Monday, August 29, 2011

Treasure Chest 2 – Game Changer


Thank you to everyone who donated in support of continuing this blog for a fourth year! Donations were rolling in last Tuesday pretty much on par with my other two fundraisers. But then on Wednesday, with the $100 plunge in the price of paper promises of future gold, the flow of donations pretty much dropped off a cliff. So I'd also like to thank the CME for messing up my fundraiser. Thanks a lot, CME!

As I've mentioned in the past, one of the best parts of fundraising for me is the comments I receive from supporters. In some cases, people take the opportunity to ask me questions after I send them a thank you note. One of the most frequent questions I get has to do with converting individual retirement accounts (IRAs) into physical gold. I also get questions about how best to buy and store physical gold in amounts that are too large for the sock drawer. And people often ask me what I think would be the "second best option" to physical in your immediate possession.

These are all related questions and they are some of the toughest to answer from my hard-nosed "physical in your hands" perspective. Other similar questions I have received are what would be the best way for a managed fund (say a Trust) to invest in physical gold outside of the banking system? I have one reader who is an investment banker for banks. He finds investments for actual banks. He asked:
Do you know anything off hand about the gold rules for banks chartered in the USA? I've had more than a few clients tell me their Boards are proposing gold buys for their banks since they can't get out of their illiquid equity position.
I have another supporter who is a registered investment advisor (RIA) who just left a big firm to start his own. His client base includes a lot of friends and family and he wanted to know what I thought was a good way to move people into a gold investment that would fit the FOFOA outlook; and these are people with large 401Ks that have never even considered gold as an investment. Poor guy, an RIA who happened to stumble upon FOFOA and then realized he had his friends and family's money in the wrong stuff. What he really needs (business-wise) is some kind of true physical investment platform he can offer that will also pay him a commission to keep his business going.

I have a doctor with a lot of physical gold who wants to buy something on credit. He asked me, if you've put your savings into physical gold, what do you show the loan officer to prove you have assets? I constantly have people asking me what I think about CEF, GTU, PHYS, GLD, GoldMoney, Bullion Vault and others as an alternative to physical gold in your immediate possession. And I really struggle with all these questions because I don't like to give out financial advice. I'm not a financial advisor. In fact, I don't give financial advice other than telling people to avoid the gold dealers that advertise on TV because they'll try to sell you high premium numismatics that you don't want. That's how they can afford TV commercials.

The point is that the A/FOA/FOFOA view leads to one conclusion. You want to own actual physical pieces of gold, preferably stored outside of the banking system. You don't want to own shares in a pool of gold, or shares in a bar. If you've got enough for 100 ounces, you don't want to buy a quarter share of a 400 ounce bar. You either want your own 100 ounce bar or, preferably, 100 one-ounce bullion coins. It's a pretty simply conclusion, but it makes answering the questions above kinda difficult.

On July 2nd, Joe Y. sent me his second donation. I thanked him by email and he wrote back:
No, thank you.

I am in the process of walking away from being a successful cog in the Wall Street Machine to join a new gold company involving some big names as well as partners at some major wall street powerhouses. If it weren’t for the hours I’ve poured over your writings there is no way I would be on the precipice of this awesome opportunity. I must have spent well over 100 hours reading your stuff over the past few years and it’s been quite a ride. Thank you! I am walking away from selling one manufactured wall street product after another to help build something I truly believe in. Something that will help people through what’s coming. It’s an enormous, exciting undertaking and the reading on your site has played a not insignificant part.

Warmest Regards,

Joe Y.
I thought that was pretty neat. Well, Joe sent me another donation for my blog birthday on Tuesday and included this note:
I’m finally starting work at the gold company in two weeks, and I owe a great deal of this decision to your writings. Thank you!

Joe
So I asked him about the new company (emphasis mine):
It's Bullioninternational.com, or GBI.

It is essentially an open architecture platform that allows people in the financial community to buy individually allocated gold in the form of their choice, stored at the facility of their choice (NY, London, Zurich or Salt Lake City), deliverable at the time of their choosing. All independent of the financial system. Trades are executed on a best price basis, and can be processed at up to 30,000 trades a minute. In reality, it’s the world's first physical metal electronic exchange.

We've already had one major national firm sign up and we’re currently working on bringing on more. Bullion sales through our platform have been growing every month and August was almost a double from July, it’s really exciting.

I believe this is the next step, allowing retail brokerages to buy gold for their clients, real gold, not paper gold. My hope is to take billions of physical off the market in the coming years.

I’m very excited about this opportunity to grow a firm for a cause I have a deep conviction in, thanks in large part to you.

I could chat about this all day, so if you have any questions, by all means, fire away.
Costata and I looked over the website and we were both very impressed with the model. We agreed that this has the potential to be a real game changer! One of the first things I noticed on the website was the curious list of investors/advisors: General Wesley Clark, former House Majority Leader Dick Gephardt, former SEC Chairman Arthur Levitt and John Hathaway, who I quoted at the top of my 2009 post All Paper is STILL a short position on gold. That 1999 quote comes from the Gilded Opinion page at USAGold linked in my right sidebar.

Not only could this be a game changer in the physical gold market, but if it's all it seems to be on the surface, it may well be the closest thing to physical possession outside of the bullion banking system that also provides a "transition-friendly" financial solution to all the questions at the top. The significance of this cannot be overstated. And so I had a few question for Joe.

FOFOA: Thanks, Joe! I do have some questions for you, because I have several HNW readers who are constantly asking me about options.

Joe: I’ll do my best, thank you.

FOFOA: First of all, how is this different than Bullion Vault or Gold Money? I think I know, but I’d like to know your answer.

Joe: We are different from bullion vault and gold money in that we do not sell you a “share” of a bar, we do whole bars/coins only. You have the choice to buy gold in whatever form you want. Krugs, Eagles, Pamp Bars, Kilo Bars, all the way up to 400 oz bars but it’s never a share. GBI created this model because we don’t believe owning four ounces of gold that is a part of a larger bar qualifies as actually owning gold. We want clients to own whole bars with zero counterparty risk. We really want to democratize the ownership process. Until now only the ultra-wealthy could order whole, allocated bars, stored in non-banks, audited and insured by a real firm. Now, literally, anyone can.

FOFOA: Is it true allocated storage? Do I have bar numbers on my statement? In other words, am I technically just a creditor of GBI, or am I hiring you to find, buy and store a specific, discrete product for me? And what happens if GBI goes bankrupt?

Joe: The specific bars are allocated to specific clients. If GBI went bankrupt, or if any firm purchasing gold through our platform went bankrupt you are NOT a creditor of GBI or those firms. The metal is held in your name. We have the ability to show serial numbers on statements for larger bars if requested.

FOFOA: What are the barriers to me taking physical possession of my gold? Can I come in and see my bars or coins, touch them, spend some time with them? Say I buy some gold bars through GBI and ask to have them stored in SLC, and then something happens in the world that makes me want to drive to SLC and walk out with my bars. Can I do that and how much would it cost? One concern I have is how variable conversion fees could potentially be used as a deterrent during the decoupling of the unknown value of physical from the known, official paper price of gold.

Joe: Delivery or take-out! We strongly, and I emphasize strongly prefer to deliver the metal to you at a set modest fee plus actual delivery cost, either through UPS up to $250k or armored transport for more. The reason behind this is we store with commercial, non-bank vaults. The issue is that they are primarily commercial facilities. They aren’t really set up with a customer service agent waiting for people to drop in, and they already request 24-48 hours notice before someone comes by, only because if someone “drops in” they may or may not have someone there authorized to even enter the gold vault that may only be accessible by some people at set hours of the day.

That being said, you are free to go to the vault, see your gold and touch it. If you want to take delivery in person there'll be a nominal fixed fee no matter how much gold you're picking up. That's to dis-incentivize those with say 10 coins in storage, but it would be a very modest take-out fee for someone storing few kilo bars.

However, if you store smaller amounts, if you come to look at your gold, you'll have to take it. What we want to avoid as a business matter is every guy out there wanting to stop by and see his 10 Krugerrands. So what we’ll likely do is if you want to see it, you need to pay the fee and take it, or just let us ship it to you. Obviously for larger amounts we will accommodate a free viewing, but from a business standpoint we’d prefer to discourage that so as not to have a problem with our custodian.

The bottom line is clients will always have the ability to have their gold delivered, always. This point is key to who we are.

FOFOA: Would GBI be an acceptable investment in physical for an IRA? I get this and similar questions a lot. Owning physical gold in a "transition-friendly" account can be problematic depending on the third-party restrictions placed on some funds.

Joe: GBI does accept gold through two different trust companies. The IRS requires a trust company to hold the bullion in your IRA. And yes, we do handle trust accounts. I hope that answers your question.

FOFOA: I have an investment advisor that wants to recommend physical to his clients. But it’s hard to make a commission off that. Will you have such arrangements with small RIA’s?

Joe: Yes, yes a thousand times yes. We envision this platform being utilized by advisors and banks, foreign and domestic, to offer gold accounts alongside traditional checking, saving and brokerage accounts. GBI is in discussions with many of these institutions now, and my job is going to be reaching out to more, large and small in this country and around the world. We fully integrate gold holdings into the client statements, and placing a buy or sell order will be as easy as entering it from the workstation at the branch, or of they prefer, a privately labeled web portal for their clients to do real time transactions.

The whole purpose of this platform is to give financial professionals the ability (wirehouse, RIA’s, etc) to provide their clients physical, allocated gold, with live trading and best price execution with storage independent of banks and financial institutions. When I started interviewing at GBI they were up front that in their mind, they were a technology company first. They are on a mission to create the first, most efficient real time physical exchange that can be fully integrated into clients' financial accounts. My job is to market this platform to financial institutions, and at some times, to the advisors themselves. The technology is fantastic, and the platform is extremely user friendly. I placed an order through my own account just to see the prices. They were very competitive and when placed through an advisor will, to some degree at his discretion, depend on how he prices his business.

I gave up a very comfortable job and a great situation to take this position. I truly believe this has the potential to be a game changer. No one does what we do, and as we add more and more firms, I believe the sky is the limit in terms of potential. The growth is really just starting. We are starting to see unsolicited demand from overseas clients, and chatting with the CEO the close ratio on the meetings he’s going on is very high. I believe that’s because once these institutions see what we offer, it’s something they have never seen before, but they’ve been looking for it.

The beauty of our platform is that it’s completely white labeled, in that to an "Acme Financial" client and advisor, it looks like Acme's own program and we’re content keeping it that way. The same would be the case with any client we bring on. We privately brand our platform for any client we bring on and we have the capability of fully integrating it into their systems. There are many applications to hedge funds as well, specifically that we can set them up with their own web portal and they can make real time transactions to buy and sell physical. It may not be how they do their very active trading, but I don’t see why every hedge fund wouldn’t want to buy and custody their core gold position this way. It’s much more simple and cost effective than trying to broker the transaction, transportation, storage and insurance themselves.

I hope none of you think this is an advertisement or a paid endorsement of GBI, because it's quite the opposite. I asked Joe if I could have his permission to write about it. He even asked me to take some of the best stuff out because, unfortunately, it is proprietary non-public information. But I thought it would be easier to write it up in a post than to email all the readers individually who I thought would like to have this introduction. That's what this post is. A DYODD introduction to Joe and GBI.

I have no stake in this company, I have not been paid, and I will not be buying gold through GBI myself. I still recommend taking delivery and keeping your physical in your possession (or at least under your immediate control), but I do understand that this is not always the most practical advice for some of my HNW readers, nor is it practical for some types of funds under various restrictions. So I'm happy to announce that I have finally come across an alternative that I believe rises above the rest in terms of being "transition-friendly".

What do I mean by that? Well, if you take the time to really understand Freegold-RPG, what I write about here, you'll know that getting there consists of three phases: a stasis followed by a punctuation followed by a new stasis. And it is during the punctuation phase or "transition" that I believe we will have a brief period of "peak risk". What risk, you ask? Well, it is the risk that your expected transition gain will be taken (or simply kept) by someone else, and you'll be cashed out at the official, legal price of gold; a price at which no physical can be found at that time. I'm not going to say much more about it here. But as ANOTHER would say, think long and hard on this. [1]
___________________________________________________________

[1] I believe that allocated storage at the Perth Mint would be a comparable solution for restricted money if you physically reside in Australia. But for residents of Europe and the US, I would personally choose the storage facility closest to me. I like knowing that, if conditions suddenly warrant it, I can drive or fly there to pick up my coins or bars for a fixed fee; a fee independent of the size or value of my stash. I would not request delivery, though, during the "transition" while the official price of gold backed by the legal system cannot fetch any actual physical gold. I'd either leave it there with everyone else's (ride it out) or pick it up in person.
___________________________________________________________

But what I found particularly post-worthy about this topic was that we have a true insider at this company! Joe has been reading FOFOA for more than two years now, and that's what gave him the confidence to leave a very nice job in order to pursue a golden dream. And as he said, GBI is primarily a technology company, an electronic trading platform integrated with actual physical off-take, which is why they hired Joe for his physical gold market savvy. To me this is a brilliant opportunity for both him and us. The company is still new enough that Joe's presence there is shaping its structure. My emails with Joe have already influenced company policy. Granted, it was in a very small way (sorry, can't tell you exactly how), but it was beneficial to the durability of this business model from a "transitional" perspective. So yay, it's already more Freegold-friendly.

There are three main points that caught my attention:

1. This business model/trading platform has the potential to be a real game-changer in the physical gold market. It opens a door to a massive pool of potential demand that was previously cut off from the accumulation of physical gold in true, *UNAMBIGUOUS* personal (or institutional) ownership, outside of the opaque and dubious bullion banking system. I could even see this as a good way for all types of corporate entities to hold real gold assets safely through the transition.

As the CEO says in the videos below, it democratizes an important method of physical gold accumulation that was previously a difficult, expensive and sometimes-exclusionary process. It makes including real gold in an investment portfolio by individuals, IRAs, Trust funds and institutions as easy as stocks and bonds. Best of all, for the first time, it gives money managers a financial incentive to recommend unambiguous coins and bars in a portfolio rather than trying to steer clients away from physical gold.

2. It answers almost all of the toughest questions I get from readers and supporters.

3. There's an FOFOA reader inside this company who understands the principles and concepts we explore, and he's in at the ground floor (or close to it anyway).


Here's a video that Joe sent me of Savneet Singh, the CEO, and Peter Custer, the Chief Technology Officer, explaining their new gold trading platform at Finovate last May in San Francisco:



And here's another one of Savneet on Bloomberg last week:



In one of his first posts back in 1997, ANOTHER wrote the following:

"The LBMA problem"

I can now make clear for all to see.

Background; to understand the following you must rethink your basic knowledge of money and investments. Get your aspirin ready.

Some time ago gold not only was used as money but also circulated as currency. It had always been money and people had no use for a separate currency to represent "gold money" so they stamped the gold itself and used it as circulating currency. From the start, one thing most thinkers can't quite grasp is that "money does not have to circulate"! The first "world money", gold money that is, could stay locked up and still represent value and wealth. People had but to agree on who owned it in exchange for goods and services.


The idea of physical gold sitting somewhere in a centralized vault and only its ownership changing hands is not a new concept. Neither is it an essentially flawed concept. I believe it is perfectly safe today (as long as the wheels stay on this bus) to store your gold with a credible custodian. And I believe it will be perfectly safe, and perhaps even preferable, to do so in the new monetary system of the future. But the time of "peak risk" will be, I believe, that brief period of phase transition between the $IMFS and Freegold-RPG.

It is in preparation for this transition that we want to be holding our gold in the most *unambiguous* way possible. And the most unambiguous way is paid in full, in your hand ownership. But when that's not possible or at least practical, we'd like to own our gold in unambiguous lots (either specific coins or numbered bars) outside of the bullion banks and their opaque networks built upon the flexible concept of ambiguity.

When gold is finally revalued, it will happen in the dark. You won't be able to see it happening on your ticker. And the de facto transfer of wealth that will occur will only flow to specific ounces of physical gold, not to ambiguous claims on some amorphous thing called gold. Ambiguity leads to more people thinking they have exposure to the revaluation than the amount of value there will be to go around. It also leads to the potential for the abuse of claims, since for a brief time the price backed by the legal system may be very different than the value of the actual physical in custody.

During "normal times" this is not an issue. Today, as well as after the transition, if you store $100K in gold you hold $100K worth of unleveraged real money. But it is during this dark, hidden transition that the unleveraged becomes hyper-leverage. ANOTHER wrote:

Our history will read, that persons of simple life, will find they have made the greatest leverage investment ever seen and thought of it as only a small trade. When gold moves from "bottom to top of world currencies", many will find their assets in the "Estate Of Kings"

And here are a few FOA quotes on the hidden leverage in unambiguous physical gold ownership:

Today, physical gold advocates are the real gold bugs as they now possess the real leverage paper players only think they have!

++++++++++++

Well, I can tell you that the further we travel this trail, the higher the eventual cash settlement of all gold paper will be and the less that settlement will be allowed to match any "free physical" price.

++++++++++++

By holding physical gold you are owning a super leveraged
"derivative" that will be exchangeable against the value of real things at a par level lost to the minds of most investors. Today, physical gold purchased in dollar values is discounting its worth by perhaps 100 times. For us PGAs, that is a leverage worth "playing the physical game for"! (smile)

++++++++++++

It is from here that we can understand the awesome leverage contained in holding but one ounce of gold. Here, on this ledge overlooking the entire golden valley, we can see this truth! Yet, it is a revelation to gold buyers as much as a curse on gold industry and leveraged paper investors. They spend their days, consuming their wealth, betting on a price that cannot represent gold until it fails. Destroying all they wait for.

From here, we understand why the current prices for gold do not have any bearing on the buying habits of the major players that walk this trail. As Another has said "The price you know, it be your price, not my price".

It is true, we are buying gold, not to trade for a paper value created today. Rather, to hold it beyond the paper destruction that must come tomorrow. Gamblers, traders and gold substitute players will all witness a colossal shift in world wealth that degrades their holdings. Even as their bet on half the process is proven as a folly very typical in human nature. Only unseeable as it exists.

++++++++++++

The leverage today will be in a physical gold position, not any other form of gold ownership. By accumulating physical gold today, we are truly walking in the footsteps of giants; advancing with them as they work thru this singular, long term political move.


In this game of musical chairs, unambiguous, discrete pieces of physical gold are the chairs. Do you have your chair? Or do you own a claim ticket good for a portion of a chair? How will the newly revealed value be distributed? Will those that could potentially keep it for themselves hand over your fair share? Another wrote:

The BIS will not allow the distribution of all gold to settle claims.

And then FOA:

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

Again, what do you have? Do you have your chair, or do you have a claim check that's supposedly good for a chair? And when will the music stop? I don't know and I don't care, because I've already got my chair. The greater "precious metals investment" industry has many different products to sell you. This is a big discussion and one that lends itself to a lot of different viewpoints. In reality, it all boils down to risk assessment and your personal situation. But I don't know anywhere else on the net where you'll get more straight talk than here.

