Tuesday, December 18, 2012

What is Gold?



Let's take a poll. What is gold? Is it money, currency, an investment or wealth? For clarity, I'll give you my definitions of each with links to some of the posts in which I've used these terms.

Money is credit (i.e., it is the way the economy uses credit balances to lubricate the flow of tradable goods and services).

Currency is what denominates money. It is often issued or at least standardized by the sovereign or a representative of the collective. The private economy trades using mostly credit (money) denominated in these standardized currencies, credit that is issued and cleared by private institutions using the currency itself for clearing. Currency itself also doubles as the "in your hand," "on the run," "money to go" element of the money system, so that discrete (and discreet!) "amounts" of said money-system can be transferred among individuals conveniently while operating temporarily outside of the institutional monetary ledgers. And currency is also exchanged directly with other currencies through a network of currency exchanges, often with the clearing function provided by private institutions, to facilitate equitable trade between regions that use different currencies.

An investment is something that you buy expecting a gain or return. It is a way of putting your money at risk in the hopes of obtaining more money. When an investment reaches an expected "top" or some level of overvaluation based upon the calculations of the investor using common metrics like earnings, interest or the sum value of its components, the rational investor is likely to sell that investment and move the funds into something he deems undervalued at that time.

Wealth is simple. It is literally anything physical that you can possess or at least own unambiguously. Tradable wealth is that which many people value similarly, therefore it is tradable. Durability makes some forms of tradable wealth a better store of value than others which can decay and perish over time. Common forms of durable tradable wealth include fine art, antiques, classic cars and many other collectible hard assets.

My poll is over to the right in the sidebar, and it is open to anyone, even those who have no "gold". I even made it possible to vote for more than one choice, in case you think that gold is two, three or all of the choices.



I cast the first vote on behalf of A/FOA. How did I know their vote? They made it crystal clear in one of their earliest comments:

"Gold is not money, not currency, not an investment, it is wealth."

I think this is the essence of all of this, of Freegold, of (THOUGHTS!), of The Gold Trail, of my blog, the key, if you will, to unlocking the view. But from the last thread of arguments against Freegold, it is obvious that some of you still think gold is just another investment. That's fine, because that's all gold is to almost everyone in the West, so you're certainly not alone in your opinion.

If we could get everyone in the West to vote in this poll, I think "gold is an investment" would win in a landslide. If we could get everyone in the precious metals blogosphere to vote, then "gold is money" would probably win. So, to most Westerners, gold is an investment. To the gold bugs and HMS crowd, gold is money. And to the bullion banks, gold is a currency (ISO code XAU) upon which credit is issued and traded. So what did A/FOA mean by the statement that gold is wealth, not any of these other things? I mean, surely gold is whatever its users think it is, subjective use value and all, right?

Actually, that's exactly right! Gold is whatever its users think it is. And the point A/FOA was driving at was that the vast majority of the above-ground gold, today somewhere around 165,000 tonnes, is held by people who understand it as wealth. And, in fact, the only opinions about what gold actually is that will matter on the day after the Freegold revaluation, the only "votes" that will count, are those who carried (i.e., possessed or unambiguously owned) that gold through the transition.

The real vote for "what is gold", the only "poll" that will matter, will not be like a democratic election with universal suffrage. You'll only get a vote if you have some, and your vote will be weighted by how much you have. This concept is highly relevant to Freegold, especially in the context of the last thread.

Probably (to us) the most relevant conclusion drawn from the abstraction we call Freegold (which is really just the end of the use of gold as a currency denominating credit) is a future gold price that is more than an order of magnitude higher than today's price… in real terms/constant dollars. This is also the conclusion that sprouts most of the arguments against Freegold. And the main argument against such a shocking revaluation is that it won't stick because of supply and demand.

There are two schools of thought on the organic emergence of Freegold. The one that I don't subscribe to is that it will be demand-driven… from the ground up. This school of thought says that we will only see Freegold once the average man on the street understands how precious physical gold really is. It says that the demand for physical gold will someday undergo a phase transition thereby overwhelming the supply flow and bringing us to a new, physical-only price range (in real terms).

The other school of thought, the one that I do subscribe to, is that it will be supply-driven… from the top down. My school of thought says that the average man on the street will only understand how precious physical gold really is after Freegold is revealed in stark relief. It says that the supply flow of physical gold will someday undergo a phase transition whereby it goes into hiding due to the crashing price of its paper proxies. It says that physical gold, during this phase-shift, will further consolidate in the hands of only those who understand it as wealth and nothing else, bringing us to a new, physical-only price range (in real terms).

In future hindsight, looking back on the transition, it may be commonly held as a chicken and egg question as to which came first, the new price range for gold or the change in demand. Cause and effect is sometimes tricky that way. At the top of Moneyness 2 I wrote:

What will change is how we view money and wealth
Everything else in Freegold flows from that!

This is a simple statement of demand-driven cause and effect, but it doesn't say what will cause the change in demand—how we will view money and wealth. For this I think we need to look at the supply side; who will have the gold, whose vote will count when gold is suddenly $55K/ounce (in constant dollars) and the question is asked, what is gold?

Above-Ground Supply

It is actually quite a bit easier for me to describe the people whose view won't change because of Freegold than to convince you of everyone else's view changing because of Freegold. You need only understand the distinctions between the views, what sets them apart, to draw your own conclusions.

It is possible that some of you at this blog who still view gold as an investment may indeed make it to the vote that counts, depending on how it all unfolds. But if you are lucky enough to get there while still clinging to the idea that gold is an investment to be sold at the top, or that "asset allocations under Freegold" should be rebalanced away from "toppy" gold, then your vote will be in the tiny losing minority of those who reacted like lottery winners. But based on some of the comments in the last thread, I bet that most who view gold as an investment will cash in that lottery ticket too soon. And even if that's not you, most others will and will thereby surrender their vote altogether, diminishing that tiny voting block even further.



I want to tell you a story about one of my readers. We'll call him Jumbo Shrimp. Jumbo Shrimp started reading my blog in 2009, and he was one of the very first people to send me a donation when I put up the button that year. It was a sizeable donation, and it was repeated several times. Turns out that Jumbo Shrimp is quite successful as a financial market analyst of sorts. He's about my age, maybe a few years older, but his net worth is around $15 million.

Jumbo Shrimp first got interested in gold almost a decade ago, and he bought himself quite a bit of physical with an average purchase price in the $500s. From what he told me earlier this year, he had accumulated around 1,700 ounces of physical which he kept in his immediate possession. He even sent me a picture of himself holding a 10kg (320 oz.) coin worth about a half million at the time.

We had many conversations over a couple of years. We even talked on the phone occasionally. And one thing I could always tell about Jumbo Shrimp was that, even though he loved my writing, he never quite understood my view. He still thought of gold as an investment, one of many, and he considered the idea that paper and physical could ever diverge leading to a revaluation of physical to be a conspiracy theory. His rationale for owning some physical was simply eliminating counterparty risk on a portion of his "wealth".

As I said, Jumbo Shrimp is a financial market analyst, and his method of analyzing his personal gold investments (which consist of more than just physical) centers on tracking the mining shares. His fundamental operating principle is, in his own words, "Gold stocks ALWAYS lead gold."

Anyway, back in early May I received a flurry of emails from Jumbo Shrimp which also went out to a lot of other people, making a very bold bottom call regarding the miners. I quote from the first email: "As low risk/high return as I have ever seen." He was making a technical call, a buy recommendation, and also putting his own money on the line. Unfortunately it moved decisively in the wrong direction just a day or two later.

I don't know if it was because of his personal stake in it, or from the sting of having made such a bold prediction to so many HNW people that went so wrong, but six days later he threw in the towel on gold, emailing me, "It was a fun ride while it lasted. I sold 95% of my gold at $1,645."

He certainly did make a nice profit. If my math is right, he must have booked a gain of around $1.8M on a physical investment of less than a million. My apologies to Jumbo Shrimp for airing his story, but I think it will be helpful to others and I actually hope that he reads this and reconsiders. He is much luckier than others will be in that it's not too late for him to buy back in.

My point in sharing this story is that calling and then catching the top in gold is a fundamental part of viewing gold as an investment. Jumbo Shrimp was early with his call, but whether the price of "gold" keeps climbing from here or falls off a cliff tomorrow, everyone who views their physical gold as an investment will eventually be put to the test at some point before "the only vote on what gold is that counts", just like Jumbo Shrimp was.

I want you to forget for a moment whether or not you think the Freegold revaluation will actually happen. The question I want to table is simple: If it happens, can it stick long enough for everyone's perception about what gold is to change?

I'll give you a quick "what if" hypothetical scenario to help you visualize the question. It is not important whether this scenario happens because there are many possible scenarios that I can imagine leading to the physical gold revaluation, some quite different from this.

Here's the scenario: Imagine that we have another financial market collapse like September, 2008, only this time the price of gold keeps falling even as there is no physical to be found. The market collapse leads to an emergency print-fest by the USG in an attempt to "stimulate" or shock the economy and markets back to life. Trading is stopped to interrupt the free fall atmosphere. "Gold's" free fall is stopped at $500 per ounce and over the next few weeks, anyone holding a claim that was previously exchangeable for physical gold is cash settled in the spirit of fairness. At the next quarter-end MTM party we find out that the Eurosystem has marked its gold reserves at the equivalent of $55K per ounce in constant dollars. We also find out that this price (in real terms) was derived by averaging actual trades mediated by the BIS and ECB during the blackout after the paper markets crashed.

So we have a sudden step up in the (real) price of physical gold from $500 to $55,000 dollars. It is basically an "overnight" revaluation, even though it wasn't literally overnight, because $500 was the only known price in the interim. Any trades of physical gold that happened during the interim ("gold in hiding" period) happened locally and did not affect the price of gold because it was technically frozen at $500.

I'm happy to conclude that this news (the new MTM price) will be a shock to almost everybody, especially to those who missed out on the revaluation, and that their initial reaction to the shock will certainly not be to rush out and buy tiny gold bars at $55K per ounce. That particular change in demand will take some time to manifest in any scenario I can imagine. So I think it is really more a question of supply as to whether this new price range can stick in the immediate aftermath.

And this brings us to the vote for what gold is! The two main contenders will be 'investment' and 'wealth', because those choices represent the two competing schemes of action that will be faced by those who actually did participate in the revaluation by carrying physical gold through the storm, and who therefore get a vote. In fact, action is the voting method, which is precisely why only those with gold will get a vote.

For example, those who somehow made it through the revaluation process while still thinking gold is an investment will, upon seeing it gap up from $500 to $55,000, either cash it in like a lottery ticket or at least rebalance their investment portfolio away from gold. And if too many people do this all at once, supply will flood the newborn physical-only market and the new price range could falter unless the Giants and CBs step in with unlimited demand. It is possible that the Giants and CBs would do this, but the point of this exercise is to explain why they won't have to.

Those who understand that gold is wealth, on the other hand, will react differently. People with durable, tradable wealth generally have everything else that they need. Wealth is what you buy with your excess. And if you need to tap into that wealth, for whatever reason, to support or improve your lifestyle, then you sell it in drips and drabs as needed. Or, if your wealth preferences change, you can also trade wealth for different wealth. So here we have three actions that the wealthy take with their wealth. They accumulate it, they sell it in drips and drabs for consumption purposes, or they trade it for other wealth.

I'm sure this seems like a ridiculous distinction to those of you who view everything as an investment. That's really a Western shrimp perspective, and I think it's probably why you are struggling to understand Freegold. So let's take a closer look at it from a couple different angles. Michael H pointed us to this comment from FOA just the other day:

FOA (12/13/99; 19:15:01MDT - Msg ID:20954)
Comment
Mr Gresham (12/12/99; 14:04:52MDT - Msg ID:20807)

" " "Econ 675, Advanced Graduate Level Money and International Banking: Market Disequilibrium Scenarios, otherwise known as USAGold Forum" " "

-------------

Hello Mr. G,
Ha! Ha! That is some class you are taking. One of the things Another wanted to accomplish is happening. That being, getting Western citizens to reconsider exactly what gold was in the eyes of other real people. In order for that to happen, people had to understand the evolving modern politics of gold and how it has created a "New Gold Market". One far different from the one goldbugs of the 70s had grown to know and love.

In the beginning, many readers had no basis for comparison when reading most of Another's Thoughts. Yet, we walk this evolutionary trail of gold today with eyes wide open and better able to grasp the impossible road ahead.

Onward:

I have seen one sure sign that Westerners don't really know what has happened to their wealth. This is demonstrated when one "bemoans the loss of good times" if gold goes very high. It comes across the same every time; " " "if gold goes to $30,000 we won't have a dime and everything will fall apart" " ". Well, Another made his point that the dollar said your wealth was worth more than it really was. Let me demonstrate.

Like this:

Ever been to a high priced auction. They bring out the "Strad" violin and start bidding at $500,000. After a while it goes for $1 million flat and it's over. After that we listen to the perceptions around the room.

