are going to jump on this because basically you are saying that without the printing, the deflationists are 100% right.

But they are not right. Look at the Thai Baht in 1997. Did the Bank of Thailand print a ton of Baht that caused the 50% fall in the value ? No, the Thai baht fell because people where fleeing it, not because it was being printed.

I don't see it any different for the US dollar. They can stop printing tomorrow and it will still hyperinflate. As the economy that services the debt that backs the dollar implodes, the tax revenue stream implodes leaving the dollar worthless even if Bernanke could somehow take half of the base money out of circulation."

Tyrone said...

FreeGold, cometh quickly.

Tyrone may be out of a job.

Cheers!

M said...

This sucks. My plan was to go all in this summer, preferably on July 27(COMEX options expiry)I was all in but I got a hold of allot more cash.

Im sticking to that. I have substantial physical holding but I plan on doubling it. No matter what the price,I am going to wait till the 27th, even if I have to paint the tape.

Edwardo said...

General Jim S says:

http://www.jsmineset.com/2011/07/18/1764-is-the-magnet-to-watch/

I can only imagine what sort of esoteric TA is responsible for ascribing such importance to what otherwise seems a perfectly innocuous number.

julian said...

FOFOA,

thanks for the clips

evolution in front of our very eyes!

what do you observe?

I see "talking heads" changing tunes

I see them following the people, the action, shilling

fofoablogspot is THE place for higher learning

the future shines brightly on the entire freegold goldtrail community of thoughts

these are thoughts of purest gold

i see more in those videos

the way cramer talked about portfolio value increasing through gold value increase

made me think of euro, the architecture, moeso

it's true, isn't it: people confound the politics (nationstates interactions) and the currency (supranational medium of exchange)

it's all about the gold, increasing in value, absorbing weight, density of wealth

Another said:

It is important to understand that "exchange reserves" of gold are much more powerful a tool for currency defense than gold backing!

Beautiful! Artisans of currency.

I ought to learn more about the fundamentals of this currency, the Euro, and how it will absorb/survive the blow of the sovereign debt risk contagion super world currency crisis bank failure debt structure implosion to continue as medium of exchange of repute in the hostile world of human economy

the repute will come from its short-lived "tradition" of being referenced (MTM) to gold through its physical gold exchange reserves, which provides foundation for a new tradition of using it (euro) as gold fiat carry trade currency of preference globally, with widely acknoledged strength and repute analogous to its predecessor, mr. FRN

this is euro's survival and prosperity path?


there is strong doubt in the euro, from many naysayers

its only hope for salvation is that other guy, gold


cheers!



- julian

Wendy said...

Hang in there Julian, we are so close I can smell it.

Edwardo, it is a mistake to underestimate jim's experience (or any one else for that matter). He's explained his technique over the years, and although I don't get it, perhaps because I lack experience in that arena I most certainly listen and pay attention.

Wendy said...

I meant Tyrone,

I apoligize Julian

Tyrone said...

A little more Cramer...
Go Buy Gold!

Cheers!

Boricuadigm-Shift said...

Anyone can point me to a post by FOFOA on Bill Still - The Secret of OZ and No More debt?

It seems a pretty simple and straightforward idea that the government issues a currency not based in debt vs backing a debt based currency with Gold.

Thanks,

FOFOA said...

Hello Boricuadigm-Shift,

"FOFOA, I'm not sure how could the EURO survive after the PIIGS. If it does, it will be without these countries."

Don't believe all the noise, and there's a tonne of it right now. They don't know what they are talking about. The euro survives and thrives regardless of how the European debt crisis is ultimately resolved, and no countries will leave the euro. In fact, there are countries trying to get in, and none that will leave short of a coup, revolution or state failure, which isn't even a consideration right now. And even if that happens, the euro will still survive and thrive while the country that leaves will suffer greatly, the local hyperinflation that will ensue being the least of their problems.

Spend some quality time with the Eurosystem's balance of payments and marvel at how remarkably balanced Europe is with the rest of the world. Then compare that with the US balance of payments. As just a quick example, in April (one month) the Eurozone imported only €4.1 billion more goods than it exported. The US, on the other hand, imported $58 billion more goods than it exported, and April was the lowest month yet this year for the US. Of course that's just goods. For services, the US exported $14.5 billion more services than it imported. How much of that do you think was "Wall Street financial services"? Europe also exported more services than it imported, but only €2.8 billion.

So for goods and services combined, the Eurosystem ran a trade deficit of €1.3 billion in April, while the US ran only a $43.5 billion deficit (down from its previous normal $50 billion, but back up in May). Looking back at 2010 (just to get a full year's picture) the US ran a $500 billion goods and services deficit for the year. The Eurosystem (even with those lazy PIIGS) actually ran a trade surplus for the year, exporting more goods and services than it took in! So how can that be? As a currency representing a community of more than 300 million people, the euro is quite healthy compared to the dollar!

Of course there is a huge imbalance inside Europe between the states running a large surplus and those running a large deficit. But with a shared currency the adjustment pressure for such an imbalance is foisted elsewhere, not on the currency. It lands squarely on the politicians, who, like Costata said, couldn't be a more deserving bunch of Aholes. For the dollar, the structural deficit and debt of the US places a massive devaluation pressure directly on the dollar. But for Europe the currency is balanced with no (or very little) adjustment pressure.

The economic flow of goods and services within Europe will of course have to contract as the imbalance retreats. If the euro weakens on the global currency stage Europe will start running an overall trade surplus again, like China, which will soften the blow of a contracting internal economy. If the euro strengthens, things like cheaper oil will help soften the contraction. Internally the politicians have their hands full. No doubt! Externally, the euro is just fine. To the euro, just like FOA said, the politics of the PIIGS and Germany are little more than a sideshow.

And notice I didn't even mention gold yet. Anything that would appear to seriously threatens the euro, like an outright sov. debt default, would explode the price of gold which would simultaneously rescue the euro balance sheet and kill the dollar.

Sincerely,
FOFOA

PS. Here's my review of The Secret of Oz

Robert Mix said...

I read this last weekend that, many Euro banks have NON-sovereign (sp?) debt issues... Like non-performing, mortgage loans... Business loans...

Physical gold in your own possession is the key to survival in these days to come.

Prepare! Maybe the time is shorter than before!

Diamond Jack said...

The poets down here don't write nothing at all, they just stand back and let it all be.

Bruce Springsteen, Jungleland

(to be continued)

Hawks5999 said...

Good time to be a holder.

BTW, FOFOA, if you can't come up with anything to do with your BitCoins, I'll take them before they become a liability. Heck, anybody who wants to dump their BitCoins so they have more room for gold, feel free to donate them to:

18xMdmVrLi9yYy8W8SjmnpaDzK323Bskah

Wejn said...

Comments...

Re Hawks5999: nice try. ;)

DP said...

GELOC

JR said...

"Not to honk my own horn, but thanks to my FOFOA education, I was saying the same thing before I knew Another said it. "

No you weren't. But its good to know that you won't let a minor issue, like the inability to try to understand someone else's point, get in the way of telling everyone how right you are.

Edwardo said...

Hi Wendy,

I have never once seen evidence of Jim Sinclair explaining his technique. He plunks a number in front of his readers and that is all. However, if you can find something that shows otherwise, please, by all means,
share it with me.

Kicker said...

So if Freegold/RPG is going to work we need to start seeing a lot more smaller amounts of gold on the market.

Smaller than the 1 gram bars and the 1/20th ounce coins. How will a janitor or store clerk trade part of their surplus Euros once a month for a 1/20th oz or 1 gram piece of gold, when the revaluation happens?

There will be billions of people around the world like this. The smallest they will be able to buy is 1/20th oz coins?

They would be forced to hold their fiat for over a year to buy a 1 gram bar? So much for fiat always being convertible to gold. If you earn lots of fiat sure you will be able to trade it in when ever you want but if you are lower on the ladder, good luck.

Either we have quite a few more years to wait, while physical gold is sold in smaller and smaller fractional amounts, as the price rises in fiat, or the banks and physical gold distributors already have stock piles of very small fractional amounts of gold waiting.

...or a lot of people are going to die during the transition process and gold wont have to be fractionalized down much further than 1 gram and 1/20th oz.

mortymer said...

Interesting option of music Fofoa :o)
-
Interview with Postimees, Hospodárske noviny and Delo

http://www.ecb.int/press/key/date/2011/html/sp110719.en.html

[Mrt: The same story - so no news - so good news?]

Robert said...

Kicker:

The second hardest part for me was coming to the realization that an ounce of gold is a lot of gold. There is only about an ounce of above ground gold for every man, woman and child on the planet. In a freegold system many will have to work a lifetime to save up a single ounce.

The hardest part was coming to the realization that the amount doesn't matter. Whether it's a ton or a kilogram or an ounce or a microgram, the key is that a microgram saved is a microgram saved, with nearly the same purchasing power when freegold starts or 100 years later. That will change everything. Yet it is still hard to imagine that what seems almost as free as air at $1600 per ounce will one day cost a lifetime of effort.

The Dork of Cork said...

One word of warning - CNBC was pushing Silver big time just before the crash.
They have form in this horse race.

However if you have minimal or no holdings I believe you are slightly crazy in this market.
Although the ECB can only buy sov debt on the secondary market they can produce non goverment Euro cash at will.

Nick said...

Hello Kicker,

I saw this story on a comment forum earlier this year but couldn't find the original story. I believe this is the same information however:

http://www.marketwatch.com/story/swiss-parliament-to-discuss-gold-franc-2011-07-07

You'll notice they are discussing 0.1g coins (about 5 francs at the time of the articles writing)

:)

Kicker said...

Robert,

Totally, agree.

But there are no miligrams of gold being sold now, that Im aware of.

For the system to work after the waterfall event, the little people have to see that their fiat is able to buy gold.

Will the billions of people world wide have enough faith in the system right away to believe that if they work for fiat all their lives that one day they will be able to trade it in for a gram of gold?

It seems like very small amounts of gold need to be readily available at the time of transition.

So are we no where near the time of transition?

Or are these small amounts of gold already secretly prepared, and waiting.

Or is there going to be a large part of the world population that will die off, making it less necessary for very, very small pieces of gold?

Or...?

Michael H said...

comments ...

Kicker said...

Thanks Nick,

I stand corrected. Looks like from that article they are in the process of getting smaller amounts made available. I guess if gold made a quick jump to $2000 or $3000 it would also motivate them to produce smaller fractions more quickly as well. So maybe the waterfall is only 12 to 24 months ahead;-)

IMO once there is sufficient small denominations of gold available to the masses, they can stop playing the games and totally revalue.

But until those 0.01 grams are widely available, get used to extend pretend.

I wonder what would happen if HI happened before gold was available in super small denominations?

d2thdr said...
This comment has been removed by the author.
d2thdr said...

Kicker,
Thats the thing about freegold, not everyone can afford it, unless they are really productive. And productivity will be rewarded by their ability to store it for a long time in gold. You can be productive for a short period of life and choose to not be in the future, the stored gold will allow you to use it when the time come.

JR said...

Hi Kicker,

You say

"So if Freegold/RPG is going to work we need to start seeing a lot more smaller amounts of gold on the market....

For the system to work after the waterfall event, the little people have to see that their fiat is able to buy gold.
"

We walk in the footsteps of Giants. Freegold will happen because those with lots to save (super-producers) want gold and have it cornered, and thus the paper gold price discovery market will fail.

Shrimps can follow the trail, but the masses come after the price jump. Its this transition that reveals gold in a new light, this new light leads to widespread demand for gold as a secondary medium of exchange/store wealth.

The demand for the small coins comes largely from freegold's emergence, not the other way around.

Freegold happens because of the giants, and when it happens then the masses go "oh!"

*******************

That the Euro was built for Freegold, and further that understanding the Euro can help us understand Freegold, does not mean the Euro is necessary for Freegold.

But, if you were part of a system that had designed a currency to thrive in anticipation of freegold, to help your currency thrive you might want to encourage gold ownership, including ownership in weights designed with the coming transition in mind.

**************************

You say:

I wonder what would happen if HI happened before gold was available in super small denominations? (note - although related and likely to occur simultaneously, HI and Freegold revaluation are distinct ideas)

We'd see smaller weight gold become more common, no?

Cheers, J.R.

Kicker said...

JR,

For a smooth transition into freegold, I would think that there needs to be very small denominations of gold available and understood by a large amount of the population, so panicing people with their fiat will flow into all those small pieces of gold.

Otherwise the fiat will flow into apples, bread, meat, cheese, and other things that help keep me alive.

Although, now that I think about it. It does make sense that the banks/govs of the world are slowly bleeding average people dry of fiat through no employment, higher taxes and cost of living.

That way when the transition comes only the giants will have large amounts of fiat, and hopefully they will choose to deploy it into gold rather than the things that keep me alive.

Maybe HI wont feel so bad if J6P doesnt have fiat during the transition.

JR said...

Hi Kicker,

Well put!

"For a smooth transition into freegold, I would think that there needs to be very small denominations of gold available and understood by a large amount of the population, so panicing people with their fiat will flow into all those small pieces of gold."

We agree!

"But, if you were part of a system that had designed a currency to thrive in anticipation of freegold, to help your currency thrive you might want to encourage gold ownership, including ownership in weights designed with the coming transition in mind."