So what do you think of GBI? Am I correct in my three points above? Is there anything they could do to make GBI more Freegold-RPG transition friendly? I know that Joe will be following the comments here with great interest, so please let him know what you think.

And if you are one of those who would have supported this blog last week had the market not puked on Wednesday, it's never too late. It's not just about FOFOA's third anniversary. It is a contribution to keeping this blog and discussion forum alive in the hope that others may experience the benefits you have received.

For some it has strengthened their "weak" hands, it has gotten other people out of paper and into physical, for others it has reset their valuation of gold above levels they would have already sold at long ago and for others it has helped to crystallize their thinking about the importance of gold in preserving their wealth.

And it provides a continuing benefit to all of us as a forum for discussion, intellectual stimulation and a place where we can get a confidence boost when the dreck from the MSM rattles our nerves.

Maybe you had an "A-ha moment" as a result of this blog and realized that your small stack of gold may someday have the same purchasing power as an LGD bar at today's prices. If so, then please click on my small, but most definitely *unambiguous* stack of gold coins and make a contribution. Thank you! :)


Sincerely,
FOFOA

357 comments:

1 – 200 of 357   Newer›   Newest»
Joel said...

The physical gold storage world is really catching on. There are now numerous companies that allow you to buy and store your physical, and they even provide a monthly statement with the value of your gold, just like any other investment account. They offer the storage for both IRA accounts and regular taxable accounts as well.

On the issue of banks investing in gold, I am a former board member and investor in a state chartered bank. Ironically, our regulators view gold as a "risky investment." They will not allow us to invest in it, even though our equity is totally at risk. Inflation is a bank's worst enemy (given that they have no debt like most other businesses), and yet we are prevented from deploying the best protection there is--gold. It is maddening.

Michael said...

Another Great post...
Personal experience: Fidelity has a service that will store allocated coins in an IRA and Roth IRA. I have been assured that I can have mine with the proper notice and that I have in fact a certain number of (in my case) Buffalos. I paid 1% commission to purchase.
the only fee is shipping on the way out.
I would dearly love to be able to deposit (small fee acceptable) coins and bars in the USA with the assurances I could withdraw them in (say) Hong Kong or Thailand or...the best would be ANYWHERE THEY OPERATE, (Second best is I can choose the storage location(s)).
This would solve the Sovereign Man suggestion (as well as the Marc Faber suggestion) to have gold stored abroad and alleviate the problem of transport. This is especially true for those who are already ALL INN. We 'believe' but we don't want to sell and re-buy because of the transaction costs.

victorthecleaner said...

JR,

You write the dollar will hyperinflate, but the euro is great.

I explain that the euro is suffering from a huge load of debt in the same fashion as the dollar and that this debt will force the ECB to act like the Fed and to buy bad debt for cash just as the Fed does.

You say that might be the case for old debt, but nobody can force the ECB to pay for future government expenditures by printing money.

I explain in quite some detail why the ECB is on the hook for future government debt as well.

You repeat that you think the dollar will hyperinflate, but that the euro is great.

Let's close the discussion here. In a few years, when you notice that there is a growing gap between reality and your belief-system, you can always come back to this discussions in order to refresh some facts.

Victor

victorthecleaner said...

Alasdair Macleod writes at Gold Money that
Whether or not Venezuela’s gold is held in these fractionally-backed sight accounts, or in earmarked accounts where the gold is held separately, we do not actually know
and
It is a fair bet that the International Monetary Fund’s 2009 sales of 212 tonnes of gold to other central banks are held in sight accounts as a condition of sale. India, Mauritius and Sri Lanka, who bought this gold, must be very nervous.

I wonder what is the evidence for this claim (that the IMF sales have not been allocated gold). I also wonder which price the buyers have paid for the 400 tonnes of IMF gold. Getting 400 tonnes, allocated, for the London spot price would have been a fantastic deal.

Victor

Robert Mix said...

Well, FWIW here are some thoughts re GBI.

First, I have my/our own physical gold stashed in six (now!) different places, three quite handy ("enough" gold in two of those as well), three less conveniently located. It would be VERY HARD for "them" to get all of my/our gold...

Second, I already do have an allocated gold bar stored in a vault (unfortunately located far from me), the refiner, serial number, weight and fineness all arrive on the statement from my bank (the bar is held as part of a long-term trust). Since it is so far from me, I have NOT had a chance to request to go SEE IT, I do not even know the procedures, how much notice to give, etc. I need to get there sometime to "check" that investment.

Third, it sure would be nice (but illegal?) if there was a way to buy gold from GBI anonymously, or nearly so. Make a quiet 10 oz or one kilo purchase here in the USA for cash, and tell them to hold it in Zurich...

Fourth, despite the relative transparency of their business model, HOW MUCH WOULD YOU TRUST SOMEONE ELSE to deliver (or give you upon your visit) your gold if/when TSHTF? I would not buy ALL of my gold from any company like that. Some, yes, OK. As sort of in my case.

Finally, I applaud both his and your efforts (FOFOA) to get me and everyone else into the REAL THING, as I too see a BIG quantum jump in gold coming. When? Beats me?

78Rubies said...

Thanks for yet another outstanding post!

JR said...

Victor,

1) Of course the Euro will print Victor, we live in an easy money world of the $IMFS. From my reply to you last thread

"This Global Financial Crisis is not so much about the dollar as it is about the dollar system, the $IMFS. The dollar system is a system of selling debt as a wealth reserve..."

So how do you view an "old world gold economy" through modern eyes? And how do you move there (FREEGOLD) peacefully with the easy money camp (from the current $IMFS)? ... you don't deprive the easy money camp of their precious fiat.


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

2 - If Freegold is inevitable, its all about being positioned for it when it occurs, no? Then why are you talking about the euro in the context of the $IMFS, like this:

"This is the reason why the ECB is trapped. Either they treat future debt the same way as existing debt and buy a good part of the running budget deficit, or they immediately face the choice between depression versus buying all debt for cash.

This is qualitatively the same decision as in the US."


Its obvious you didn't read what I wrote last thread, so i will repeat it:

"In terms of trying to understand the future debt obligations, think on this:

The euro might quickly devalue against the physical plane during the transition when the $IMFS goes to relieve some of the past debt burden, with gold going up as an asset on the balance sheet to provide an offset for the saver class. not a running hyperinflation, but a devaluation.

A quick devaluation (against the physical plane) in both the euro and the dollar would have very different outcomes for the two currencies.

Remember, its not about printing per se, its about market demand for the currency, the printing is a response to the loss of value. So what happens when both the dollar and the euro devalue? **Very different outcomes for the two currencies.** "


cont.

Biju said...

About GBI and having someone else store Gold for you.

(1) Personally I prefer to have the Gold locally within reach, since I am inherently a paranoid person. external custody is a problem for me.

(2) I believe in the wisdom of our forefathers - which means we store our Gold locally.

(3) Buying physical and storing it locally means there is less tendency of selling Gold due to greed(price rising) or fear(price falling fast). It takes more time to get to dealer and sell it instead of a click of a mouse.

JR said...

cont.

Synthesis:

Fiat currency, for all its flaws, has provided the flexibility and computer-age transaction ease and record-keeping that is valued by not only those few ego-maniacs that believe they can control everything, but also by business and productive enterprise. So it is not going away no matter how good the argument. But the worst of its flaws can, and will, be neutralized. And this is where (what I like to call) Freegold makes its debut.

Here is an important question: Is it theoretically possible for a fiat currency to devalue, or more precisely, to hyper-depreciate against only one single asset without affecting the price of a can of peas?

Of course it is! Just look at any number of investments that have appreciated quickly by an order of magnitude or two. Look at GOOG! Or how about AAPL? When an asset appreciates against a currency can we not also view it as the currency depreciating against that one asset? Or more precisely, can we not say that the asset was awaiting massive revaluation based on market recognition of its value?

Now, what if the revalued asset is gold, a monetary asset held by Central Banks? What could such a revaluation do to today's dynamics of national debt?


cont.

Bron said...

Hi Joe, welcome to the gold business. It is good to see someone addressing the advisor end of the market. While you are going out of your way to eliminate counterparty risk, understand that the hard core physical possession people are still going to see you as a scam. Just don't take it personally.

Some observations/questions (meant in a constructive way):

1. It would be nice to have your client agreement on the website. Devil is in the detail and it is hard to assess risks without the actual legals.

2. There is no mention of who the custodians are, I'm assuming Via Mat is one of them?

3. I gather this - “An internationally recognized auditing firm provides quarterly audit of precious metal holdings for each Broker/Dealer” and “GBI will not have a relationship with any Retail Client by virtue of the Retail Client’s purchase or sale of precious metals through a Broker and GBI will not know the identity of any Retail Client” – means that clients buying via an advisor do not have the metal in their name?

4. In the case of GBI Direct, does the client have an independent signed agreement with the Custodian and/or sufficient personal information that would enable the Custodian to independently verify that a person was the legal owner of metal held with them (eg in the case that GBI ceased business)?

5. I note you say the metal is "fully insured". I'd check on this as it is unlikely to be the case for a custodian with more than a few billion in metal held. By way of explanation, most custodians have a first loss policy with a specific dollar amount of cover. My understanding is that the Lloyds market would be unable to cover over a couple of billion in value per site and the cost to get additional cover in other markets would be prohibitive.

Generally custodians work on the basis that it is physically difficult to steal more than a billion in metal in one theft, so they only get cover for a billion, say. However, the total value of metal stored would be in excess of this. How else do you think GLD's custodian can offer a 0.15% storage fee?

For example, if you are holding $800m with Custodian in Zurich and GoldMoney is holding $800m with same Custodian and the Custodian says they have $1000m in cover, you are NOT fully insured. If there was a loss (which would include fraud/collusion by employees of Custodian as well as theft by a third party) of $1200m worth of metal, Custodian is only going to get $1000m. The question is who is going to take the $200m loss, you or GoldMoney, or will Custodian apportion it between the both of you?

6. Depending on the answers to 4 & 5, I’d be careful about saying “We want clients to own whole bars with zero counterparty risk.” My view is if you don’t hold it yourself, you have counterparty risk, period. I’ve others say that because the metal in their systems is allocated there is no counterparty risk, just “performance risk”. This is semantics. There is risk if you hold metal yourself, there are different risks if you hold it with someone else. It would be better to say ““We want clients to own whole bars with minimal risk.”

JR said...

But then comes the question of unsustainable Greek debt and even "cheating". Well, where did that come from? It came from the $IMFS!

Europe is now living under a new currency, but it is still functioning under the dollar's global financial system that encourages infinite debt accumulation, infinite growth of imbalances, and financial trickery to pretend the system is stable and extend its timeline.

All the benefits and architectural innovations of the ECB stand in place now as a kind of safety net for the Eurozone for whenever the $IMFS collapses under its own weight. And the signs of this happening sometime soon are ominous and many.

It is easy and convenient for the financial press to blame the Eurozone problems on the euro itself. But I am here to show you that they are actually caused by the dollar system, counterintuitive as that may seem...


Unsustainable Deficits

The pressure on the $IMFS is building EVERYWHERE! From Greece to California, from the ECB to DC. And what exactly is all this pressure? It is unsustainable deficit spending... DEBT!

And what is the ONLY solution to this? What is the pressure release valve? It is different depending on whether you are a sovereign net creditor/saver or if you are a sovereign debtor. For the creditor/savers the ONLY solution is CUT OFF THE CREDIT and thereby FORCE AUSTERITY. If you are a debtor, the ONLY solution is DEVALUE THE CURRENCY, or more precisely, ALLOW the currency to hyper-depreciate. Yes, default is an option, but not for a sovereign that prints its own money, and not for any too-big-to-fail entities under the umbrella of such a sovereign...

The US dollar MUST devalue (one way or another) against the entire physical world. Think about this. The euro, on the other hand, might just hyper-depreciate against only one specific asset. An asset that happens to also be a MONETARY asset held by its member debtors.


cont.

JR said...

cont.

"Devaluations always happen by necessity. They can be triggered either intentionally internally, intentionally externally or unintentionally naturally. They happen because they are ultimately necessary to both parties and to nature itself. But the party that feels the pressure most, enough to trigger the devaluation first tends to profit the most from it...


The hyperinflation of the dollar is already a done deal. It has been since the 90's at least. Massive quantities of perceived dollars already exist stored in debt held globally and inside the US. Europe knows this. They have known this was inevitable since at least the mid-90's when they changed plans and went with higher gold reserves for the new ECB. They have always been willing to wait for it to happen naturally, unless the EU itself faces an existential threat from debt brought on by the $IMFS. And in this case, I believe their only option is a targeted hyper-depreciation of the euro.

By "targeted", I mean that the euro devaluation would be targeted to go only into gold. Gold can absorb a devaluation if you do it carefully, and in turn devalue the debt without causing inflationary havoc.

Of course this would cause the hyper-depreciation of the dollar as well. Only the dollar's collapse would be against all of creation, not just one asset."


Cheers, J.R.

M said...

I think krugs, eagles and maples are over priced compared to just solid bars or rounds. Gold will be gold when it matters.

radix46 said...

I don't care how many assurances I'm given, how great the business architecture is, how easy it is to get delivery, or how transparent the reporting of bar numbers is; I simply would never ever ever entrust metal to someone that is not me. I prefer to take the risk myself, rely on my own ingenuity, rather than rely on the word of someone else.

GBI, nor anyone else like them will ever see any business from me. It's nothing personal, just business. My precious is just too precious.

elegantstroke said...

JR,
What if the dollar got the same gold backing as Euro? All that's required is that the gold reserves in the US should be marked to the actual value (and not the transactional value), right?

FOFOA,
Great post. Long as usual, but very informative. One important thing left out was the storage cost. This would matter for investors of small worth.

JR said...

Hi elegantstroke,

Its more like the euro is "backed" by a credible promise gold will flow, so it may be more than just MTM (although MTM is a *big* step).

From It's the Flow, Stupid:

"If Congress DID decide to mark the US stockpile of gold to market today it would find it had a new stream of revenue. At today's price of $1,328 per ounce, the US gold would be worth $347 billion. Subtract the $11 billion already on the Fed balance sheet and Congress could immediately ask the Fed to credit the US Treasury with $336 billion new dollars to be spent.

And then, if they let the value of the gold float, anytime the price rises, they could issue more fancy dollar-denominated gold certificates to the Fed and be credited with new dollars to spend. In fact, at a Freegold price of $55,000 per ounce, Congress could retire the entire US national debt without giving up a single ounce of gold, merely monetizing what it already has through the Federal Reserve. But what will really happen someday soon is the additional step of opening the vault and allowing that gold to FLOW again, but at a floating price. With this one move Congress wouldn't have to retire the entire national debt because credibility would be reestablished.

You see, the European gold reserves are far better, far more credible than the US gold reserve, simply because they engage in a two-way gold market, and have for decades. The US gold has been hoarded and locked away for more than 30 years, never deployed in case of emergency. The European CB's took a lot of flak for selling gold over the past two decades, but that action is precisely what makes them so much more credible (and valuable!) than the US gold hoard. Any trading partner knows full well that if all else fails, gold will be paid.

The price of gold today is unstable. Anyone with eyes can see that. Worse, it's rising. Which means the flow of physical gold in the quantities needed (at today's gold price) to lubricate global trade is drying up.

"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."

But the flow of physical gold WILL be reestablished. The world demands it. It doesn't care how high the price goes, only that the flow is guaranteed. Only the $IMFS seems to care about how high the price goes. And, apparently, that is because the $IMFS is the main printer of paper gold. Flow WILL be credibly and sustainably reestablished, which means paper gold WILL be discredited. Flow is sustainably and infinitely guaranteed at a floating, physical-only price. What that price is in today's world is anyone's guess because we haven't had such a market in centuries."


Cheers, J.R.

JR said...

FOFOA comment to Reference Point: Gold - Update #2

Yes, the U.S. will ultimately mobilize its gold in defense of its failing transactional dollar, as I intimated in the post. But that will be at a much higher price of gold relative to "April 2011 constant dollars". So the gold will go a lot further than it would if we mobilized (physically sold) it today. But it will also be during a crash in the dollar relative to real necessities like food and oil. FOA wrote about this.

I have written in the past that the only hope there is to avoid a full-blown hyperinflation would be for the U.S. to proactively introduce Freegold, even inadvertently. This is not something I just thought of. But I have also pointed out how this scenario has a near-zero probability because the morons in Washington would never think to do that. But heck, it's worth a shot, isn't it?

It is difficult to visualize the coming crash because you have to understand how Freegold and currency collapse can happen simultaneously, yet be separate events. And one can actually absorb some of the other. Quicker, sooner, more open Freegold (less gold in hiding) might equate to a little milder currency collapse.

You suggest the world may say, "Thanks, but you are a day late and many trillion short. We are happy you have joined us at the All Inn, but today, for you, there is an entrance fee."

This will have a lot more to do with the failure of paper gold than paper Treasuries. Treasuries perform by running the printing press. Paper gold performs by delivering physical gold. Try to imagine international claims against the U.S. made up of a "basket" only containing gold and dollars. The dollar is collapsing in value while gold is skyrocketing, and the U.S. has to settle some of these "basket claims" during this dynamic time. Less and less physical gold will combine with more and more dollars to keep the basket even. Can you see the dynamic?


cont.

JR said...

cont.

Oops, bad link above - FOFOA comment to Reference Point: Gold - Update #2

"here's a taste from FOA:

As most of you will no doubt agree, almost all gold discussion still centers around "the dollar's war with gold". Truly, the evolution of this story will be how that war ended then and now the dollar's war with the Euro began! A very large part of that war strategy, employed by the ECB/BIS, was to let the dollar/IMF faction hang themselves by expanding and supporting the whole arena of this dollar paper gold market. Inflating the gold marketplace with so much "paper gold" that we would eventually have to bankrupt ourselves just to keep the dollar in the war game against the Euro.

Because Saudi Arabia is a member of the BIS and marks its currency to the SDR, we are going to be hard pressed, for oil reasons, not to ship [gold] against demands. Perhaps, oil's continued settlement in dollars is directly tied to gold,,,, Do ya think?

Further, much of the current credit in our modern gold market place is backed with this "legal tender" [the SDR] of the IMF. As we have contended for years, 90% of the entire modern dollar gold market is a paper game first, and that will burn as the dollar loses its position as the reserve currency. All these Giants that are holding physical gold and "credible paper" are going to win big as escalating gold values displace their dollar asset base. There are a few of you smart cookies out there that "NOW" understand what we have been getting at for such a long time.

[…]

At the right time the Euro Zone will withdraw from the IMF, leaving the US and its factions as the only support for dollar credit assets held overseas. Then the evolution of SDR use our guide knows so well will be complete. This will leave the SDR interpretation open to only one avenue to finding support: its basket currency function dissolved, gold will have to flow from American based [gold stockpiles]. With most of the present official credit gold leverage built upon IMF protocols, the US will find itself shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates.