One guy in the back, who has 10 million cash, thinks the Strad was cheap at one mill and will pick one up next year. In fact he may get ten if they are offered. Some rich woman has 3 million and she figures her wealth is equal to three "violins" if she ever wanted them.

All around the room the feelings are the same as perhaps 100 million in assets are represented. They all equate their buying power to this one auction. Even though only one walked away with physical, everyone knows they are "strad rich" in wealth. Each goes home for the evening cognac and relishes in this knowledge. Their lifelong effort of hard work and shrewd investing has positioned them to own the wealth of many rare violins. Life is good, very good.

The one problem with all of this is that they based their "wealth holdings" on the outcome of just one auction. Truly, had they all bid, the violin would have gone for much more and their wealth would seem "not so much".

In much the same way our world of dollar assets carries the same risk. All of us stand in the same world auction room and watch the daily bidding for goods and services. We watch the prices of cars, gas, houses, clothes, etc. and conclude our wealth balances based on what we could acquire at this auction should we choose to bid. We see our economy in a light of infinite goods and services but fail to balance this with the potential of others to bid, "in mass". In this light, few have a valid perception of just how many dollar assets are out there. Indeed, without this grasp of "dollar inflation" we blindly consider our wealth and position in life using the present price structure of "things". A system in which we trade paper IOUs of infinite number for real things of finite number.

So, our belief that life is good, largely rest not on the confidence in the dollar. Nor is it in the confidence that others will value and accept our dollars. Life is good, because all of us do not "bid" at the same time! If we did, our life would not be as good as our dollar wealth says it is!

This is the deception in our Western grasp of what wealth is. Our life savings are valued at what they can buy today, even though, in reality it is based on an unknown purchase price in the future. Just as all of the wealth at the violin auction was a phantom in self delusion, so too is our present good life and bank account numbers. The evolution of a people that once gripped gold for the real wealth money it was, has proceeded to the hoarding of bookkeeping entries of account credits. History has proven that once humans begin to question the value of this dollar "wealth owed them at a future unknown price" they run a race to outspend their loved brothers. Buying goods now at the "known" price quickly balances the books so no one is any longer fooled. The currency equivalents remain as a trading medium, even as real things are held in the background for value proof.

No, a high price of gold will not rob us of our wealth. It will rob us of this perception of money value that was but an illusion in the clouds. Wealth for tomorrow is found in this context for today; one cannot lose something they never owned. Buying physical gold at today's prices ($200 to $500) will not help you maintain this modern illusion of wealth we never had. But will allow us to later spend the true value of gold that presently exists today. A value few will accept or believe.

Thank you all,,,,,,,,,,,,,,,FOA


FOA made some great points in that comment, but I want to draw your attention to one that I think was inadvertently made. The reaction of the millionaires observing the "Strad auction" illustrates the paradoxical nature of Giffen or Veblen goods which seem to violate the economic law of demand. These observers didn't have their own Strads, but as the price rose and the auction settled, they instinctively imagined buying their own Stradivarius and they also considered their own wealth in Strad terms—how many Strads they could buy.

These types of goods are sometimes called positional goods or status goods. It has been observed that rather than people diversifying away from these goods or substituting other goods as the price rises, the opposite tends to occur with world-class durable, tradable and collectible wealth items.

You've probably heard of the wealth effect as it was applied to the housing bubble. It says that people tend to spend more when they actually are richer, objectively, or when they perceive themselves to be richer. The point here is that the behavioral change effect comes from the perception of wealth, not the liquidation of wealth.

Imagine a painting that was purchased for $10 million and sold a decade later for $100 million. We have seen a rise in the price of fine art over the last few years, so why haven't we seen all fine art flood the market like a bunch of lottery tickets trying to get cashed in? When a wealth item like that rises in value and that new value is revealed at the margin (the auction house), the wealthy people holding similar items simply feel a little more wealthy. But they understand that wealth is not a lottery ticket. Perhaps some people view fine art as an investment, but not the majority, otherwise we'd observe something different than what we've observed.

The point is that Giants, who hold a good portion of that 165,000 tonnes of above-ground gold, view physical gold as wealth and not as an investment. No matter where the price goes, they will not sell it en masse, or even in mass. They already have everything they need to live an exceptional life style and they understand that the best way to dishoard wealth is in drips and drabs over time as needed or as individual preferences change.

But we are not all Giants, are we? Some of us are likely to want to "upgrade" our lifestyle if our gold is suddenly revalued, right? Will we do so in drips and drabs as needed, or will we decide to dump it all at once to catch the top and lock in our profit? Well, let's look at this "upgradable lifestyle" portion of the vote. In the West it will be an extremely tiny contingent. In Eastern countries like India, it is likely to be a fairly large contingent.

First the West. When I say tiny, I'm talking about maybe one person in a million tiny. Someone who has, say, 2% to 5% of his wealth/savings in physical gold—and is able to hold strong through the transition without cashing in that lottery ticket or panicking out along the way—is really only going to stay even or see a small gain (e.g., see Michael H's revaluation/rebalancing exercise here). So in this Western group of "voters" who will be faced with the choice of drips and drabs versus all at once lottery ticket are really only those who have a substantial enough portion of their wealth in physical gold that they will see what could be considered a life-changing windfall profit.

The bottom line is that this Western group is too tiny to even matter in the final vote for "what gold is" after the transition. And the dynamics of the transition will likely shake out all but the strongest hands which are more likely to consider gold to be wealth like the Giants do.

In the East they already view gold as wealth. So even though they will have the ability to improve their standard of living, they will likely continue to accumulate, only choosing to dishoard as needed. This would be a good question for Anand. How many of the gold holders in India do you think consider gold to be wealth versus how many consider it an investment that you should dump at the top? And how will the average Indian react to a gold revaluation? Will she sell it all at once and live large like a lottery winner? Will she sell a little in drips and drabs as needed to improve her quality of life? Or will she continue to accumulate while feeling (knowing she is truly) wealthy?

I suppose it will depend on each person's individual circumstances, but we generally aspire to that which is already present in our vicinity. So I can imagine that a general improvement in the standard of living in India would play out more gradually than it would for, say, an American lottery winner or an NFL draft pick.

So who else is there on the supply side that will get a vote on what gold is? Oh, yeah, the central banks! They use/view gold as a reserve asset, which is to the monetary system as wealth is to the individual. So I don't think we have to worry about them dumping their gold like an investment "to catch the top".

I guess that about covers all those whose opinion will matter (except maybe governments, but we'll get to them in a moment). The opinion of those who don't carry above-ground gold through the transition won't matter, but it will be forced to change specifically because it won't matter! Think about that while we move on to gold in the ground.

Gold in the Ground

While there are an estimated 165,000 tonnes of above-ground gold, each and every bit owned by someone, a recent estimate revealed known and recoverable in-ground deposits to be another 67,500 tonnes spread out all over the world.



The distribution of these in-ground deposits is as follows:

North America 34%
South America 17%
Europe 2%
Africa 17%
Russia/Asia 17%
Australia 12%



The average rate of extraction for the last five years, according to the WGC, has been 2,602.2 tonnes per year.

One of the arguments against Freegold is that all of this mining supply, if it went to market at $55,000 per ounce (or thereabouts), would constitute a dump requiring an offsetting demand of $4.6 trillion per year (in real terms—global net production) to maintain that price. This is a powerful argument that, in my opinion, deserves some more discussion.

To understand the counterargument, there are a couple of things you need to know about the differences between in-ground gold and above-ground gold. First of all, gold that is still in the ground is not worth as much as gold that has already been mined. Gold in the ground is worth the market price of above-ground gold minus the cost of pulling it out of the ground and then refining it. The second thing is that, while every bit of above-ground gold is owned by someone, the ownership of in-ground gold is not what you think, especially in extremis. Let me explain.

It is a pure illusion today that the owners of mines also own the gold in the ground under their mines. It is an anachronism, a relic of a bygone era and it can only last as long as the price of gold and the cost of extraction are in relatively close proximity. Here's what ANOTHER had to say about it:

Date: Sun Apr 19 1998 15:09
ANOTHER (THOUGHTS!) ID#60253:

The governments will revalue gold and "demand" that the public carry it and use it! It will be the source of all gold, the mines, that will be controlled! That's Controlled, with a capital "C", not confiscated!


When confronted with the argument that governments are slow-moving leviathans and will therefore be slow to tax the mines with some sort of windfall profits tax, FOA remarked:

FOA (6/7/99; 7:45:04MDT - Msg ID:7282)

Steve, on this issue, they will move no slower than with the speed of one who finds a gold coin upon a sidewalk!

FOA


Mining companies are sitting ducks. Hat tip to reader "B" for this recent quote from Doug Casey:

"All the governments in the Western world are really bankrupt and are, therefore, going to be looking for more tax revenue. Mining companies are going to be in its sights because mining companies can't move their assets; they are the easiest thing in the world to tax. The good news is that makes mining stocks very volatile, and sometimes extremely cheap. Volatility can be your best friend."

Mmm, cheap and volatile thanks to being sitting ducks for the government! Here's some more FOA:

FOA (10/25/99; 19:57:57MDT - Msg ID:17447)
reply
elevator guy (10/23/99; 21:30:08MDT - Msg ID:17282)
@FOA
Why will gold stocks be a risky place to be?

Hello elevator guy,
We have covered this area many times before. Simply put, when this new gold market runs as never before seen, shares will under perform bullion because they only represent the ownership of a business not money reserves. As a mining business, they must overcome the negative effects of a banking crisis, massive cost inflation and taxes old and new. Their dividends will never return the equivalent of the increase in bullion nor will the equity. Most investors do not retain a good historical perspective between government confiscation and government regulation. Production regulation and taxation are a different control of mine reserves that greatly impacts stock values. Many stock promoters often try to inject the "confiscation issue" as one for bullion holders while ignoring this other dynamic as it pertains to mine shares. The race will be for bullion and large international players will discount the leverage of mine reserves in terms of the crisis financial atmosphere they must invest in.

Even so, some mines will be sought after as they will be perceived as the best positioned of the lot and the last to be interfered with.

Anyway, it's a long hard subject that many will pay dearly for as this transition proceeds.

We will talk again on this. FOA


Imagine if the mine owners actually had as strong of a claim on the minerals under their mines as most people think they do today. With a market price of $55,000 and an extraction cost of only $1,500 or less they could literally "spare no expense" on all the modern mining technology and equipment needed to blast and dig those lottery tickets out of the ground and cash them in as fast as possible! They'd surely run up the extraction rate a bit and put a strain, if not an outright crash, on that Freegold price range.

But they don't have that strong of a claim. The sovereign or the collective (i.e., the government) does. The catch word here, a word you will learn more about, is "royalties". It's not unlike the oil in the ground that the House of Saud allows American oil companies to extract and bring to market in exchange for… royalties.

Even at today's price of only about $1,700 per ounce, some in government already have their fast eye on FOA's "gold coin upon a sidewalk"!

Levy on gold could be budget windfall, U.S. lawmakers say
WASHINGTON | Wed Dec 12, 2012 5:49pm EST

(Reuters) - Revising a 19th-century U.S. law that governs the mining of gold and other precious metals could add billions of dollars to federal coffers at a time of tight budgets, according to some Democratic lawmakers and a government study released on Wednesday.

Taxpayers receive no royalties on metals pulled from federal land, and officials drew a blank when they tried to find out how much gold, silver, copper and other valuable metal is sold.

"Federal agencies generally do not collect data from hardrock mine operators," said the report from the nonpartisan Government Accountability Office, which looked at the market in 2010 and 2011.

But applying a metals levy of 12.5 percent - the benchmark government share for other resources - could deliver hundreds of millions of dollars a year to taxpayers, according to independent studies and U.S. Representative Raul Grijalva, who sought the report and other data from the mining industry.

"As we face these fiscal challenges, these are the pennies that we should pinch," said Grijalva, the leading Democrat on the panel that oversees public lands.

Grijalva, of Arizona, and Senator Tom Udall of New Mexico, who jointly called for the GAO report, say taxpayers should also benefit from a gold price surge that has boosted the bottom line for miners.

Applying Grijalva's royalty formula on the 1.1 million ounces of yellow metal pulled last year from Goldstrike mine in Nevada, the largest in North America, could have yielded $150 million to taxpayers, according to a Reuters tally of industry data.

Barrick Gold Corp (ABX.TO), the mine operator, said only a fraction of Goldstrike is on federal land, and the company's taxes have already quadrupled in the five years of climbing gold prices.

Taxpayers are entitled to a royalty from metal sales nevertheless, lawmakers said.

[…]

NO-ROYALTY RULE

The 1872 mining law that drove prospectors into western states such as California still governs much of the industry.

But this no-royalty law is a costly anachronism when mining giants can stake a claim on federal land for a few dollars an acre, Udall said. The coal, oil and gas industries, by comparison, have no such exemption.