**********************

You also say:

"Otherwise the fiat will flow into apples, bread, meat, cheese, and other things that help keep me alive."

well put again, FOFOA has discussed this idea as well, such as in The Value of Gold

Gold's utility is that for thousands of years it has held its value relatively well. And because it is not used for many things other than mere hoarding, the act of hoarding gold is not an infringement on the natural rights of others to enjoy the utility value of "real world" things like BMW's and oil and wheat and pork bellies. If one were to corner, say, the copper market or the chocolate market, there would likely be repercussions as those industries fought back through the power of the collective that likes to consume chocolate and copper. But with gold there is no such worry.

Cheers, J.R.

The Dork of Cork said...

@FOFOA
Looking back at the figures Ireland has run a large trade surplus since 1990 and most of historical time for that matter.

We are now running a much larger trade surplus per capita then Germany ! and the highest by far in the EU.
However our current acccount was in very large defecit during the Euro boom years and only reached a small surplus in the final quarter of last year after a 26% drop in GNP from 2007Q1 to 2011Q1 !
The UK has been in trade defecit for most of its existence and has had Sterling as a currency during all of those years.
In a nation state world having a large trade surplus is the sign of a colony - maybe it will be different in a free Gold envoirment but the US & UK will not go down quietly.

Edwardo said...

They are doing their best to dampen the action of rocket propelled gold today. They are, I imagine, quite concerned about the broad effects on the populace of gold's strength.

M said...

@ JR

You are the one that thinks the dollar will act differently then any other failed currency because it is "the reserve currency blah blah blah"

You soak up the BS quant theory almost as bad as a deflationist.

I would even go so far as to say that I disagree with FOFOA himself on this issue simply because he puts too much emphasis on the printing of new dollars as the reason for incipient hyperinflation.

Look at the Euro in the summer of 2010. It went from 1.45 to 1.19(confidence loss induced selloff) BEFORE the EU bailout fund was even announced.

Prove to me that the fall in the Euro in 2010 was not a confidence induced event.

DP said...

Fall in value of euros/pounds/yen/etc?
Or rise in demand for dollars?

Lots of dollar-promises out there waiting for the phones to ring.

The price of consumer goods and services fell in dollars (kryptonite), but less so in euros (goldilocks). So which is the volatile item of the two? Volatility cuts both ways.

Indenture said...

M: "I would even go so far as to say that I disagree with FOFOA himself on this issue simply because he puts too much emphasis on the printing of new dollars as the reason for incipient hyperinflation."

I think you might have FOFOA confused with another writer. FOFOA has made it clear that hyperinflation is not caused by printing currency (the printing is the reaction to the hyperinflation). Hyperinflation is caused by a lack of confidence in the currency which causes an increase in the currencies 'velocity' or a decrease in the amount of time any individual wants to hold the currency.

:) back of the class student shouldn't be relied on for correct answers so I'm usually wrong

Indenture said...

To ALL: Slightly off topic but I was wondering if anyone has any ideas for a design for a FOFOA Tee-Shirt? Someone mentioned to me that it would be cool to have a tee-shirt so other like minded people could spot you (it's not like you'd be wearing a shirt that says "I Have Gold, Rob Me" because (no offense FOFOA) so few people have any idea who FOFOA is. But maybe, just maybe a conversation can be sparked with another follower.

Like I said, just a thought, but I have a feeling I will whip one up in the future because I can silk screen but, unfortunately, I am not an artist (my design would be nondescript block letters across the chest). Almost college looking.

Yea... University of FOFOA
or not
It is just something fun a friend suggested. Any thoughts?

Edwardo said...

FWIW, here's someone (Bob Hoye) with price projections who consistently provides
some inkling of the TA behind said projections. About ten days ago, just as the latest rally took off, I was made privy to a neural net projection for gold that had it running up to around 1600, down to 1550, or thereabouts, and then up to 1700. So far so good.

http://www.321gold.com/editorials/hoye/hoye072011.html

JR said...

M,

You initially posited that the $ was like the Thai baht. Yes, they are similar in that they were overvalued, but this so for different reasons. And while overvalued currencies will ultimately find their "true value," the manner in which this occurs will be different. They are perhaps *unlike* in that the respective monetary authorities have different options available as confidence wanes in a currency (see Indenture above on HI = confidence lost), like can they all engage in the pallative printing of the world's reserve currency?

That you can't even conceive of that huge point above speaks volumes. There's a big beautiful world out there, but it takes courage to open up to new ideas. Be brave M!

Cheers, J.R.

Robert Mix said...

I am now interested in the idea of gold scarcity. Some two weeks ago I showed up (without calling) at my local coin shop to buy AGEs. They were OUT OF STOCK! That has happened only one other time since I moved here 10 years ago. Of course, I am sure that he had other gold (Maples, etc.), but I have decided to settle on the US Eagles.

eBay and 24hgold.com offer an imperfect P.O.G. vs. eBay prices (typically a 6% - 9% premium for AGEs over spot) while my nearest coin shop prices about 5.5% over spot.

I would, for one, appreciate ANY AND ALL reports of shortages of gold if/when they happen! Right here in FOFOA's comments.

JR said...

Indenture,

I agree, not too garish or excited about even-oblique gold references.

But to get a little more obscure, you could, ala JT at the Oscars and the I'm Banksy, you could do a play on that theme like "I'm a friend of Another" or "FOFOA's friend" or even risque like "I'm FOFOA." Or something like "FOFOA Lives!", "Do you know FOFOA?" , "Do you FOFOA" etc. or even "FOFOA" in the right lettering.

The "All Inn" related lines also seem like fertile territory for the creative mind.

"Everyone knows where we have been. Let's see where we are going!" -Another

Nick said...

or how about FOFOFOA

costata said...

I'd go with a blow up of that Big Foot pic he uses and:

Have You seen him?

Boricuadigm-Shift said...

Again. Another person with plenty of experience (good & bad) that states the same as Secret of Oz. The problem is the debt, not the gold standard or even Freegold or RPG.

RPG could help with the check & balances, but we can't have a sovereign country when we are borrowing our money into existence.

Fofoa - Consider a combination of RPG/Freegold and a change in our debt system where the government creates its own currency and doesn't loans it from a bank.

Martin Armstrong:
Give it a read. It is short:

http://www.martinarmstrong.org/files/Gold%20v%20Money%2007-19-2011.pdf

Boricuadigm-Shift said...

Fofoa,

I still got to read your PS. response on the Secret of Oz. Thank you for responding.

I own 50% gold & 50% silver. I'm aware of all the valid cons that Costata gracefully posted a couple of months ago.

Boricuadigm-Shift said...

For some reason my post on Martin Armstrong was not posted:

Here is the link:

http://www.martinarmstrong.org/files/Gold%20v%20Money%2007-19-2011.pdf

I asked Fofoa to consider that not only RPG/Freegold will solve government currency problems. The real problem is in the issuing of currency being control by private organizations. Currency must be issue without debt by the government.

JR said...

I believe! ;)

Aaron said...

"Everyone knows where we have been. Let's see where we are going!" -Another

That get's my vote. I'll buy two!

The curve would be cool less the title and X axis.

Aaron said...

Scratch that. Leave the X axis. ;-)

Nick said...

I like it Aaron!

how about on the back:

Au > oil > € > T.P. > $

M said...

@ DP

You said "Fall in value of euros/pounds/yen/etc?
Or rise in demand for dollars?"

No, when the Euro fell that fast in the summer of 2010, it fell relative to everything. Whether it be gold priced in Yen or oil priced in Rubles or just plain Pesos.

M said...

@ JR

So the Thai baht was overvalued for entirely different reasons then the dollar ?

Thats news to me....lets look at that.

"The crisis started in Thailand with the financial collapse of the Thai baht caused by the decision of the Thai government to float the baht, cutting its peg to the USD,"

So I wonder what will happen to the US dollar when China floats the RMB ????? 40% fall ? at least ?
Check

"financial overextension in Thailand was in part real estate driven. "

^Just like the USA
Check

"Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency."

^Forign debt eh. The US is the biggest debtor nation in the world.
Check

enough said...

Mr Mix

from where I'm sitting gold bullion targeted to the retail customer is plentiful and cheap. I am actually shocked by the low premiums. Today I purchased 2007Martha Washington first spouce 1/2 oz. USA legal tender $10 face for spot +$15 and these were slabbed PF-70 !! incredible

BTW first spouce series is the only fraction four nines coin the USA mints...worth a look as full oz coins are getting out of many buyers range

Robert said...

Robert Mix,

I do not understand the preference for US Eagles. Why not buy something with a much lower premium (sovereigns, 20 francs, coronas, pesos)? You can find these coins in the U.S. for 1-2% over spot because Americans don't like them. Wouldn't you rather take the 3.5% difference in the form of more gold? If and when freegold happens, that 3.5% difference is going to be much more important than the image stamped on the coin!

Casper said...

Hey Boricuadigm-Shift,

any currency issued by the government or any other entity (private/public) is debt (on the system). It represents a promise to deliver real goods in the future. Interest rates are there so the receiver of the currency is stimulated to hold the currency for extended period of time as a store of value and thereby give the issuer a free lunch.

Gold on the other hand represents "payment in full".

Casper

JR said...

Hi M,

So the Thai baht was overvalued for entirely different reasons then the dollar ?

Yup. Ever hear of Bretton Woods? How about the "network effect"?

Cheers, J.R.

JR said...

Hi Boricuadigm-Shift,

You say:

"The problem is the debt, not the gold standard or even Freegold or RPG."

Did you know FOFOA wrote a post called "It's the Debt, Stupid" ?

"Now you know, and knowing is half the battle."

Cheers, J.R.

JR said...

Edwardo,

Gold is elevated by Angels with magnets according to JS :)

Jim Sinclair posted a little of his silly maths here.

Cheers, J.R.

M said...

@ JR

Little smart ass jibes are not boding well for your argument. Did I say the Thai baht was a carbon copy of the USD...no.

Network effect notwithstanding, what happens to the US dollar when/if China/Mr market free floats the RMB ?

" It has been claimed by the World bank and the IMF that the current official exchange rate is lower than the value of the renminbi by purchasing power parity, undervalued by as much as 37.5%"

The Baht fell by about 50% and by the time Bernanke does his magic, that 37.5% will turn into 50% soon enough.


Capital flight is a fairly simple concept.

Ramon said...

@ Edwardo:

href=http://www.jsmineset.com/2010/12/09/in-the-news-7/

I couldn't find the in-depth explanation with a cursory search, as it may well be archived by now. Take note of the use of french curves. From what I've gathered over the years, Mr. Sinclair uses a French curve tool and Martin Armstrong's technical analysis. Other factors do matter, but those are the major points.

A French curve can be used to project frequently-occurring price movement patterns, in particular - parabolic rises. Related: Corun spirals.


@ JR:

I'd rather have angels with magnets than Bernankes with beards. At least you can reason with the former.

The calculations you linked to are an approximation of gold's valuation in order to back outstanding US liabilities (predominantly foreign-held debt; screw Americans, says the US gov't) based on the amount of gold officially held by the US. With a broader global economic collapse, the price in USD could certainly vary from his estimation.


@ Boricuadigm-Shift:

I have to say, I haven't been impressed by the semantic arguments being bandied about in economic circles, Armstrong's included. Does it what the Bernank says about gold that matters, or is it what he/the Fed does?

Decentralization of control is important. Keep an eye on Bitcoin. The previous FOFOA posts regarding the phenomenon enumerate the potentials and pitfalls. My own perspective is that it will become a primary tool for moving capital through increasingly prohibitive financial barriers.

It hasn't gone to zero yet...

Robert Mix said...

enough and Robert said why would I choose American Gold Eagles, at their high premium. It is not THAT HIGH to bother me.

My response is that they are FAMILIAR in the USA. Plus it is easy to stack them them in Mint Tubes (20 oz each).

To each his own. AGEs command a premium for a reason (there is a little bit of silver in each one), and that is the form of gold that I choose.

Peace, Love, Woodstock, bitchez! LOL... The important thing is to have what FOFOA says:

"It's all about the ounces!"

I am essentially there friends, as income arrives, some of it goes to physical gold. Yes, my circumstances are different than many others here, but I accumulate GOLD the way I want. And I have ounces!

victorthecleaner said...

FOFOA,

It took quite long to catch up reading after returning form my troll holidays. First, I am pleased to see that the ECB is finally receiving some deserved criticism in the discussions. Second, here are some comments on the previous blog article "Euro Gold":

The caption of the first picture (the photo of the gold bar with the Euro sign) says 'photo: REUTERS'. Are you sure? Looking at the 'D' of 'FINE GOLD', my first thought was 'source: Photoshop'.

further, you write

The euro is behaving perfectly predictably in maintaining the nominal performance of its system through expansion, but it cannot be forced to fund the future government profligacy of the PIIGS through volume-only expansion. That link is severed.

I am pretty sure this will turn out to be wishful thinking. The reason is that the ECB will always protect the commercial banking system from a chain reaction of bank failures in order to avoid a deflationary shock as in the US of the 1930s.