With the world credit gold markets paralyzed in default and dollar credibility placed in question along with American economic stamina; physical gold will return to official hands in Europe in exchange for Euros. A paradox observed as high gold places more demands upon Euros and sends the dollar ever lower."


Cheers, J.R.

mortymer said...

JR, how do you see the future of IMF (lets pls distinguish with IMFs as a system) organization? What do you think will happen with their 2814t of gold?

mortymer said...

Bron,
You will maybe find this one interesting:

http://unstats.un.org/unsd/nationalaccount/aeg/papers/m4Gold.PDF

JR said...

Yay mortymer, my SDR friend!!

How well timed. ;) Lets chat about the SDR not as a reserve, but as a UofA!

FOA from my post above:


Because Saudi Arabia is a member of the BIS and marks its currency to the SDR, we are going to be hard pressed, for oil reasons, not to ship [gold] against demands. Perhaps, oil's continued settlement in dollars is directly tied to gold,,,, Do ya think?

Further, much of the current credit in our modern gold market place is backed with this "legal tender" [the SDR] of the IMF. As we have contended for years, 90% of the entire modern dollar gold market is a paper game first, and that will burn as the dollar loses its position as the reserve currency. All these Giants that are holding physical gold and "credible paper" are going to win big as escalating gold values displace their dollar asset base. There are a few of you smart cookies out there that "NOW" understand what we have been getting at for such a long time.

[…]

At the right time the Euro Zone will withdraw from the IMF, leaving the US and its factions as the only support for dollar credit assets held overseas. Then the evolution of SDR use our guide knows so well will be complete. This will leave the SDR interpretation open to only one avenue to finding support: its basket currency function dissolved, gold will have to flow from American based [gold stockpiles]. With most of the present official credit gold leverage built upon IMF protocols, the US will find itself shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates.


MOAR FOA from http://www.usagold.com/goldtrail/archives/goldtrailfive.html :

As this reserve currency transition, or perhaps war is a better term, moves on; the ECB must shift it's thrust with a leadership statement. Wim Duisenberg provided an excellent political cover for selling into the American paper gold market; as it exists around the world today. His national pedigree demonstrated a distinct flavor against gold as a monetary reserve. Truly, the ECB could not be seen prompting all their big bullion banks to short American paper gold, if they ECB / BIS were serious gold advocates. In our time of Western thinking, who could understand such a contradiction? But, politically, the game was to serve two goals; temporally support the dollar for trade settlement until the Euro was on its feet (sending gold prices down); and inflating the American led gold market until it burst from over issuance. A good chunck of this ties into the SDR issue that I'll get to later...

I have presented this topic many times and again state that "all gold paper will burn". Most mine values included. Then and only then will gold values soar as physical units traded. Not before. As an adjunct, the illusion of most American paper wealth will also burn with this process that transitions the dollar away from reserve status.

At the right time the Euro Zone will withdraw from the IMF, leaving the US and its factions as the only support for dollar credit assets held overseas. Then the evolution of SDR use our guide knows so well will be complete. This will leave the SDR interpretation open to only one avenue to finding support: it's basket currency function dissolved, gold will have to flow from American based stocks. With most of the present official credit gold leverage built upon IMF protocols, the US will find itself shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates.


With the world credit gold markets paralyzed in default and dollar credibility placed in question along with American economic stamina; physical gold will return to official hands in Europe in exchange for Euros. A paradox observed as high gold places more demands upon Euros and sends the dollar ever lower.


cont.

JR said...

cont.

Still, as part of this political war of economies and currencies, the ECB / BIS played into our gold war theme. Aside from a separate strategy that kept cheap gold commitments flowing for cheap oil,,,,, Euroland played our gold war, too, as we murdered the paper marketplace along with the whole dollar gold system it was built on. I think that the US, just recently, caught on to the "total meaning" of the Washington agreement and is now rethinking what to do with their position.

They shifted their war on gold to become a war on the Euro,,,, only too late. Now, knowing that the Euro is a fact, we must have a super gold price if the dollar is to stay in the game! The question becomes one of supporting a cheap paper price for the sole function of keeping the market and all its bullion players alive. With the war on gold over, they need to turn their tanks around to face the real enemy but cannot.

If we try to save the dollar gold markets, they will morph into a pure paper system with no gold supply to back them; paper would eventually be priced way below world physical markets. They will become a pure cash settlement item, in a way like the OEX. This will easily drive oil pricing into Euros. If we adopt a week dollar policy, trash the IMF and it's SDRs (prior to ECB withdrawal) we will have to supply gold bullion outright and allow a true market price based on some currency supporting function; still at thousands per ounce. Our entire anglo - London gold markets will spin off hugh,,,,, nation busting financial loses. By the way,,,, this is why our boy is driving for EMU as soon as possible. (smile)

In all of this; the main story / component is oil supply! We must keep our dollar function, if only in a diminished fashion, in order to buy oil imports. Once the dollar fully fails, everyone (our partners like Mexico and Canada) will bolt for using Euros as reserves and international settlements. OIL value in the US would spike sky high even as local inflation drives alternative energy supplies to become uneconomic to produce. Even at $200 a barrel equivalent.


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

Yay! Mortymer, from above regarding your talk of the IMF:

If we adopt a week dollar policy, trash the IMF and it's SDRs (prior to ECB withdrawal) we will have to supply gold bullion outright and allow a true market price based on some currency supporting function; still at thousands per ounce....


Because Saudi Arabia is a member of the BIS and marks it's currency to the SDR, we are going to be hard pressed, for oil reasons, not to ship against demands. Perhaps, oil's continued settlement in dollars is directly tied to gold,,,, Do ya think?

Further, much of the current credit in our modern gold market place is backed with this "legal tender" of the IMF. As we have contended for years, 90% of the entire modern dollar gold market is a paper game first, and that will burn as the dollar loses it's position as the reserve currency. All these Giants that are holding physical gold and credible paper" are going to win big as escalating gold values displace their dollar asset base. There are a few of you smart cookies out there that "NOW" understand what we have been getting at for such a long time.


Cheers, J.R.

JR said...

on more FOFOA snip from above for Mortymer, its along the line of the SDR forcing gold to flow as the dollar falls:

Try to imagine international claims against the U.S. made up of a "basket" only containing gold and dollars. The dollar is collapsing in value while gold is skyrocketing, and the U.S. has to settle some of these "basket claims" during this dynamic time. Less and less physical gold will combine with more and more dollars to keep the basket even. Can you see the dynamic?

I know you see Mortymer, do others?

mortymer said...

JR:
A side comment first...
["my SDR friend!!" please leave for once those personal issues and labeling aside. Once you call me this then that. I try to map the landscape and see where we are and how the monetary plane is changing. I have a different approach than you and instead of archives I search in present documents. I do not prefer the SDR over gold. How could I? There is nowhere to run than gold anyway... That is more clear even to those who do not get it. SDR is anyway not for public... I am quite positive that freegold will appear one day, just not sure about the timeframe and how the IMFs could play this...
It seems to me that IMF card and its SDR is used to slow and soften the transition and that is all... What I see is IMF org getting closer to the BIS view and there is a big cooperation between CBs how to transit. The usage of SDR by CBs is atm expanding. IMF takes more central role closer to BIS. I try to see what is that about. So please do not misinterpret, I am not a friend of SDR at its present valuation as a pool of currencies.]

OK, this I found interesting:

"...The allocation of the SDR can be shifted from a purely calculation-based system to a system backed by real assets, such as a reserve pool, to further boost market confidence in its value..."

http://www.pbc.gov.cn/publish/english/956/2009/20091229104425550619706/20091229104425550619706_.html

Michal said...

The GBI sure looks interesting, but I would encourage FOFOA and all readers to read the whole BullionVault Contract, Description and FAQ before bashing it publicly. I know it is quite extensive, but from what I can see here few have done that. In fact, I am defending BullionVault against those who say that it doesn't fit the $IMF to FreeGold transition. I would appreciate any comments on what is inferior about this particular service so that I could take the necessary steps if persuaded otherwise.
Quick pointers:
1. The gold is allocated and is in your private outright ownership (i.e. no 'gold money').
2. It is stored outside of the banking system.
3. The gold is deliverable in any quantity - coins and bars (subject to a fee).
4. Your account is permanently linked to your bank account so literally 'money is for spending, gold is for saving'
etc.

The only difference I see between GBI and BullionVault is that GBI offers allocated coins and bars instead of allocated grams in BV.

My question is - is that such a gamechanger?

mortymer said...

If I could post my humble opinion about a "Game changers"...

The introduction of a New player into a pool of already existing ones (thought a young and improved one) is not a "game changer" - it just forces higher competition into the physical market and is good at the end for public with their different "tastes" and "risk attitude".

The question (of G.Ch.) is how much they will compete with the paper gold market and that is unsure as of yet.

The biggest move IMHO came long time ago unnoticed from international accounting standards, classification, harmonization and the treatment of un/allocated gold and it has been a long process.

So the GBI is rather a consequence of the realized niche in the market not as much a reason.

Jeff said...

Gold should never, ever be shipped by UPS. They will not honor insurance claims for bullion, though their website does not specifically address the question. There are many threads online re: this issue and calling the company will yield different answers.

Gold should only be shipped USPS registered and insured. It is more work for the shipper, but the only secure way to do it.

Michael H said...

signing up for comments ...

Kid Dynamite said...

Joe/FOFOA/Bron -

How do you have true allocated storage of any bullion less than a full bar? Ie, yes: bars have numbers that you can put on the statement. Coins do not.

???

-KD

sean said...

Interesting news report of (physical!) gold being sold in India in 100 mg quantities:

JR said...

Hi Mortymer,

Think of it like "my friend" who understands lots about the SDR, not a "friend of the SDR." I know you are firmly on board with gold as the primary SoV/international reserve.

FOA in bold:

"All these Giants that are holding physical gold and credible paper" are going to win big as escalating gold values displace their dollar asset base."

I think the SDR is "credible paper," or "international paper gold assets."

"Some of then involving the current SDR discussion and how its evolution has changed the face of modern bullion banking. Randy Strauss offered a very good map of how these international paper gold assets came into the world."

Yes paper will burn, but there are a few giants who will get the physical for their gold, like the oil giants holding "credible paper." FOA:

"But, politically, the game was to serve two goals; temporally support the dollar for trade settlement until the Euro was on its feet (sending gold prices down); and inflating the American led gold market until it burst from over issuance. A good chunck of this ties into the SDR issue that I'll get to later."

So the dollar is overvalued because of the paper gold market. So when the paper gold market bursts, the dollar goes down and real physical soars:

"At the right time the Euro Zone will withdraw from the IMF, leaving the US and its factions as the only support for dollar credit assets held overseas. Then the evolution of SDR use our guide knows so well will be complete. This will leave the SDR interpretation open to only one avenue to finding support: it's basket currency function dissolved, gold will have to flow from American based stocks. With most of the present official credit gold leverage built upon IMF protocols, the US will find itself shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates."

"In all of this; the main story / component is oil supply! We must keep our dollar function, if only in a diminished fashion, in order to buy oil imports."

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

FOFOA:

"Yes, the U.S. will ultimately mobilize its gold in defense of its failing transactional dollar, as I intimated in the post. But that will be at a much higher price of gold relative to "April 2011 constant dollars". So the gold will go a lot further than it would if we mobilized (physically sold) it today. But it will also be during a crash in the dollar relative to real necessities like food and oil. FOA wrote about this…

This will have a lot more to do with the failure of paper gold than paper Treasuries. Treasuries perform by running the printing press. Paper gold performs by delivering physical gold. Try to imagine international claims against the U.S. made up of a "basket" only containing gold and dollars. The dollar is collapsing in value while gold is skyrocketing, and the U.S. has to settle some of these "basket claims" during this dynamic time. Less and less physical gold will combine with more and more dollars to keep the basket even. Can you see the dynamic?"


Cheers, J.R.

d2thdr said...

QUOTE FOFOA - I believe it is perfectly safe today (as long as the wheels stay on this bus) to store your gold with a credible custodian. And I believe it will be perfectly safe, and perhaps even preferable, to do so in the new monetary system of the future. But the time of "peak risk" will be, I believe, that brief period of phase transition between the $IMFS and Freegold-RPG. UNQUOTE.

Stasis- Punctuation- Stasis.

I wont trust any third party to keep gold safe.

1 Gold coin in your hand is worth 10 in a custodians safe.

Isn't this how banking eventually started? People kept gold in bank and then they got pieces of paper.

Paper game is well and truly over. To trust another custodian to hold your gold is insanity.

DP said...

_

Gary said...

Oh dear.. I was just about to open an account with Goldmoney, and now I have to think again!

Those that have taken possession, and have mentioned spreading their storage/safe places...I wonder are you able to give any clues/tips for the sorts of locations you use, without giving away your own locations of course.

I find it annoying that here in the UK, if I want to buy more than £5k of physical, I have to supply my ID and address!!
I also worry about how governments will tax the eventual gains when the gold is eventually sold. I fear THEY will get us one way or another.

About to take the plunge though!

I am a UK-based financial adviser, been talking to my clients about holding physical, even though it earns me nothing...long-term I hope I will have my clients gratitude and continued business.

Thanks FOFOA, I will donate something this week.

mortymer said...

The search for a new global monetary system

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/the-search-for-a-new-global-monetary-system/article2143016/

R.Mundell :o)

"Nobel economists say euro zone will survive"

MatrixSentry said...

I have to say that I am of the opinion that gold should be real and in hand. I have taken early distribution of 2 IRAs, paid my tax and penalties, and bought coins. I also have the ability to borrow against a 401k and purchase gold in hand. The major issue I face is that in addition to the 401k I have an employer funded direct contribution retirement fund that currently is funded at 12% of my total compensation and is limited to standard brokerage options such as stocks, ETFs, and mutual funds. This money is is trapped and I lament this fact. The best I can hope for is that I can park this money in Sprotts Physical Gold Trust (PHYS) and somehow survive the transition.

Between the 401k and the DC fund, my employer contributes a total of 14% of my compensation compared to my zero. I save in physical gold only. I suspect many are trapped (partially) in paper such as myself, does anyone have any better ideas on how to best protect this money?

mr pinnion said...

Gary,

You can rid yourself of as much cash as you like if your prepared to travel round a few city centre jewellers shops, so i m told.Thats if your ok with circulated gold sovereigns .A bloke in a pub said uk bullion ltd in sheffield is a good place to pick up a few 1oz coins.Theres also a few in London.Shop around.
As for a hideing place,only you can decide that.Try to be origional though.I m going to have to find a new place for mine now FOFOA s mentioned the sock draw(damn you FOFOA!).
And if the Gov. come for your gold,and your as careless as me,you will have lost most of it in an unfortunate boating accident anyway.

Regards
Ozzy

Michael said...

I have always had a floor safe. I once bought a house without one and was able to rent a jack hammer from Home Depot and do a retro installation. If you are considering doing this be prepared to dig a much bigger hole than you'd think...and buy the smallest safe you can get. As I recall it was quite an effort.
Also, I always keep some 'gold' at home in my biggest safe. It is fake and can be found on ebay as 'replica' coins and bars. The coins are convincing. In fact they are such good copies I am considering getting rid of them for fear I'd be accused of counterfeiting. They do not pass the test of appearance or weight but they are enclosed in plastic so the thief would probably not notice in the heat of an armed break in.
The bars weigh 1 OZ but do say, in fine print something like '.0001 ounce gold plated'.
I do this because enough people know I have an interest in gold that some fool might decide to see if I have some. ....they should come prepared to be shot...but fools are fools...

sean said...

Remember folks, the importance of portfolio diversification. This means, not just gold in you sock drawer, but some under the bed, some in the freezer, and some under the rosebush!
More seriously, goldmoney has some aspects which I think make it worth considering for storing part of your hoard. For one thing, I don't see the attraction of keeping everything "within easy reach". What if you have to relocate suddenly?? It may not be desirable carrying your life savings with you. Also, I don't think my landlady would like me jackhammering the floor up to install a safe. And I don't own a gun.

I am interested to know what particular concerns people have about goldmoney apart from the fact that it is not "within easy reach". They do hold 100% of the metal owned by customers, and you can hold it in London, Zurich or HK. You can also take delivery of in 100g or 1 kg bars.

mr pinnion said...

you see ,this is the one big hang up i have about freegold.security.

If a 1 oz coin can buy you a house after freegold, criminals will go to extream lengths to find and steal them.

I would not recomend storing your gold in a house.Only so many hiding places in a house.As for shooting them?If they ve got any sense they will watch your house and wait till you go out.
Fake gold?I ve thought of that as well so any half intelligent criminal will have.

Remember, we are talking post freegold when lots of people are poor and desperate and with the job situation, probably with lots of time on their hands as well.
Just think, thugs rob drug stores for a few hundred dollars, risking their lives in the process.
If a 1 oz coin will set you up for life and is easy to sell....

No easy answers i m afraid.
Regards
Ozzy

Motley Fool said...

Being a LNW individual I prefer it all in my hands physical. :)

Bron made some good point. The only thing I would add is more locations worldwide.

TF

mr pinnion said...

I have to ask..LNW?

78Rubies said...

LNW = low net worth.

Michael said...

mr pinnion
Yes security is increasingly becoming an issue even now. At some point one just has to accept that after alarm systems and good neighbors and good locks there is only so much one can do. If I do find myself suddenly wealthy because of freegold I'll upgrade as is prudent. It would be ironic if we have to have bodyguards just because we were kooky contrarians at the right time.
Now you have me thinking about a hollowed out volcano and some neatly dressed henchmen....whaaa ha ha ...whaa ha ha

M said...

@ JR


"Because Saudi Arabia is a member of the BIS and marks its currency to the SDR"

a soft peg to the SDR or something ?

M said...

@ Mortymer


"Nobel economists say euro zone will survive"

They tend to get invited to the Bilderberg meetings.

M said...

Why should Saudi Arabia get much gold for their oil anyway ? I'm really starting to understand why ANOTHER says the west has been over-paying for oil. I understand the Saudis logic in wanting a real asset for their oil but they are screwing the west. Oil is just a commodity, the Saudis think they are so great for having this commodity but its like any commodity. It gets consumed, its no asset. Oil isn't the "end all" that the peak oil freaks say it is. They are not selling an asset when they sell oil.