"We are giving our gold and silver for free and don't even know how much we are giving," said Udall, whose father, Stewart, was secretary of the Interior during the 1960s and called mining law reform his great unfinished work.

Lawmakers who have occasionally tried to reform the mining rules have never cleared all the hurdles to pass new laws, as the industry has strong political allies.

Senate Majority Leader Harry Reid, a Democrat, counts on mining support in his home state of Nevada, and lawmakers say it will be difficult to persuade him to take a bite out of the industry.

But on Wednesday, the two top senators on the Energy and Natural Resources Committee said they were open to considering reform.

"There's been agreement for a long time that the 1872 Mining Law should be updated to include a royalty" and reduce paperwork, said Senator Lisa Murkowski, the panel's top Republican.

[…]

State and local governments often catch a windfall from mining revenue, and Udall said Republican lawmakers from the West might be persuaded to increase the federal take.

"Everyone agrees we need a balanced package to find new revenue," he said, "and this seems like the right time for reform."


So the "production regulation and taxation" of the mines as FOA put it, or "Control with a capital 'C'" as Another said, will effectively transfer the vote for "what gold is after the revaluation" from the mine owners to the sovereign or the collective (i.e., the governments of the world). Will the governments of the world view gold as an investment or a lottery ticket? Or will they view it as a wealth reserve/monetary reserve asset? This is the question that you need to answer for yourself. I know my answer.

From FOA above:

"The currency equivalents remain as a trading medium, even as real things are held in the background for value proof."

Currency issuing governments like the USG can simply spend money into existence. The credibility of this common government system is generally maintained by three government abilities—the ability to tax, the ability to borrow and the ability to sell off or rent out public assets. To such an entity, the differences between windfall profits taxing gold miners and selling off public gold that is already in the vault are minimal. So if you believe that they will let all that newly mined gold hit the market for just a little extra revenue, you should also believe that they will simply sell their existing gold reserves outright in exchange for the same cash that they can print.

You see, a functioning printing press is infinitely more valuable than gold. Gold, as FOA said, is simply "held in the background for value proof." I can, however, imagine that a country like the US would want to keep its mining companies well-oiled and properly maintained. But that can be achieved by simply transferring in-ground reserves to the vault at some regulated pace.

A country like Canada which has more than 13,000 tonnes of in-ground reserves (the most of any country) and yet only has 3.4 tonnes in the vault would likely transfer at a higher pace than the USG which has a better balance between above- and below-ground reserves. But this transfer of gold from the ground to the vault would not pass through the gold market, even though the government would pay the mine owner the market price and then tax back most of the profit.

Similar principles apply to governments that are not currency issuers, like those in the Eurosystem, in that there is little difference between selling gold in the vault and selling gold in the ground via windfall profits taxes on the miners. One difference could be that, because of their membership in the Eurosystem, they cannot unilaterally choose to sell gold in the vault. But remember from the illustration above that Europe only has 2% of those global in-ground deposits. So even if half of those countries used their in-ground gold as a lottery ticket, that would only represent an additional flow of about 26 tonnes per year hitting the market. An amount that small could, and most likely would, be directly absorbed by the ECB.

I hope I've shown you that it doesn't matter what the rate of extraction will be in Freegold. It could be the same, higher or lower than today. All that matters is how much of that newly-mined gold is dumped onto the market like a winning lottery ticket, relative to the demand.

So let's take a poll. What is gold? Is it money, currency, an investment or wealth? What will your vote be when the time comes? And will you even have a vote?

Sincerely,
FOFOA


245 comments:

1 – 200 of 245   Newer›   Newest»
Herb said...

This may sound flip, but gold is an element with the atomic number 79. Everything else about it is metaphor. It is clearly the target of an immense amount of thought, but it is a target that doesn't move. It is the same in every corner of the universe whether it is a token of wealth on one planet or ship ballast on another planet. It is always, on the most basic and immutable level, an element with the atomic number 79.

Sam said...

Glen a nice chunk of that element in physical possession makes for a most recognizable bit of wealth.

Tyrannyofthepresent said...

On the hypothetical Indian lady,

She already knows that there are two important forms of wealth: gold and land. She lives with her husband on a 5 acre farm worth 7.5 lakh ($14000) and has 50g of 24 carat jewellery with a value of say 1.5 lakh ($2800). Both are multigenerational wealth to her, although she is certainly not rich.

The next-door farm is held by a neighbour who has far less gold: only about 1 lakh worth. But it is a 10 acre farm with slightly better land. They also have some livestock. The total value is 20 lakh. It is mortgaged (for the same reason why they sold so much gold). Her husband is sick and they are struggling.

Our first woman suddenly finds that her bangles and necklace are worth 60 lakh. This is unimaginable wealth to her, and she has a very conservative, long-term outlook. In many ways she thinks like a Giant. She will rebalance her wealth portfolio, enhance her social status and consolidate her future.

There will be no investment, money or currency thinking involved. But India will be flooded with available gold, and the price of rural land will rise sharply.

anand srivastava said...

FOFOA: Thanks for the mention.

I didn't have any hesitation in choosing gold as wealth. It is the best description.

Now, to attempt to answer your question.

How many of the gold holders in India do you think consider gold to be wealth versus how many consider it an investment that you should dump at the top?

The traditional Indians don't view gold as an investment to sell it at the top.

Gold Jewelry is bought precisely for one purpose, for their wives as a wealth to be transferred to their daughters, daughter in laws, and the women of the next generation. These are extremely strong hands, not unlike the Rothschilds :-).

People will definitely not be happy when the revaluation happens :-). It would become very difficult to buy gold jewelry for their wives. And they will probably move to other kind of jewelry. It may even become very difficult to wear the jewelry, because of the extremely high value. Which might change the whole gold as wealth system. They think of it as jewelry for their next of kin, not really very deeply as wealth. So I am not sure if this will not change post revaluation. But they definitely will not sell. The people who have the gold will transfer it to their children, who may sell, but then the perception is bound to change with the revaluation. So it is kind of complex to predict the dynamic.

The younger generation is not that interested in gold, they prefer diamonds and fake jewelry, aka the Swarovski. They do not perceive jewelry as a store of wealth. So they might think of using the largess they receive from their parents.

Lately people have also started buying gold as investment, but these are weak hands, and would probably sell to catch the top. Many sold when the price in Rupee terms reached 13K, after the 2008 crash, thinking that it will fall again :-). Yes, these people will catch the top again.

I will probably shift some of my gold to land. But still keep a substantial part with me.

Eric Johnson said...

I'm guessing the EPA is also going to ultimately add to a growing valuation of the in the ground gold deposits with respect to protecting the endangered sand flea and horse fly from the harmful explosive mining practices.

duggo said...

"So let's take a poll. What is gold? Is it money, currency, an investment or wealth? What will your vote be when the time comes? And will you even have a vote? "

As an "older" Freegolder "WHEN" is the question I want debated and answered with the most accuracy.

Until then my answer is "Wealth with the added bonus that it increases it's purchasing potential over consumables that become cheaper by the application of new technology".

victorthecleaner said...


I would have liked a fifth choice: "Gold is the international reserve.". I'd even prefer this over "Gold is wealth" because it tells you who will vote by not selling theirs.

I still like "Gold is wealth" better than "Gold is store of value" because the former puts it in the same drawer as pieces of art, jewellery, racing horses, Stradivaris, and so on. And yes, they do store value in the long run, but in the short run their market price is known to be volatile - even without any unallocated paper Stradivaris in the banking system.

I'd also like to add some scenarios of how it might look:

1) The Arabs stop leasing their gold in London. Huge GLD Pukes over the next few days. Then the market remains closed, trading is halted. The paper price never shows any significant move before the event.

2) Financial crisis. Paper gold drops to 800 together with copper, oil, stocks. Dollar and Treasury bonds rise sky high. Then gold stops trading in London. Coin stores still quote the last paper price and sell gold on backorder. Some of it is even delivered after a few weeks. Then it becomes obvious that the market is terminally broken and the fact is admitted.

3) Investors are afraid of inflation and run into paper gold and gold investments. The paper price rises 50% in two weeks. Some actual giant (non-dollar block CB, oil, commercial bank) panics, stops leasing or requests allocation and breaks the market. Then as in (2), but with a higher last paper price.

4) Someone has been responsible for the nice decade long upward trend in paper gold which has in fact been manufactured. They decide (or already have an agreement) that it is time to stop the operation. Continue with (2). No price signal in advance.

5) OPEC announces that they sell oil for Euros. The next day, there is only cash settlement in London. No advance warning.

6) Dollar crisis. US$ loses 3%-5% a day for a few consecutive days. Japan panics and tries to sell. Capital controls. As US$s cannot move, gold cannot move either. Bron at the Perth Mint would love to run the next regular Friday auction and discover a physical-only price, but his government has announced that all international gold shipments are suspended and that the Australian mines have to stockpile, but cannot sell. Bron knows he will be unable to restock his inventory and therefore decides to cancel the auction. No physical price discovered this time - sorry. Same in most other countries. (Don't want to be in bonds either these days....)

When do you know it is over, and we have arrived on the other side?

a) when every shrimp views gold as wealth
b) when every shrimp views gold as a store of value and when he spends his fiat
c) when oil sells for Euros
d) when the ECB/BIS make a physical only market, and other CBs start to net their mutual reserves and settle balances in gold
e) when everyone realizes we have HI in the U.S.
f) when COMEX trading is suspended/when LBMA settles with hedge funds and commercial banks in cash (but with wealthy Arabs in allocated)
g) when the BoJ switches from dollars into gold
h) when pension fund regulation is changed and they are required to hold 30% allocated gold

Conceptually, I'd go for (d).

Victor

Beer Holiday said...

What a great article.

I voted gold is wealth, and also a currency, because it trades like one today. If the bullion banks really have freebanking with gold as the reserve then gold is a currency?. After freegold, I think it will be wealth only, or like VtC says "international wealth reserve".

@herb, yes it is still element # 79.

CyrilBe said...

What happens if "Western" central banks run out of gold relative to "the East"? Would that make the opportunity cost of delinking the various States in the West from legal tender laws more palatable, allowing for more competition through Bitcoin etc?

victorthecleaner said...


forgot to add a scenario:

7) For some of the reasons (1)-(6) there is a behind the scenes run on physical gold. But the US/UK have decided to rescue the market. The IMF leases some 1000+ tonnes. This is good for a few weeks. During this time, there is a decision that Geithner/Bernanke and Cameron/Carney provide liquidity to LBMA for them to bid for physical gold. You will see paper gold spike and later the dollar crash (when they buy gold abroad and need other currencies).

This strategy has some charm because it copies the ultimate defence of the Eurosystem in a currency war: Print your own currency and buy gold. Although this gold would be needed to satisfy plenty of existing claims (LBMA) before it adds to the reserves, the international implications are similar. They would force all other CBs to act and to stop the capital inflow, and they might be able to drain quite a bit of gold from other currency areas this way (in addition to keeping some control of the timing).

Victor

victorthecleaner said...


Here are some snippets of Draghi from his interview with the Financial Times (Dec 11, 2012): http://www.ft.com/intl/cms/s/0/6a4dd882-4537-11e2-858f-00144feabdc0.html

... the decision for OMT was meant to pursue, within our mandate, our objective to deliver price stability.

... with any type of intervention, moral hazard has to be avoided and fiscal discipline, in particular, has to be ensured.

(VtC: on OMT) But also do not forget that the ultimate assessment of whether to act or not is entirely in the hands of the Governing Council.

First of all one must stress that inflation is not a policy tool. One doesn’t toy with inflation. Especially in an area made up by several sovereign states. The second point is that – in our institutional set-up – if you had to choose one policy objective that would be to increase competitiveness. The countries that have been successful in adjusting and in reforming have mitigated the short-term contractionary effects of fiscal policies.

Countries with high debt and deficits should understand they have lost sovereignty a long time ago over their economic policies in a globalised world.


Victor


Tyrannyofthepresent said...

"Other kinds of jewellery",

On hearing this I fell into a swoon and ague. And I stood in a field of the Orient. To my left grazed a sacred cow and to my right two women were arguing. One was an old woman of Limerick, her hair white and a sack of potatoes on her back. The other was a lady of Milan, golden-haired, a costly handbag dangling from her manicured fingers. And the Irishwoman swung her sack, smote the Italian and her bag fell on the ground. And something tinkled out of it. When I looked back to my left, the sacred cow was gone.

Perspiring and trembling I awoke, for it was the ague. My fingers would not thread the needle and my cloth of Frankfurt was torn asunder. And I lamented, for I am a Taylor and must needs supply the demands of my Patron, who is a banker, subtle and quick to anger.

罗臻 said...

What is gold? Lady don't hurt me, don't hurt me, no more.

Peter said...

Yes.

Oh, I don't know.
What can I do?
What else can I say?
It's up to you.

Motley Fool said...

VtC

How about...
i) All physical gold is unambiguously owned.