But the commercial banks are allowed to purchase government debt and to use it as the collateral in repurchase agreements in order to obtain ECB funding. In fact, the commercial banks in aggregate are holding a lot of government debt. Therefore, any government default would result in widespread bank failures. This will always force the ECB to take the bad government debt onto their own balance sheet, bailing out the commercial banks with 'freshly printed' base money.

Theoretically, the way out would be a change in the commercial banking regulations that would prevent all commercial banks from holding government debt. Then a government could default without threatening the commercial banking system. I wrote 'theoretically' because this change will not happen, simply because basically all governments have reached a point in which they need a good part of their debt monetized. Otherwise interest rates would rise too high and threaten the servicing of the existing debt.

So the ECB is on the hook not only for the existing government debt of the euro zone, but for all the future debt as well. Same as in the US. Sorry.

Therefore, Texan

So we are talking several trillion that the ECB will have to print to support their banking systems, roll their debt, etc

is right. Costata

The young Euro currency has a much smaller “hill” to discount in a gold revaluation.

is wrong. The Italian debt is as old and heavy as the US debt. Iceland might in fact be a good example of what expects the euro.

Victor

victorthecleaner said...

radix46,

The problems that I see with the ECB model is that they are not widely telling people to save in gold. Most people have no idea about gold. It’s mostly demonised in fact.

If people would actually save in gold rather than euros, say, if they would just reallocate 10% of their currency denominated savings from euros to gold, the euro zone would easily have 30%+ consumer price inflation that year. Plus the possibility of going hyper because that would crash the London bullion market, and when you cannot buy gold, but want to dump your euros, you would presumably buy something else tangible.

I assume it would be the ECB itself accepting all the offers and providing the physical?

They cannot, simply because most of their gold is in New York and on London, and the small part that is in Paris and in Frankfurt is still in 100oz and 400oz bars. How long will it take to produce a substantial amount of tiny (less than 1g) bars to sell to the people? Not under six months. Think about it. What will the little people buy for their euros in the meantime? Supplies of food and fuel?

Victor

victorthecleaner said...

FOFOA,

@ Texan,

"The ECB has no gold. And the euro CBs who have it will not sell. They have not been selling for years now. The euro, like the dollar, will buy less and less stuff, and less and less gold."

LOL!! You should really pull out your dictionary and study the word "system". The ECB is a construct of Europe. Get a grip on reality, and I mean that with the utmost OWO respect.

I am not sure it is the Texan who needs to adjust to reality. What if the ECB decide they want to sell some of the gold beyond the small amount allocated to the ECB directly? Each of the member CBs would be part of the sale with their share of ECB capital, e.g. about 25% of the gold to sell would come from Germany. They would need a vote in the German parliament before they can sell that gold.

You can be quite sure they won't get this one passed.

Victor

victorthecleaner said...

costata,

Incidentally, to all of those folks talking about Germany abandoning the Euro and reissuing the Mark. Take a look at the Swiss Franc. Up from a low a few years ago around 0.86 to the US$ to arund 1.22 today.

Does anyone seriously think the Germans want that to happen to them? They are the second largest exporter on the planet.

It is always good to consider history. The Germans had the Mark from 1949 to 1998. During that time, the Mark became more and more overvalued (with respect to consumer price based purchasing power parity) and, at the same time, the German trade surplus increased and increased. Think about it. Going back to the Mark would be a problem only because of the short term shock in the exchange rate (because it comes suddenly), but not because the Mark would be overvalued while the new Greek drachma would be undervalued.

Just because China keeps their currency low compared to the dollar, does not mean every exporter need to do that. In particular, Germany never did. And they were still able to export like crazy.

Victor

Robert LeRoy Parker said...

Victor, where do you find your statistics for the german balance of trade?

Here I found data going back to 1971 that does not exactly reflect your sentiments. I would like to see inflation adjusted data going back further though.

victorthecleaner said...

Robert,

if you display the chart from 1971 to 1998 and imagine it were logarithmic, why would that contradict what I wrote?

If you can find the same charts for Japan and China, you should see that their exports also jumped after 2001. I would guess that this is because of anglo-saxonian debt expansion rather than the start of the euro.

Victor

Robert LeRoy Parker said...

China and Japan's data are available on that site. Japan is pretty flat, and china jumps in 2004.

I think a log scale would be helpful if the data points were annual rather than monthly. Seeing as nothing goes above 20, my imagination isn't helping.

The balance is always positive to your point, but it appears range bound from 1980 til the euro on the linear scale.

Blondie said...

Photoshop too?

Wejn said...

Re t-shirt:

being a bit of a geek I'd go for "986890" (which is 0xf0f0a).

;)

costata said...

Hi Victor,

Welcome back from your “troll holidays” as you describe them. At first glance I thought there was some substance in your comment but there isn’t. It’s simply more VTC attempting to reshape reality to fit an ideological stance. Let’s walk through your comment point by point.

The Germans had the Mark from 1949 to 1998. During that time, the Mark became more and more overvalued (with respect to consumer price based purchasing power parity) and, at the same time, the German trade surplus increased and increased.

Absolutely agree but in 1949 Europe was a “levelled” playing field (if our European readers will forgive my pun). So was Japan. Korea too. China was dirt poor and undeveloped - likewise India. Brazil was growing sugar not building trucks and buses. So repeating that 49-98 performance would have to be accomplished amidst ferocious competition.

Michael Pettis has done some good work explaining the trade offs that China had to make between their consumers and export sector in order to cross-subsidize the development of their export sector. He posts on this topic among others here. You can do your own research on that. A sudden exchange rate adjustment of a similar magnitude to the Swiss rise (around 50%) would be massively disruptive to Germany’s economy.

Going back to the Mark would be a problem only because of the short term shock in the exchange rate (because it comes suddenly), but not because the Mark would be overvalued while the new Greek drachma would be undervalued.

Now this is a really silly thing to say. The German Mark is the bedrock of the Euro currency. If the Drachma and the new Mark were correctly valued based on the economic performance of the two countries the exchange rate would be huge.

You call this a “short term shock”. Wow. Effectively you are talking about a forced restructuring of the whole German export sector and you think this would be “short term”. If the Euro still existed and/or the other countries in Europe re-issued national currencies the effect on the mark would be hyper-deflationary.

That did not play out too well in the first stage of the Great Depression. A 42 per cent deflation over a couple of years was enough to send unemployment sky high. And you think having this occur over the “short term” would not be catastrophic. As you said: ”It is always good to consider history.” Perhaps you should take your own advice and also ”Think about it.”

Just because China keeps their currency low compared to the dollar, does not mean every exporter need to do that. In particular, Germany never did. And they were still able to export like crazy.

Absolutely agree that a low currency is not a prerequisite for export success. I have read several papers that make this point quite authoritatively. This line “does not mean every exporter need to do that” should read “no exporter needs to do that”. But a sudden transition from a low exchange rate to a high exchange rate is deadly for exporters. The volatility of the Australian dollar since it was floated is one of the reasons that the manufacturing sector here has been hollowed out. Exchange rate shocks matter.

Also you don’t bother to explain why any country whose economy is based on exports would voluntarily create a disadvantage for their exporters though a massive upward increase in the exchange rate for their currency.

Good night.

ad said...

You must realize that the Angels (gold prices) are not simple talk but rather a method used by the great market maven, Jesse Livermore.

Jim Sinclair on why gold is going to $5,000 to $12,500 an ounce

ad said...

http://www.arabianmoney.net/gold-silver/2011/03/29/jim-sinclair-on-why-gold-is-going-to-5000-to-12500-an-ounce/

mortymer said...

@VTC: what we experience is the *demonetization* of gold.

http://anotherfreegoldblog.blogspot.com/2011/07/system-of-national-accounts-2008.html

JR said...

Hi M,

I'm making fun of you because you have not bothered to try to understand my point, instead trolled it up with inane nonsense.

Aim you misdirected vitrol elsewhere.

enough said...

hello again Mr. Mix

I was responding to your inquiry regarding "scarcity" (or lack thereof) of gold product at the retail level, not questioning your choice of gold product. Changing premiums are an important reflection of scarcity, not just "in or out of stock". cheers

JR said...

Hi Ramon,

The calculations you linked to are an approximation of gold's valuation in order to back outstanding US liabilities (predominantly foreign-held debt; screw Americans, says the US gov't) based on the amount of gold officially held by the US.

NO sh!t sherlock, which is why they are so silly and I mocked them.

We are not moving to a system where current dollar debt is backed by gold, so JS's calculation (which he presents in the common metaphorical image of an angel with magnets pulling gold up) are based on that faulty premise.

Cheers, J.R.

JR said...

In the context of appreciating Jim Sinclair's back of the envelope calculations as to a future gold price based on the link I posted above - The Mathematics Of Gold:

...In crisis times, the US dollar price of gold ALWAYS seeks to balance the International Balance Sheet of the USA.

Therefore:

Take 90% of international US dollar debt less China and then add 50% of the US debt owned by China. Then divide that number by the ounces supposed to be owned by the US Treasury. The result is where gold wants to go.

In 1974 this gave me $900 gold. Now you do your homework, and submit your analysis to me. Do this, and I will give you Angels going to that price by a little known technique of Jesse Livermore that only works on gold after it has broken to a new high above all resistance....


*********************************

FOFOA from "How Can We Possibly Calculate the Future Value of Gold?," in which FOFOA addressed a similar mathy analysis by Stefan Pernar:

Stefan Pernar said...

Have been doing a bit of math:

Total world wealth in 2007 in 2000 US$ = 125.25 Trillion [1]
Equivalent 2010 dollars = 125.25 TUS$ * 1.25 [2] = 156.56 TUS$
Total above ground gold = 158'000 metric tons [3]

Theoretical maximum gold value assuming ALL wealth flows into gold = 156.56 TUS$ / 158'000 tons = 30'816.55 USD / oz...


FOFOA writes:

Stefan brings up a recurring topic of discussion here at FOFOA. He asks, "How could gold ever be worth more than $10,000 in today's dollars?" And I reply, "How could it not?"...

I don't think it is as simple as pouring a hundred cups of water into one large beaker and noting the total volume....

Instead of looking at wealth, or even debt, let's look at "purchasing power". Better yet, let's look at the concept of "Stored Purchasing Power"... But for the sake of understanding the theoretical concept, imagine that I have immense stored purchasing power. Imagine that I am a "super-producer" giant. Imagine that I make something that everyone in the world wants and needs...

You see, time is the factor most ignored in the concept of "stored purchasing power". It is ignored because it is relatively irrelevant to most people...

The future amount of time is infinite, therefore "stored purchasing power" is theoretically limitless. The only thing that limits its potential is a faulty storage medium, which limits the collective confidence in its ability to preserve wealth over time....

So, quickly cutting to the chase, the logical conclusions we can deduce from this conceptual line of Thought are that:

1. the storage of purchasing power is size-unlimited in a solid medium with potentially infinite confidence and one that does not infringe upon anything else, and

2. the storage of purchasing power in a flawed medium with a mathematical limit (like debt) is constrained roughly to the aggregate purchase price of everything in the world at any point in time, with a decent margin of error.

I say this is the rough limit because it represents the emergency exit from said flawed medium.

So the next step is to ask ourselves the obvious question. How much "stored purchasing power" exists in the world today? This is a good question, yes? But how could we possibly know? Today it is all denominated in worthless paper!...


cont.

JR said...

cont.

...This transfer of wealth that is coming is not a direct and equal transfer. It is not like pouring one pitcher into another. It is more like flipping a switch on the virtual matrix. Turning off the monetary plane that hovers over the physical plane and claims to tell you how much "stored purchasing power" everyone has. When you turn it off, all that purchasing power disappears in a flash. And then what lies beneath is exposed in daylight, the real physical world. No real capital is destroyed, only the myth is destroyed. But true capital is exposed and revalued...

Gold holds its unique position because it is pretty much used for nothing else. It has an extremely high stock to flow ratio. "Stock" means those who are sitting tight on their physical gold, letting it lie still for the future, and "flow" means those who are presently trading their gold.

One of the false assumptions of your linear model is that real physical gold must hold the same time-value-durability confidence level throughout 100% of the world that paper wealth holds in 25% of the world. So as people sell their paper wealth and buy physical gold, the price rise will bring down the stock to flow ratio to a much lower equilibrium point somewhere around $10,000 per ounce.

Gold is not like other commodities where supply is economically driven to ramp up and meet demand as prices rise. Nor is it like paper investments that have objective metrics like price-to-earnings ratios and interest rates. With gold, a rising price sends the exact opposite signal to the place where supply comes from. It confirms the belief in those that already hold the "stock" that it is a good investment and it is best to sit tight and not re designate it to "flow".

Commodities and paper investments are limited to the upside by economic forces and future earnings metrics respectively. Yet they are unlimited to the downside for the same reasons. Gold, on the other hand, has none of the upside limitations that everything else has. It will only find its point of equilibrium when enough "stock" is reassigned to "flow" to meet demand. And this dynamic obviously has nothing to do with today's paper gold market where physical stock lies very still and paper stock meets most of the demand.

Lastly, understand that currency flows through assets, not into them. In fact, a limited amount of dollars can flow through the same gold many times, over and over, driving it higher and higher with each pass, as long as new gold stock is not coaxed out of hiding. And the interesting thing in this process is that, as I said above, it actually causes the opposite of the expected supply/demand reaction. With each pass-through of the dollar more "flow gold" is moved into "stock gold", not the other way around like commodities and paper.