Most domestic energy needs could be fulfilled with the technology we have today, nuclear and natural gas. Industrial and residential power could be supplied with nuclear and cars can run on nat gas. Even bunker fuels that get used up by ocean freighters is a facade. If the US aircraft carrier fleet can run on nuclear, so can every freighter on the ocean. That will be a declining industry anyway, when world trade is settled in a realistic way. Oil demand will eventually decline, even with a rising world population. The oil industry has been getting lucky with big nuclear disasters, because that's the only thing keeping demand for oil up. Natural resource "assets" are over-rated. Japan is one of the biggest economies and creditor nations in the world and she has no natural resources. Its about time reality hit these oil states. They think they are Gods gift to the world. They are still too stupid to do something productive with their oil money. Rather then making capital investments in productive industry like a real economy, they get caught up in the housing bubble and build some useless city in the middle of the desert, on credit. Now Saudi Arabia has plans to build the tallest building in the world, bigger then the one in Dubai. Hopeless fools.....

Robert Mix said...

@ Biju, sean and Motley Fool

I too mentioned some of the issues you all raise. Geographic diversification is an important issue for me.

And though this may irritate mighty costata, I think it is perfectly OK to have some Ag and Pt as further diversification. I have been open in saying that I THINK that freegold will happen, but I do not KNOW that... I DO agree with FOFOA and costata that the bulk of PMs should be held in GOLD.

I have no real problem with having SOME gold with a GBI or with one of the current private vault services. PARTICULARLY if in another (stable) country).

But, I want the bulk of my precious close at hand and NOT in the hands of others. And by being creative and clever you can probably hide your gold successfully from all predators at home. Or at your office. Or in the desert. Etc.

Michael said...

In the last thread this reference appeared:
http://fofoa.blogspot.com/2010/04/gold-money-more-than-meets-eye.html

Wow! Most of the mysterious mutterings of Another are well explained here. I have been reading FOFOA for over 3 months and I have to say that this is the one that gave me the most "ah ha" for the reading minute. I suggest that any 'suggested FOFOA reading list' contain this article. It is probably not the place to start but once you get into trying to comprehend Another, this one does it. It helped to have those 3 months under my belt but I wish I had found it sooner...thanks..

Chico_hawk said...

Just a couple of points from my own observations.

Sites like GoldMoney & BullionVault are ok if you have large enough holdings (50 troy oz's or more) - otherwise, your holdings will get eaten up by storage fees & transaction charges - which will be charged in bullion, not dollars!!!

Also, if you are in Canada, you can hold bullion in a TFSA (or RRSP or regular account) via Questrade & take delivery of it on request.

The bullion is available in 1 oz coins or bars & is held at the Royal Canadian Mint. When I questioned Questrade what happens to my gold if Questrade were to go bankrupt, I was advised that I would still be able to access my gold at the Mint (presumably via a Trustee in Bankruptcy and/or providing evidence to the Mint of my Questrade account & its holdings), though I'm not sure how quick the process of retrieving the gold would be.

The one advantage of a TFSA is that all gains in the account are tax free when withdrawn, unlike RRSP.

Motley Fool said...

Michael

You will find it is in the list of links on the right hands side. Link number four to be exact. :)

TF

Robert Mix said...

@ Michael 5:32 PM,

Wow, what a great idea, a "suggested FOFOA reading list". FOFOA has cranked out so much good stuff since 2009 when I started reading him it is hard to remember it all.

What's say JR (and/or any others who know Another/FOA/FOFOA's work better than I do)?

I started reading here about Sept. 2009 (just before FOFOA came up with his beautiful Gold Price Probability Distribution Curve, with its peak probability at $55,000) and only read a little bit of his earlier work. Since, I have read a fair amount of FOA. And I have read everything by FOFOA since, although not always understanding everything. LOL.

A FOFOA Reading List, what a great idea.

I nominate "The Shoeshine Boy" as one article.

Mike said...

Chico Hawk

if you take deliviery of your gold via RRSP you will need to pay taxes on it and you will no longer have it in your RRSP just like with any other RRSP instrument you withdrawl. seems kind of pointless to buy gold this way. might as well buy it physically and take deliviery and not through questrade for RRSP.

same with TFSA, whats the point, you will no longer have tfsa as gold when you take deliviery so there is no point on doing it this way.

just buy it outside tfsa and rrsp.

mortymer said...

This is what I call a game changer:

http://anotherfreegoldblog.blogspot.com/2011/08/un-substantive-comments-on-draft.html

It contains two links if you want it without the highlighted parts:

http://unstats.un.org/unsd/nationalaccount/AEG/papers/m5chapter11.pdf

and

http://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf

...and as I mentioned this has been a long process, one can follow the proposals etc here:

http://search.un.org/search?as_q=&as_epq=MONETARY+GOLD&as_oq=&as_eq=&ie=utf8&output=xml_no_dtd&client=UN_Website_en&proxystylesheet=UN_Website_en&oe=utf8&as_q=&q=&adv=true&as_occt=any&site=&lr=lang_en&as_qdr=all&as_filetype=&num=10&sort=score&Submit2=Search

mortymer said...

JR,
Good post, thank you, could you please elaborate on this:
"At the right time the Euro Zone will withdraw from the IMF"?

mortymer said...

@M: R.Mundell is sometimes called a "The Father of Euro"

Among his major contributions are:

Theoretical work on optimum currency areas
Contributions to the development of the euro
Helped start the movement known as supply-side economics
Historical research on the operation of the gold standard in different eras
Predicted the inflation of the 1970s
Mundell-Fleming model
Mundell-Tobin effect
~wiki

edgeofcaos said...

I understand perfectly those of you that want to own the gold in hand, but the thing is that you can never be without risk. You just exchange some risk with others.

By having the gold in hand, you are exposed to a higher risk of being robbed, that you would have with the gold stored in a high security vault facility, not to mention the liquidity risk after the revaluation.

To own guns, and to have "castle laws" (like texas) that allows you to shoot a stranger on sight is something not common outside the US. :) So the risk is very real...

So I think it still is a sensible solution to have fully reserved gold in a high security vault, using Goldmoney, GBI or BullionVault.

In my case I prefer BullionVault. It is cheaper than Goldmoney, and the fact that it allows you to trade in 1g units, makes it more appealing than GBI. They work under a 'bailment' contract. So they could all go bankrupt and the gold is still yours.

Because of the rise of the gold price, Indians are trading coins with 100mg of gold. So, why not 1mg, 10^-6g or less?

To me physicality is a mean to an end, not the end itself. It garantees, that the store of value can be audited and be fully reserved with no intersecting claims, so my savings are not diluted.

I do not want the coins or the bars! What I want is a store of value that can't be diluted by corrupt bankers and politicians... It could be anything! Gold just happens to be the better way of realizing that.

Michael H said...

For a FOFOA reading list, try the one at the bottom of the post:

http://fofoa.blogspot.com/2010/12/freegold-in-proper-perspective.html

JR said...

Hi Mortymer,

I don't want to get too far afield, because this GBI discussion is, to quote a real smart dude, a "game changer."

Anyway, in brief elaboration on "At the right time the Euro Zone will withdraw from the IMF"? , lets start with Of Currency Wars for one big idea:

Yes, the name Freegold refers to an emergent system. But its ultra-high valuation of gold is also an anticipated prize. A prize that has been paid for through the support necessary to keep the dollar system alive for decades beyond its natural timeline, and to keep the price of gold metal low while it found its way to where it was wanted. With the tight supply of physical today we can assume that most of the metal has now found its home. And that those entities that have been waiting patiently for the prize and faithfully supporting a system at end of its life can now be expected to withdraw their support. "To pull the plug" so to speak.

This is what we are seeing today. From the central banks' gradual shift from sellers into buyers, through the Central Bank Gold Agreement, five years at a time, to India, China and Russia now showing an open interest in physical gold, the signs are everywhere. In the past, large entities like central banks would never openly express a desire for physical gold because it would move the markets. The last time we saw such a move Charles de Gaulle demanded official gold at its fixed price of $35/ounce, and such was all it took to end the entire global gold standard. Talk about moving markets! So it is no small thing for central banks to openly want gold.


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

CBs removing their support by gradually shifting their support of $IMFs debt as a the reserve, ala this idea form me

Remember from miner49er, all the ROW has to do is slow the accumulation of dollars aka demand them less (exponential growth is a bitach) and as a result the FED will print itself into HI (but note the trigger is the loss in value of the $ which is caused by the "credibility deflation" of the ROW slowing the accumulation of dollars as reserves aka demanding them less).

Here is some commentary one miner49er, FOFOA's post "Dilemma" and dollar repatriation not happening and more on the same

cont.

JR said...

cont.

FOFOA comment from "Of Currency Wars" to a clueless goon noobin' it up:

"...I cannot give you the blow by blow that you ask for, but I can still show you what must happen. And it is helpful in this regard to work backward from the future until we come to two choices that will both result in the same end.

First is that we are facing a systemic shift from the $IMFS to Freegold. Don't forget that the actual value of an individual transactional currency unit (even a euro) doesn't really matter in the context of its primary function. So even though one currency is built for the new, emergent system, I would still not want to be holding that currency through the transition.

Second is that Greece's debt cannot be paid back in real terms, and neither can the aggregate planetary debt. It doesn't really matter if it is not paid back through default (bankruptcy) or through devaluation of the currency... it will not be paid back in real terms. But devaluation of the currency is certainly the more politically acceptable route.

Third is that all this planetary debt (including Greece's) is a function of the $IMFS. The eurosystem, even though it was built to thrive under Freegold, is still supporting the $IMFS. The action to look for is the passive action of withdrawal of support."


See that:

"The action to look for is the passive action of withdrawal of support."

cont.

JR said...

So in FOFOA's next post after "Currency Wars" was "The Gold Man" (not Goldman) at the BIS . Here FOFOA elaborated on his priro comment from of "Currency wars" to that noob fool. In particular, FOFOA was following up on this idea:

"Third is that all this planetary debt (including Greece's) is a function of the $IMFS. The eurosystem, even though it was built to thrive under Freegold, is still supporting the $IMFS. The action to look for is the passive action of withdrawal of support."

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

So in "The Gold Man" (not Goldman) at the BIS , FOFOA wrote:

As I explained in an answer to a question in a recent comment, there are two things I am watching for right now. The first is any sign that the non-dollar factions are starting to abandon the $IMFS, and the second is the emerging favorability of gold as the reserve of choice to replace the dollar.

Here is my comment:

.....

And now here are a couple examples of the kinds of stories I am watching for.

Europe Begins Abandonment of the $IMFS

Europe bars Wall Street banks from government bond sales
Guardian UK
Monday 8 March 2010 21.36 GMT
...

And from Jesse yesterday:

Wall Street Excluded from European Government Bond Sales...

"The Gold Man"

BIS Board elects Christian Noyer as new Chairman
8 March 2010...


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

FOA:

"At the right time the Euro Zone will withdraw from the IMF, leaving the US and its factions as the only support for dollar credit assets held overseas. Then the evolution of SDR use our guide knows so well will be complete.

This will leave the SDR interpretation open to only one avenue to finding support: it's basket currency function dissolved, gold will have to flow from American based stocks.

With most of the present official credit gold leverage built upon IMF protocols, the US will find itself shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates."


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

See what FOA says - "the Euro Zone will withdraw from the IMF, leaving the US and its factions as the only support for dollar credit assets held overseas."

Its all about the denouement of the gradual transition away from the $IMFs, which is a system of dollar debt, as a the international reserve currency.

As FOFOA has commented:

"This Global Financial Crisis is not so much about the dollar as it is about the dollar system, the $IMFS. The dollar system is a system of selling debt as a wealth reserve..."

Cheers, J.R.

Extend, or End? said...

Hi Mortymer,

have you listened to James Turk's interviews with Ned Naylor-Leland and Richard Poulden?

do you think the Pan Asia Gold Exchange is in the category of a game-changer?

local 10-ounce gold contracts due out this year via the Beijing Gold Exchange through 60 locations in China

international 10-ounce gold contracts due out the first quarter of 2012 via PAGE with storage in Zurich, China, London, Middle East

a non-leveraged physical market according to the interviews - chain of integrity via Chinese Government

should put alot of stress on LBMA and Comex

Michael said...

Motley F
I'm not understanding which 'link #4' you mean.
I see the list of FOFOA in chronological order and the suggested links to Another et. al....am I not seeing something else on the right?

Motley Fool said...

Hi Michael

I'm sorry. Let me clarify. :)

http://www.usagold.com/halloffame.html

TF

tudsy said...

Is anybody else bothered by the fact that GBI uses a master/sub-account structure? I suppose this is necessary to facilitate easy trading, but it still seems to add a bit of counter-party risk.

Thoughts?

sean said...

Hi Chico_Hawk,
why do you state that only holdings of >50 Oz (of gold, I assume you mean) are worthwhile in goldmoney? Storage is max 0.18% per annum for any amount which sounds pretty reasonable to me... it would take over 550 years to "eat up" your account!
Perhaps you are interested in trading though, in which case of course there are transaction costs - but this website is not about trading.
I'm yet to hear any valid argument against goldmoney for savings greater than the minimum redeemable amount (100g).

mortymer said...

@EoeE: NO and I do not know.
There is this post which you could maybe find relevant to your question:
http://goldchat.blogspot.com/2011/07/pan-asian-gold-exchange-hype.html

SilverSquirrel said...

Hi FOFOA, I found what I think is a baby step towards full competition in currencies as FA Hayek and the "Austrians" suggest. You've heard of the new gold ATMs, but now there is also an ATM in Vancouver that dispenses five different fiat currencies. Short blog post here:

SilverSquirrel said...

http://thesilversquirrel.blogspot.com/2011/08/bank-of-montreal-offers-foreign.html

Blondie said...

@Extend, or End?,

The interview with Ned Naylor-Leyland describing PAGE is a must watch IMO, as I agree that this has the potential to be a real game-changer.

Note that the all-important fully allocated spot gold contract has not yet been launched, and even Ned appears in the dark as to the exact launch date, although it is expected before the end of the year.

@mortymer,

I see no reference in Bron's post to the allocated contract at all. There is a long list of exchanges and reference to ETFs as giving the investor plenty of options when seeking exposure to gold, but AFAIK none of those are allocated, in which case we are not comparing apples with apples, are we?

Perhaps Bron can clarify; it appears to me that when that was posted there was no knowledge of the allocated contract, just the 10oz unallocated which is already trading.

I suggest listening the the linked interview to get a clear and well articulated analysis, and drawing one's own conclusions.

costata said...

Hi SilverSquirrel,

Five currencies! That is very interesting. Thank you

mortymer said...

Blondie, I answered "No", as I have not listened it - yet, and I would not make any conclusions without it and the only place I think could give relevant answer I would trust is Bron.
You are right about the un/allocated, and thanks for clarification.

Motley Fool said...

Something that amuses me: In my native tongue Bron means Source. Strangely apt wouldn't you say? :P

Aquilus said...

@Blondie and All

In the Leyland interview, from the "going long" side, it is made clear that he's talking about allocated contracts, and that when leasing gold, title to the gold changes - both very important issues IMO.

One thing that he does not talk about is shorting. In order to short, do I just post margin and short, or do I have to have the amount of gold that I plan to short on deposit with the exchange?

To me that's critical as to whether this exchange will be a game changer or not.

Does anyone have any clear picture on this point?

Thanks.

raptor said...

http://www.youtube.com/watch?v=cU8VoafEb00

New pan Asian gold exchange-On the Edge with Max Keiser-07-29-2011

Jonas said...

They said Gordon Brown sold half of Britain's gold, but I just saw a video on CNBC of the GLD storage facility which happens to be located in London. I guess they've gotten it all back and then some! Lucky London! Cash settlement will of course follow for those who thought it was "their" gold in the GLD...

mortymer said...

@Jonas:
http://anotherfreegoldblog.blogspot.com/2011/08/imf-gordon-brown-about-uk-gold-sales.html

Indenture said...
This comment has been removed by the author.
Chico_hawk said...

@Mike - if you hold gold coins/bars in your TFSA, and gold appreciates considerably in value as most here expect it will, those gains will be tax free and you can withdraw your coins/bars without any tax implications.

Increases in the value of your coins held outside a TFSA would be subject to a capital gains tax in Canada (assuming you are honest & report it).

@Sean - Per Goldmoney's website, Storage Fees are deducted monthly from your Holding (with a minimum fee of 0.1 goldgrams/month & all storage fees are calculated and paid in goldgrams - which equates to a minimum of 1.2 grams/year.

and if you store your gold at different locations (i.e. London & Zurich & Hong Kong) you pay separate full storage for each location.

If you ever want to take delivery of your gold (which should be the whole point of the exercise), the minimum amount you can take is 100 grams (which at current going rates means over $6,000 plus 2.49% commission)

But since you will pay at least 1.2 grams per year in storage, you'll need to buy more than 100 grams just to be able to take delivery of that amount, since storage charges will reduce your gold holdings.

so for small shrimps, it makes little sense to store small amounts with GoldMoney instead of holding personally.

Mike said...

Chico_Hawk,
Yes i understand it but its still not worth the risk. Who knows what the RCM will do. remember a few years back gold somehow went missing there.

Paul I said...

Hi Mortymer

Very interesting find: Treatment of gold in the SNA.

The SNA is the System of National Accounts, a UN initiative to standardize national accounting. So, the SNA Advisory Expert Group (UN accountant eggheads) meets in 2007, to discuss feedback from various nations and banks, on proposed changes to the standards.

"There is only one substantial issue to be consulted to the AEG. This is a new issue on monetary gold that has evolved in the discussions of the BOPCOM for the revision of the fifth edition of the Balance of Payments Manual (BPM5)."

Translation: Eggheads - We’re all cool, except we have a problem with gold.

"Comments from the ECB - The definition of monetary gold has to be modified following the recent discussions on [the topic] also distinguishing between gold bullion (allocated monetary gold) and unallocated gold accounts."

Translation: ECB – You know how we agreed that paper gold is not the same as physical gold...

"Situation to date. 1. The AEG agreed that allocated gold accounts would be treated in the same way as physical gold... 2. The AEG also agreed to treat unallocated gold accounts (and similar accounts of other precious metals) as financial assets, specifically as a form of the SNA category currency and deposits. This is a change from the 1993 SNA."

Translation: Eggheads - We’ve already discussed this. Account for them differently. Gold is gold and paper is paper. (and silver is "other")

"New proposal. The proposal now is that, in addition, unallocated gold accounts held by monetary authorities as part of foreign reserves, where the counterparty is a non-resident, should be classified as monetary gold. So, it is suggested that the definition of monetary gold include physical gold and unallocated gold accounts held by monetary authorities with non-resident units. The rationale for this is that reserves are managed by treating physical gold and unallocated accounts as interchangeable."

Translation: ECB – We can’t do that eggheads. That would show how much Gold is on loan to the bullion banks, gold which we hold but they are on the line for. It’s all mixed up together and we don’t know how to unravel it. We’re fucked!

"Henceforward, monetary gold will (conceptually) consist of two sub-items. The first, to be referred to as gold bullion, will consist of physical gold and allocated gold accounts owned by monetary authorities (and others subject to the authorities’ effective control) and held as a financial asset and as a component of foreign reserves. The second sub-item will be unallocated gold accounts held by monetary authorities (and others subject to the authorities’ effective control) as a component of foreign reserves with non-resident units. In practice, for reasons of confidentiality, the two sub-items may not be shown separately."