Wil Martindale said...

Yes, I do believe the scenario of FIAT gold dropping to 800 (VTC) to 500 (FOFOA) will usher in the "holiday", and I do also believe the revaluation will come in around 55K in dollar terms.

At that revaluation, who will be in a position to continue accumulating it, albeit slowly. Not many of Western thought I believe (myself included) for the poor freegolders such as myself are merely hoping to carry it through debt satisfaction, in order to live out our lives as freely and inmdependently as possible in the time we have left.

But the quality of life question is the one that deserves careful consideration. Gold is wealth by historical and practical measures, and by the will of the giants who hold most of it, and command this view.

But what the post collapse world will be stil holds many uncertainties. Seldom does such a dramatic paradigm shift as predicted here exist in a vacuum. Many other perceptions will change, reality will change for many, and in the end, "Wealth is not everything" may have more meaning than it does in our material world of attitude, arrogance and excess as we see playing out today.

I do like, FOFOA, how you tied this post into an acknowledgement of what was gained in the excercise of arguments against it, and from a standpoint of continuity, I enjoyed this pos immensely.

Thanks again for offering relief from the maddening crowd-think of propaganda driven drivel!

Wil Martindale said...

And someday, I too hope to construct a correctly spelled post before hitting "publish".

Jeff said...

Victor, re: your 1)

Arabs would not lease their gold without CB backing. Europe won't back the paper; China won't, as their goal is to take gold, not be on the hook for delivery; only the US might. I'm trying to imagine why and how much the US would back.

This would be done through the IMF.

Background on IMF leasing:

http://www.imf.org/External/NP/sta/bop/pdf/bopteg21a.pdf

That paper is old, according to the IMF website they don't lease any more:

The IMF does not have the authority under its Articles to engage in any other gold transactions—such as loans, leases, swaps, or use of gold as collateral—nor does it have the authority to buy gold.

http://www.imf.org/external/np/exr/facts/gold.htm

So, behind the scenes leases which will be recorded as sales after the fact?

duggo said...

Sorry FOFOA You've lost me again.

" Trading is stopped to interrupt the free fall atmosphere. "Gold's" free fall is stopped at $500 per ounce and over the next few weeks, anyone holding a claim that was previously exchangeable for physical gold is cash settled in the spirit of fairness."

If I've got holdings with Perth Mint, GoldMoney and BullionVault why would I voluntarily accept "settled in the spirit of fairness".

Wouldn't I just say "no thanks I'll stick with my claim on the physical Gold until I make the decision to sell".

How would they force me out of my claim for the real thing? As I'm a Freegold Bottom-feeder perhaps the Freegold Eggheads can help me on this one.

Franco said...

FOFOA:

Thanks for the latest blog entry. I have a question. Let's say that a dollar confidence crisis breaks the gold paper market. The price of paper gold goes down to almost zero, but no physical is available at that price. Later, somehow, somewhere, physical gold starts changing hands at a price of (sigh) $55k per ounce. Shortly thereafter, the new price of gold becomes accepted widely. Isn't it conceivable that at that point, once everybody accepts that (sigh) $55k/oz is what gold is worth now, the gold paper market can start trading again, at that price? I guess governments around the world could get together and ban gold paper trading venues, but let's just say that that doesn't happen. Wouldn't COMEX (or whatever the gold paper trading market is called) spring right back up, thus keeping gold "un-free"?

vizeet srivastava said...

I am also Indian so thought to answer this question. I agree with Anand for most part. Indians think like giants (At least South Indians and people living in villages). I think that cannot change because what anyone can do with the gold.

Someone with low need will not swap with luxury no matter how much he has and probably much of the gold that enters into market will be swapped with land and will be swapped back to gold. So I think rich will aggregate more gold and poor will aggregate more land. And most of the gold will still remain hidden (may be more than 90%).
At the time of revaluation market will start rebuilding. Thinking don't change in a day and you cannot have lot of clothes or large size vehicles in a small 300 sq ft flat or house. Spending will start gradually. People will still see gold and land as store of value but they will have less inclination for adding more gold. I think people will buy artificial gold jewelery.
I think villages will start changing with the revaluation because that will become investment of choice for companies. They will have more wealth. Cities are crowded and badly planned and people are in debt so will not improve for long time.

Franco said...

duggo:

You said:

If I've got holdings with Perth Mint, GoldMoney and BullionVault why would I voluntarily accept "settled in the spirit of fairness". Wouldn't I just say "no thanks I'll stick with my claim on the physical Gold until I make the decision to sell".

You need to be prepared for the very real possibility that "in the interest of allowing the dust to settle" governments will allow these claims to be settled in $ at the discretion of the, errr, custodian. After all, isn't that what they stamp on every note, "legal tender for all debts, public and private?". There is a reason why that message is there.

Jeff said...

Duggo,

Not sure about Bullionvault, Perth Mint, etc. FOFOA was probably talking about the COMEX and gold futures generally.

Jeff said...

Franco,

FOA (5/9/01; 07:20:23MT - usagold.com msg#72)
A Tree in the Making #04

Our modern gold market and the price illusion it creates, is little more than a fiat dollar system that denominates gold credits in contract form. Is it a free market? Why yes, very free. But only free in the sense that supply is unlimited. Investors and the industry in total, bought into paper based gold and yet they fully well knew 90% of it had only cash equity as the collateral on the other side. Then, somehow expected that those contracts were limited in creation by the fixed amount of gold in the world. Their mistake, not the markets.

…Indeed, a currency without a country! In order to implement such a currency, gold would require laws that would keep it within its wealth concept. Gold in possession would be wealth in possession as long as governments could not use it as credit money. In my discussion with Econoclast, I took his legal meanings and applied them to this "wealth without a country" position.

Keeping gold out of the fiat arena would be more simple than many hard school advocates envision. The key to that is found in the implementation of international law. The leading economic countries (EuroZone in the future) would have but to establish a protocol that forbid the enforcement of collateral attachment anytime physical gold is traded, lent or involved in a trade. In this context, no banker would lend you gold to buy a house if, in a default, he could not claim your house in a court of law. Even private parties would never lend gold if the asset behind the loan could not be claimed for nonpayment. It's that simple. With a stroke of written law, the trading of gold as wealth would become a final payment with no possible credit implications. Our official fiats and wealth without a country would never again function as one.

Woland said...

I normally try to keep my comments brief, but this post
is synchronous with a thought I had last night, prompted
in part by Michael H's "violin lesson", which, as I said the
other day, I view as an invaluable extension to the latter
part of Msg. 3351. So, first, I voted with the majority, but
I would like to add an addendum to gold as wealth;

"Consider now that all pieces, in this chess game of worth,
hold a changing value in the minds of people in all world
economies. Oil, copper, steel, currencies, they are, every
day, priced as to their usefulness NOT ONLY to the owners,
but also in the STRATEGIC VALUE they hold in the eyes of
our opponents. Those with whom we wish to trade!" FOA

Seen in this light, gold once was, and shall be once again,
"strategic wealth", and its' "strategic value" will be recognized
as its' present FUNCTION (something between wealth, money
and an investment) is transformed to REPLACE a thing (fiat
debt) which has died, because it can no longer fulfill its
former role.

I was thinking last night about waterfront real estate. Usually,
oceanfront is more valuable than lakefront, which is in turn
more valuable than riverfront, and last comes canal front. Of
course there are exceptions, which have in part to do with
where wealth is concentrated. 1000 feet on Lake Como may
be worth more than the same frontage on the Moroccan coast.
A home here on the Connecticut River is worth more than one
overlooking Lake Erie. But there are certain bits of "real
estate" which defy the rules for another reason. Take the
rock of Gibraltar, the Bosphorus, the Suez or Panama canals,
the Malacca straights. Their value to us shrimps is small, but
to a different category of "player" their value is incalculable:
they are choke points of world commerce, and hence of great
"strategic value". They confer a power on their owners which
is not to be measured in acres or frontage feet. The efforts
expended to maintain these holdings free from opposing
interests should make this clear.

The valuation, therefore, of gold as an element to which we
are naturally drawn, throughout recorded history, via the
mechanism of "supply and demand", therefore misses the
point, at a time when gold transitions once again to its
former role as both real, and in particular strategic, wealth.

sorry to be a bit long winded. Cheers.

duggo said...

Franco

But I'm not asking for a "claim to be settled". I'm just sitting in my comfy chair knowing that I've paid for the "real thing" to be stored for me. That's why I'm paying storage fees.

A "danger" is hinted at during the "transitional phase". If nobody can explain this danger clearly and simply for a thicko like me to understand then it's just "tin-foil" hat scare-mongering.

I suppose there is a possibility that someone from Microsoft or Apple could step forward and say:- "by the way chaps. Our shares have been dropping in value so in a spirit of fairness and all things being equal we've cashed in your shares and here is the money" Do you think they would get away with this move?

I don't wish offend anyone but what's the big secret? What is this "danger"?

Jeff said...

Duggo, if you have allocated gold through Perth Mint you might get it, but you will sweat bullets until it is in your hands. The big danger is in unallocated.

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


Tekin said...

I would like to add another scenario to Victor's list, which combines an apparent analogy to the 1970s bull market with FOFOAs paper gold price annihilation.

In this instance, the gold price would blow-off to the paper-physical separation threshold, in sympathy with the 1978-1979 move, then fall back, “signaling” the end of the bull market. China, Europe and Arabs would have to contribute to this scenario, for it to be successful. After a few years, when public fully perceives that gold bull is really over, a suitable excuse is fabricated for a sudden revaluation of gold .

US might have some geopolitical levers to persuade these players to play this game. Namely, Arab spring for the Saudi's and energy security for China and Europe.

For the sake of argument, let us hypothetically accept these premises and investigate its consequences. First of all, what is the paper-physical separation threshold? Another once mentioned $10,000. We may perhaps accept it as minimum. At that time oil was at $20; perhaps implying the threshold gold price to oil ratio of 500. If this reasoning is correct, current threshold price might as well be $50,000. Jim Rickards is on the records for saying that in a war game played at Pentagon, oil price rocketed to $200.

Any way, the $10,000-$20,000 range looks very nice to me. It is sufficiently away from the threshold just in case, one of the “players” (China, Europe, Arabs) gets an itch to play with some dangerous ideas. The Dow/Oil ratio would come down to around 1. King World News, Russia Today, Jim Rickards and some others have prepared the public for a spike to this price range. Old man Richard Russell have a feeling that we are nearing to the blow off phase. So, everything is set.

In 1979 there was Afghanistan, now we have Middle East, for the final doubling of price.

After the blow off, paper gold price annihilation would look like the start of a new bear market. Wait for a couple of years. Everyone loses interest in gold. Then! Boom! Fabricate a pretext and announce the revalued gold price!

Just a scenario!

Tekin said...

I mean, "The Dow/Gold ratio would come down to around 1".

Pat said...

Here's a US-centric mind experiment. Picture the living room of any Joe Six-pack watching CNBC ( the small percentage not tuned into sports; American Idol; or some other vacuous whatever, not that CNBC is any less vacuous ) and the screen flashes the new price of gold, $55K/oz.
"Hey, honey, how many ounces in a gram, or is it quart? Seems like gold is getting expensive, though I don't know what it used to be."
Outside of a very small minority, this momentous event will be met by nothing but yawns by the few sheeple who even notice it, except the ones who of course already hit the "We buy gold" outlets. "Damn fuck shit sonsamabitch, what the hell Cletus?"

Jonas said...

I'd like to read more about the implications of war on the current gold hoards. A big news item lately was that of the english queen being shown about in the vault of the BoE as if the BoE was trying to give her the impression of them actually owning it. They are not owners of the gold, it is just stored there. I heard a figure of 4.500 tons sitting there, held for various other sovereigns, investement funds etc. What if, in the run up to free gold, the BoE locks the vault and surrounds the premises with police and military essentially challenging the "owners" to come and take posession by force? In a post free gold world, would the BoE then have a gold reserve of 4.500 tons provided it can hold the fort militarily? I think the risk of theft/confiscation or looting of physical gold by sovereigns/central banks is more than substantial. Who's got more guns, could become more important than who's got more gold.... Think of all the European gold stored in the US, do you think Europe would dare threaten the US with force in case of theft?

matrixsentry said...

Thank you FOFOA for another excellent post.

Does this mean the ban is once again in effect for our resident assholes AD and Art? The blog is too important to allow their sewage to be deposited in the comment section. They both had an opportunity to reconsider their behavior, an opportunity graciously extended by you, and they squandered it. I certainly lack your grace and must commend you for at least trying.

Once again I find value in your writing and choose to allocate my precious time to read and participate in the blog. I choose to return a portion of that value in currency terms to you in the form of a donation. I also urge others to do this as well.

Probably no surprise here that I vote for Gold is Wealth.