This is the feedback loop...


Cheers, J.R.

d2thdr said...

JR you are a FO FOFOA. Your ability to weave fofoas posts into one continuous post for benefit of all, is truly remarkable.

victorthecleaner said...

costata,

It’s simply more VTC attempting to reshape reality to fit an ideological stance.

Now this is a really silly thing to say.

I can understand that the recent events around the euro zone debt are quite nerve-wrecking, but how about maintaining at least a little bit of a professional standard in the discussion?

As a reality check, I suggest the following exercise:

Get some data about the debt levels of the main currency areas: US, Japan, Brtitain, Euro zone. Put together a table with government debt, outstanding mortgages and consumer debt (ignore corporate debt for simplicity). Note down how much is held domestically and how much outside the currency area.

Take a look at sources such as Reinhart-Rogoff for an estimate of how much is sustainable in the long run. The difference is what needs to be either paid back, written off, or put on the CBs balance sheet.

Try a guess such as: pay back 20%, write off 30%, put on CB balance sheet 50%.

Compute how the balance sheets of the Fed, BoJ, BoE, ECB look afterwards (including the gold if you wish).

You can get estimates for
a) how much the monetary base will increase
b) how much gold would need to be revalued to absorb losses on the monetized debt

Victor

Edwardo said...

Thanks to all those who responded to my JS query. It's interesting, if true, as at least as one poster asserted, that Martin Armstrong's cycle work informs Mr. Sinclair's own price projections -$5,000 to $12,000 is just a tad wide as a band wouldn't you say?- since I distinctly recall reading JS dismiss the longstanding panic cycle turn from Martin Armstrong (that came in mid-June) as having nothing to say about gold's prospects.

ad said...

“Gold at $1,764 is as important as gold at $524.90, and above $524.90 the gold market went into a runaway. It’s the exact same setup at $1,764, but having said that $1,764 should bring in some significant supply.

However, a move above $1,764 would be the equivalent of $524.90 in the sense that you would go from the runaway that was born at $524.90, into a hyperbolic market. The key to all of this is $1,764 and you will go above that level, but what that does is lock in five figures on the price of gold. A move above $1,764 brings into focus prices as high as $12,000, so we are are approaching the most critical milestone in the entire gold bull market.”

When it gets through that level gold will start jumping $100 to $200 a day. $1,764 should put up the biggest battle of the entire bull market. The number where confidence is lost is $1,764. Through that level you trigger Martin Armstrong and Alf Fields maximum numbers which will be $10,000 to $12,500, therefore expect that price level ($1,764) to be defended vigorously.”


King World News

The way I understand Armstrongs Economic Confidence Model is that what happens in one cycle sets the stage for the next.

Robert said...

Robert Mix,

Yes, to each his own. Live and let live. If you like the Eagles, by all means buy them. I was just thinking through the economics: If you take what you paid for one of your neatly stacked tubes of 20 ounce Eagles and instead buy two tubes of neatly stacked 20 francs, you would have almost an an extra ounce of gold, which in a freegold world might buy an extra Ferrari.^^

And regarding your comment that Eagles are more recognizable in the U.S. -- I think this is an exaggeration. Most people in the U.S. have never seen a gold Eagle. The dealers recognize them, and the 2% of the population that has some gold bullion recognize them, but the other 98% of the population probably would not.

And another factor to think about is that smaller coins will attract a lot less attention in a freegold world. FOFOA has suggested that governments will minimize regulations and taxation to encourage gold ownership. I am not so sure, and I fear that a large coin makes for an easier target than a small coin. But maybe I am just paranoid.

In any event, I agree with your conclusion that in the end it's all about the ounces.

Dr. Octagon said...

I like eagles myself, for a few different reasons. First, because they have "dollars" stamped on them, the penalties for counterfeiting them is much higher. Counterfeit a Krugerrand, and you'll have some unhappy person coming after you. Counterfeit an Eagle (or buffalo) and you'll have the US government after you. Second, every once in a while, I hear possible rumblings of the US government possibly giving preferable tax status to US coins. Finally, while there is a small premium to buy them, there is also a premium when selling as well. I don't consider a 1.5% higher premium on them to be an issue, especially when I see larger fluctuations than that both in the daily price movement and across different dealers.

costata said...

When A Default Isn't A Default

http://macrobusiness.com.au/2011/07/european-risk-rally/

From an article in the FT:
The breakthrough came after Nicolas Sarkozy, French president, rushed to Berlin to hammer out a Greek rescue plan that could include €71bn (£63bn) in bail-out funds from global lenders and a €50bn tax on eurozone banks, proceeds from which would be used to buy back 20 per cent of Greece’s €350bn in outstanding debt.

The proposals, included in a plan circulated by the European Commission ahead of an emergency summit on Thursday, also include a bond exchange programme under which private owners of Greek debt would be encouraged to swap their holdings for new 30-year bonds. The swap plan could reduce Greek debt by an estimated €90bn. It would be offered, with credit sweeteners, to owners of bonds due in the next eight years.

Senior bank executives involved in talks with European negotiators said a final plan was likely to include either the bank tax or the bond exchange programme – but not both.


From the analyst who posted the link to the FT article:
This is a wacky way of allowing Greece to lower its debts via a fiscal transfer in part paid by a tax that is taken from the banks that loaned Greece money (as well those that didn’t). It’s kind of disguised default. Quite ingenious, actually.

FWIW I don't agree with most of the analysis and/or the comments but it makes for an interesting read.

costata said...

India

Absolutely brilliant piece of institutional analysis IMHO.

http://www.scribd.com/fullscreen/60493525

A few snippets (my emphasis):

Upwards revisions for Indian GDP and the tsunami/earthquake/nuclear disasters in Japan imply that India is now clearly the third largest economy in the world in PPP terms.

...... Europe’s banks are fighting major fires at home- and they lend almost as much to India as the US, UK and Japan combined.

Regarding the introduction of a Goods and Services tax:

There is more than efficiency at stake. India is a young economy with a major demographic dividend on the way. Therefore the urgency to shift towards indirect taxation is considerably less than in a mature ageing economy.

However, the motivation to tax consumption orvalue added, as opposed to reliance on direct taxes on income,is heightened by the inordinate size of India’s informal economy. The informal economy is estimated to be around 50% of GDP. Furthermore, almost three quarters of the ‘underground’ economy is estimated to be composed of “black money” residing outside the country.


I will try to find a graph I picked up some months ago showing the USA's declining share of world GDP. From memory it peaked around 32 per cent in the late 1990s (around the time that Another was posting).

Depending on how you calculate GDP the USA is in the high double digits now and trending to a single digit share. There's a "hard floor" there somewhere in American economic output (eg. from agriculture, resource extraction and so on) regardless of any decline in other parts of the US economy. Cold comfort for those affected I know but it does suggest that there is light at the end of this tunnel from a global perspective.

Personally, I never bought the "de-coupling" theory but .... maybe, just maybe if the PTB can kick the can down the road a bit longer!

Robert Mix said...

enough and Robert, thanks for your replies!

enough, I am still hoping that if physical gold shortages appear, that we could report that here at FOFOA. My guess is that AGEs would be the first to go... FOFOA's site could become the website to check out shortages of available gold...

Robert, nice analysis. I have a very few AGE 1/10th oz coins. I intend to get more despite the extra premium. The 1/10th oz coins fill a hole between 1 oz Silver Eagles and 1 oz Gold Eagles.

FOFOA friends! Worry less about me, a lowly Bearing, and look out for your loved ones! The famous "80/20 Rule" says that we should devote 80% of our efforts to (whether personally or commercially) to the top 20% MOST IMPORTANT in our lives. I have seen this 80/20 rule work in our Peruvian bearing business. "80/20" appears almost everywhere...

Robert LeRoy Parker said...

My t-shirt proposal would simply display the following:

18°42′00″S, 174°8′15″W







The decimal conversion of those coordinates is as follows:

-18.7, -174.1375

And you can decode my secret message by entering those decimal coordinates right here.

radix46 said...

RLP,

:)

I may just have to go there one day.

costata said...

RLP,

Brilliant. Folks, I think we have a winner.

Cheers

costata said...

From the comments section of Michael Pettis latest post (my emphasis).

http://mpettis.com/2011/07/current-account-dilemma/#comment-12680

Blue

@39 Throatwarbler:

“What China has really acquired in this process is a globally competitive, globally integrated industrial base, which is a real, tangible thing unlike a paper dollar. These, the workers, the firms, the factories, the know-how, this is the true measure of the wealth of a nation. China as a country is much wealthier, and will be much wealthier than otherwise even if the US defaults tomorrow and all their paper dollar holdings go up in smoke.”

Quite right. Sorry to make this political, but the Chinese refer to this as Comprehensive National Power. The question is: what do they plan to do with it?

DP said...

@costata, maybe they plan to use it to manufacture these T shirts for us and export them to us in all corners of the earth? :)

mortymer said...

FreshOldieGoldies:

http://www.hickel.biz/?q=node/194

J said...

http://www.thesun.co.uk/sol/homepage/news/3705851/3bn-gold-yacht-is-worlds-most-expensive.html?OTC-RSS&ATTR=News

THIS gold-plated superyacht is said to be the most expensive on the planet — worth a staggering £3BILLION.

The British-designed vessel is adorned with 100 tons of gold — covering more than half its surface.



Buy it while it's cheap lol

Indenture said...

RLP: I had to whip this! FOFOA SHIRT

zenscreamer said...

Just a reminder:

Never never never
NEVER
keep your precious in a safe deposit box!

Larry said...

FOFOA, In a past blog comment you said: "Most people that come to my blog come bearing two misconceptions that are very hard to shake. The first is that I must be some sort of a gold activist. Untrue. Unlike Bill Still who is trying to start a movement, I am simply an observer reporting my observations. I am not obsessed with gold. My wedding ring is platinum because I prefer that color. And I never ask you to take outward action to coerce someone else's actions or thoughts. I only recommend the personal action that will preserve your wealth through change, should you decide to take it.

The second misconception is that I must favor a return to the gold standard like virtually everyone else in the "gold bug" community. Also untrue. I don't favor anything because I am simply an observer. But more importantly, my observations are NOT of a return to a gold standard. Fiat "easy money" will continue in the monetary role of 'medium of exchange' for the rest of our lives. The separation of monetary roles in the global financial system is my key observation."

My own feeling is that a modified version of this statement might serve well if inserted at the end of each blog post you make (maybe even a link to Debtors and Savers). This might effect a quick shift in the thinking of "newbies" that separates your Thoughts from the typical "mainstream" ground of debate.
Just a thought fwiw.

Larry

Indenture said...

Aaron: This one is for you. FOFOA GRAPH SHIRT

Aaron said...

@Indenture

HA!

You, RLP, and DP are killing me with the shirt ideas. An island called FOFOA? Who knew!

--Aaron

M said...

@ Vitor the cleaner, @ Costata

Victor is dead right.

Germany and Japan have higher wages then the United Stes, yet they have trade surpluses with China.

A country does not need slave wages and a slave currency to be competitive. They just need capital industry and capital savings.

In 2005, the US had a savings rate of 1.4%, that same year Germany had a savings rate of 10.4% !!

Germany did not over expand and over financialize their industry through vendor financing and takeovers. Just compare General Motors to BMW. See the difference ? Compare General Electric to Siemens. See the difference ?

GE's "financial services" division ended up sucking the real capital out of their real businesses(selling real things that people want)It turned into a hedge fund that went bankrupt in 2008.

Since 1992, all but 2 years, Germany never had a savings rate in the single digits. Since 1992, the US has NEVER had a savings rate in the double digits.

That is why China has sucked all the capital and industry out of the US and not Germany. That is why Germany can thrive with high wages and a high value currency and stay competitive.

This whole "weak currency for export" argument is total nonsense.

mortymer said...

Yep, and imagine what animals live there:

http://neuralnetwriter.cylo42.com/sites/default/files/userimages/picture-217.jpg

M said...

@ JR

You have no point. I made a good case that the US dollar shares some similarities with the Thai baht in the late 90's.

I am guessing you probably have never studied the Asian financial crisis or been to Asia. You probably just assumed that Thailand was a bannana republic that over printed their currency and ever since I put some facts in front of your face, you have not retorted any of them in any meaningful way.

M said...

@ Costata

What does China plan to do with their wealth ?

Revalue the RMB up so that they can consume their own production. See what computer, cell phone, cars, home appliances sales and such do when gas and food gets 40% cheaper for the average Chinese.

Jeff said...

Nice song selection, FOFOA.

I want a FOFOFOA shirt!
and on the back one of these: 'Debt=fiat=freegold'
'FOFOA; have you seen him?'
'We are all FOFOA'
€ > $

This is going to be huge!

Terry said...

I had FOFOA t-shirts printed. If I knew how to get a pic on this comment I would post it. I'm quite proud of them.

Terry said...

When somebody asks me what FOFOA means, I tell them that it is a remote getaway south pacific getaway island!

Terry said...

T-shirts for my own personal use. If FOFOA started selling t-shirts, I would be a buyer.

radix46 said...