Translation: Eggheads – OK. Calm down. Here’s what we do. Have one line for actual gold you own, or you’ve loaned to banks you can strong arm it back from. Then, open a second line for all the fucked up gold that’s been loaned out, sold a 100 times, borrowed, shorted and disappeared to Mexico. BUT KEEP IT SECRET. On the public books you can value the whole lot at the paper price. On the "private" books, we can value the lines properly. If you actually manage to get any of the unallocated back, just shift it to line 1. Problemo solved.

"Gold bullion remains an asset with no counterpart liability. Unallocated gold accounts do have a counterpart liability. When they are regarded as part of a country’s foreign reserves, they are part of monetary gold (as stated above) and the counterpart is a liability of monetary gold in the rest of the world"

Translation: ECB – "Thanks Eggheads. Your our heros!"

Extend, or End? said...

more details from Richard Poulden regarding the Pan Asian Gold Exchange

http://www.goldmoney.com/video/poulden-turk-interview.html

holdinmyown said...

Interesting article @ FT.com titled IMF and Eurozone Clash Over Estimates

http://www.ft.com/cms/s/0/16d26bc8-d3f5-11e0-b7eb-00144feab49a.html#ixzz1Wf1O7rg6

"International Monetary Fund staff have provoked a fierce dispute with eurozone authorities by circulating estimates showing serious damage to European banks’ balance sheets from their holdings of troubled eurozone sovereign debt."

Sounds like the IMF is trying to provoke the ECB. This is in addition to Lagarde's recent comments at Jackson Hole. The IMF may be doing themselves more harm than good with these comments as any harm done to the European banks (causing panic) would also likely have a negative impact on the US and UK banks as they are all interconnected.

Edwardo said...

More on how QE3 comes about, but this time from Bruce Krasting.

http://www.zerohedge.com/contributed/feds-plan-rumors-news

mortymer said...

Paul 1, its important to look into the latest version of SNA. You were IMO quoting MMs from 2007 I think, sorry cant recheck atm.

mortymer said...

JR:

Thanks for repost, I liked this part most: "...The action to look for is the passive action of withdrawal of support..."

Anyway, to sharpen the understanding I offer for this:

"...The last time we saw such a move Charles de Gaulle demanded official gold at its fixed price of $35/ounce, and such was all it took to end the entire global gold standard. Talk about moving markets!..."

...as this is connected, to get a background...

http://aei.pitt.edu/6922/1/dillingham_alan.pdf

...and about CBs openly wanting gold...

IMF:
"Section 7. Obligation to collaborate regarding policies on reserve assets

Each member undertakes to collaborate with the Fund and with other members in order to ensure that the policies of the member with respect to reserve assets shall be consistent with the objectives of promoting better international surveillance of international liquidity and making the special drawing right the principal reserve asset in the international monetary system."

http://www.imf.org/external/pubs/ft/aa/aa08.htm#7

-> So they can not do that openly :o) and have to be veeery slow not to shake the boat.

Then there is a this one:

http://anotherfreegoldblog.blogspot.com/2011/09/what-international-monetary-system-for.html

...so we get to the scope of the event. I am not saying that you are not right and the conclusion is as you claim but I am just trying to point out other things to consider and that it is not an easy straight forward road from A->B. :o)

And about a "game changer" I interpret this as something which changes the direction very substantially... In my view the change has happened already with those accounting rules back then, the fact that GBI is introduced is a consequence of that, before that it would not make a big difference as unallocated had an advantage, the change in rules changed it thus GBI has realized and is populating this new niche. As nature hints it would happen anyway...
So yes, it is kind of a game changer but I tried to look deeper than that, to the ecology, framework.
So can we maybe agree about not agreeing?

Indenture said...

Thanks EorE: Richard Poulden talks with James Turk

"What people miss often about China is when the Chinese say they are going to do something, they just do it."
"It (PAGE) will start trading it's local contracts in the fourth quarter of this year."

Bron said...

mortymer,

I had seen the SNA papers and tend to agree with Paul I's "egghead" analysis - in the end there is no forced requirement to split out physical gold from unallocated from leased out, so they can continue to play their games.

Kid Dynamite,

I've posted on this issue here http://goldchat.blogspot.com/2009/04/gold-and-silver-how-do-i-own-thee.html In my view "true" allocated can only be for full bars and coins. Bar numbers help in trusting the custodian, but can still achieve the same with unnumbered bars and coins by marking them (eg texta). One way to really test if allocated is being offered is to ask if you can view your metal and if there will be any problem if you mark your coins and bars.

Blondie,

I'm underwhelemed by PAGE. So there may be a "fully allocated spot gold contract". Guess what, we sell the 300t of physical gold we refine each year at spot in the OTC market - the buyers can be totally private. I don't think we will see much trading moving to PAGE beyond what bullion banks will feed it to meet local demand as other buyers aren't going to want their activities out in the public and visible to the benevolent Chinese Govt.

The Giants are going to continue to deal with the bullion banks in the OTC market where they can wade about without anyone knowing.

Boopstir said...

commerical

Another had the real meat. Everyone else is just chewing the cud

Dont get me wrong, I love FOA & FOFOA, but after a while it looses all flavor.

Waiting for the time when the real meat is served up again!

holdinmyown said...

Gold and silver Liberty dollars may be subject to seizure. What next? Will they declare all non-currency bullion bars/rounds to be counterfeit?

http://www.economicpolicyjournal.com/2011/09/gold-liberty-dollars-coins-may-be.html

Indenture said...

Read this: CNBC Visits SPDR Gold Shares' Controversial Vault
Then watch the video

Extend, or End? said...

Like FOFOA notes - it really comes down to trust. So I went over to GBI's website to look at the senior management team. I see an adviser to the Carlyle Group, an ex-SEC chairman, a consultant to Goldman Sachs, an ex-NATO Supreme Allied Commander, a senior manager of casino operations, an ex-marketing and credit specialist for Merrill Lynch, an ex-derivative product specialist for Merrill Lynch, an ex-operations guy for Merrill Lynch and a systems developer for Wells Fargo.

So I did a wiki on Merrill Lynch because I couldn't remember all the water under the bridge over there. Surrealistic stuff going back further than the bankruptcy of Orange County. And now they're the wealth-management arm of Bank of America. I find that kind of funny but I have a weird sense of humor. You should read the wiki history just to try and get a sense of what it must have been like to be a part of that machine in the days when it was placing financial land-mines that it ultimately tripped over - blowing itself up in the process.

And how does NATO and the Carlyle Group and Goldman Sachs fit in the Freegold scenario? Why do those names leave a bad taste? Could it be that they are part of the $IMFS support structure? And Wells Fargo - don't even go there.

I'm sort of viewing this BGI as a strange bird. Just a gut reaction. Maybe it's a circling-of-the-wagons affair. Set up to compete with other physical gold-trading operations in order to pull gold into the United States. Not that there's anything wrong with that.

I'm just trying to decipher the macro level events that are leading to a Freegold scenario. If the Pan Asia Gold Exchange has been in the works for four years and is intended to facilitate the Renminbi playing a larger role on the world stage then the currency wars that we so love to analyze may have more to do with gold than with printing. If one has to buy Renminbi's to purchase the PAGE gold-contract it will likely cause Renminbi reserves to be increased globally at the same time that gold is drawn in to China and under Chinese control at their other depository locations.

How would the elites of the $IMFS react to that? We assume per A/FOA's outline that the USA will need to lose alot of high-priced gold in order to keep the dollar in play. And we also assume that gold-mining operations in the USA will be either nationalized or taxed to the max. In other words, confiscation during a real crisis. My concern is that just as gold mines are easy pickings for governments - so too is vaulted gold whether it's inside or outside the banking system. Contract law has no army so to speak.

The recent interviews with Jim Rickards reveal an interesting thing. He's connected to the defense establishment and has pointed out that gold on US soil is pretty much US property. That must rattle people listening closely. Possession is 100% of the law perhaps. And since we're in a war now - one that hopefully ends without too much bloodshed - strategic moves are being made regarding who has the gold when the dust settles.

I can't picture how most of the US population won't support confiscation of vaulted gold at a point where they have lost significant portions of their wealth through devaluation of assets and inflation of the currency. Why would they think that contract law should stand in the way of that when it didn't stand in the way of their wealth being obliterated?

So at an individual level I don't see the benefit of BGI or PAGE. But as tools of supposed warring factions they hold a promise of finding a better price-discovery for physical gold. And maybe the BIS is acting in the manner of the World Wrestling Federation and helping to coordinate the final allocations of gold during the late-stage of the endgame. I doubt that it's a true war but more a realistic simulacrum of one. That's my hope anyway.

Extend, or End? said...

Bron said:

"I'm underwhelemed by PAGE. So there may be a "fully allocated spot gold contract". Guess what, we sell the 300t of physical gold we refine each year at spot in the OTC market - the buyers can be totally private. I don't think we will see much trading moving to PAGE beyond what bullion banks will feed it to meet local demand as other buyers aren't going to want their activities out in the public and visible to the benevolent Chinese Govt.

The Giants are going to continue to deal with the bullion banks in the OTC market where they can wade about without anyone knowing."
======================================
OK, what if China wanted all of those 300 tons working on behalf of the Renminbi? And other tonnage as well?
Is there a way to do that without appearing belligerent?
Can the giant that is China wade about without anyone knowing? Or without zooming the price?
Is the point actually owning as much gold as possible or some mix of gold reserves and currency stability?

This Freegold forum isn't looking to figure out how the system works today - it seems they've got that pretty well figured - but how it will work in the future and during the transition to Freegold. And it seems that the A/FOA thesis is that the bullion banks of today are in-the-crosshairs of the future. So I wonder if it's relevant that giants of today can access tonnage via the OTC market or that local markets will be fed by bullion banks.

I'd think no more relevant than the fact that us shrimps can still go down to the coin shop and pick up an ounce or two on most days. Will that be the case after Freegold emerges?


(( continued ))

Extend, or End? said...

(( continued from above ))

Another said the BIS has a full-view of who has what and which paper will be honored after the Freegold transition. In that light it seems like the so-called free-market of today is going to become even less free in the future. Perhaps what we know as bullion banks today and their function will be replaced by depositories fed by government-directed flows of gold, as unappealing as that may sound. Bullion banks have carried out central bank policy thus far and perhaps they have reached the end of their timeline as the dollar has.

I'm not carrying water for PAGE or BGI but it seems to me that PAGE's design is much simpler and serves a market that in terms of Freegold pricing would consist mainly of persons of wealth with a 10-ounce contract going for $500,000 or more. I don't think it's a question of benevolence because the chain of integrity will have a direct bearing on the perception of currency management. Something Jim Sinclair quipped about in the past comes to mind - that he'd rather have his money with Madam Mim's Mudhut in Singapore than with Wall Street.

I'm not trying to be cantankerous but if we are on a path to Freegold and currencies will continue to exist and be judged in relation to gold, then there has to be an infrastructure that facilitates it. That's what I'm trying to decipher, not how the world works today but how it will work in the future. I'm of the opinion that Randall Strauss is as prescient as any gold commentator on the planet and if he thinks Freegold is happening in 2013 then there'd better be something other than the existing system that is well past the drawing-board stage.

I don't agree with FOFOA that it has to come in the night. It could well look like a market-driven thing - even though it's being managed by the likes of the BIS. That may be an easier scenario for those who'd like to keep some semblance of control on things. That could be an easier scenario on the individual as well. That's why I like the exponential hypothesis as it would give individuals an incentive to get their houses in order as they see the price increase like never before.

BTW - if I was organizing the PAGE roll-out I'd put the depositories on sovereign land in the various countries where they will exist. Embassy land. Staffed with government employees. No need to visit your gold. No serial numbers. If you have a contract you get your 10 ounces - end of story. No third-party depository relationships. Totally seamless control of the chain-of-integrity. How long would it take in these technological times for there to be a run on the depository if word got out about a renege? Does China want to flub this opportunity? I kind of doubt it.

Blondie said...

@ Bron,

The significance I see in PAGE is as a physical gold price discovery market. If it is fully allocated contracts that create the spot fix, then I see an arb developing between the existing (paper-based) exchanges and PAGE where the contracts are backed by physical.

Such an arb develops until the two are differentiated by the market as a physical spot price and a paper spot price.

Given the choice, which price do you think the sellers of the 300t flow through the Perth Mint may prefer, bearing in mind that you are not shipping paper? I don't see why Giants could not continue to trade physical OTC at the physical spot rather than the paper.

The significance of such an exchange has nothing to do with who operates except that they be big enough to operate it, and clearly China is that.

victorthecleaner said...

Some thoughts on the Pan Asia Exchange allocated gold contract. Naylor-Leyland basically said it, but somehow this part of the story usually seems to get lost.

So far, it has been difficult for international investors to own the renminbi. The investment banks have come up with a few ways of creating synthetic renminbi exposure. For example, one could buy Shanghai class A shares of some company (denominated in renminbi) and sell short shares of the same company in Hong Kong (denominated in HK$). This is dirty and plenty of things can go wrong with such a position.

Now there is another method: Long the allocated contract at the PAGE and short gold in US$ with some BB or at the COMEX. For the investor this is as good as holding renminbi versus US$ plus the potential windfall when physical gold achieves a premium over contract gold.

Now let us assume that a large number of investors decide to go for this option. This means that gold at PAGE would trade at a premium over LBMA and COMEX, creating an arbitrage opportunity, namely taking out physical gold at London or New York and shipping it to Kunming.

There are several ways the Chinese could block the synthetic renminbi trade via gold if they wanted and I do not know the relevant small-print. But if it goes ahead as described, the key question is whether there is enough demand for synthetic renminbi vs US$ in order to draw a substantial amount of gold away from London and New York.

Victor

Extend, or End? said...

Good lord, is everybody talking their book or what?

What a hoot - I was reading Ed Steer's column today and he ran across a quote by John Hathaway - "I think owning physical gold is a dumb idea" - so they exchanged e-mails and Hathaway backtracked a bit defending ETF's as the appropriate venue for small investors and then he used his neighbor as an example - he's got a bunch of 100 oz bars of silver and CAN'T FIND A GOOD BID - so I go over to Tulving's site and his buy is spot minus 25 cents and his sell is spot plus 50 cents - so .75/41.50 = 1.8% spread. Am I missing something? And Hathaway is also on BGI's advisory board - makes sense - the little guy just should not be managing his own affairs. Am I being too cynical? Trading physical with Tulving is a piece of cake and he pays shipping and insurance (Lloyds) in both directions. I've had more difficulty settling with E-Trade. And this was an article that promoted the idea of $3,000 gold at the same time that it discouraged physical possession. That's an interesting combo. Just thought somebody else reading here might find this amusing. Who knows, maybe his neighbor is lurking here.

Robert Mix said...

Here's something nice, a German device for non-destructive measuring purity of PMs. From my blog:

Zero Hedger "unky" found the below:

http://www.aurotest.de/welcome.htm

R. Mix comment:

They have an English language part of their page there.

Their US distributor is:

Future Digital Scientific Co.
www.fdsc.com
Tel: 516 349 0663

holdinmyown said...

Another sign that European and UK banks are in crisis ... coming soon to a US bank near you.

http://www.telegraph.co.uk/finance/financialcrisis/8736204/Central-bank-flight-to-Federal-Reserve-safety-tops-Lehman-crisis.html

Bron said...

Blondie,

Just to be clear, in the wholesale markets the price of paper unallocated gold with a bullion bank in London and physical gold are the same. Tonnes and tonnes of physical deals (as well as paper) are priced off the London Fixes. The Giants don't need PAGE as a "physical gold price discovery market" - it already exists in the OTC market. There already are arbitragers between paper futures exchange and "contracts backed by physical" ie allocated and spot physical deals.

This is not to say it will always be like this, but right now paper price = physical price. Through all the ups and downs of the past five years and all the rumors of imminent market failure I have not seen paper and physical diverge.

As to PAGE being a way to get renminbi exposure, well that will be interesting to watch but note what Victor said "long the allocated contract at the PAGE and short gold in US$" - the end result is no impact on the gold price because the long cancels the short.

Wendy said...

mortymer,

I vey much appreciate your blog and the links....BUT......it's more info than I have time to go through.

I'm at work for 40 hours out of every week, and when I get home I have to do shopping, laundry, dishes, dinner etc. and fix broken stuff.

I would love if you would please give more than a [mrt] short sentence. I really value your opinion and wish that you would use a few more words.......from me the anti-pontificator ;)

costata said...

Spin

If you compare gold prices in currency the numbers in this report from Kitco take on quite a different aspect don’t they?

(Kitco News) - The U.S. Mint sold more ounces of gold and silver bullion coins in August than it previously had since January. Total sales of American Eagle gold coins rose to 112,000 ounces in August, the Mint’s Web site shows. This is up 73.6% from 64,500 in July and the most since 133,500 ounces were sold in January. Further, the figure represents a 170% rise from the same month in 2010. However, figures for the year to date are down from last year. Sales during the first eight months of 2011 totaled 752,500 ounces, compared to 866,500 ounces in the same period a year ago.

Meanwhile, U.S. Mint silver-coin sales rose to 3,679,500 ounces in August, also the most since January, when sales totaled 6,422,000. The August total was up 24% from 2,968,000 ounces in July and up 50% from the same month in 2010. Year-to-date figures show sales of 28,951,000 ounces, up from 23,600,500 in the same period of 2010.


Kitco reports that “figures for the year to date are down from last year”. Yes, the “volume” of gold Eagles is down but the value is dramatically higher YOY. The gold managers appear to have succeeded in lowering the demand/volume through (allowing?) increasing prices for gold but a different story emerges for “and silver”.

Despite higher prices the silver bugs have stepped up the volume of their purchases from 23,600,500 ounces last year to 28,951,000 YTD. Impressive.

The comparison with the January silver Eagle sales figure is also misleading. Some of you may recall that December silver Eagle sales seemed to fall off a cliff after several months of rising sales.

According to my research at the time roughly two million ounces of that January total was restocking December sales from dealer stock. I also exchanged some e-mails with FOFOA about the tax issues for dealers that incentivize them to reduce stock going into the end of December. He mentioned receiving "IRS sale" offers around Christmas in prior years from dealers who have him on their Yeti mailing lists.

The monthly silver Eagle sales have been consistently strong if you exclude the dip around the time of the pump and dump by the "spiders". The games are far from over in my opinion.

(BTW does anyone have a credible source for figures on silver imports into the USA? I saw a report a while back that claimed imports were around 60 million ounces per annum. That report gave no source for the estimate.)

Paul I said...

Bron

I like Ned Naylor-Leyland's analogy.

Right now, the gold spot market is like a big, stupid, compliant Labrador, Perth Mint included. It doesn't mind having it's tale wagged by the paper market. PAGE will turn out to be a snarling Rottveiler.