Herb says gold is an element with an atomic number of 79. As a human being I can agree with both assertions. However, if I were to speak in the universal language of mathematics to a visiting alien from the other side of the galaxy, or from another galaxy altogether, I would assert that only one of those statements would make any sense to our visitor.

The importance is not what gold is, it resides in what we think gold accomplishes for us, we humans living out our lives on this little speck of cosmic dust. Your post did an excellent job of illustrating whose opinion will matter and why this will be the case.

Blondie explored the idea of credibility. It strikes me that people listen to and more importantly follow others that demonstrate possession of credibility. Credibility is a form of human currency that can be earned, spent, and borrowed. Some may associate credibility with success, and I would certainly agree. Some would associate wealth, as we choose to define it here, with success. I tend to do this. Some would therefore associate credibility with wealth, count me as one who makes this connection.

The holders of wealth will decide the issue and rest will follow. I am holder of wealth on a very small scale compared to the giant wealth holders. Yet, my aspirations are grounded to earth where all the others ants reside. I do not delude myself to believe that my little stack will give me a voice at that table where giants determine the meaning of gold. I simply endeavor to walk in their footsteps and follow their path.

I must once again tell anyone who has not read this blog and is struggling to find answers here in the comment section, you are wasting time.

READ THE BLOG. The entire thing, every post. Take a sabbatical and read. Then come back to the comments and tell us what you believe gold is and where you believe we are headed.

Lemuel Habbakuk said...

Anyone taken a listen to this podcast with Jeff Christian with Erik Townsend that was released yesterday?

http://store.payloadz.com/details/1362186-audio-books-podcasts-fsn-jeff-christian-the-feds-qe-policy-does-not-guarantee-higher-gold-prices.html

His "models" saw that gold was clearly overvalued at $1900. I would like to know what his models here, just for interest's sake. Do you think it's got to do with the growth of monetary aggregates or credit growth or what? He clearly believes there is an insignificant relationship between gold and inflation. It is an interesting interview.

It seems to me that he must be a guy who has fair success in helping his clients navigate their gold investing/trading. In the talk Erik Townsend mentions how one year ago Jeff Christian predicted gold prices between $1500 and $1800 at the end of 2012, which was not well received. He predicts prices will stay rangebound for a few years and that we might have to wait a few years for $1900 to be exceeded again.

Just wondering what people here would comment on the interview.

Cheers

tyrannyofthepresent said...

Gold is wealth.
But wealth is not only gold.

Motley Fool said...

Gold is not even real wealth...it is simply such a good proxy for real wealth that we casually include it in the definition of wealth.

This inclusion leads some to argue that hoarding of gold is bad for the economy and deprives others of it; which would be true if gold was in fact real productive wealth, so we should be careful in our definitions.

Gold is simply one form of claim upon real productive wealth, though it does differ in dynamics from other such claims eg. fiat currency.

Pat said...

Lemuel, buddy, dude, somewhere around Albuquerque you must have taken the wrong fork in the trail. Navigate gold "investing/trading"?
Out of all the gin joints in all the world...you could not have landed on the worst ( gold blog ) choice for your question.
But I step back and say, hmm, not really, for on this particular post we have just had a vote cast for gold as an investment.

duggo said...

So let me see if I've got this clear.
Not even a Giant will be sure he has any Gold stored in his chosen vault. During the period of transition (or just before) he will have to go round to the vault with a truck and take it home where he can sit on top of it. It won't be any good him saying but I have a "record" of all of my Gold in the vault he must actually be lying naked and rolling around on the stuff.
So no institution or company with a record of straight dealing will be trustworthy. Overnight the black mists of treachery will descend and everyone will be stealing each others Gold. Owners of vaults will quickly nip round to their vaults and relieve everyone of their possessions. Honest people with many years of trustworthiness will become like Gollum. I'm glad I don't live in that World.

Why doesn't this happen when a share increases by 10000 fold?

Jeff. I have come to the conclusion that if you cannot trust a company to come up with "unallocated" or stand by their word, then why can you rely on that company to come up with "allocated"? They are either honest or not. They can't be a little bit honest.

FOFOA I'd keep a close eye on your sister.

vizeet srivastava said...
This comment has been removed by the author.
vizeet srivastava said...

Gold is more a reflection of wealth. It takes its value from wealth. Wealth is value of resources at the instant. Gold's value is arbitrary which balances itself with wealth.

matrixsentry said...

tyrannyofthepresent,

Yes, there are other forms of wealth. However, I would argue that wealth in size that has come down from the ages chooses a specific form. It isn't silver, it isn't art, classic cars, land, or any other thing that can be possessed. Those forms of wealth either cannot endure in time, are subject to whims of government, or they are not deep and liquid enough to hold extreme valuation without depriving the world of something physical and of utility.

Silver is a trade. It is a trade that can do well within the current paradigm where the meaning of "gold" is quite different than it will be in a Freegold future. The meaning and purpose of "gold" is going to change radically, and the meaning of "silver" and its purpose is going to remain largely the same as it currently is, as a commodity to the world and perhaps a speculative investment for a very small and specific community.

Unless you can see the change of "gold" from a thing of (wealth + credit) to a thing of (wealth only), you will never see why silver is not following gold to its ultimate and best valuation.

RTFB.

Jeff said...

How about this duggo?

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

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

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

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

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

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

Jeff said...

part 2

FOFOA: ** Confusion surrounding the price of gold ...

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

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

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

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

Edwardo said...

Mario Draghi by way of VTC,

"Countries with high debt and deficits should understand they have lost sovereignty a long time ago over their economic policies in a globalised world."

This is patently false. Sovereignty is a complex state of being (no pun intended) that encompasses more than the issues that are at the core of the sovereign debt crisis. If Mr. Draghi were to have suggested that various unspecified nation's sovereignty has been tarnished, or even, perhaps, in some tangible way, compromised, that would be one thing, but to assert that it is forfeit, egregiously oversteps the mark. Mr. Draghi is, in effect, sounding like someone on the other side of a contract dispute demanding more as recompense than is due.

victorthecleaner said...

Motley Fool,

i) All physical gold is unambiguously owned.

That's already true today, isn't it? It just so happens that there still exist some financial claims denominated in ounces. They don't involve ownership of the physical gold though.

Jeff,

Arabs would not lease their gold without CB backing.

That's an interesting question. Jeff Christian said that most of the gold leasing today is done by private parties, but not by CBs. So the question is who has enough allocated LBMA gold to support the gold lending market?

Lots of tiny giants who own some five bars each? If they know the benefits of allocated gold, why would they lease? This would undermine the very purpose for which they bought their gold, wouldn't it? If you are worth some $50 million, and you have $10 million in allocated gold, then I suppose you know what you are doing, and in this case, you don't lease it, do you?

If you are an institutional investor, a pension fund, a hedge fund and if you have any gold at all, then this would most likely be paper (unallocated, futures, OTC) or ETFs, but not allocated. Who else owns allocated gold and is willing to lease it?

All this is why I still think that gold leasing is mainly done for political reasons. And who benefits most from the still functioning paper gold market? It's those who still get overpaid in gold. The fact that the gold/oil ratio is still stable (thanks to tremendous political efforts I might add), suggests to me that oil is still on board.

If you ask cui bono, then oil is a plausible candidate for the leasing, isn't it? It could be the IMF, but you just showed us it's not them. It could be the U.S. or the UK - the consensus here seems to be that it's not them either although I still think they have a good motive, in particular because once they pull their lease, they will get their gold back (even if all of GLD has to be puked), for the same reason that oil would.

duggo,

How would they force me out of my claim for the real thing?

The trustee's of the ETFs can decide to wind down their ETF and pay investors cash. The Perth Mint can terminate your account whenever they choose. They would tell you, yes, we'd like to manufacture individual bars for you and ship them to you now, but unfortunately, the Australian government has stopped all international gold shipments, and the default procedure is to pay you cash.

If you don't own specific pieces of physical gold, i.e. individual coins or bars, you are extremely vulnerable. Even if you do, your success may depend on where they are stored.

Victor

Franco said...

Jeff:

Thanks for your response. So what would happen if there is a dollar crisis, the paper gold market breaks, physical gold goes into hiding, later reappears at (cough cough) $55k/oz, and the governments of the world never get together to implement international law to "establish a protocol that forbid the enforcement of collateral attachment anytime physical gold is traded, lent or involved in a trade"? What would that look like?

spaul67 said...

I believe that gold is the king of wealth but not the only form of wealth. For example having the means of being self-sufficient during times of scarcity could also be considered wealth. You can’t eat gold and in situation where the government has re-criminalized gold ownership during skyrocketing food prices those super pails of wheat are most definitely ‘wealth’ in this situation.

Now in a hyper-inflationary environment the relative value of all physical forms of wealth will skyrocket in terms of the MoE. So even if gold goes to $Trillion/oz it may not by anymore in terms of other forms of wealth (i.e. super pails of wheat 22/oz today) than it does now.

Now FOFOA mentioned two paths to freegold, I’m going to suggest a third. First, hyper-inflation will not happen from the bottom up because those at the bottom generally live hand to mouth so there isn’t a large store of cash to drive hyper-inflation or gold prices for that matter from that level of society. You can also count on the government checks not keeping pace with the rising prices thus creating an ever increasing degree of social disintegration that all governments fear the most.

Hyper-inflation is driven by those with money sitting on the sidelines that then suddenly start to purchase ‘physical’ forms of wealth for fear of losing relative value (i.e. MoE/stuff). A physical world that includes many ‘different’ forms of wealth I might add, and therein lies the problem.

Now some forms of wealth are more important for social cohesion than others; wheat vs. gold for example. So I predict that the government will out of self-interest go from suppressing gold (and dare I say silver) prices to actually encouraging their rise. They will do this in order to soak up all the excess money supply and slow down its velocity. This action on the part of the government is what will cause gold and silver to rise in ‘relative’ value to all other forms of physical wealth. In short, ‘all’ forms of physical wealth not tied to social cohesion will be ‘encouraged’ to increase in ‘relative’ value to forms of wealth that are, silver included. This is why in my mind they actually have the US treasury minting precious metal coins and selling them to the public.

Which is also why after the crises is near the end rebalancing your wealth out of gold and into other SoV is important. What the system has brought forth it can just as easily take away.

Think about it for a minute. Say you are really wealthily in terms of IOUs from your government. A government that is hopelessly in debt with a future net production capacity that will ‘never’ be able to pay you back in terms of real wealth at today’s prices. Inflating a gold bubble and then popping it would be the best way to extract yourself from the predicament ‘without’ causing a social breakdown, would it not?

Let’s do the math, start with $10 million in IOUs or about 5,000 oz of gold. Inflate the value of gold by 30 fold and absorb that $10 million with 166 oz of gold. Then pull the support away from gold and let it crash back down to mining costs say $1,200/oz or $200,000 for a 98% reduction in IOUs. All the while those getting all those free Obama phones didn’t even feel a thing.

athrone said...

FOFOA / others,

90% of people are responding to the question "What is Gold" with the answer "Gold is Wealth" [aka not an investment]

Yet in the last post when I asked "Why do you personally hold Gold" the answer was unanimously "For the speculative 20-30x gains as described in Freegold" [aka a speculative investment]

How do you/others reconcile this discrepancy?

dieuwer said...

Gold is a store of wealth.

Regarding the control of mining companies, I would say there is a big "mine of gold" in London: GLD! It's another sitting duck right under the burning eye of the British Government. How convenient.

Lemuel Habbakuk said...

@Pat,

Don't worry, I'm aware of where I'm posting that, I know exactly where you guys are coming from. I'm not endorsing or rejecting Jeff Christian or promulgating gold as an investment. I'm actually just curious what you guys make of him, that's really what I'd like to know.

I didn't make my inquiry clear. I guess what I want to ask is: do you think he himself really believes everything he says?

victorthecleaner said...


Franco,

Wouldn't COMEX (or whatever the gold paper trading market is called) spring right back up, thus keeping gold "un-free"?

This is why I said I like the criterion (d) best. If CBs settle international balances in gold, then they will go for the real thing, i.e. allocated gold, and won't accept paper (which would neutralize the effects of transacting in gold). If CBs and governments go for physical only, then COMEX is a side show, isn't it? Even if it would reopen in the old form and you are a commercial bank, would you write a gold contract? After some time, we might then get some new law as FOA says in the paragraph quoted by Jeff, but I doubt that once governments and CBs have made their move, this would even matter much.

Jonas,

What if, in the run up to free gold, the BoE locks the vault and surrounds the premises with police and military essentially challenging the "owners" to come and take posession by force?

That's a variation on the "The Bundesbank cannot get their gold back from New York" story. In this case, the Europeans could stop trading dollars and sterling, the ECB could print Euros (unlimited) and bid for physical gold (unlimited) until the Brits give up because they are running out of food and energy. They know this and won't even try.

There is even some historical precedent in a situation with a much weaker 'victim'. I don't remeber the details, so perhaps someone can explain it to us: In 1979 (?) during the revolution in Iran, did the U.S. try to block the Iranian gold? How did that turn out?