All,

How is the notion of gold 'going into hiding', which I think is a widely accepted idea here, reconciled with the idea that the eurosystem will make a market in gold and prevent hyperinflation?

Motley Fool said...

Hey radix46

By taking time into account. The coming calamity will not be a one day affair. :)

TF

Ie. Once the eurosystem has shown it can reliably create a market for gold, it will come of hiding.

Jeff said...

Radix,

From what is gold really worth:

FOFOA: The bid/ask spread on physical coins and bars will quickly go so wide that no physical gold will change hands for a while. Meanwhile the ask on paper gold will go into freefall looking for bids, with a few "idiot" bumps on the way down. All the places you look to find the price of gold, like CNBC and Kitco, will only show the freefall. Yet Kitco will have no physical for sale at that price. They may take your money but warn of a delivery delay... that will last until you ask for your money back. Physical gold will go into hiding.

Meanwhile, the chaos in the paper gold markets will have to be resolved with cash settlements... at the only known price, the one in freefall on the CNBC crawler.

radix46 said...

MF,

You wrote:"By taking time into account. The coming calamity will not be a one day affair. Once the eurosystem has shown it can reliably create a market for gold, it will come of hiding."

How can the eurosystem prove itself in its capacity to make a market for gold if there is no gold being traded, ie it is in hiding? By taking the time that gold is in hiding into account, would you not expect to see hyperinflation during this period?

Jeff,

I understand that is what will happen to the gold price and that gold will go into hiding. What I do not see is how this gold in hiding will help the euro to avoid hyperinflation. There must be a market for gold for it to soak up all the value that would otherwise go into other stuff. If I have spare paper that I want to get rid of and gold is in hiding, then I will buy whatever stuff I can find. This will fuel hyperinflation.

So which is it? Hyperinflation or gold staying out in the open?

Is there something I'm missing? I don't think what either MF or Jeff said explains that contradiction.

victorthecleaner said...

radix46,

How is the notion of gold 'going into hiding', which I think is a widely accepted idea here, reconciled with the idea that the eurosystem will make a market in gold and prevent hyperinflation?

I am not sure physical gold will stop trading. When Another and FOA wrote, gold in US$ had been declining for more than a decade. 1999 was the peak of credibility inflation. So a run on the bullion banks would have come as a complete surprise, and almost nobody was considering gold at all and would have understand what is going on.

Today, we know that the bullion banks did not blow up. Perhaps they are safe from a bank run for good (this depends on whom they are still lending gold to and under what terms).

On the other hand, all the gold bugs are crazy about a COMEX default, even big establishment firms (Soros, Paulson, Univ of Texas) invest in physical. Gold is way more mainstream than 10 years ago. If there is a disruption in bullion banking today, people will immediately understand what is going on and react accordingly. The big coin dealers (including even Kitco) may start making a market for physical within days.

Also, why would the Fed and BoE not lend enough money to the bullion banks in order to cover by purchasing physical in the market (rather than having to default on the physical)? If gold goes up to 2000..2500 US$ within a few weeks, are you sure there would not be enough sellers for them to cover?

Finally, how is the ECB going to make a market given that they cannot sell any sizeable amount of gold without the parliaments of their member states and given that most of their gold is located in New York and London. If there is a serious disruption, the US and UK might just block any movement of physical.

Finally, if you want to prevent hyperinflation, you have to make sure that the average saver among the citizens (not just giants) can buy physical. Where do the ECB have the small (sub 1g) coins and bars that would be required for this? This takes time during which the average citizen can only buy food and fuel (and silver!).

Victor

Jeff said...

Victor said: why would the Fed and BoE not lend enough money to the bullion banks in order to cover by purchasing physical in the market...

How much physical do you think will be available if institutions/CBs are rushing out of dollars? At 2500 per oz? This is why gold goes into hiding; not enough physical at the low low price. Cash settlement, Victor!

How much credit and base money has been created since 1999? Do you think paper gold is less or more levered than then? Remember A/FOA were only talking about 30000 gold.

I don't know euro coins well, but don't they have fractions of an ounce? 1/10 at 50000 euros = 5000 euros. If someone has less savings than that, maybe they should buy food, not gold. How much can small savers move the price of eggs?

Unknown said...

@Enough
wow I'd love to know where you get 1/2 ounce gold (slabbed and 70s at that) for so little over spot. The problem with buying less than a one ounce coin is the large premiums.
I have purchased a few Mexican 2 pesos for OK prices (BTW these are less than 1/20 ounce) but in general buying smaller coins which could come in handy for early post crash purchases (you won't have to reveal to the world that you have these enormously valuable one full ounce monsters) is just too costly.
If you don't mind and these prices are still available I'd appreciate knowing your source.
thanks

Unknown said...

This is Michael. I am the 'unknown' who posted the above post for @Enough. Not sure why but it did not display my name. Could be that I originally posted from my home computer?

M said...

@ Radix

Good question.....

The only thing I have to add...Remember the Swiss idea to introduce small gold coins. 0.1 gram, thats small.

"The “affordable people’s coins” are to enter the market with a gold content of 0.1 grams – which would cost around 4.50 francs at today’s price – along with a 1 gram gold coin costing around 45 francs."

enough said...

UNKNOWN

go to apmex site click on 1st spouce icon....on 2nd page, the 2007 series...there are abigail adams, martha washington and on first page at bottom dolly madison ..either slabbed or in original mint boxes with COA (which is nice as well, maybe better than slabbed cause they are probably 69 70's anyway and you get original packaging)at betwen +15 to +25 depending...obviously ounnced up that is +$15 (half ounce) x 2 = +$30 p/oz

enough said...

and you better be quick cause now all readers here know and they dont have unlimited amts......be quick !!

Nick said...

Radix & others,

Do you think the aspect of gold going into 'hiding' may be a regional phenomenon?

I don't live in Europe so I don't know of the ease of exchanging euros for gold at banks which has been discussed on here often, nor what the ECB/banks would have up its sleeve in the event of a crisis in the confidence of the euro (i.e. hyperinflation). But perhaps we will only see it in certain parts of the world. That or maybe the 'hiding' will be more short-lived than some of us may be thinking.

Jeff said...

Nick,

If there was a 'crisis of confidence' in the euro, the price of gold in euros would soar. How much gold would they have to come up with? Notice that other posters are more worried about gold being in small enough denominations! The higher the price goes, the less you have to 'come up with'. Pretty neat eh?

costata said...

Looks like the US banks are going to get an immunity deal on foreclosure fraud together with a modest financial penalty from the State Attorney Generals.

http://www.reuters.com/article/2011/07/20/us-foreclosure-banks-immunity-idUSTRE76J7J820110720

h/t Karl Denninger

Aaron said...

This may be a bit non-sequitar, but given the comments above this is what came to mind.

What is it indeed that is going to bring gold out of hiding? I answer this from my own point of view.

If you told me that this morning European banks are buying/selling gold at market value -- and market prices have risen to 10,000 euros per ounce, and then asked me, "Would you sell?" Absolutely, I would sell some gold immediately. Why? Because I can also immediately turn the gold into cash to buy a house with some land from my wife's home country where we can reside 6 months in the year.

AT 10,000 Euros, I would help make the market!

Think of who your sellers are on all scales. For me, 10,000 Euro would do it. For the next guy in US dollars? $1,000? $100,000? 5 bucks? There are many levels to both sides of the market.

--Aaron

Edwardo said...

More crapulous nonsense from the MSM about gold. Warning: Don't read around mealtime.

http://www.marketwatch.com/story/how-to-make-sense-of-the-gold-to-silver-ratio-2011-07-19

costata said...

Edwardo,

Thanks for the link. Did you note the graph on the first page of that article? It looks like a bungee jump.

Michael said...

@Enough
Thanks for the tip. That is a great price for sub 1OZ coins and the slabbing/rating takes it over the top.

M said...

Quick question to all

From the Fair

"But your scrip money is not a receipt for your gold. It is simply the clearing system for trade at the fair, so you are issued an amount consistent with the goods and services you brought to market."

A friend asked, if script was issued on an amount consistent with the goods you brought to market, How or who puts a value on the goods that you brought to market ?
And issues the appropriate amount of script ?

Edwardo said...

Yes, costata, I did notice the bungee jump. Heigh Ho silver became how low silver.

M said...

@ Aron

Ironically I have heard Peter Schiff say the same thing on his radio show. He had somebody from GATA on that was saying gold could go to 50,000 an oz. Peter said he would sell before then.

I will give it a shot...answering your question..

When freegold sets in, when you sell your gold, you are selling out your cut of the ongoing productivity of the world.

As new innovation, technology and productivity brings down the cost of living, the price you paid (in gold) for your house will fall for the rest of your lifetime. You will never be able to get the same amount of gold back as what you gave up to pay for your house.

costata said...

M,

I don't recall Fekete explaining who did the valuations of the goods.

I imagine it would be the organiser of the fair. Perhaps public officials of the City hosting the fair and/or a committee drawn from trade guilds in the City.

The valuations of the goods would be relatively easy in an era when inflation was virtually non-existent. Prices established at the previous fair would be the starting point with adjustments to reflect the supply of each class of goods.

victorthecleaner said...

Jeff,

How much physical do you think will be available if institutions/CBs are rushing out of dollars? At 2500 per oz? This is why gold goes into hiding; not enough physical at the low low price.

I think you are mixing up two different things here.

First, the bullion banks have a physical reserve only for a fraction of their (unallocated) accounts. But, if I follow FOFOA, they are not short gold and have no price risk. So if some CB buys and the price goes up, they need not care.

Second, if there is a problem for the bullion banks, it is that holders of unallocated accounts ask for allocation. This is independent of price. In this case, the bullion bank may have to recall a gold loan or, if that is not possible immediately, but only in the future, then they may have to obtain physical gold in the market through a swap buying physical at spot and selling the forward.

So if a big player (say a CB) buys gold and the price goes up, the bullion banks need not care. In fact, gold in US$ has increased more than five-fold since 2001, and the bullion banks are still fine. What the bullion banks need to care about is a request for allocation that exceeds their physical reserve. In this case, they need to purchase more physical and drive the price up.

The question is therefore who is holding gold in unallocated accounts and how big are they. They are certainly not CBs, but a lot smaller. So, yes, why cannot the bullion banks bid up the price until they find enough sellers of physical in order to fulfil the allocation request.

In fact, this may be what has been happening again and again since 2001.

Victor

mortymer said...

http://www.bis.org/press/p110719.htm

Assessment methodology and the additional loss absorbency requirement for global systemically important banks - consultative document issued by the Basel Committee

M said...

@ Costata

I think FOFOA and Fekete see this a little bit differently because when Fekete explains it, he says that people dont bring any gold to the fair but i think what he means is people don't bring gold into the fair to use in barter.

When FOFOA explains it, he always says that people deposited their gold at the clearing house and then got the script.

The question I got was this-

"Something I can't understand is how the script was initially valued and how was it distributed. If a person arrived with 10 chickens, how was it decided how much script he would receive to purchase things? What if another also brought 10 chickens but they were skinny ones? Would someone bringing 100 chickens get 10 times as much to buy with initially? No one knows the actual price/value of anything until it is sold. Especially, in a fair with the haggleling but still much price negotiation goes on today outside the retail level. Even if 2 people sold ten identical chickens each, they would most likey have been paid a different amount of script for them. Also, if there was only a limited amount of script created, say 1000 units for any one fair, no matter how many things are for sale, how do the participants have any idea about how much to spend for any one item?

costata said...

M,

No argument from me about a strong currency not preventing export success. As I said in my reply to VTC:

Absolutely agree that a low currency is not a prerequisite for export success. I have read several papers that make this point quite authoritatively. This line “does not mean every exporter need to do that” should read “no exporter needs to do that”.

VTC was talking about Germany exiting the Euro and reissuing the Mark (presumably) and downplaying the impact on their economy. It would be highly disruptive to the German economy and export sector.

Robert LeRoy Parker said...

M,

From Return to Honest Money

"Robert P. Murphy on Mises: People value units of money because of their expected purchasing power; money will allow people to receive real goods and services in the future, and hence people are willing to give up real goods and services now in order to attain cash balances. Thus the expected future purchasing power of money explains its current purchasing power.

But haven't we just run into the same problem of an alleged circularity? Aren't we merely explaining the purchasing power of money by reference to the purchasing power of money?

No, Mises pointed out, because of the time element. People today expect money to have a certain purchasing power tomorrow, because of their memory of its purchasing power yesterday. We then push the problem back one step. People yesterday anticipated today's purchasing power, because they remembered that money could be exchanged for other goods and services two days ago. And so on.

So far, Mises's explanation still seems dubious; it appears to involve an infinite regress. But this is not the case, because of Menger's explanation of the origin of money. We can trace the purchasing power of money back through time, until we reach the point at which people first emerged from a state of barter.

Cont.

Robert LeRoy Parker said...

Pt 2.

So, basically, marginal utility explains the original emergence of money while Mises' Regression theorem explains the long-running connection of modern money to its ancient origins. Regression kinda gets a "bad" money "in the door" and then human memory and expectations provide inertia. But part of the beauty of Freegold is the embrace of marked-to-market physical gold reserves, which will, if you understand the concept, provide a well-developed and stable price discovery for currency priced in physical gold which will allow ready exchange by anyone, anywhere, any time. Two monies, floating in stasis, freely exchangeable on demand.