It's obviously hard for us prawns to see the machinations of the opaque gold markets. But for me, if you tried to design a "marketplace" that diverted as much demand as possible away from what the market was supposedly selling, you couldn't come up with a better design than the gold market currently in place in the West.

Quite frankly, as an Australian, it makes me sick to see our national gold wealth sold off for pennies on the dollar. I may be naive, but I have to ask why an organization like the Perth mint hasn't long ago tried to maximize value for Australia and Australian gold mines by proposing something along the lines of PAGE.

Instead, we see them pushing massively over-priced "collectable coins" to Grandmas in Post Offices, more demand divertion, very little education.

Just look at the front page of the perth mint website. http://www.perthmint.com.au

It looks like a Franklin Mint reject dumping ground.

Apologies for my bluntness.
Got out bed the wrong side.

Paul I said...

Bron

"I have not seen paper and physical diverge"

Check this out

2011 Platypus Dreaming 2.5g Gold Coin AUS $ 260.00

mortymer said...

Wendy, for 37,5h/week I am flipping certain sw burgers so most of you can call your friends; negative :o)
Bron, thank you. To separate physical gold in unallocated from leased would be at this stage too much, they got so far to clear definitions and on what is allocated what is not and that is a progress.

Aaron said...

Hi Costata-

These numbers unfortunately aren't comprehensive, but FWIW this 2011 data comes from the U.S. Geological Survey. Under Salient Statistics line item 3 Imports for Consumption reports 3,840 tons which unfortunately excludes coinage, and waste and scrap material. In metric tonnes that's 123,456,000 ounces, more than double the report you saw with 80% coming from Mexico and Canada.

--Aaron

costata said...

Hi Aaron,

Thanks for that info on silver imports. Interesting number. That link isn't working for me but I can find the document now that I know where to look.

Exclusion of coinage is no big deal. Those numbers are not hard to guesstimate.

Scrap is probably not a factor. As Bron pointed out a while ago silver scrap is mainly sold and refined locally because it is not high enough in value to justify shipping it around the world.

costata said...

Form Factor

One usage of the words “form factor” is the description of the geometry of a product. A smaller form factor can be an asset if you want to pack more into a given space. This article talks about a recent change in the demand for fabricated gold in Abu Dhabi.

Abu Dhabi´s jewellers have already adapted their business model to new market conditions. Sharply rising gold prices have led to a decline in jewellery demand in the United Arab Emirates, so many local jewellers have started offering gold bars to their clients.

This is odd. I have commented previously on the distinction between gold bullion and fashion jewellery. As Jim Sinclair points out gold jewellery in Asia and the ME is sold by weight and purity.

It is wearable bullion not a fashion statement. So to suggest, as this piece does, that there is a declining demand in the UAE for gold jewellery is misleading in my opinion.

I would argue that this is a change in demand for the type of fabricated bullion that customers want. These last few lines may provide the clue (my emphasis):

At Al Awadhi Jewellery, one of the largest jewellers in Abu Dhabi´s gold Souk, about 30 customers a day ask for gold bars, from 100-gram to 1-kilogram…… According to Al Awadhi´s management, the demand for gold bars of these sizes has increased by 60 per cent in the last two months.

Demand comes primarily from wealthy and middle-class investors seeking for safe investment alternatives.


It would be difficult to believe that these are first time gold buyers who have not purchased any bullion jewellery in the past.

Perhaps these customers are demanding bullion bars because they need to shift more wealth into gold than their wives and daughters can carry concealed under their burqas in the form of bullion jewellery.

So in the same vein, the preference for bullion bars over jewellery suggests that there is a preference not to display this wealth.

I would go further and say that this indicates a desire to have gold in the smallest form factor (relative to value) in order to make it easier to hide and/or transport.

J said...

Costata,
Muslim men do not wear gold for religious reasons. If they're buying gold for themselves it makes sense that they would purchase it in bar form. That could be a contributing factor to the shift.

Motley Fool said...

costata

"Scrap is probably not a factor. As Bron pointed out a while ago silver scrap is mainly sold and refined locally because it is not high enough in value to justify shipping it around the world."

By scrap you mean tiny amounts of silver used in various forms that are not cost efficient to reclaim?

So junk silver (sterling) would not be classified as scrap?

Thanks

TF

mortymer said...

Side note:
This is kind of funny
"http://sfoa.org"
a Swiss "FOA" in this org :o)

aeolus said...

ECB Doesn’t Rule Out “PIIGS” Gold as Collateral for Gold Backed Eurobonds


Today, the President of the ECB, Jean- Claude Trichet did not rule out a gold backed euro bond in an interview with ‘Il Sole 24 Ore’ published on the ECB’s website.

The comments were a response to former Italian Prime Minister Romano Prodi who proposed - in Italian national daily business newspaper ‘Il Sole 24 Ore’ last week - the creation of a euro bond backed by member states’ gold reserves.

Prodi was President of the European Commission from 1999 to 2004.

Trichet was asked about “the creation of a fund guaranteed by the gold reserves of countries that would issue bonds to buy back national debt and make new investments.”

Trichet did not answer the question directly but said “at this stage, we have the EFSF bonds, which are bonds with a European signature. The main message of the ECB Governing Council to governments is to implement rapidly, fully, comprehensively the decisions taken by the European heads of state and government on 21 July.”

Reuters reported today in an article entitled ‘Gold sales would not solve Europe’s debt troubles’ that “Europe’s most indebted nations are under heavy pressure from their richer neighbours to sort out their finances, but they are unlikely to mimic the impoverished gentlefolk of old by selling off the family silver — or in their case, gold – to do so.”

Reuters recount how senior German lawmakers and politicians have advocated so called ‘PIIGS’ nations sell their gold to fund “bailouts”.

Reuters says that the “demands ignore the fact that this gold is not the property of the PIIGS' governments to sell.”

"Foreign exchange reserves are held and managed by central banks, not by governments," said Natalie Dempster, director of government affairs at the World Gold Council. "Forex reserves are set aside for specific purposes - defence of currency, payment of external debt obligations and payment of imports."

"In the past you could have had incidences where governments might try to overstimulate their economies by running exceptionally loose monetary policy before an election," she said. "That is a reason why it is critical, in an advanced economy, that central banks are independent”, said Dempster.

With regard to Prodi’s proposal to create a euro bond backed by member states' gold reserves, Reuters said such proposals remain little explored according to analysts.

GFMS' Klapwijk said that "it has slightly surprised me that some of them haven't looked harder at some creative uses of gold in terms of gold-backed bonds, which might be a useful way of trying to lower the cost of borrowing."

"But again, they come up against the fact that the scale of the borrowing required is so large that there are probably other ways of trying to deal with the problem rather than using gold. That would probably be a drop in the bucket."

Separately the Central Bank of Ireland has said that it will not disclose whether the gold reserves of Ireland (a paltry 6 tonnes) have been swapped or loaned out or had any other receivable status recorded against them (see Commentary below).

A senior administrative officer for financial control at the Central Bank of Ireland responded to an inquiry regarding the custody and ownership of Ireland’s gold reserves: “The bank is not, however, in a position to provide further information, nor to outline its investment strategy in relation to the gold holdings.”

Gold’s lack of counter party and debasement risk and its safe haven status is resulting in it being slowly remonetised in the global financial and monetary system.

Gold’s status as a finite monetary reserve makes it ideal collateral today especially with the risk of contagion in the Eurozone and wider global financial system.

source: http://www.zerohedge.com/news/ecb-doesn’t-rule-out-“piigs”-gold-collateral-gold-backed-eurobonds-sends-gold-soaring

Paul I said...

"With regard to Prodi’s proposal to create a euro bond backed by member states' gold reserves, Reuters said such proposals remain little explored according to analysts"

Reuter's analysts needs to read more blogs...

costata said...

J,

I did not know that there was a religious prohibition on men wearing gold. But I'm not sure that it is a factor in this shift.

MF,

Basically anything old made new again (melted down) could be classed as scrap.

If it is not reclaimed it is "consumed". In other words not economic to recover.

costata said...
This comment has been removed by the author.
Jonas said...

GATA on the GLD vault:
http://www.gata.org/node/10372

Motley Fool said...

Hey costata

Well then your comment has me completely confused.

You see, afaik copper is worthwhile enough to export and re-refine.

Well, copper is about $9,100 per ton at present and silver is about $1,380,000 per ton at present, and silver isn't high enough in value but copper is?

Sorry, that makes no sense to me.

TF

d2thdr said...

Extend or End?

The problem FOFOA has described is like this; this is not a dollar problem it is the dollar system which is the problem.

Freegold and US dollar hyper inflation are 2 separate events.

.....

I personally see PAGE, Euro launch as a step towards RPG.

I also see QE3-QE*N as events which force HI.

I also believe that PAGE will be very short lived. With the eventual separation of physical and paper gold price, the need for PAGE will be over. BIS will organize the rest. Or the world will just switch to gold, forget that dollar existed and carry on.

holdinmyown said...

An informative article on Reuters regarding the use of gold as collateral.

http://www.reuters.com/article/2011/09/02/uk-gold-europe-idUSTRE7811BN20110902

"And back in May, German politician Frank Schaeffler told Bild newspaper that Portugal should sell its assets. "Before risking other people's money, Portugal should first sell its family jewels, especially its gold reserves," he said.

But these demands ignore the fact that this gold is not the property of the PIIGS' governments to sell.

"Foreign exchange reserves are held and managed by central banks, not by governments," said Natalie Dempster, director of government affairs at the World Gold Council. "Forex reserves are set aside for specific purposes - defence of currency, payment of external debt obligations and payment of imports."

"In the past you could have had incidences where governments might try to overstimulate their economies by running exceptionally loose monetary policy before an election," she said. "That is a reason why it is critical, in an advanced economy, that central banks are independent."

Two years ago the Italian government's proposal to tax the unrealised gains on its gold reserves was promptly slapped down by the European Central Bank, which issued a legal opinion to block the plan in July 2009.

The ECB said the move could violate a ban on using central bank resources to finance the public sector, risked breaching the Bank of Italy's independence and threatened to weaken the country's finances."

whiteelefant said...

Hi,
I have been following freegold for quite a while now (as well as transferred a larger portion of my holdings into Au, mostly physical), although not a member of the All Inn club (yet?).

Actually I was here under something like jkkjkjijkj through wordpress, but the system doesn't want me to login anymore, I hate blogger ;), so now I am trying it out with a google account... lets see.

There is one question which I was wondering about: the Au/Ag ratio. Silver bugs are talking about a historical ratio as well as the ration of Au/Ag in most mines/earth crust which should be around ~15 to 20. With Freegold, this ratio would be even further off the historical/mining average than it is now, most likely into the 3 digits realm.

Would there be a permanent increase in the ratio after Freegold, or could we expect that it'll move back to 2 digits? Any thoughts from the experts here?

Motley Fool said...

Hi whiteelephant

You are unlikely to find consensus, but the purists, which would include FOFOA, would hold that ratio will remain in the triple digits after Freegold.

TF

costata said...

HMO,

That "legal opinion" would be an interesting thing to read.

MF,

According to Bron the Perth Mint relies on mine supply of silver for its refinery as very little scrap silver finds its way to them.

I see your point about the price of copper and silver. I would be interested to hear Bron's thoughts on this. Is it merely a question of price?

Indenture said...

whiteelefant: The historical ratios get thrown out the window when you realize that wealth will flow into gold and not silver. Gold can hold the wealth of the world.

JR said...

Indeed Indenture,

From Kicking the Hornets' Nest

"...the international monetary and financial system (the IMFS) is in transition today. It is transitioning from the old $IMFS into the new IMFS. And through this transition gold is going to replace dollar assets as the monetary reserve asset, and in so doing, will recapitalize the failing system of today. This is the esoteric part, where you need to put in a little effort to understand why I say this with such confidence. Without that effort you will most likely dismiss my words when I say that gold's value will soar during this transition and deliver a one-time gain to physical gold holders in a sort of "punctuated equilibrium."

This means that one day gold is cruising along with its known relationship/ratio to things like silver, oil and bread, and then the next day (or over a brief, one-time period) it gaps up ~40x and then reestablishes a new equilibrium with the aforementioned commodities. And the gain of this transition is only afforded to the physical quantities of gold in the world, which is why the chain of paper promises (of gold) floating throughout the financial system is so dangerous.

Yes, silver will run with inflation just like all physical assets. But it will not have the additional boost of being the new system's official reserve asset. This probably doesn't seem so significant to the silverbugs, but then again, most of you who have taken the time to understand Freegold now call yourselves ex-silverbugs..."


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

Equilibrium

"...this is what Freegold is all about. It is about deducing the inevitable implications of an unstoppable avalanche. And it is about fiat currency finally finding its natural equilibrium with a parallel physical gold wealth reserve. And trust me, fractional paper gold promises won't work in this new world, so equilibrium will likely be somewhere north of $50,000 per ounce (and that's from just the functional change, don't even ask me about the inflation-adjusted price)."

Cheers, J.R.

holdinmyown said...

@M

Hello M. Just thought that I would let you know that the 10 year US treasury yield closed at 2.02% today ... an all-time low. Yes, even lower than in December 2008, the previous all-time low. Still think that long term bond yields can't possibly go any lower?

Blondie said...

re: PAGE

Some details regarding the operation of the Pan-Asian Gold Exchange which may assist the discussion-

No shorting.

Entire exchange allocated.

No margin.

Allocated trades create the daily spot fix (obviously).

sean said...

The silver bugs expectation of a reversion of the Au/Ag ratio is patently absurd. If you believe that, then I have some other news that ought to worry you: gold is way over-value compared to its long term ratio to salt!

Motley Fool said...

Hey Blondie

PAGE margin rules

"A margin system is a system in which certain funds of traders are frozen by the Exchange in the course of gold transactions. The minimum margin is 5% of turnovers, and other margin types are 10% and 100% of turnovers. In accordance with needs of traders, the Exchange may allow traders to choose appropriate margin types after risk assessment."

Not so sure about all those claims of yours. ;)

TF

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

Note that your link is to an interim draft.

Motley Fool said...

Blondie

I see. That is very very interesting.

I am curious about one thing though. Covered shorting (as opposed to naked shorting) does serve a valuable purpose in trading.

For one thing it is useful to push the price down when it is overvalued.

Granted in this case out hypothesis is that the price is so far from normal that that shouldn't even be relevant at this stage.

The other is that shorting creates a support when prices are falling drastically. With no shorts, price volatility increases.

Once again here our position would indicate that this also is not relevant, since who would be willing to sell physical in volume into falling prices at this stage of the game.

What I find curious is how traders will interpret these rules; having lack of our insight.

Regards

TF

whiteelefant said...

Thanks to all for the confirmation of how I understood Freegold.

Concerning PAGE: my impression is that any offer which is closer to physical than what the LBMA & Co offers might be taken up and will push the price of Au up. But, I am only a small shrimp and not into finance

Blondie said...

@whiteelefant,

I agree with your impression. The price of physical gold would rise, quite distinct from the price of paper claims on gold.

Let's see what happens.

Jeff said...

PAGE does allow margin and states it clearly on several pages of their site. Unless Blondie or someone else has a link to PAGE which states the opposite you can safely assume margin is allowed. Because it is.

Jeff said...

Article 10 Transaction modes

10.1 Gold transaction adopts a form of margins. The current types of margin suggested by the Exchange are 100%, 10% and 5%. Traders may choose different margin types in accordance with their needs to conduct trading activities. The Exchange may adjust or introduce margin types based upon market situations.

Blondie said...

Jeff,

my information is that those draft rules are for the domestic 10oz mini contract - more a speculative vehicle for the chinese market, not the intl facing spot contract. The two are quite separate.

The exchange and contracts are not operational yet, not all details are finalized, and this is reflected in the information available.

The interim draft is just what it says it is.

Michael said...

Does anyone know why Kitco has a flat line from about 10:30 to 11 AM today?
http://www.kitco.com/charts/livegoldnewyork.html
was trading halted?

Paul I said...

The PAGE margin applies to the currency side.
It is gold price positive. It means a buyer can put down $1000 and have 10oz physical allocated to them. Balance paid on delivery. Opposite to western market, where $1000 is supported by 0.005oz

whiteelefant said...

What Paul I says sounds reasonable, you are buying the right to allocated gold, as compared to buying the right to allocated paper ;) in the western market.

Does anyone have an idea when the first trading day will be?

costata said...

Hi Blondie, Paul I et al,

Re: PAGE

My initial reaction to PAGE was that there should be no leverage. Recently I came to the opinion that leverage on the currency side was irrelevant. The key point is that the gold itself is not fractionalized. If PAGE said no margin that doesn't prevent someone from borrowing outside the exchange and trading a 100% cash account with PAGE.

We should also not underestimate how much the Chinese love to gamble. The paper gold market appears to be going gangbusters right alongside the development of the physical gold market according to this article.

"More investors are moving into paper gold because of the lower capital costs. The prospect of making big and quick bucks by betting on gold's ascent is beginning to look like a fairly easy way to make money," said He Wei, a gold analyst at Nanhua Futures.

The Shanghai and Hong Kong exchanges appear to be the venues for paper gold trading and PAGE appears to be designed to be a physical-only exchange.

Alarmed by the surge and worried that the giddying climb in prices was encouraging excessive risk-taking, the SGE raised margin requirements twice this month to 12 percent.

The explosive interest in gold investments has also led investors to move to less mainstream derivative products offered by over-the-counter exchanges that have sprung up in recent years, bringing about new risks given the lower margin requirements.

The Tianjin Precious Metals Exchange, established in 2010, has seen a leap in demand for its swap contracts.

"The capital outlay for swap contracts is even lower and it's becoming a popular investment instrument," said Han Qingsheng, a trading manager at Gold Day, a brokerage for the Tianjin Precious Metals Exchange.


I interpret phrases like "fairly, easy way to make money" as a warning that it is time for a reality check.

Robert LeRoy Parker said...

I interpret phrases like "fairly, easy way to make money" as a warning that it is time for a reality check.

But this type of behavior and opinion often goes on for far longer than anyone expects.

As long as paper gold rises, the system remains intact. So what bursts first, paper gold or treasuries?

According to Blondie's pyramid of safe haven flows, and as M has alluded to, it will be treasuries that bust either first or perhaps simultaneously. Should we look to gradual rising treasury yields and falling (paper) gold prices as confirmation that freegold is set to begin? Or will it be some sudden exogenous event that collapses dollar demand?

IMO,it seems that as long as treasuries stay strong so will paper gold. And as of right now, the game continues as usual, only with increased pressure and more volatility.

What constitutes a reality check? A pump and dump in paper gold? Is this even possible without catastrophy? Would treasuries stay strong in such an event? What becomes the safe haven? My limited view sees either hyperinflation and RPG or continuation of the status quo.

Edwardo said...

RLP asks,

"So what bursts first, paper gold or treasuries?"