Edwardo,

I'd like to defend Draghi. Sure, any country, let's say, Spain, has the option of defaulting on their debt. I think more of them should in fact consider this option. But then, during the years after the default, their governments will not be able to spend more than they earn. This may be what Draghi meant.

Victor

duggo said...

@ Jeff Obviously I'm addressing you but in reality I'm not because they are another's words.
However, it now seems that it is not completely necessary to lie akimbo on top of your Gold in physical form. In fact it seems it is only necessary to create this scenario if you only hold a small amount of physical Gold. The idea of having your Gold in eye-sight and touchable is for the "little-people" giants are allowed to keep theirs in vaults.
It would seem that "allocated" has come in from the cold and only "unallocated" has the strings attached by the threat of not being able to pay the fee for it to turned into "allocated". Doesn't seem an insurmountable obstacle to me. If you have some Gold in your possession or some "allocated" Gold this will rise to pay any fees.
So far you, sorry not you, have not demonstrated any real danger except the ever present danger of people being corrupt and not genuine. But this scenario surrounds us every day and we manage to conduct our business affairs in an orderly fashion.
So I'm still left with the impression that there is a "need" to create an unjustifiable fear to further a scenario that is not clear to me. A fear meme for want of a better explanation.
Maybe, as I've said before, I'm a thicko.
Will someone please explain this "transitional danger".

Pat said...

Lemuel, I myself know very little about Jeff Christian. I do recall dismissing him some years ago as just another ex-Goldman Sachs shill, but I can't even recall the specific topic nor my research that led me to that conclusion.
There are very few gold commentators I read religiously ( cultishly? ) as I have through the years reduced the mesh size of my HEPA filters to improve my signal to noise ratio.

duggo said...

@ Jeff
Further to my reply I would just like to say. Why is it necessary to have "in person" possession when the "right of ownership" is enough to have the value credited to you?
If a giant has a $1 billion in Gold in a vault and it increases to $50 billion he doesn't have to take possession first and then put it back into the vault for the value to be his.

JR said...

Hi Duggo,

Its good to see you appreciating the points of Jeff, Victor and others. You note:

"So far you, sorry not you, have not demonstrated any real danger except the ever present danger of people being corrupt and not genuine. But this scenario surrounds us every day and we manage to conduct our business affairs in an orderly fashion."

Indeed it does. Perhaps the lack of sufficient supply to go around may bring out the worst in others. To borrow a FOFOA line that also bears on this issue, If you think austerity riots are bad, you should see hyperinflation riots!"


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

I would certainly agree the wieghtier your stature, the less of a risk you may face. Oil and "super-producers" necessary to the flow of world trade will be paid, for example. But I think you dismiss to easily the risk with which others may not be so nobly compelled to honor the contractual promise they made to deliver x amout of gold for your money. See that's all it is, a promise.

As you recognize, they might renege on their promise and include new tersm, such as the payment of certain fees.

It would seem that "allocated" has come in from the cold and only "unallocated" has the strings attached by the threat of not being able to pay the fee for it to turned into "allocated".

Suppose they want to make those new fees prohibtively expensive? Or suppose they simply breach the contract and fail to deliver. I'm not sure how familar you are with commerical law, but be advised vendor breach is all too common, even more so in times of economic downturn -> outright collapse/chaos.

The law allows for payment in contractual dmaages. Its really hard to get an awrd of specific performance, even when you have a rare and unique chattel that is the subject of the dispute. The law in the US and many other places does nto allow an award of specific performance to fungible good like bullion gold.

So to recap, you go, I paid X, given me my allocated gold. The other side of the deal won't, or maybe they simply can't because they don't have the gold.

Your remedy is appeal to the controling legal authority, who can award you monetary damages (in a now debased currency) or maybe you and some friends could rassle up seem guns and enagge in some "self-help" to get back what you can. Appealing, huh?

JR said...

Hi Duggo,

Why is it necessary to have "in person" possession when the "right of ownership" is enough to have the value credited to you?

Suppose the "value credited to you," lets call it the "paper price," may not be the freegold physical price? You own a contractual promise to have physical gold delivered. The "value credited to you" is the value of that contractual promise.

A contractual promise as not the same thing as physical gold. In "normal times" it may appear to many people that they are one in the same, but perhaps circumstances may change, causing perceptions to adjust.

As someone way smarter than me was fond of pointing out, "time will prove all things."

Good luck in your decisions.

KindofBlue said...

Athrone

Gold is wealth... that is currently experiencing investment returns.

Blanchard and Sons pop-up ads say "Invest in gold" though they sell coins, not stocks.

The main point is that you know why you hold it.

burningfiat said...

duggo,

I can see that you may have no other choice than allocated storage if you're a small giant.
If you're a large giant, you of course just go build your own vault (with blackjack and hookers!).

But I'll just quote myself:
I don't doubt that Bullionvault has the physical they claim to have and that they are generally good guys.
But they and potentially the banking-system are still middle-men between you and your funds.
If you really understand the implications of the FG revaluation for the current system, a locked up'd banking system and gold market are definite risks when the SHTF.
To be 100% sure to don't miss out on this once in mankind history gold functional transformation event, there is only one way to go: Physical gold in your possession.
I'm 95% sure you will also receive a windfall after transition with your Bullionvault option. But 100% is infinitely better than 95%, isn't it? (5% divided by 0% risk of missing out = inf.)


Can we agree that letting others store your gold introduces a counter-party risk that just isn't there when you have it yourself. Maybe it is really small, but it is there, right?



FOFOA from twitter:

It'll be your counterparty's choice to do the right thing and give you your windfall. You'll have no say in it.

And:

If you really want that windfall... if you really think you deserve it... well then you know what you need to do! ;D

duggo, it is not suggested that you won't get your windfall with the various allocated services. The risk of missing out is just realistically perceived to be slighty higher...

In the end, it is up to you to judge the risk involved in your storage options.

/Burning

Alan2102 said...

athrone said...
FOFOA / others,
"90% of people are responding to the question "What is Gold" with the answer "Gold is Wealth" [aka not an investment] Yet in the last post when I asked "Why do you personally hold Gold" the answer was unanimously "For the speculative 20-30x gains as described in Freegold" [aka a speculative investment] How do you/others reconcile this discrepancy?"

Great question! I eagerly await answers.

......................

FOFOA said...
"An investment is something that you buy expecting a gain or return....
Wealth is simple. It is literally anything physical that you can possess or at least own unambiguously."

OK. So, what about something physical that you own unambiguously, that you bought expecting (or hoping for) a gain or return. Would that be an investment, or wealth?

burningfiat said...

FOFOA,

Thank you for this important post.
Pure gold as always!

There are two schools of thought on the organic emergence of Freegold.

Can I tentatively subscribe to a third school?
The one where both supply and demand matters...

It says that physical gold, during this phase-shift, will further consolidate in the hands of only those who understand it as wealth and nothing else, bringing us to a new, physical-only price range (in real terms).

I agree that there will be a phase-transition on the supply-side. I also agree that demand will not come from Joe Sixpack!

Basically, if all who already understands gold as wealth withdraw their supply, and the small investment-segment quickly "top-sells" their phys. gold, where does demand come from after that then?
Demand must not crash to zero while supply is withheld, then we're just even.

So in the hours of revaluation (when supply has been withdrawn) the ongoing demand to propel the price to Freegold heights will now come from super-producing savers from around the globe (perhaps, but not necessarily alongside demand from CB's).
So finally gold will be have gotten its rightful place. Switching hands as needed in the circuit of savers.

Anyways, just some random thoughts on the yin and yang of supply and demand...

/Burning

Michael dV said...

I originally bought physical as a hedge against collapse of the dollar. As time has gone by and the dollar has not gone away (yet) I have found comfort in the fact that I can get gold out of the system and keep it close. With the greedy collective eyeing 401k and IRA plans I have been able to secure what I earned over the years (paying ginormous taxes now) (wow thats funny apparently ginormous is a real word now, didn't get corrected) and keep it safely close. It is also invisible to any future wealth tax assuming I still have it then and decide not to declare it.
I'm beginning to understand why Greenspan, before he became Fed chairman, spoke of the closeness of gold and liberty.
So while it may have started as investment it is now recognized as more than that. It is not only wealth, it is hidden, quiet, secret and widely recognized wealth.

poopyjim said...

"90% of people are responding to the question "What is Gold" with the answer "Gold is Wealth" [aka not an investment] Yet in the last post when I asked "Why do you personally hold Gold" the answer was unanimously "For the speculative 20-30x gains as described in Freegold" [aka a speculative investment] How do you/others reconcile this discrepancy?"

Great question! I eagerly await answers.


Answer: who cares about our motives? Do you think the motives of a bunch of FOFOA-readin' shrimp affect the proper way to view gold (i.e. what gold represents on a global scale) or how it will function in the future?

Michael dV said...

During a period of gold being withheld in supply we must also ask what other forms of savings might be available to super producers. As noted Central banks will not likely want what they can print or swap for. i suppose some may opt for a supertanker full of sweet crude or a few barges of iron ore, or perhaps foodstuffs. In the end WHAT ELSE IS THERE? universally accepted (oops there goes silver) durable, fungible....help me here...what else would you want if you just want to store wealth?

duggo said...

Thanks guys above.

The bogey-man of "transition" is after all not quite so scary as I thought.
I was obviously reading into FOFOA's words some Machiavellian hidden threat that wasn't there.

The counter-party risk is well understood. The "not all my eggs in one basket" idea of using GoldMoney, BullionVault, Perth Mint and Physical suits me fine. The object of the exercise was to have assets that were relatively "undercover" (not attracting interest). Easily transported and more or less out of the reach of the grasping hands of government.
After a life-time of wheeling and dealing I wanted the safety and consistency of Gold with the ease of cashing in small amounts to fund little " extra perks of living. The FOFOA FreeGold was for me an added bonus once I understood it but not a target for me. If it happens soon then great but I'm not worried if it doesn't.

tyrannyofthepresent said...

Matrixsentry,

(posted in full on my blog; sorry but it was too long to post here. I will understand if you do not find time to read it).

I loved your response, and I will try to do it justice. Please accept this as from someone who is genuinely trying to learn and understand. I do accept that I may be missing a lot, but there is no point in pretending to agree on what (so far) I do not see, nor on concealing my reasons for disagreeing.

(Yes, there are other forms of wealth. However, I would argue that wealth in size that has come down from the ages chooses a specific form. It isn't silver, it isn't art, classic cars, land, or any other thing that can be possessed.)

Wealth in size has been coming down from the ages for… well, for ages. The present is just one moment. What form did that wealth take over the centuries? Gold… yes, since forever. Gold is wonderful. Mobile wealth in particular (for example: wealth held by Jews, whose political status was always vulnerable), by merchants, has been and often still is gold. Used by kings to pay mercenaries, for crusades, etc. etc. That is only one locus of wealth in the world.

There is another kind of sedentary, less mobile wealth: land and buildings. Even in continental Europe, where almost everyone lost almost everything three generations ago and again two generations ago, those families still have estates, castles and business interests. They have expanded their empires to other parts of the world, and there too they hold land and buildings. Not actually all that much gold. This is substantial wealth. In Africa: similar, although with different dynamics. I have moments of direct and personal access to a lot of these families. Not just jumbo shrimps.

Like it or not, wealth is also debt. What did the di Medici and the Lombardi hold in the late Middle Ages? What broke Henry VIII? How did the Rothschilds become rich? It was by holding debt, in the context of a more or less reliable international rule of law. I accept that debt is not what it used to be because the money is not what it used to be, but that is another discussion. As for art, classic cars and I would add wines, I agree: modern, faddish nonsense, although it has worked OK recently.

(remainder on my blog)

Michael dV said...

Duggo
after MFGlobal I became acutely aware of the risk of allocated. Some of the clients had SAFE DEPOSIT BOXES emptied and delivered to the bankruptcy judge. You can't get more allocated than that. Also I had a 2011 purchase delivered to me from allocation. The coins were 2012 dated. I suppose they could have obtained them in 2011 early from the mint (like a 2013 car in August of 2011) but I'm guessing that they just bought them on the market and sent them to me when I asked for delivery. It appears that as long as they perform then the fact that they may have exposed me to risk (of not being able to get the coins when I asked) is ignored. Oh ...they were charging me a storage fee.
Remember, most of the world thinks we are nuts for worrying about these issues. They can't foresee a time when they can just call up a supplier and say 'get me some gold'.

burningfiat said...

Michael dV,

Gold must flow (kinda like: ALWAYS), or else the value of currency crashes in eyes of super producers (ECB will not accept that, so they will make a market if others wont). So maybe gold will be withheld at $500. Be sure gold will flow again $50K or some other number...
I imagine a totally frozen physical gold market will not last longer than a weekend!

athrone said...

If you want to know what real-world wealth is, why not just look at what wealthy people hold?