So in this way, Freegold does not violate Mises' Regression theorem because the regression needed to maintain the transactional currency doesn't go back far at all. In fact, it's almost instantaneous. You will always accept the primary medium of exchange for your goods and services because the market for the secondary has been stabilized and made infinitely sustainable through a floating price in conjunction with the elimination of paper IOU encumbrances.

Regression tells us that we accept a currency because we think in terms of it, we remember in terms of it. Can you see some overlap between the above: "People value units of money because of their expected purchasing power;" and this from FOA?

FOA: Naturally, for gold to advance as the leading tradable good it had to have a numerical unit for us to associate tradable value with. We needed a unit function to store our mental money value in. In much the same way we use a simple paper dollar today to represent a remembered value only. Dollars have no value at all except for our associating remembered trading value with them. A barrel of oil is worth $22.00, not because the twenty two bills have value equal to that barrel of oil: rather we remember that a barrel of oil will trade for the same amount of natural gas that also relates to those same 22 units. Money is an associated value in our heads. It's not a physical item.

The first numerical money was not paper. Nor was it gold or silver; it was a relation of tradable value to weight. A one ounce unit that we could associate the trading value to. It was in the middle ages that bankers first started thinking that gold itself was a "fixed" money unit. Just because its weight was fixed.

In reality, a one ounce weight of gold was remembered as tradable for thousands of different value items at the market place. The barter value of gold nor the gold itself was our money, it was the tradable value of a weight unit of gold that we could associate with that barter value. We do the very same thing today with our paper money; how many dollar prices can you remember when you think a minute?

It is because we think in dollars, or pesos, or rubles that we continue using those units as the primary media of exchange. It is human inertia that keeps them working. "

Robert LeRoy Parker said...

Gao Fed Audit

Ramon said...

@ RPL:

Excellent explanation.

One issue: if the secondary is gold, what will the primary be? I confess I am hesitant to assume it might be the Euro.

If/when protectionism and trade restrictions reach a level of global barriers such that the Euro or any other dominant currency isn't accepted across significant regions, would a currency that can cross all barriers without enforceable regulation supersede all others?

Not that it necessarily matters in the end which currency will take the place of primary; it's just speculation for its own sake.

DP said...

VtC: So if a big player (say a CB) buys gold and the price goes up, the bullion banks need not care. In fact, gold in US$ has increased more than five-fold since 2001, and the bullion banks are still fine. What the bullion banks need to care about is a request for allocation that exceeds their physical reserve. In this case, they need to purchase more physical and drive the price up.

The question is therefore who is holding gold in unallocated accounts and how big are they. They are certainly not CBs, but a lot smaller. So, yes, why cannot the bullion banks bid up the price until they find enough sellers of physical in order to fulfil the allocation request.

(emphasis mine)

I thought you may find this article [Lambourne: INFORMATION ON THE GOLD MARKET ACTIVITIES OF THE BANK FOR INTERNATIONAL SETTLEMENTS (“BIS”) PRESENTED AT THE GOLD SYMPOSIUM IN SYDNEY ON 9TH NOVEMBER 2010] interesting, as I did.

Particularly this:

At 31March 2010 the BIS had a total of 1,704 tonnes of gold held in sight accounts and 212 tonnes of gold in earmarked accounts.
(emphasis mine)

I, too, had previously assumed all CB "gold" was allocated/in-possession — until I came across this document.

Jeff: How much physical do you think will be available if institutions/CBs are rushing out of dollars? At 2500 per oz? This is why gold goes into hiding; not enough physical at the low low price.

What about if CBs rush out of BIS-administered sight (unallocated) accounts, to earmark (allocate) "their gold" — only to discover there is not enough physical available to the counterparty CBs that were previously being entrusted with "the gold" in the sight accounts, because they "managed their reserves" into the private market and simply hoped to be able to buy it back later if necessary? This might well be an issue of true size, and cash settlement may not in this case be an acceptable solution. So, what gives?

DP said...

The missing cherry from my previous comment, for Mrt and everyone else that happens to like them.

mortymer said...

DP, indeed, the same wandering thoughts were in my head - who has still the gold on those accounts?

The other issue was the timing, the new big doc (System of National Accounts 2008) was in 2008 the time the problems started to appear. Could it be that the demonetization->allocation was (together with other issues) converging and trigger of following happenings?

The third issue nobody yet noticed on the doc is this:

BAN Ki-moon
Secretary-General
United Nations

José Manuel Barroso
President
European Commission

Angel Gurría
Secretary-General
Organisation for Economic Co-operation and Development

Dominique Strauss-Kahn
Managing Director
International Monetary Fund

Robert B. Zoellick
President
The World Bank Group

http://anotherfreegoldblog.blogspot.com/2011/07/system-of-national-accounts-2008.html

DP said...

Mrt, I wouldn't want to be the Central Banker who "managed his reserves" out into the private market and couldn't get them back again in time when he really needed to.

[mutter] ... Brown Bottom ... [/mutter]

mortymer said...

DP, and what have you thought about this part of the Chris Powell and Robert Lambourne´s document(?):

"...Appendix

Another example of gold in earmarked accounts being accounted for as an asset of the account holder comes from the US Federal Reserve. Currently, its holdings of gold in custody on behalf of foreign and international organisations are highlighted in the report below."

http://www.federalreserve.gov/econresdata/releases/intlsumm/forassets20100731.htm

mortymer said...

yeah,...

"Why Sweden’s central banker was beheaded [1719AD]"

http://lynncoins.com/money-history-episode5.htm#Scandinavian%20copper%20money

...maybe that´s why they get so high salary, the risk premium :o)

DP said...

Mrt, http://www.youtube.com/watch?v=YkmsTKkcwjU

mortymer said...

DP, http://www.youtube.com/watch?v=Z0DUFjcHGO8

...there will be a lot of slow singing and flower bringing...

Motley Fool said...

Hey radix46

In retrospect it may not have been a good idea for me to answer, since I dont fall under your blanket generalization.

I do expect HI in Europe, just not as severe as it will be in the USA.

As an aside, international best practice accounting sees 100% cumulative inflation over 3 years as HI. I think that when the SHTF we will easily see more than enough inflation to trigger that one definition.

Peace

TF

mortymer said...

"Central banks were offered two different types of account at the BIS, earmarked and sight: earmarked accounts recorded gold held separately and specifically for a central bank, and sight accounts were non-specific. Earmarked gold is allocated, while sight gold is unallocated; earmarked is custodial and sight is co-mingled. ..."

http://anotherfreegoldblog.blogspot.com/2011/07/follow-up-on-lambournes-claim.html

mortymer said...

Date: Sun Oct 05 1997 21:29
ANOTHER ( THOUGHTS! ) ID#60253:

"...Oil is the only commodity in the world that was large enough forgold to hide in. Noone could make the South African / Asian connection when the question was asked, "how could LBMA do so many gold deals and not impact the price". That's because oil is being partially used to pay for gold! We are going to find out that the price of gold, in terms of real money ( oil ) has gone thru the roof over these last few years. People wondered how the physical gold market could be "cornered" when it's currency price wasn't rising and no shortages were showing up? The CBs were becoming the primary suppliers by replacing openly held gold with CB certificates. This action has helped keep gold flowing during a time that trading would have locked up..."

DP said...

@Mrt, nice cherry! :-)

Where da payback?!

mortymer said...

DP: "...So, yes, why cannot the bullion banks bid up the price until they find enough sellers of physical in order to fulfil the allocation request..."

-> "...If real physical gold trading dries up it's price will rise forcing down the value of oil... You see, when paper trading ( of anything ) volume dries up it's a bearish sign but when real physical gold volume drops it's bullish!..."

People will hold on gold if the price goes higher.

Jeff said...

Bingo mortymer.

(Gold has always been funny in that way. So many people worldwide think of it as money, it tends to dry up as the price rises.)

Victors view doesn't make sense to me; the BBs go into the market to buy gold to meet their paper obligations, driving price higher, creating...more demand? Less supply? A higher price? This chasing the price seems very destructive. Cash settlement seems more attractive, especially at the plunging paper price!

JR said...

Ramon,

You say:

"Excellent explanation.

One issue: if the secondary is gold, what will the primary be?
"

I'm so glad you liked RLP's excerpt from "Return to Honest Money" - its one of my favorite FOFOA posts ;)

Given the point of FOFOA's "excellent explanation," would not the answer be the currency with the regressive link to gold?

Here is FOFOA discussing this point in the context of everybody's favorite "currency that can cross all barriers without enforceable regulation":

...This gets a bit deep, but the concept of money is just that, a concept. It is almost literally just a word that we know and relate to money. Dollars. When I write a check for $28 at the grocery store and take $28 worth of food home, no actual dollars will ever change hands between me and the store. This is the way it has ALWAYS been. I didn't get that until I had read the Gold Trail at least three times.

We think in terms of dollars, therefore dollars are our money. This is the Misean Regression I discussed in The Return to Honest Money. The most likely path for Bitcoin to monetize would be for a major global meltdown to wipe out the present concept of money. In other words, to wipe out the shared knowledge of price ratios between all real things. Then a barter good like gold would begin to rebuild this knowledge base from the ground up, and if Bitcoin became the symbolic currency valued by gold holders for its qualities, it could then establish a reliable and stable Bitcoin-gold market.

But you can't just shoehorn a new symbolic currency into a failed paradigm and expect it to be adopted and fix the paradigm. It simply doesn't work that way, hope, speculation and neat ideas notwithstanding. You can't just look at Bitcoin through the dollar lens and describe how it's better than the dollar. It's not about that. It's not about Bitcoin versus the dollar. It's about Bitcoin versus the next in line after the dollar. And in this case there are two new competitors, each specializing in separated parts of the money function.

Bitcoin obviously capitalizes on the crisis that the dollar now faces. And as I just pointed out, if the collapse was bad enough that the knowledge base of price ratios was wiped out, Bitcoin could then compete with other currencies to establish a new regressive link to gold or even silver. But oh my, what if some other people already saw this coming four decades ago and sought to create a currency to prevent a major meltdown from occurring that would have set us back to having to reestablish a fresh barter link? Hmm, maybe that's why the second most widely used medium of exchange in the world today was created based on its fundamental regressive link with the barter money par excellence?...


Bitcoin Open Forum - Part 3

cont.

JR said...

cont.

You also say:

Not that it necessarily matters in the end which currency will take the place of primary; it's just speculation for its own sake.

I couldn't disagree more that its "it's just speculation for its own sake,":

If the Euro does fail, gold will become the "world oil currency". We do know this full well, "the Central Banks will horde all gold and buy any offered if this new European currency does not work" and "debt currencies fail". If this does comes, no paper asset of world economic system will survive, nothing! Not a good thought, no?Thank You

Another

FOFOA on the same from above:

if the collapse was bad enough that the knowledge base of price ratios was wiped out...
what if some other people already saw this coming four decades ago and sought to create a currency to prevent a major meltdown from occurring that would have set us back to having to reestablish a fresh barter link?


Cheers, J.R.

DP said...

So anyway, now that we've established that only 11% of CB gold is "earmarked" (allocated) after all, this leaves 89% that is in "sight accounts" (unallocated). If we assume a reserve ratio of 10%, this means that only 11% + 8.9% = 19.9% (let's say 20%) of all CB gold actually exists physically, while the other 80% is fictional promises. That's gotta make an even bigger novel than War & Peace!

If the sight-account-holding CBs decide to increasingly move from sight to earmarked — which they might if confidence should wane and this would likely create a feedback loop that feeds in on itself — the custodian CBs will have to "manage their reserves" back from the private market (where they were, presumably, "managed out to" in the past as part of management policy) ... that's a pretty nice chunk of gold they're going to have to find in the market and buy back. Looking at the graph over the last few years, at a probably significant premium to the prices they are likely to have originally sold at. Again, cash settlement feels to me like it would be an unacceptable solution to this predicament.

Taking this and reading it between the lines of Another's Thoughts, my feeling is the EMCBs likely have all the gold they sold to other CBs elsewhere in the past, but the other major custodian CBs perhaps ... don't? A situation, if my assumptions proved to be correct, those other CBs may live to find ... somewhat problematic.

Edwardo said...
This comment has been removed by the author.
M said...

@ Leroy Parker

Are you addressing the question I had about the script money at the fair ?

Your answer was a good recital of the topic in general but the only part I can see in your answer that attempts to answer the question was the quote below.

"it was a relation of tradable value to weight. A one ounce unit that we could associate the trading value to. It was in the middle ages that bankers first started thinking that gold itself was a "fixed" money unit. Just because its weight was fixed."

So the script was understood as a fixed weight of gold ? That makes sense but Fekete says some people didn't even bring gold to the fair(only Fekete says this,not FOFOA)

How does somebody get script if their is no proof that they had gold ?

I guess they could participate in the fair as long as they left the fair trade neutral but how can they expect to leave the fair trade neutral if they buy something but cant negotiate a deal to sell something ?

An interesting note, gold in Thailand is still weighted in a unit called the Baht. Gold is sold in Baht units and their official currency is also called the Baht.

Jeff said...