With the ten year T-Bond yield now under 2% we are, in my view, nearing the point when our present Def Con 2/2.5 condition goes to Def Con 1.

T-Bonds all across the curve will be treated as what they, in effect, are, less liquid equivalents of non-yielding, zero maturity instruments, aka (FRNs) cash, subject to all the volatility and gyrations that mere currencies are prone to.

JR said...

RLP says,

"According to Blondie's pyramid of safe haven flows, and as M has alluded to, it will be treasuries that bust either first or perhaps simultaneously...

RLP, YMMV but in my experience, you're best starting from "FOFOA has commented" than "M has alluded"
Not surprisingly, its good for your brain too!

I was just reading the comments above and I saw a commentary about this FOFOA fella's thoughts and it (not surprisingly) contradicted the entire premise you advance RLP. As it appears you didn't see it, I'll re-post it - the big idea is its all about paper gold, not treasuries.

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

FOFOA commentary quoted above:

"What past transgressions will we be paying for? We've OVER-paid for Saudi oil for 30 years now, with low priced Western gold. And China has been eating up our Treasury paper for a decade now, like they just can't get enough of it. Yes, there is a transgression we'll pay for, but it is not our national debt. It is the entanglement of the paper gold market in the dollar/IMF architecture....

I have written in the past that the only hope there is to avoid a full-blown hyperinflation would be for the U.S. to proactively introduce Freegold, even inadvertently...

It is difficult to visualize the coming crash because you have to understand how Freegold and currency collapse can happen simultaneously, yet be separate events. And one can actually absorb some of the other. Quicker, sooner, more open Freegold (less gold in hiding) might equate to a little milder currency collapse.

You suggest the world may say, "Thanks, but you are a day late and many trillion short. We are happy you have joined us at the All Inn, but today, for you, there is an entrance fee."

This will have a lot more to do with the failure of paper gold than paper Treasuries...


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

OK, so the past transgression is not the treasury debt, but the paper gold entanglement. And the oncoming dollar mess has a lot more to do with the failure of paper gold than paper Treasuries.

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

FOA quoted above:

Truly, the evolution of this story will be how that war ended then and now the dollar's war with the Euro began! A very large part of that war strategy, employed by the ECB/BIS, was to let the dollar/IMF faction hang themselves by expanding and supporting the whole arena of this dollar paper gold market. Inflating the gold marketplace with so much "paper gold" that we would eventually have to bankrupt ourselves just to keep the dollar in the war game against the Euro.

See that - paper gold.

cont.

JR said...

cont.

Here is FOFOA from "How is that different from Freegold?" discussing how the failure of the paper gold market will "lead to a quick and dramatic reset" where "the dollar will fall in value very quickly." So while FOFOA expects a quick reset in the near future, "this process can be clearly observed happening in slow motion today."

"...Freegold will once again deliver a stable gold price, unlike today. The kind of stability Freegold will provide, which will be able to last much longer than 40 years, will form the bedrock foundation of global trade, monetary policy and international finance for the next era. And it will be stable because of two main factors:

1. SUPPLY - Gold will trade on a stable supply of above-ground physical gold in the absence of external influences like "paper gold" (Bullion Bank "BB" liabilities that can be created on demand by a mere book entry on a BB balance sheet, etc.).

2. DEMAND - Gold will also trade on a stable demand due to the global clarity that will emerge as to gold's best and highest function—being only a physical wealth reserve asset and nothing else.

How we get there is easy to visualize. As the physical reserves within the BB system are all moved into allocated accounts, at some point the remaining claims will simply have to be cash-settled. At that point all paper gold markets will cease to exist and all that will be left is the stable supply of above-ground physical gold in the absence of external inflatable (or deflatable) influences.

And when this happens, the dollar will fall in value very quickly, and with it, all savings tied to debts denominated in dollars. What this will reveal on any balance sheet that contains both dollar-based assets and gold, is that gold will rise to fill the void left by the dollar. The balance sheet will not collapse. But the wealth will have transferred from dollar assets into gold.

This is the main significance of all the Central Banks stocking up on gold today as well as the Eurosystem's quarterly mark to market party, I mean policy. When the BB fractional reserves finally run out, this will be a very quick revaluation.

But while I expect a quick and dramatic reset at some point in the near future, this process can be clearly observed happening in slow motion today, both from a political standpoint and on the balance sheet of the ECB. In my post, Reference Point: Gold - Update #1, I highlighted the results from the latest revaluation party, a decade-long trend that has brought the "foreign fiat reserves" portion of the Eurosystem's balance sheet from 69.5% down to 32.9%. Meanwhile, physical gold as a portion of the Eurosystem's reserve assets has risen from 30.5% to 67.1%, even while declining in volume. A virtual flip-flop as I called it in my post.

So while most cannot understand the significance of this slow motion trend today, the explosive "rock meets hard place" encounter that is overdue at this point will be sure to wake even the sleepiest sheep. ..
"

Cheers, J.R.

Robert LeRoy Parker said...

Ok, I think i've regained some clarity here. I'll throw treasuries out the window of my thought process because they are cash equivalents that blow during hyperinflation. The ultimate bubble pops when the holders decide dollars are not what they thought they were and the printer goes ballistic. Makes perfect sense.

Fofoa has said he doesn't know what will trigger the collapse in demand for dollars, but it could be a giant trying to pick up his unallocated gold and being given paper instead. It's my understanding that besides general supply and demand, paper gold keeps rising, perhaps even in a managed fashion, in order to keep the paper gold system in tact. Because as long as dollars hold high value, each rise in paper gold unlocks the flow of some physical that was previously inaccesible (weak hands). This would allow some of the important giants to slowly move to allocated from unallocated. Additionally, if this line of thought is accurate, then gld generally pukes when the weak handed supply of the current price range has been exhausted. And this coincides with the march to the next paper price range.

Perhaps it's time to reread a bunch of essays if I'm confused right now. But my question remains about the reality check in paper gold. What constitutes a reality check? A pump and dump? And is this even possible without destroying the steady state release of physical I described above?

Motley Fool said...

RLP

Remember that a pump-and-dump is predominately a psychological game.

I view the recent $1550 to $1901 to $1710 to $1800 as that in some sense.

My current operating theory is that for a long time now they have managed the price to gain slowly. That tactic is now failing as a slow steady gain is seen as safety.

The new agenda seems to be huge volatility to scare people off, while finding new ranges at which flow occurs.

One way or the other they have to let the price rise.

TF

Ps. The spice must flow. ;)

Robert LeRoy Parker said...

"More investors are moving into paper gold because of the lower capital costs. The prospect of making big and quick bucks by betting on gold's ascent is beginning to look like a fairly easy way to make money," said He Wei, a gold analyst at Nanhua Futures.

Maybe He Wei understands that "the spice must flow" or maybe he doesn't. But increased volatility is the norm with everything right now.

Physical gold will reward even the shoeshine boy, and maybe paper gold will do the same up until the collapse of the dollar. The faster paper gold rises the closer we are to RPG it would seem. Stabilizing a rapid and purposeful descent might be impossible at this point.

M said...

@ Edwardo

"With the ten year T-Bond yield now under 2% we are, in my view, nearing the point when our present Def Con 2/2.5 condition goes to Def Con 1."

I agree. Using shadow stats inflation, the 10 year is already at negative 12% yield.

M said...

@ JR, FOFOA

(I am not here to argue, just here for clarification)

I don't see how anyone can make that call with any certainty. It is allot like predicting short term market gyrations.

Treasuries are the wealth reserve asset today. Treasuries is where all the inflation is hiding. Government bonds is where all the inflation is hiding. The only reason there has been no price increase inflation in Japan for the last 2 decades is because it is all hiding in JGB's.

In my books, freegold is the realization that government debt is a fundamentally horrible store of value. If you pool all the government debt/bonds of every western country, that the world is using for a store of value, and stick it into physical gold, that is where you get 50 to $100,000 an oz gold.

How can disequilibrium in paper vs physical gold market stack up to the realization that government bonds are not a store of value ? And I mean not. At least in the tulip mania, you had a tulip. In this bond bubble, you are handing over capital to the government to waste. The capital get consumed just like a gallon of gas.

The bond market is a 2000 foot tsunami, the disequilibrium in the gold market looks like a 200 foot wave in comparison.

Jonas said...

Gordon "sold" Britain's gold, but maybe he wasn't the only one? Maybe Britain's gold was sold 100 times over? You never know... like GATA says, maybe they had Venezuela over last week for inspection of their "gold", next week it's going to be Italy, Spain, Germany or even Switzerland... Inspecting the same "gold" thinking it's "theirs".

Robert LeRoy Parker said...

M,

In my estimation it is because of the printing press is the USG's iron lung. QEx will keep the bonds strong as long as people accept a strong dollar.

But a giant that is not of "western mind" probably will not accept paper over allocation. There is no life support for the lbma without central bank reserves at their disposal.

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

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/9/3_Jim_Rickards.html

Edwardo said...

QEx is exactly what will kill bonds as the yield falls to the point where it becomes impossible to not see bonds as anything but a detriment to whoever owns them. QE is the monetary equivalent of cocaine. It provides a a boost at the outset, but the user requires more and more of it to maintain the boost. Finally the user drops dead of a heart attack from excess use and/or experiences a drug induced psychosis.

Regarding the Rickards interview, well, it seems pretty clear that either Mr. Rickards doesn't understand Freegold or he simply doesn't subscribe to the formulation because his "reset gold to 5K" idea is way off the mark. What's worse is that Rickards makes a statement, I forget the exact quote, that strongly indicates that he thinks The Fed holds gold.

Robert LeRoy Parker said...

Are you sure of this Edwardo?

Could it be that QEx kills the dollar, and then the dying dollar kills bonds.

Motley Fool said...

The IMF(USA) seems to have declared all out war against the ECB. Starting with Christine Lagarde's opening comments as new IMF head. Now this :

Game Over? Senior IMF Official - "I Expect A Hard Greek Default This Year"

I am also wondering if the ECB won't see a Greek default as acceptable collateral damage in this war, as it will show that the Euro currency is separate.

TF

Motley Fool said...

Shit.

Wikileaks Discloses The Reason(s) Behind China's Shadow Gold Buying Spree

Enough reason to declare war?

This gives them someone to point the finger too after the SHTF. Never mind it would have happened anyway.

TF

Chico_hawk said...

@MF - well if the US still has all its stated gold reserves, then not that big of a problem.

on the other hand, if fort knox & west point gold has been drained (thanks in part at least to chinese buying), there will be war...but it will be exclusively on american soil - a 2nd civil war or american revolution.

Motley Fool said...

USA went into WW1 and WW2 under false flag operations, and let's not forget Vietnam.

At present the US-military complex is just itching for a excuse to war China.

This worries me. A lot. haha.

TF

Michael said...

TF
http://www.zerohedge.com/news/wikileaks-discloses-reasons-behind-chinas-shadow-gold-buying-spree
Headline could have read: Wikileaks confirms FOFOA

Motley Fool said...

Lol, that is true.

chumbawamba said...

I'm fully with "Extend, Or End?" The board of GBI is enough to give one explosive diarrhea. I mean Wesley Fucking Clark for fuck's fucking sake? Seriously?

FOFOA, what's up, dude? Are you feeling okay? How could you overlook the obvious here?

The main consideration is: what happens when the US nationalizes all bullion vaults? As EorE? says, "contract law has no army" (nice one). If it was a bullion vault operation run by some gold industry muckety mucks, like Jim Sinclair (a man I would trust with my wife and a bottle of Viagra), then I would consider it. But anyone with the stench of Goldman Sachs and the Carlyle group on the backs of their neck are to be trusted as far as one can kick them.

This whole post, despite the disclaimer of not being a sales pitch, reeks.

M said...

@ Edwardo

"QEx is exactly what will kill bonds as the yield falls to the point where it becomes impossible to not see bonds as anything but a detriment to whoever owns them."

We are at that point now. Everyone is holding bonds not for the real reasons. Nobody, not even the stupidest pension fund managers out there, are doing fundamental analysis on bonds and deciding to buy for the duration. They think there is safety in bonds so they blindly buy.

This whole disaster is built on the idea that government bonds are a store of value. Whether its the biggest debtor nation in the world (US) or one of the biggest creditor nations in the world(Japan) Look at their bond yields ! How perverse is that ?

costata said...

The Hogs

Part 1/2

What kills a Mutual Fund? What kills a Money Market Fund? What kills a Pension Fund? What kills a Bank?

What kills any business model that relies on any variation of the borrow-short-lend-long strategy?

Redemptions AKA withdrawals. They are sitting ducks because there is a basic conflict between risk and reward in their business model. In order to cope with unexpected redemption requests they should hold lots of cash. But cash is giving paltry returns today.

The need to generate a target rate of nominal returns means that they must be as close to fully invested as possible at all times. And invested in stuff that gives them the level of return that they require to meet the future obligations to their clients for a nominal level of return. Redemptions turn the funds into forced sellers once they run out of cash.

Mining shares are an easy decision for a fund that is already invested in the stock market.

I want to make two points with this comment. If people are pulling money out of your fund to invest in gold, “and silver” etc one way to keep them in is to offer them the option to allocate some of their money to metal.

As a fund how do you do that? From a system perspective, an accounting perspective, a legal perspective. It has to be easy and require minimal disruption to your way of doing things. Ideally it should be a few clicks for the fund manager and just another line item on a client's account statement.

In my opinion GBI is a game changer.

Continued/

costata said...

/Continued

Part 2/2

The second point I want to underline relates to the numerous posts and discussions here about hyper-inflation. A point that the deflationists never seem to be able to wrap their heads around. The incentives of the economic and financial sector actors. All of these funds seek nominal returns.

In the same way that redemptions turn Funds into forced sellers any enduring drop in nominal returns from an asset class or out-performance by an asset class encourages sector rotation – in a practical sense they can become “forced” buyers as well as forced sellers.

There are reasons why these Funds are called “the hogs” on Wall Street.

Picture that three-way shoot out scene from The Good, The Bad and The Ugly. Let’s assume that Chico’s gun isn’t empty. Blondie is gold ;), Angel Eyes is the US dollar and Chico is the Nominal Return Funds. Who is going to get shot here?

Cheers

Edwardo said...

Sorry, RLP, but I'm not sure what you are asking when you say,

"Are you sure of this Edwardo?

Could it be that QEx kills the dollar, and then the dying dollar kills bonds."

Are you asking me if I am sure that bonds go before the dollar, and proposing that perhaps it's the other way around?

Robert LeRoy Parker said...

Yes that is the jist of it.

Wendy said...

costata,

Honestly the best advice I've heard regarding the 401K or RRSP dilema, is to liqudate them, pay the taxes (even if it's exobinant) and by physical, receiving payment in full and not someone else's liability.

I believe that was true in 2007, 08, 09, 10 and still is today.

I would not put even one cent into what is called a "physical fund today".

My employer has this cute program that if I contribute 3% of my salary to an RRSP they will give me a 20% gift. So I'll take their money, but I will cash out the RRSP, pay the taxes and buy physical at the end of the year.

Anything sponsered by both my employer and the federal government very likely doesn't work in my best interest.

costata said...

Wendy,

Those of us who think in terms of physical gold in the hand are a tiny minority of the population of Western countries at the moment. I'm trying to approach this GBI development objectively.

As it happens I also think that after the Freegold-RPG transition the future of gold is digital. So developments that contribute to the infrastructure for this evolution get my attention.

whiteelefant said...

Concerning GBI:
I don't know think this was addressed previously: doesn't GBI offer indirectly a service to get physical in a different jurisdiction?

I am already living in Toblerone jurisdiction, but how would an American resident get physical gold here in Switzerland? I don't think it would be easy to buy bullion in larger quantities (100 ounces...) take a plane from NY to Zurich, open an account with a storage facility and store it here. Nor would it be easy to fly over here with a large sum of cash.

So through BGI you could buy Gold, have it stored in Zurich, fly over here, open an account with a private storage facility, go to BGI ask them to hand you over your Gold, drive to YOUR private storage and store it.
The only difficulty since the UBS/USA problems is for an American or US resident to open a bank account here, I don't know about safe storage facilities...

The IRS will know about your purchase, but if worse comes to worse, they won't know where it is...

Edwardo said...

Well, RLP, I wasn't asserting bonds dissolution before the dollar, but rather, that, as bond yields continue to become effectively less than zero, that bonds would become as cash with all that entails. Bonds, it seems to me, must dissolve before cash does since bonds are denominated in currency and not the other way around. Having said that, the two, bonds and cash/currency, are about as inextricable in our sphere as any two financial instruments can be.

Extend, or End? said...

@costata

No doubt that GBI will facilitate sector-rotation on the part of funds. One problem they'll have is selling the dis-favored asset. Somebody out there has to take it. So if we were to picture this happening in size it's going to be a significant problem. Like hot-potato. Who's the buyer for all the paper assets? Maybe the Fed? Or the banks? Sort of a stealth re-valuation of gold using reserves that have been pumped into the coffers over the last few years? For existing accounts - they will be both forced sellers and forced buyers, right?

This is an interesting perspective on Qualitative Easing to increase the velocity of money. It sort of fleshes out what Rickards is talking about.

Fed Bennie And The Jets Of Oz

http://www.metalaugmentor.com/

I'm trying to think about it in the context of the sector-rotation problem and who ends up with the hot potato or maybe the flaming potato chips as the paper-burn commences. Will there be an ash can?

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

Mr. RPG issues a warning. There is nothing in the piece that harkens back to his prior statements on gold.

http://www.telegraph.co.uk/finance/financialcrisis/8739158/Robert-Zoellick-warns-of-new-danger-zone-for-global-economy.html

Bron said...

Paul I: “Right now, the gold spot market is like a big, stupid, compliant Labrador, Perth Mint included. It doesn't mind having it's tale wagged by the paper market. PAGE will turn out to be a snarling Rottveiler.”

I'd say that is debatable. Everyone assumes paper is in charge, when the only data we have is COMEX and other visible exchanges but nothing on what goes on in the OTC market, save for some opaque “transfer” numbers from LBMA.

Paul I: “Quite frankly, as an Australian, it makes me sick to see our national gold wealth sold off for pennies on the dollar. I may be naive, but I have to ask why an organization like the Perth mint hasn't long ago tried to maximize value for Australia and Australian gold mines by proposing something along the lines of PAGE.”

I don't think you are getting what I'm saying. Perth Mint doesn't need to start an Australian PAGE – every week we offer 5t or so of physical gold to the OTC market and the bullion banks and other bid for it. You may consider the current gold price undervalued, but that does not mean that we aren't maximising Australia's gold – if the demand is there then those banks bid for it. If anything changing the current private OTC approach to a public PAGE would likely hamper the process.

Paul I: “Instead, we see them pushing massively over-priced "collectable coins" to Grandmas in Post Offices, more demand divertion, very little education.”