Pre Freegold:
Little Giants: productive assets, businesses, land with claims to natural resources, luxury real estate, art, collectibles
Big Giants: foreign reserves, gold, and perhaps the power of inflation.
Regular People: real state, index funds, bond funds

Post Freegold:
Little Giants: gold
Big Giants: gold
Regular People: gold

Looking at this table, only one of these transitions seems very plausible: Big Giants. After all they seem to be the only group which currently holds Gold at > 5% allocation.

This was the perspective of Another, after all he was [most likely] a Central Banker. I wonder if something is getting lost in translation when trying to extrapolate the actions of Big Giants to the rest of the world, though.

Edwardo said...

Victor, I may be mistaken, but I can't imagine that, by now, very few are not well aware of, and, more importantly, accepting of the idea that any nation that abuses their finances to the degree that, for example, Greece and Spain have should expect to see their expenditures severely constrained as a result. That is the penalty, (or it should be) no less and no more.

It is a bit troubling that Goldman alum Mario Draghi either doesn't sense, for lack of a better phrase, the appropriateness of not invoking the more profound and touchy topic of national sovereignty, or, perhaps, doesn't respect traditional ideas of national sovereignty sufficiently to avoid making what sounded like an uncategorical statement asserting that it has been ceded.





JR said...

Well said Duggo,

The only advice I routinely give and trust in besides "buy physical gold" and "read A/FOA/FOFOA" is "protect your treasure, don't keep it all in the same place."

JR said...

"90% of people are responding to the question "What is Gold" with the answer "Gold is Wealth" [aka not an investment] Yet in the last post when I asked "Why do you personally hold Gold" the answer was unanimously "For the speculative 20-30x gains as described in Freegold" [aka a speculative investment] How do you/others reconcile this discrepancy?"

Great question! I eagerly await answers.


The one problem with all of this is that they based their "wealth holdings" on the outcome of just one auction. Truly, had they all bid, the violin would have gone for much more and their wealth would seem "not so much".

You say its a speculative investment where most have piled in "For the speculative 20-30x gains." But it appears your are basing your labeling of "speculative investment" on this 20-30x retrun. But the only way you view this "20-30x" return is to ignore the difference between price and value and to assume, as do the violin acution participants, that the price is based on the results of this one auction. What if they had all bid? To think about it simply, price is determined at the margin—the flow—while value resides primarily with the stock(holders).

You see, This is the deception in our Western grasp of what wealth is. Our life savings are valued [think priced] at what they can buy today, even though, in reality it is based on an unknown purchase price in the future.

See that - our savings, our wealth, is priced based on what it can buy today, but what matters is nto what it buys today, but what it buys in the future when we need it. So price and value are tricky ideas

=======

I'd also encourage you to consider that we are all basically shrimps here. I probably own less gold than most/many who post here, or even of those who aren't freegolders but might have dipped into these waters. There's lots to be gained from this debate by those of modest wealth like myself, but tlest be real, the Superirgansim is drivign the show, and at the ehart fo the Superorgansim are the super-prodcuers. Its where they save their *PLENTY* that really matters:

The whole point of the [hyperinflation] debate is about the denouement, the final outcome of this 100-year dollar experiment. It is about the ultimate end, and the debate has been going on ever since the 70s when the dollar was separated from gold and it became clear that there would be an end. The debate is about determining the best stance someone should take who has plenty of net worth. And I do mean PLENTY. People of modest net worth, like me, can of course participate in the debate. But then it can become confusing at times when we think about shortages or supply disruptions of necessities like food. Of course you need to look out for life's necessities first and foremost. But beyond that, there is real value to be gained by truly understanding this debate.

Deflation or Hyperinflation?

Listen to what the smart kiddo says:

The vast majority of currency is traded for life's necessities and debt service rather than the timeless wealth asset of Kings. Following in the footsteps of giants requires more than pocket change.

The transition to Freegold is all about the big players.


cont.

JR said...

cont.

So when that smnart kiddo writes

The difference between a saver and an investor is that saving is the passive activity of most people while investing requires a tolerance for the risk of loss and active, specialized knowledge and focus.

Reememebr to **Think like a Giant**,b ecause its all about the big players!

Thinking like a Giant is a very handy tool in doing what I do in writing this blog. But it is a skill that must be learned and then practiced.

[...]

Now, if you’re a giant on the Rothschild scale, and you’ve got $100M per day coming in from your various businesses, what are you going to do with all that money?

Are you going to try to make money with your money? Buy stocks and bonds, play a little in the different sectors?

Sure, you might buy into some more businesses, but you’ve already got plenty of businesses. Your businesses are already bringing in $100M per day and your biggest problem right now is figuring out the smartest thing to do with that money. So if you buy more businesses, that’s only gonna grow your problem bigger.

[...]

So what do you do with it? What are you biggest concerns when considering what to do with it?

You probably have more money than anyone else. At least you have more than 99.99999% of everyone else. So would you like to double your money? I think not. At some point you’re like “holy shit, look what I got” and you don’t dare want to buy anything that’s likely to deliver you another windfall and draw more attention to your wealth than you’re already getting. So if you hear about Freegold, are you gonna pile in?

Your biggest worry is keeping what you’ve already got… not getting more. You’re even willing to lose some just to keep your profile as low as possible....



As the smart kiddo wrote about this cocnept of "Thinking Like a Giant" back in Unambiguous Wealth 2 – The MF Global Chronicles

It is very difficult for shrimps to think like Giants. Usually we just follow in their footsteps. But there's something very important that you really REALLY need to understand—right now—about people with really big money. And that is that they are much quicker to panic than we are. Big money is nervous money. Always. They live much closer to the panic end of the panic-calm spectrum. While we shrimps sleep soundly, big money wakes up in the middle of the night with cold sweats.

We talk about making a return on our money. But the truly wealthy are first and foremost concerned with preserving their capital. Earning a return is a secondary concern.

dieuwer said...

I guess by the definition mentioned above, Buffett is not a Giant...

Jeff said...

Athrone,

They questioned Another's motives, once. Now you question the motives of shrimps?

"My gold is for my family and country and my thoughts, are as free like the wind." ANOTHER Date: Tue Feb 24 1998

"Think now, if you are a person of "great worth" is it not better to acquire gold over years,at better prices? If you are one of "small worth", can you not follow in the footsteps of giants? I tell you, it is an easy path to follow!"
--ANOTHER (THOUGHTS!) 1/10/98

tsm888 said...

@duggo: I'll speak from my own experience, as that's about the only thing I feel comfortable discussing.

For me my affair with goldmoney came to a screeching halt when I read the terms regarding trust dissolution. In the event of trust dissolution (for whatever reason) you're paid out in fiat. Don't remember what's the case when you have a whole bar registered -- did not need to care, don't have that kind of net worth.

Not to mention that unless you own whole bars (400oz, IIRC) you're pretty much unallocated, as you have a partial ownership of an unspecified bar, at best.

Your mileage may vary, but I wouldn't entrust my gold to GoldMoney (no matter Turk's reputation).

If not for the unclear ownership structure, then for the possibility of being settled in cash in case something "bad" happened to GM trust.

Oh, and don't know if you've noticed, but GM is way more expensive (in terms of TCO) than buying 1oz bars and sticking them in your mattress (or bank safe deposit box). Just sayin'.

athrone said...

Jeff,

I'm not questioning Another's motives. I think the two quotes you gave there are utterly perfect. He is focusing on the perspective of the Giants.

Another
"If you are one of 'small worth', can you not follow in the footsteps of giants?"

To me, his story is revealing the behind-the-scenes action of the Oil/Dollar relationship. He also realizes how much disruption would result from a sudden transition away from the Dollar with no reserve asset in place. My interpretation is that he was providing inside knowledge to help "soften the blow" to those of "small worth" who whose lives would really be devastated. Note that he is not addressing those of "large worth."

To me, it is a leap of faith to take those words as meaning Another believes that the entire general population of the planet (both wealthy people and poor people) will all be following the footsteps of Giants (central banks).

Indeed, anyone who heeded his advice would now be sitting on a 700% increase in their net worth. The world is different though. Euros are already a large part of foreign reserves. The transition has occurred over a much longer time frame than he anticipated.

Alan2102 said...

poopyjim said...
"Answer: who cares about our motives?"

The issue is not the group's motives, Poopy. It is the group's words.

athrone said...

Sorry, I meant to say "leap of logic" not "leap of faith" in the post above.

poopyjim said...

The issue is not the group's motives, Poopy. It is the group's words.

How cryptic. Care to elaborate?

If I may paraphrase athrone, his criticism was thus: (1) You say gold is "wealth," but (2) the reason (read: motive) you are holding gold is for a 20-30x "speculative" gain!

My point is that (2) is irrelevant to (1). The motives of the individuals in this small group of mini-fried popcorn shrimp are completely irrelevant to the question of what gold represents to the superorganism.

Jonas said...

Check out the interview with Julian Philips by goldseek. He pretty much confirms the free gold concept!
http://youtu.be/9Py7t-5X6Vo

Woland said...

Um, er, JR. You seem to have adopted FOA's "only" negative
trait in this thread - his SPELLING! Whazzup wit dat??? If it
was Beer Holiday, I'd presume beer was the culprit. Too much
Romanee Conti ce soir?? Prozit!

Sam said...

athrone and alan.

Funny you bring that up. I was thinking about this last night as well. Since most of us on this blog are not Giants, gold would probably best represent an investment to us. But the more you think like an investor and the less you think like a Giant the worse off you will be in the end. Gold is wealth to Giant. Only their vote will matter so stop putting much weight on what you personally think. Another wanted some people in the West to understand this and follow in the “footsteps of Giants.” He wasn’t trying to get the masses to bring about freegold through spreading the word. “follow” is all you can do.

We shrimps have an opportunity to buy as much gold bullion as we can at a fraction of its true value, that is all. Yes this would make Gold an excellent investment for the time being but only because it is wealth. FOFOA can’t nail this point home enough. It is the wealth of Giants and nations and not an investment to try and time an exit from. If we try and sell at the top or panic sell our way out at the bottom then we truly have not understood anything A/FOA/ or FOFOA have been trying to tell us.

Michael dV said...

http://www.zerohedge.com/news/2012-12-19/guest-post-what-causes-hyperinflations-and-why-we-have-not-seen-one-yet
from Martin Sibileau, an update about HI from an earlier post I also linked.
I'm not fully following his argument. He states that unless the central bank gets into a situation in which it is forced to pay out more in interest than it takes in in interest, it can't develop HI. Plenty of disagreement in the comments.

I also linked an interview with CATO economist Hanke. He simply does not see HI in the future for other reasons. He sees the Fed responding in time to avoid it (in so many words)
http://www.econtalk.org/archives/2012/10/hanke_on_hyperi.html

Edwardo said...

I thought this ZH piece had an idea or two going for it, but two of the responses which were back to back (THX 1178 and economics 9698) homed in on some crucial aspects that were left out.

/SleepingVillage/ said...

Sam,

Good stuff.

Evolution

One Bad Adder said...

What then IS Gold?
...all of the above it seems.
To the vast majority (both here and elsewhere) the current softening of the "price" is no doubt causing teeth to gnash and palms to sweat ...as $50k / Oz looks a little less likely.
IMHO, Gold is GOLD (the Here-and-now, yesterday today and tomorrow personal last-resort resource) OTOH, $PoG related "investments" are whatever they deem it to "currently" be.

Pamplona said...

MF's definition of gold is one I agree with the most.

Gold is not even real wealth...it is simply such a good proxy for real wealth that we casually include it in the definition of wealth.

Post transition, will gold represent your capital worthiness?

Will gold be the new "AAA"... the new "850"?




RJPadavona said...

Gold is wealth. I prefer this terminology over 'store of value', myself. And this post explains that concept quite well. A good one to recommend to folks who don't have the dedication to read one of FOFOA's many epistles.

Some even say that fiat currency is the ultimate medium of exchange and that gold is the ultimate store of value. I disagree. One's own labor is the ultimate MoE AND SoV.

There's a reason prostitution is the oldest profession (and barbering a close second!). Regardless of currency collapse or economic depression, all a gal needs is two tits, a hole, and a heartbeat (heartbeat being optional for some of you FREAKS) in order to begin regaining the lifestyle she was once accustomed to during the boom times. The value that lies in her skill is stored within and can easily be used as a medium of exchange even if the currency goes bad.

Now, of course I'm not suggesting y'all should start shuckin' that sweet stuff out of both sides of your panties or anything. What I'm getting at is stressing the importance of learning a skill. The more specialized and unique, the better. After all, Freegold is a system that will reward the producers over the consumers (unlike the current system). In other words, if you're a cubicle-dwelling pencil pusher working in the FIRE sector, there's a pretty good chance you'll be looking for work in the next monetary system. So even if you've got that golden cushion to see you through and put you in a better position, hopefully you have a little gumption about yourself and don't wanna just sit on your ass and live off your phys profits for the rest of your life. Well, that is unless you're an old fart like Woland who's most likely already put his time in at "the old rock quarry". (BTW, Happy belated B-day, Wol!!!)