Victor,

I think the BB's are short gold. From A Classic Bank Run:

...the bullion banking system must and will revert to a non-fractional, non-lending, 100% reserve banking system. Not the fiat banks. Just the Bullion Banks. The CBs demand this, as Another told us a long time ago, because physical gold is cornered by real wealth at these prices, and they (the CBs) will not give up any more of theirs.

I'm sure there are still "tonnes" of those "CB certificates" in the reserve accounts of the Bullion Banks, as all their paper gold liabilities must be backed by either assets or reserves on their balance sheets. But those certificates will never be cashed, except by a very few "important clients" of the type you do not default on because they have something you need.

ANOTHER: "Banks do lend gold with a reason to control price. If gold rises above its commodity price it loses value in discount trade. They admit now to lending much where they would admit nothing before! They do this now because of the trouble ahead. Does a CB [receive] collateral to lend its gold? Understand, they only lend their good name on paper, not the gold itself. The gold that is put on the market in these deals belongs to someone else! The question is not "Are the CBs worried for the return of gold?" but, "Has our paper been lent to the wrong people?" The BIS will not allow the distribution of all gold to settle claims."

We cannot know the actual state of the BBs' books from what is visible for analysis. So how fast could all of the physical gold reserves be spoken for? As frightening as it sounds, worst case, they may already be...We shrimps should have gold available for purchase until some small or medium-sized Giant is denied allocated bullion...

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.

Robert LeRoy Parker said...

Scrip was not fixed to the weight of gold. That would be a gold standard. The concept of money developed because common weights used in barter were fixed.

But with the use of scrip and clearing of gold, the medium of exchange and store of value are separated. Scrip floats against gold, and you don't need gold to get scrip, just goods and/or services.

The amounts of scrip necessary to transact are known because of past usage going all the way back to barter.

If some scumbag abuses the system, and doesn't have gold to clear their purchases, they won't be transacting very much at the next fair.

Jeff said...

So basically if you have oil, you get physical. If you don't get cash.

Robert LeRoy Parker said...

I should say if that scumbag doesn't have gold to clear their trade balance, not their purchases.

Yannick said...

Report from the field, @Paris, France:

One noticeable change happened in the general mood: after the latest "greek bailout", the italy contagion that made the news, plus some gold news package in prime time during news, and the US drama, people are getting much more easy to convince. Almost getting too easy. I "converted" 5 persons in the last two days alone, that now want to buy physical or just did. Some of them I have never mentionned gold before.
I even have two others guys that went to buy physical without me telling them anything.

On the coin shop, it is a "little more" crowded, meaning there is now 4 ppl in the line instead of 0 or 1.

Premium over the popular Napoléon coin stays at 20-25%.

Well, I know this is still anecdotal to my circle, but I'm definitely sensing a change in mood here in Paris. Unfortunately I was not there in 2008, so I cannot compare.

victorthecleaner said...

Jeff,

I think the BB's are short gold.

When I first came here,

http://fofoa.blogspot.com/2011/03/via-email.html

FOFOA and I agreed that the BBs are not short gold, i.e. they do not have price risk. In order to understand how this works, take a look at the sample balance sheets in my old email message.

If the BBs had price risk, they would have lost up to 300..600bn US$ over the last decade (say 6000-12000 tonnes of unallocated accounts). I cannot prove this is false, but if it were true, it would have to involve a huge accounting fraud such as the Fed secretly creating money and transferring it to some bullion banks who hide it from their annual reports.

DP,

thanks for that article! My first reaction is that someone must have lent gold, and someone else must owe it (in ounces rather than in US$). I'll try to figure out who that is and how much counter-party risk that is.

Victor

victorthecleaner said...

DP,

if some CB has gold in a sight account at the BIS, and you are right that these sight accounts are only fractionally reserved, but the BIS is not short gold, then the BIS must have lent gold to a third party and the loan is to be paid back in ounces (not US$). This is basically a consequence of double entry accounting.

So whom did they lend the gold to? Who could be such a counter-party, what is the term of the loan, and how credible is it that the principal is paid back?

Are you saying that the BIS has lent to BBs and these gave the gold away to private investors? Then the private investors must still be unallocated, otherwise the physical would have been moved.

Oops. Is the BIS the tip of the gold lending pyramid?

Victor

Jeff said...

Perhaps the difference is in the definition of fractional reserve/unallocated/short. I believe they cannot deliver on their promises but may be bailed out by the government. Otherwise what are we all doing here? :)

DP said...

@VtC, my take is the BIS is an intermediary. A dealmaker. So the CB that owns the sight-account/earmarked gold in custody elsewhere, buys from another CB and this is all brokered by the BIS rather than the two setting about it bilaterally.

I am assuming the sight accounts are fractionally reserved (why else would they be cheaper to administer for the custodian? And if sight gold is not sufficiently cheaper then would any CB not be sure and buy earmarked instead?).

Considering this, my assumption is the fictional part of the sight accounts never existed, but was bought on trust — just like you or I buying some pool account "gold" from Kitco or whoever, which similarly doesn't exist but has a fractional reserve to deal with the expected small number of people who will call for a move to allocated storage and perhaps delivery through the serving hatch. Clearly, as a regular human, I can't say for sure this is how it is operating — but it feels like a reasonable conclusion for me to come to, no?

So, they don't really need to have sold this "unwanted" gold as part of managing their reserves, if they never had it to begin with but instead just magicked up some more credible promises in the ledger. (This in spite of my earlier suggestion they might have done this, but again I will never be in a position to know for sure how these markets are operated.)

What I AM saying, is that it seems logical to me that the custodian CBs might have a problem finding quite that much physical gold to deliver at short notice on the sight account promises, in the event there were a run on those [in]credible promises. Which it seems to me Another stated was the intention of the ECB/BIS to precipitate.

It would be most illuminating, I suspect, if we could see historical data on the volume of sight/earmarked gold, rather than just this one snapshot from 2010 given in the Lambourne doc. I don't suppose this will be forthcoming though, unfortunately.

victorthecleaner said...

DP,

the existence of two different types of accounts at the BIS (sight and earmarked) is a nice confirmation of the existence of a 2-tier gold market behind the scenes, i.e. one price for physical and one price for gold denominated credit. The argument is as follows:

Why would you choose an unallocated as opposed to an allocated account at an LBMA bank? Clearly, the fees for unallocated are lower. You pay no storage and insurance fee (around 0.5% p.a. perhaps), and the transaction fee is also lower (just the spread perhaps as opposed to 1-2% for allocation). So if you day-trade or at least trade frequently, you go for an unallocated account.

Now CBs don't trade. They always hold for the long run. So why would they choose sight over earmarked if the difference is merely 1-3% in price?

This shows that the difference between sight and earmarked is probably a lot more than the usual fees of a few percent.

Victor

mortymer said...

vtc: an appealing thought, look also here:

13.55 Monetary gold is to be valued at the price established in organized markets or in bilateral arrangements between central banks.

[Mrt: A two-tier market?]

http://anotherfreegoldblog.blogspot.com/2011/07/system-of-national-accounts-2008.html

victorthecleaner said...

Does anyone have an indication that it is the Bank of England that is the questionable counterparty among the BIS members?

Victor

DP said...

VtC: Now CBs don't trade. They always hold for the long run. So why would they choose sight over earmarked if the difference is merely 1-3% in price?

This shows that the difference between sight and earmarked is probably a lot more than the usual fees of a few percent.


We concur, it seems somewhat surprising that CBs would tolerate the risk of unallocated claims. I put it down to credibility of the custodians, but for my money their credibility is somewhat over-inflated. Each to their own I guess. :-\

Does anyone have an indication that it is the Bank of England that is the questionable counterparty among the BIS members?

Sadly, I only have the log output from my supersliderule to offer. Unfortunately, this has even less credibility than a Wikipedia article.

mortymer said...

Bis->BoE->THE NON-INVESTMENT PRODUCTS CODE
For principals and broking firms in the wholesale markets
->This:

"Settlement and Delivery. The basis for settlement and delivery of the “loco London” quotation is for delivery of a standard Good Delivery Bar at the London vault nominated by the dealer who made the sale. While settlement or payment for a transaction will generally be in US dollars over an account in a New York bank, delivery of metal against transactions in gold and silver are in made in a number of ways. These include physical delivery at the vault of the dealer or elsewhere, by credit to an allocated or unallocated account with the dealer or through the London Bullion Clearing to the unallocated account of any third party."

"In addition to delivery at its own vault, a dealer will arrange delivery of metal to any destination in the world and in any form of bar size or fineness.

Allocated Accounts are accounts maintained by dealers in client’s names on which are maintained balances of identifiable bars of metal “Allocated” to the customer’s name and segregated from other metal held in the vault. The client has full title to this metal with the dealer holding it on the client’s behalf as custodian.

Unallocated Accounts are accounts, the unit of which is one fine troy ounce of gold or one troy ounce of silver based upon a 995 fine LGD gold bar or 999 LGD silver bar respectively. The balance of an unallocated account represents the indebtedness between the parties and credit balances on client accounts are backed by the general stock of the bullion dealer with whom the account is held; the client in this scenario is an unsecured creditor. Should the client wish to receive actual metal, this is done by “allocating” specific bars, the fine metal content of which is then debited to the unallocated account. Market convention is that bullion may be allocated on the day it is called for, with physical metal generally available for collection on the next business day."

"Vaulting Facilities
Each Member of the LBMA which offers clearing services has either their own vault for the storage of physical bullion or the dedicated use of storage facilities with another party plus, in the case of gold, account facilities for allocated metal at the Bank of England."

mortymer said...

Search: 2min28s
Extract+format: 2min
Link: http://www.bankofengland.co.uk/markets/forex/fxjsc/nipscode06.pdf

mortymer said...

"The NIPs Code has been drawn up by a wide cross-section of market participants including the Bank of England and the Financial Services Authority. Its provisions are intended only as guidance on what is currently believed to constitute good practice in these markets. The Code has no statutory underpinning except where it refers to existing legal requirements."

"The NIPs Code of April 2009 wholly replaces all previous versions. The up-to-date version should always be sought from the Bank of England’s website."

Updated: http://www.bankofengland.co.uk/markets/forex/fxjsc/nipscode.pdf

mortymer said...

Clearing
The London Bullion Clearing is effected daily using an electronic clearing system developed by London Precious Metal Clearing Limited (LPMCL) for and on behalf of the 5 LBMA members currently offering clearing Services. The 5 clearers utilise the unallocated gold and silver accounts they maintain between each other not only for the settlement of mutual trades, but for third party transfers conducted on behalf of clients and other members of the London Bullion Market in settlement of their own loco London bullion activities. The system avoids the security risks and costs involved in the physical movement of bullion. The Clearing operates on the basis of rules developed by LPMCL which incorporates well established LBMA practices and market understandings, including framework under which the shareholders of LPMCL operate the clearing system and covers two main areas;
• the right each shareholder of LPMCL has over any other shareholder of LPMCL to call on his unallocated account with the other member and
• the timing under which instruction for transfers and allocations may be given and effected.
Transfer instructions for members’ own purposes and for client transfers may be made up to 4.00 p.m. London time on the day of settlement. Clearing members then have until 4.30 p.m. to effect transfers or call for allocation for credit purposes.

costata said...

Eurosystem Central Banks

The degree of integration in the Eurosystem CBs is most clearly demonstrated in the issuance of the Euro itself. The EMU CBs issue the Euro currency jointly. If any individual CB issues some Euro it is recorded on every Eurosystem CBs balance sheet proportionally according to a formula. This is designed to share the seigniorage according to the size of each EMU country’s economy relative to the overall size of the total EMU economy.

This is a system, a monetary union, not a bunch of individual CBs who act unilaterally or solely under national political influence. Over the years the Italian government has repeatedly tried to persuade their CB to sell gold. Their CB gives the politicians the finger every time. My point is that we shouldn’t assume that the Eurosystem CBs have no political clout.

This does not mean that these CBs act multilaterally in all matters either. But where the Euro issuance is concerned it is most definitely multilateral. If you want to read a more in depth analysis of how this operates this paper should interest you.

You have to look at a consolidated balance sheet for all of the 17 Eurosystem central banks in order to obtain an accurate picture of each bank’s assets and liabilities. Looking at their individual balance sheets won’t give you an accurate picture. This is a mistake that many analysts have made including the German economist Hans-Werner Sinn. Olaf Storbeck, the International Economics Correspondent with Handelsblatt, lays it out in detail here.

victorthecleaner said...

costata,

I know roughly what Sinn wrote, and I was a bit upset that it took him more than one extra year to see the obvious.

The article on http://www.voxeu.org that you are citing, however, shows nicely that his basic observation is right.

First, the target liabilities of the German CB before 2007 may originate from various reasons such as Germans taking out cash at home, then travelling abroad in the euro area and spending the cash there. Fine. No problem. That's what the clearing system was made for.

But the target receivables after 2009/10 show that the German CB has their usual 25% (roughly) share of eurosystem equity, and the ECB expanded their balance sheet, but purchasing mainly assets from non-German banks.

Guess what these are? About 45bn euros in Greek government debt purchased outright (as I understand in breach of the ECB charter, by the way) plus around 90bn in repo refinancing of Greek commercial banks. Similar action, with somewhat smaller sums in the case of Portugal and, third, Ireland.