Our marketing guys push those fancy coins because they are our highest margin product – that makes business sense, we aren't going to waste prime “shopfront” pushing low margin kilo bars. But that stuff is small by volume compared to kilo bars where ultimately the big dollars are.

mortymer: “To separate physical gold in unallocated from leased would be at this stage too much, they got so far to clear definitions and on what is allocated what is not and that is a progress.”

Agreed. What that document does is make it clear what unallocated is. No professional player is unaware of that, they just believe in the system and thus believe in the “value” of their unallocated, because they are of the system. I do not believe there is any big move from unallocated to allocated at the moment, nothwithstanding the antics of Chavez. If that was the case we would be seeing a lot more bidding for our weekly 5t.

Bron said...

costata: “According to Bron the Perth Mint relies on mine supply of silver for its refinery as very little scrap silver finds its way to them. I see your point about the price of copper and silver. I would be interested to hear Bron's thoughts on this. Is it merely a question of price?”

Those comments about “silver scrap is mainly sold and refined locally because it is not high enough in value to justify shipping it around the world” were primarily focused on Australia, which is more geographically remote, and does not have much silver refining capacity. In other markets silver may be far more mobile.

whiteelefant: “Concerning PAGE: my impression is that any offer which is closer to physical than what the LBMA & Co offers might be taken up and will push the price of Au up. But, I am only a small shrimp and not into finance”

Again, this is an assumption that the LBMA banks are all paper and ignores the huge physical market that exists side by side with paper.

costata: “Recently I came to the opinion that leverage on the currency side was irrelevant. The key point is that the gold itself is not fractionalized. If PAGE said no margin that doesn't prevent someone from borrowing outside the exchange and trading a 100% cash account with PAGE.”

Ha, now we are peeling the onion, or should I say seeing more of the spider's web.

costata: “We should also not underestimate how much the Chinese love to gamble. The paper gold market appears to be going gangbusters right alongside the development of the physical gold market according to this article.”

Very good point, I noted that comment as well. We should not blindly think that Asia is a physical only market and cannot be tempted by the leverage paper offers.

Robert LeRoy Parker said...

Again, this is an assumption that the LBMA banks are all paper and ignores the huge physical market that exists side by side with paper

If they are even close to legit why not be more transparent and squash gata, fo/fo/a, and others.? This could be done in a sensible way so as not to reveal client names or jeopardize business relations.

After seeing the disorganization of the vaults with the supposed gld bar not even in the right spot I think the spider analogy doesn't fit so well. Maybe they are more like a domestic turkey in a disgusting coupe that no one can venture into because the filth is too unbearable.

Robert LeRoy Parker said...

More specifically something like this

So long spelling error.

holdinmyown said...

@M
You don't have to try to convince anyone on this site that Treasuries are not a good long-term store of value. That is obvious. The point that I (and perhaps Edwardo?) am tying to make is that the big money managers do not yet share your view. This whole thing could blow up tomorrow for all I know but I believe that no one with any large amounts of cash to invest (at least $1 Billion) is ready to throw in the towel and give up on the $IMFS. If that were true the POG would not be pulling back at $1900/oz. It would be going exponential. Believe it or not these guys still think that gold is in a bubble. As far as they are concerned selling the 2 yr (or less) government paper and buying 5yr or longer is a risk free trade for the next 2 years as their high priest Bernanke has promised them that short rates will remain zero bound until then. Neither you nor anyone else preaching that "it ain't so" will change that fact. Long bond prices can (and probably will) go much higher before we see a rise in short term rates. The fat lady has not yet begun to sing but maybe she is clearing her throat?

mortymer said...

Bron, I prepared tonight few posts on the un/allocated|reserves issue, RESTEG docs (RESERVE ASSETS TECHNICAL EXPERT GROUP).

Here is the 1st:
http://anotherfreegoldblog.blogspot.com/2011/09/imf-follow-up-paper-resteg-111.html

Here is more:
http://www.imf.org/external/np/sta/bop/resteg.htm

Indenture said...

FLASH: China knows about gold price suppression, and U.S. knows China knows


"Wondering why gold at $1,850 is cheap, or why gold at double that price will also be cheap, or, frankly, at any price? Because, as the following leaked cable explains, gold is, to China at least, nothing but the opportunity cost of destroying the dollar's reserve status. Putting that into dollar terms is, therefore, impractical at best and illogical at worst. We have a suspicion that the following cable from the U.S. embassy in China is about to go not viral but very much global, and prompt all those mutual fund managers who are on the golden sidelines to dip a toe in the 24-karat pool."

mr pinnion said...

FLASH:
I knew that three years ago.
Regards
Ozzy

M said...

@ holdinmyown

I am not saying that government bonds are a bad store of value. I am saying that government bonds are not a store of value.

Judging purely by the perception of asset managers who have a billion or more, freegold looks 30 years away, not 30 months away. Nobody really knows how asset bubbles fail. It has more to do with mathematics then perception. Prices of houses in the US fell before perception of real estate changed. Look at the housing bubbles in Canada and Australia, their perception of real estate still hasn't changed and their valuations are worse then the US was at its peak.

Something mathematical in nature will pop the bond bubble, the question is, what will that be.

JR said...

Hi chumbawamba,

I think you may misunderstand FOFOA's point wrt to GBI. I suspect he, as do I, share to some degree in your reservations about GBI. Indeed I am sure he does. You comment:

The main consideration is: what happens when the US nationalizes all bullion vaults? As EorE? says, "contract law has no army" (nice one)

I loved EorE's line too. FOFOA is on that train too, as he made clear above:

"I have no stake in this company, I have not been paid, and I will not be buying gold through GBI myself. I still recommend taking delivery and keeping your physical in your possession (or at least under your immediate control)..."

But FOFOA also recognizes:

"...but I do understand that this is not always the most practical advice for some of my HNW readers, nor is it practical for some types of funds under various restrictions."

Nonetheless, FOFOA made clear that during the transition, you want to be holding your gold in the most *UNAMBIGUOS* manner - physical possession. However, this is not possible for all, and that's where GBI comes in:

"But the time of "peak risk" will be, I believe, that brief period of phase transition between the $IMFS and Freegold-RPG.

It is in preparation for this transition that we want to be holding our gold in the most *unambiguous* way possible. And the most unambiguous way is paid in full, in your hand ownership. But when that's not possible or at least practical, we'd like to own our gold in unambiguous lots (either specific coins or numbered bars) outside of the bullion banks and their opaque networks built upon the flexible concept of ambiguity."


FOFOA advocates for gold in your hand, but he gets lots of questions from readers concerning instances where in you hand possession is not an option - enter GBI. And note FOFOA is not recommending it, but putting it out their for a public vetting. FOFOA is saying own gold in hand, but if you can't (LIKE BIG INSTITUTIONAL MONEY), let's talk about GBI.

"One of the most frequent questions I get has to do with converting individual retirement accounts (IRAs) into physical gold. I also get questions about how best to buy and store physical gold in amounts that are too large for the sock drawer. And people often ask me what I think would be the "second best option" to physical in your immediate possession.

These are all related questions and they are some of the toughest to answer from my hard-nosed "physical in your hands" perspective. Other similar questions I have received are what would be the best way for a managed fund (say a Trust) to invest in physical gold outside of the banking system?"


cont.

JR said...

cont.

OK now for the sexytime talk.

The "main consideration" is the cornering of physical gold and the eventually demise of the paper market and emergence of Freegold. GBI "has the potential to be a real game changer!" in this regard.

"1. This business model/trading platform has the potential to be a real game-changer in the physical gold market. It opens a door to a massive pool of potential demand that was previously cut off from the accumulation of physical gold in true, *UNAMBIGUOUS* personal (or institutional) ownership, outside of the opaque and dubious bullion banking system."

FOFOA wrote this in response to inquiries like these about potentially BIG MONEY looking to move into physical gold.

"Other similar questions I have received are what would be the best way for a managed fund (say a Trust) to invest in physical gold outside of the banking system? I have one reader who is an investment banker for banks. He finds investments for actual banks. He asked:

Do you know anything off hand about the gold rules for banks chartered in the USA? I've had more than a few clients tell me their Boards are proposing gold buys for their banks since they can't get out of their illiquid equity position.

I have another supporter who is a registered investment advisor (RIA) who just left a big firm to start his own. His client base includes a lot of friends and family and he wanted to know what I thought was a good way to move people into a gold investment that would fit the FOFOA outlook; and these are people with large 401Ks that have never even considered gold as an investment. Poor guy, an RIA who happened to stumble upon FOFOA and then realized he had his friends and family's money in the wrong stuff."


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

So if you own physical gold, and a new business model shows up that has the potential to allow big money to get into physical gold, isn't that a good thing? A potential game changer in terms of Freegold unfolding?

Sure the GBI investors are not as secure as in hand physical gold advocates, but no one is pretending otherwise. FOFOA isn't saying anything but buy physical. Its just that for (like BIG MONEY) this isn't so easy, and *they want* another option. So lets vet GBI in the sunlight.

And hey if GBI holds up to scrutiny (like that which you and others helpfully offer) and works out, and big money pours in and GBI buys all this physical gold, then for us PGAs its "yay yay yay," no?

Cheers, J.R.

Indenture said...

"The fellow that can only see a week ahead is always the popular fellow, for he is looking with the crowd. But the one that can see years ahead, he has a telescope but he can't make anybody believe that he has it."

WILL ROGERS, The Autobiography of Will Rogers

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

If the bond market were to fail before the paper gold market then mining stocks would not collapse with the paper price of gold. The HUI hit an all time high last week. No other stock indexes in the world are hitting all time highs. Just sayin....

I have substantial mining stock holdings with big margin available at low interest(4.5%) I am currently using no margin. If the bond market fails first, then I would use my margin to buy more physical gold. My stocks would hold up like they are now so its a win win. No margin calls and I have the same physical exposure I would have, plus the mining stock exposure. That is the dilemma I am in right now.

If the paper gold market fails first then I should sell all of my mining stocks and buy all physical now.

decisions decisions......

Texan said...

All,

One point to keep in mind is that most institutional money is not allowed to buy gold. And to change the investment guidelines takes forever. And to suggest changing it now, after gold has run up 600%, puts the suggester at significant personal career risk. Ergo, most institutional money will never, ever buy gold. It's just the inertia of large organizations. Pension funds, insurance companies, mutual funds.

Banks (that are not bullion traders) will never buy gold because it's MTM accounting and capital has to be allocated against it.

Hedge funds are of course different, but even with HFs it's a problem, because no one needs to pay 2/20 to own gold. So HFs can't go all in because if they do they have no justification for existing.

So the only big money haying outside of CBs and the
"giants" are largely going to be "family office", ie "new giants". I don't know how they buy, but I suspect many take physical delivery.

Texan said...

Please sub "buying" for "haying" in the last paragraph above!

Texan said...

Of course, on the margin, any mechanism that permits easier purchase/sale of gold is really great, and will Kostyra likely get some traction.

I just don't think that for example Calpers is going to walk in on Tuesday and say "finally, we can buy gold without having to take physical delivery!". (and I have no idea if Calpers can or can't buy gold to begin with, UTIMCO did - I would think they would be an ideal candidate for this product).

Paul I said...

Bron

I'm genuinely interested in how the Perth Mint sets the price for its five tonnes a week.

That’s about 10% of global production, and once direct state purchases are factored in (China, Russia) it's probably getting on for 15% of available.

You say Perth mint sells to Bullion Banks and others privately OTC.

Does anyone outside that private arrangement know what the price setting mechanism is?

Are the BBs bidding against each other?

How does the Perth Mint OTC price relate to the LBMA fixings?

If the sales price is based on the LBMA price, and the LBMA price is set by the 5 BBs (all of which have the same "business model"), where is the supply side input into the price setting coming from?

What prevents collusion between the banks?

If you've blogged about this before, perhaps you could point me to the relevant post.

Cheers.

Edwardo said...

"As EorE? says, "contract law has no army" (nice one)"

With all due respect to EorE, he (or she) has, after a fashion, and perhaps inadvertently, transposed the following infamous quote made by Joseph Stalin:

In May 1935, French Foreign Minister Pierre Laval allegedly asked Stalin to improve the situation of Catholics in the USSR so as not to provoke a quarrel with the Pope. At that, Stalin, with his brutal sense of humour, asked, “The Pope? How many divisions does he have?” According to another version, he addressed this remark to Churchill.

http://02varvara.wordpress.com/2009/12/10/how-many-divisions-does-the-pope-of-rome-have/

Aaron said...

Hi Paul I-

From your comment on Treasure Chest 2, Game Changer

You say, "Does anyone outside that private arrangement know what the price setting mechanism is?" and prior to that you said, "If the sales price is based on the LBMA price, and the LBMA price is set by the 5 BBs (all of which have the same "business model"), where is the supply side input into the price setting coming from?"

If I might be so bold as to try and summarize your thoughts I think the point you are getting at is that you are pissed off that the gold market is opaque and you believe the Perth Mint may be complicit in this opaqueness -- and as such you are trying to pressure Bron into confirming/denying your suspicions. Going further if your reference to "supply side" mean sellers, that would make sense to me. If however by "supply side" you meant cost of labor, that's a completely different story -- a story of Marxist LTV Classical (doner-driven or supply side) Economics.

Ideology aside I think Bron has been very generous with his insights. Here at FOFOA we are all CiPGAs (Comrade in Physical Gold Arms - to adapt a phrase from JS).

--Aaron

Paul I said...

Aaron

I'm not trying to pressure Bron into anything. As I said, I'm genuinely interested in how Perth Mint and their bullion bank customers agree on prices for large physical purchases.

And by supply-side I mean the mines, the suppliers. How does the mines supply get translated into the spot price via the LBMA fixing, if the fixing only includes five bullion banks who are making private OTC purchases with mints.

I agree that Bron has been generous with his time, but his view is that a transparent physical only spot market will not effect price, since Perth mint sells 5 tonnes a week. So I want to explore more why he thinks this.

The only way I know how to is to ask him. Yes I got antsy on Friday, but as I said then I believe we're seeing massive amounts of Australian sovereign wealth flogged off too cheaply, because of historically anachronistic market structures.

The US dispatch just released by Wikileaks only goes to confirm that the US-Chinese believe this as well.

Your (antsy) CiPGA, Paul

costata said...

Hi Texan,

I take your point about rules governing the investments that institutions can invest in. Do those rules apply to their clients?

Unless I have misunderstood the GBI model the client takes ownership of the allocated gold not the institution. I can't see why gold cannot sit alongside other offerings from an institution.

GBI's white label offering allows them to rebadge the service and include gold as a line item in a statement. Presumably the institution still gets their normal fees and charges as they do on other products they offer.

If an institution's clients are pulling their money out to invest in physical gold it seems to me GBI could be an ideal solution.

Bron said...

Paul I: "That’s about 10% of global production, and once direct state purchases are factored in (China, Russia) it's probably getting on for 15% of available."

Yes, we refine around 10% of new production. But that overstates our importance because there is also buying and selling of the approx 160,000t of physical stock every week as well (no one has the figures on what that is). Mining supply is probably irrelevant in price setting considering gold's stock to flow ratio (this assumes a flow from holders of the existing stock of physical, if this dries up then miner supply could become a price setter as they are the marginal supply).

Paul I: "Does anyone outside that private arrangement know what the price setting mechanism is? Are the BBs bidding against each other? How does the Perth Mint OTC price relate to the LBMA fixings? If the sales price is based on the LBMA price, and the LBMA price is set by the 5 BBs (all of which have the same "business model"), where is the supply side input into the price setting coming from?"

Generally, buyers "pay" us with unallocated in London and then a cash premium for the fabrication cost. If there is a lot of demand, then the cash premium increases. If there was a disconnect between paper (unallocated) and physical, then we'd see that manifest in increasing and massive "premiums". Note I'm talking here about people buying 1t of gold at a time, the wholesale market, not retail coin premiums (these indicate nothing more than the minting industry's production capacity limitations). These wholesale premiums have gone up and down, but I've not seen any big or sustained increases. Hence my statement that paper = physical as far as the market is concerned. You also need to keep in mind that we just don't sell to bullion banks, but to retail clients, distributors, coin dealers. These are included in my definition of "the market".

Paul I: "What prevents collusion between the banks?"

Nothing, but two comments. One, a "transparent" exchange isn't going to stop that. There is no problem with anyone bidding for our refining output, as long as they are prepared to stump up the cash upfront and deal in wholesale size - it is an open market in that respect. Two, if/when fractional unallocated is put under pressure, I'd suggest that any alleged collusion between the banks will evaporate as they backstab each other scrambling to get hold of physical to delay a blow up from a run on paper, so they are left as the last man standing.

Paul I: "And by supply-side I mean the mines, the suppliers. How does the mines supply get translated into the spot price via the LBMA fixing, if the fixing only includes five bullion banks who are making private OTC purchases with mints."

On the supply side from the miners, they either sell it to us for cash or for an unallocated credit to their account with a bullion bank (which ultimately the sell the unallocated credit for cash). The cash sales are done at either the London Fix or The Spot Price. By The Spot Price I mean an OTC market price close to what is seen on Reuters or Bloomberg, which is what everyone (eg coin dealers like Kitco) deals at. If the miner doesn't like our price or a banks price, they are more than capable (and do) shop around for a better price.

The reality is that the miners sell it to the highest bidder, and this is what is The Spot Price at that time. If there is more physical demand than supply then The Spot Price will rise, if not it will fall. Period.

Bron said...

Paul I: "I believe we're seeing massive amounts of Australian sovereign wealth flogged off too cheaply, because of historically anachronistic market structures."

You may believe the current Spot Price is too cheap. If so you can offer to buy our gold at a price higher than that. However, all of the retail clients, distributors, coin dealers, bullion banks and miners we deal with are happy to deal at that price.

You have the view that the current market structure is the problem. In fact the physical gold market is the most unregulated, open, distributed, internet-like market there is, that is what an OTC market is. This actually works against collusion because there are many channels for buyers and sellers to transact through. The worst thing would be to force transactions through exchanges IMO, as aggregation can breed monopolies. You are forgetting about radical, disintermediating changes in the industry like GoldMoney, Bullion Vault (real peer-to-peer transparent buying and selling) and now GBI. If buyers or sellers think The Spot Price is wrong, they can use other channels.

Texan said...

Costata,

Most of these institutional investors do not have "clients" in the sense you mean. UTIMCO (which has bought gold) is the University of Texas's endowment fund. CALPERS is the California employee pension fund. Another example would be insurance companies, which I believe have their investment criteria governed by their respective state regulator.

Most of the savings in the US is actually held by these types of institutions.

Rich individuals generally have what are called " family offices", which are basically very high powered financial advisors. I would think a few have recommended gold.

My point was that other than a few hedge funds and rich individuals, I do not expect a lot of gold buying from institutional money because most of it is structurally incapable of doing so. That is probably changing on the margin, with a fund here or there amending it's investment criteria, but it is a slow process.

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