So the pre-2007 target liability is a consequence of the usual clearing. But the post-2009/10 target receivables show the toxic part of the eurosystem balance sheet.

Suggesting a limit on the target balance alone is inconsistent, for example, because there may be a steady flow of cash away from Germany that needs to be compensated. Agreed.

Sinn could have suggested alternatively
(1) not to purchase bad debt with CB money (against the charter anayway).
(2) not to accept PIGS bonds as collateral in repo refinancing (contravening the principle of lending freely at punitive rates against good collateral only)

Both should have been self evident, but apparently, the principals of sound central banking are gone for good. This would have avoided the contentious post-2009/10 target balance.

But there is a second way of interpreting Sinn's proposal: Germany wants her share of the freshly printed cash (which has so far all been heading south).

Victor

victorthecleaner said...

I still need to improve on my principles.

victorthecleaner said...

Blogger just ate my previous message - let's see whether FOFOA can recover it.

Ramon said...

@ JR:

Is the Euro truly universal? Will the entire world readily and enthusiastically accept it? What happens when a region forcibly resists its use? Perhaps a given population might view it as categorically equivalent to the paper USD with a governing body just as irresponsible? What would the impact be of myriad other currencies being used in the same manner as the Euro? Or if it then becomes a black market currency in such a region, what alternatives will it be competing against? Is the human element to be trusted? From my view, I see as much potential for liability as stability from the Euro.

Although there are limitations to the current Bitcoin implementation, it does offer compelling advantages over the Euro. Successors may improve upon the existing system.

My point regarding speculation is that determining a primary will be a process rather than a preordained conclusion, irrespective of whether the result is the Euro or an alternative.

To be clear, I don't disagree with FOFOA, et al. I simply think there is now more to the situation than expected. We're no longer looking at the same-old; all kinds of disruptive concepts are forming that, acting collectively, could marginalize existing institutions - including the ECB/Euro. The best-laid plans...


A minor issue, but every time I see it, my grammar-nazi eye twitches - scrip is not the same as script.

costata said...

VTC,

I guess we will just have to wait and see whether "the principals of sound central banking are gone for good" as you claim or those bond purchases were a response to an emergency as Trichet claimed.

I'm also a bit surprised with your claim that "Germany wants her share of the freshly printed cash (which has so far all been heading south)." I thought Storbeck covered that issue quite comprehensively in his article. For example:

What is driving those large claims and liabilities? According to the Bundesbank (p. 35), the main reason is that private banks in Germany are hoarding central bank money because they are very risk averse at the moment:

“While funds tended to continue to flow into German banks from abroad due to non-bank payments and their own operations, after the onset of the crisis they were less willing, and in some cases unable, to lend these funds to foreign institutions on the interbank market. Instead, they gradually curtailed their refinancing operations with the Bundesbank.”


It seems that the German banks have plenty of cash. In view of Germany's weighting in the EMU economy their share of the seignorage on any cash "heading south" should be hefty as well.

M said...

@ Ramon

You said
"Although there are limitations to the current Bitcoin implementation, it does offer compelling advantages over the Euro. Successors may improve upon the existing system.

My point regarding speculation is that determining a primary will be a process rather than a preordained conclusion, irrespective of whether the result is the Euro or an alternative."

On the contrary, I think the Bitcoin noise is helping the Euro. It has people thinking about non nation state currencies, alternative transaction currencies ect. Why would they bother with Bitcoins or anything like it when they can get the same in the Euro with many more benefits then Bitcoin ?

And for people that keep losing their messages, just highlight, left-click and copy the text before you send. If it doesn't go through then get back on the comment section and hit CONTROL V and your message re appears.

DP said...

Some Fool seems to think FOFOAs latest estimate of $60K is lowball, having numbers and a simple algorithm based on the Thoughts of Another to back it up. Make up your own minds... I thought some of you might find it interesting.

One thing I would say is that it's unlikely to be quite as straightforward as taking 5x 2litre jugs of beer and pouring them all into 1x 10litre jug, IMO. Emotions will be overflowing, so all bets are off AFAIAC.

DP said...

Caveat venditor!

Texan said...

VTC,

I think you have asked the most important question (or series of questions) of all - who is selling all this gold? Not a month goes by and I read about XYZ CB adding gold reserves, Indian and Chinese demand outstripping expectations, US and European coin sales going briskly, PHYS adding a few tons here and there, etc. And on the supply side - overall mining and scrap sales decreasing.

In fact, the only supplier in size I have read about is the IMF, and I think they have sold it all?

So who keeps supplying the market? Why is there any supply available? Who is selling, and why are they so determined to avoid any 2-5% up days? Sugar has 10% up days, oil 3% up days, even silver has 3-5% up days? Gold? Never.

costata said...

This concept of "chained CPI" sounds ominous to me.

http://www.businessinsider.com/what-is-the-chained-cpi-2011-7

"Using the C-CPI, rates would re-calibrate every two years according to a reading of consumer spending..... They call it "chained" because it will be tied to actual spending, instead of being a fixed basket of goods like the current CPI."

If they change the treatment of housing costs in the C-CPI as well then they could capture the effect of falling house prices.

IMO this severing of the "like-with-like" basket comparison would be even worse than the hedonic adjustments. If someone in the survey was earning an income last year and is on food stamps this year does that print a C-CPI which signals "deflation" because they are spending less?

Team Photocopier should put some champagne on ice.

Blondie said...

Texan said:

"... who is selling all this gold?"

The more fundamental question which must be answered first is:

"how much of the supply of "all this gold" is physical, and how much is paper?"

Did the IMF ever deliver physical, or just extinguish claims they had on CBs? Did any physical ever leave CB vaults via gold leasing? etc etc

costata said...

Analysis of the package announced for Greece.

http://www.voxeu.org/index.php?q=node/6791

victorthecleaner said...

costata,

[...] wait and see whether "the [principles] of sound central banking are gone for good" as you claim or those bond purchases were a response to an emergency as Trichet claimed.

Sure, it is always an emergency when that happens. The old German Reichsbank in 1922/23 was also in an emergency, as was Chile, Argentina, Zimbabwe, Belarus, and who not.

In view of Germany's weighting in the EMU economy their share of the seignorage on any cash "heading south" should be hefty as well.

I don't believe in the vendor financing scheme, i.e. that an exporting country needs to keep the exchange rate low and/or needs to prop up the consumer countries with credit (this was necessary consequence only if debt were the only wealth asset). So I say that, in the long run, Germany cannot win by doing this, i.e. by using their equity in the ECB to print money that goes to the consumer countries. This is a lose-lose arrangement.

Victor

victorthecleaner said...

Texan,

I think you have asked the most important question (or series of questions) of all - who is selling all this gold?

If you suggest that a good part of it is unallocated, then the key question is who it is that has borrowed gold from a BB or from a CB and who needs to pay back in ounces.

This is the key question because of the following argument. I assume that there is unallocated gold beyond the physical reserve of the CBs or BBs and that the CBs and BBs are not short the price of gold in US$. I ask how was the unallocated gold (credit) created in the first place.

It cannot happen if somebody exchanges US$ for gold. The investor is now long gold in US$, and so the bank would be short. So if we assume the bank does not assume any price risk, then the bank (or at least somebody else in the BB system) needs to purchase physical at the same time. A simple FOREX transaction can therefore not create an excess balance of unallocated accounts.

But then how can this happen? It happens when somebody borrows in ounces from a BB or from a CB. In this case they are credited an unallocated balance that they need to pay back in ounces.

So the key question is who is borrowing gold (in ounces) from the BBs and CBs. In the early 1990s, it was the hedged mining companies. And they were good counterparties because they were mining the physical (even better than just unallocated). In the last 1990s, the scheme got out of hand, and some hedge funds borrowed unallocated in order to sell it short. You can take a look at the long term GOFO chart to see precisely when these hedge funds blew up.

But today any decent miner who wants to appeal to the gold bugs, needs to be unhedged. I suspect that still
(1) miners for whom gold is a by-product, are still hedged
(2) miners who take out loans from bullion banks get these loans in ounces. I suspect this will not show up on their balance sheets and they would hesitate to tell this to the gold bugs, but I suspect it does happen.

But I don't think one can explain the conjectured volume of the unallocated accounts by this alone. So somebody else must be borrowing gold (in ounces) from the CBs or BBs. Who is it, and what are the terms?

Otherwise, the only possibilities are
(A) the reserve ratio, i.e. the physical reserve per unallocated balance is much higher than people conjecture, and the BBs are essentially safe from a bank run
(B) someone big is consistently short gold in US$ and for some reason nobody sees this on any balance sheet or profit-loss statement
(C) someone has sold gold calls (perhaps far out of the money) to the BBs and nobody knows this
(D) the BBs or CBs had a borrower of physical default and lost physical in the past, and the under-reserving of the unallocated accounts with physical is a consequence of that event

Victor

Ash said...

CRA:If someone in the survey was earning an income last year and is on food stamps this year does that print a C-CPI which signals "deflation" because they are spending less?

No one should care about what the CPI signals. It's an officially published statistic of aggregate price trends, which means its just as manipulated and useless as all of the other ones. If they want it to under-emphasize inflation, it will do that. If they want it to under-emphasize deflation, well, it can do that too.

We don't need manipulated stats to tell us what we aren't seeing with our own two eyes. We'll know we're experiencing deflation when financial and equity markets barely exist without massive government intervention, and incomes/revenues/benefits/spending are being squeezed on all fronts in a positive feedback loop (unemployment, local/state austerity, depressed consumer spending, speculative commodity price inflation, etc.).

Hmmmm, I wonder when that could possibly start happening...

costata said...

VTC,

So I say that, in the long run, Germany cannot win by doing this, i.e. by using their equity in the ECB to print money that goes to the consumer countries. This is a lose-lose arrangement.

Equity in the ECB?

Blondie said...

Victor said:

"So if we assume the bank does not assume any price risk, then the bank (or at least somebody else in the BB system) needs to purchase physical at the same time."

Why do we need assume this?

If the BB knows that at some future point physical and paper gold will decouple, then being short paper gold is not risky at all, provided said BB can hold on until then. Unallocated is redeemed in dollars, no problem (except for the unallocated holders).

In this case, the real threat is unallocated switching to allocated.

Where is the evidence that CBs ever lent physical, and not just paper gold?

victorthecleaner said...

costata,

Equity in the ECB?

Yes, item 12 (capital and reserves) on the equity/liabilities side of

http://www.ecb.int/press/pr/wfs/2011/html/fs110719.en.html

Also see the annotations:

http://www.ecb.int/press/pr/date/1999/html/pr990105_1.en.html

and the capital subscription key:

http://www.ecb.int/ecb/orga/capital/html/index.en.html

Victor

victorthecleaner said...

Blondie,

Why do we need assume this?

FOFOA assumes this (see the bank run article or the correspondence with me). Second, if they were short, they would have accumulated huge losses in US$. Where are these losses? Who has absorbed them? So I think, in this case, we would need in addition some sort of accounting fraud or creative bookkeeping or ESF intervention or other conspiracy.

If they are short, well, then why are people criticizing Max Keiser? He might just be right.

Where is the evidence that CBs ever lent physical, and not just paper gold?

The outflow of physical from the FRBNY vault. There is some book by Dimitri Speck, I think, but it is in German (?) and I don't have it, in which he analyzes the inventory reports of that vault and tries to figure out how this is related to the gold leasing operations of the European central banks in the 1990s. You can perhaps google him and just ask him.

Victor

Blondie said...

Are these not the same European gold reserves held at the FRBNY which you have previously asserted are held "hostage" there, and accordingly of no value to their European "owners"?

So who do you propose has been mobilizing these reserves, Euroland CBs or American interests?

victorthecleaner said...

Blondie,

So who do you propose has been mobilizing these reserves, Euroland CBs or American interests?

In the 1990s, gold lending by European CBs was in agreement with US interests as far as I understand Another and FOA, wasn't it? If I remember Speck right, the physical was moved indeed.

Another question is what happens when physical and paper separate and the European precious turns out to be located in the US, the country that will need the physical most urgently of all.

Victor

Blondie said...

You know as well as I that we have differing opinions on that issue... It becomes a matter of honour and trust... you may recall that the entire system is based on this confidence; this is the true gauge of one's creditworthiness, and as such is more valuable than gold as it cannot be bought, only earned.

You think the US will be willing to throw theirs away, whereas I find myself with Churchill:

"The Americans can always be counted on to do the right thing... when all other options have been exhausted."

costata said...

VTC,

I wasn't asking if Germany has equity in the ECB/Eurosystem. I was referring to the whole passage of yours that I quoted.

So I say that, in the long run, Germany cannot win by doing this, i.e. by using their equity in the ECB to print money that goes to the consumer countries. This is a lose-lose arrangement.

What is the connection you are trying to make between their equity, currency issuance and the direction of the flow of the currency issued by the German CB?

victorthecleaner said...

costata,

I just means that Germany owns about 25% (forgot the precise figure) of ECB capital. This means they get 25% of any profits, but also have to come up with 25% of any additional capital to be raised.

If the ECB increases their balance sheet by purchasing questionable bonds, this German share is diluted. I doubt it is a good idea in the long run to use such a dilution in order to prop up the consumer countries.

Victor

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