Physical gold is definitely the best all-around (tangible) wealth asset to be holding right now and for the foreseeable future. That said, your gold may get stolen. But a learned skill is something that can't be stolen from you. So, IMO, it's best to have a learned skill as the very first entry on the asset side of your own personal balance sheet.

============

I hope everyone's noticed the little gift box in the top right hand corner. 'Tis the season for giving, so pony up, you cheap bastards. Mrs FOFOA deserves something REALLY nice this year! The poor gal has to live with a nocturnal hermit who is so dedicated and proficient at what he does he's even convinced certain people he's a secret agent for the Illuminous Zionist shape-shifting lizard banking cartel.

I'm all lit up like a Christmas tree. Hope y'all are too! Merry Christmas and Happy New Year!


RJP


Michael dV said...

OBA
I am sure you are correct about some wringing of hands over the drop in gold price but these drops can be handy for many. I believe there is a lower bound below which the POG 'can not' fall due to buying of physical. I could be wrong and have no skin in that game but since the market is not a physical gold market primarily so fluctuation is understandable.
Rumor has it that John Paulson was the big forced seller recently...who knows but the drop was not the typical straight down drop that one sees on Fed meeting day. It did not appear to be an effort to suppress price....just forced quick selling.

Great piece with Kyle Bass over at ZH. He is focused on Japan and Europe with HI in the USA years off when there must be a great sovereign debt resolution. He states we will actually have a housing bottom soon and he also (like Porter Stansberry) believe that the shale oil activity will be a significantly positive factor.
It seems that while we will not see a recovery per se we will see some improvement nominally before everything falls apart.

FOFOA said...

Is gold a speculative investment because we bought it in anticipation of a systemic revaluation? I don't think so. Did FOA buy his gold as a speculative investment? Here's what he wrote (my emphasis), and it's even in the above post…

"Buying physical gold at today's prices ($200 to $500) will not help you maintain this modern illusion of wealth we never had. But will allow us to later spend the true value of gold **that presently exists today.** A value few will accept or believe."

The value is already there, it's just selling at a discount right now for reasons that have been explained. Backing up the truck is simply the rational response to finally understanding what Another and FOA shared.

FOA (1/19/00; 8:53:32MDT - Msg ID:23197)

**Our sole reason for writing is a private commission to share official directions and perceptions with the average citizen of the world. Nothing else.**

Still, stand alone logic and history promote that the world will lose the present system to paper inflation and move into another as it has done before. With this, gold will bankrupt (through extreme price devaluation, $10,000 - $30,000) the outgoing system as hyper inflation runs through it… This view gives you no facts only our perceptions from the builders of the future. We offer only the events as they occur for our proof. Indeed, strong events are ahead on this gold trail we all walk."

Trail Guide (03/05/00; 00:50:28MDT - Msg ID:26386)

"**I can tell you it takes most of a lifetime to understand gold.** So it's best to buy a percentage equal to what you can grasp. With the rest do as you say, buy land and other forms of wealth.

Just as I mentioned to Golden Truth in what I believe is the proper perspective, gold is not an investment. It's buying another form of long term wealth."


Cont…

FOFOA said...

2/2

I want to share with you an amazing email I received today from someone who is totally new to me. I don't know how long he has been reading my blog, but he was following A/FOA in real time from almost the very beginning:

"Let me say that I have great respect for your intellect and your explanatory writing ability. Your capacity for understanding Another/FOA's writings, for teasing out the meaning of parts that were not so clear, and for adding your own insight is quite extraordinary. I still have a long way to go on your blogs. When I first found them, the ones I just happened to read seemed to me to be a rehash of material I was very familiar with. It wasn't until I happened upon the "Just Another Hyperinflation" series that I realized I needed to read all the blogs, which I am now working on, rather at random.

I stumbled upon Another/FOA in early 1998, quite by accident. At first, it was totally incomprehensible. I really don't know why, but I felt compelled to understand these writings and kept at it. I followed the postings at usagold in real time. I started acquiring physical with a disciplined average cost entry approach. In the end, I was pretty much all in at an average cost under $300. With the help of cheap wine and day old bread, I still have every ounce.

In order to keep my emotions in check, I read and reread the archives. Over and over. Again and again. During one of those passes, worried that they might someday not be available, I copied every posting. Since I was reading the postings at the same time, if there was a reference to another post that could not be fully understood from within the Another/FOA post, I copied those posts as well. Those are shaded grey.

Another/FOA said you should buy as much as you understand. It is clear that for you, me, and everyone else, understanding comes only with great effort.

In addition, though, I think, and I am quite sure you would agree, there are "threshold levels of understanding" required to 1) buy, 2) hold until the transition begins, and 3) hold through the transition. Each requires a greater level of understanding. Jumbo Shrimp's understanding was enough for 1) but not enough to get through 2). I can see from your writings that you know some people will make it through 1) and 2), but not 3). I've been working for a long time to prepare myself to get through 3). Your blogs are one way to help with that. Thanks."


Thanks to my new correspondent, I now have a complete collection of A/FOA's comments. I will post them as time allows.

Sincerely,
FOFOA

CyrilBe said...

@matrixsentry - hello, because you said below maybe see what Motley enjoyed: http://www.ted.com/talks/rachel_botsman_the_currency_of_the_new_economy_is_trust.html

"Credibility is a form of human currency that can be earned, spent, and borrowed. Some may associate credibility with success, and I would certainly agree. Some would associate wealth, as we choose to define it here, with success. I tend to do this. Some would therefore associate credibility with wealth, count me as one who makes this connection"

Matrix/Mot/FOFOA

Do each of you believe legal tender laws are sustainable? Are, in other words, enforceable over the medium to long term?

costata said...

Michael dV and Edwardo,

I started reading the Martin Sibileau post and something jarred with me early on - his focus on the importance of deposits. Later in the post he writes:

Why would a government want to maintain a certain level of deposits?

Governments need bank deposits to fund the bonds they force their banks to buy. The regulations, the pressure on the bankers, the open threats are all part of the same means to coerce bankers to fund their debts with your savings. Is this what was behind the failed moves in 2012 to destroy the US money market funds?

If deposits (viewed with this perspective) are central to his theory I can't think of a reason to read any further.

Hanke appears to be in the HI = wheelbarrows camp. That makes me unwilling to spend the time to listen to the interview. Does he bring anything new to the discussion?

Cheers

Tyrannyofthepresent said...

Gold holders,

Some here are beginning to admit to having an "investment" approach. Further to a discussion on the previous thread, it occurs to me that this renders your wealth vulnerable unless there is a sudden reset.

I will leave aside the speculation on whether others with balanced portfolios will rebalance. But I have occasionally seen comments such as "if the ratio goes to that level, I will buy silver/land/etc."

Unless it happens overnight, you will never know where you are on the curve. Regardless of the dollar price, if gold rises 1000:1 may not be the top. If silver rises 10:1 may not be the bottom. But if one of the wealth assets you hold is going to fail signally in relation to the others, rebalancing will definitely kill your wealth.

Probably preaching to the converted here, but it hit me between the eyes. It has to be a weight ratio that carries on buying the wrong way into the extremes. Or, if you hold one asset as many here claim to do, a superhero-like ability to ignore the price, even the price in terms of land and buildings etc.

It is all about the path.

costata said...

FOFOA,

Great bookend to the Arguments-Against discussion. Very interesting to read the post you developed from the exchange with AD (when he was all-too-briefly in rational mode).

Kudos

PS. As you can see from my avatar I have finally accepted the typecasting. The "beave" forever.

JR,

Nice to see the Archivist In Chief drawing on his familiarity with the A/FOA legacy and the law.

costata said...

Tyrannyofthepresent,

I'm very tired right now but if I understood your comment at December 19, 2012 11:48 PM then it appears congratulations are in order.

Cheers

CyrilBe said...

It is common, dare I say fashionable, for roughly speaking urban based people to mock or at least under appreciate the importance of "rural people" or "peasants" or "rednecks" or "farmers", with little credit paid to the fact that farmers are the backbone of society who produce the food enabling metropolitan areas to exist. To dismiss the power and intellectual capacity of farmers is, indeed, a very naive thing to do.

WHY FARMERS BUY GOLD
“Before they used to buy only gold but in the past three years since gold has become more expensive they also buy silver”

http://blogs.wsj.com/indiarealtime/2011/03/04/why-farmers-buy-gold/

Tyrannyofthepresent said...

Costata,

Thanks. I can remember exactly where I was when I realised the huge risk (it was about a month ago).

That is partly why I restarted the process of reviewing this site and posting here, to argue with myself about what is the correct weight ratio, having spent most of the previous 5 years redesigning rebalancing mechanisms for physical assets, after a wonderfully fortuitous encounter with counterparty risk that cured me of any possibility of ever accepting it again, at just the right time.

As soon as I began my systematic review of risk categories I also decided to avoid assets with political risk, Veblen goods (i.e. fads) and assets that you cannot easily keep for 100 years and move with a small truck.

Still arguing about that ratio though.

Tyrannyofthepresent said...

Costata, correction

"avoid assets with poltiical risk" was an exaggeration. Read: "limit exposure to sitting-duck assets such as income-bearing real estate that can be taxed (income, wealth tax, capital gains and inheritance tax) or whose income can be set by law (cf. fixed rents during the Weimar republic; forced indexation to nonsense indices)

CyrilBe said...

http://www.bloomberg.com/news/2012-12-20/irish-bargain-hunters-follow-blackstone-sifting-over-bank-debris.html

“We’ve seen farmers who sold their land at the height of the boom looking to buy their land back.” Land may be taxed, but likewise everything else. The only solution is to default on everything and reformulate societies to be relatively taxless, which is the most likely medium term outcome.

sean said...

Another wonderful exposition, thanks FOFOA.

FOFOA said...

Hello MF and RJP,

MF, you wrote: "Gold is not even real wealth...it is simply such a good proxy for real wealth that we casually include it in the definition of wealth."

And RJ, thank you for another one of your trademark comments! In it you wrote: "Gold is wealth. I prefer this terminology over 'store of value', myself."

I want to pick on these two statements a little and, yes, I think they are related.

MF, Ari wrote a great post way back in 2000 called Gold Ownership—it's all about achieving a proper understanding of Wealth Hierarchy in which he made the same point you are making. Here are a few quick excerpts:

"Gold has become such a near proxy for the real wealth we require for life that many of us have permitted ourselves the casual inclusion of Gold into our otherwise strict definition of wealth.

…the near-wealth proxy upon which all currencies must bow down in inferior imitation…

Knowing that Gold is the master proxy for our life's day-to-day and year-to-year shifting requirements for food, clothing, shelter, and energy, it simply makes more sense to gather in Gold for later use than to gather in clothes (that we may outgrow,) food (that may spoil,) houses which are more than our needs, or energy (that we can't store.) You see, time bears witness to this undeniable fact: Gold can be called wealth because it is an enduring wealth proxy in exchange for our life's needs. Currency, on the other hand, serves a specific modern economic purpose--to be borrowed and inflated in placation of man's immediate desires. It is not wealth, it fails as a proxy for the Gold it tries to imitate. Do not confuse the two."


I realize that it's a minor detail as to whether gold is wealth or just a good proxy for wealth, but I'm going to have to disagree with you and Ari and take sides with FOA on this minor detail.

Wealth is a complex concept. Food, clothing, shelter and energy are definitely elements of wealth, but they are also necessary components of being wealthy. If someone is short of these necessary wealth elements, or if they struggle to obtain them, we generally won't consider that person to be wealthy even though he has a few items.

A wealthy person is someone who has all of these necessary elements as well as something more, something that can be traded for more of these necessary elements in the future. And that last part, the part that qualifies someone for the wealthy label, is also wealth. But it is only wealth while also in the presence of the prerequisite necessities. We wouldn't consider a man dying of thirst in the middle of the desert while carrying a sack of gold coins wealthy, would we? We'd say he's an ill-prepared idiot!! No, you've got to have the necessary elements and the durable/tradable ones to be considered wealthy.

The main wealth qualifier that could possibly disqualify gold as an actual wealth item, consigning it to wealth proxydom, is utility. I mean, we say gold's "uselessness" among commodities sets it apart, right? But gold does have a certain use, doesn't it? It is a store of value! Which brings me to RJ's comment.

Cont…

FOFOA said...

2/2

RJ wrote, "Gold is wealth. I prefer this terminology over 'store of value', myself."

RJ, gold is wealth because its usefulness to people is as a store of value—the focal point one no less! So wealth is what gold is, store value is what it does. No need for a preference of one over the other. ;D I think that much of the disagreement over this issue (hello Victor and Blondie?) comes from individual's subjective view of what is actually being "stored" (i.e., value).

When Blondie, in his last comment, said that gold must be an investment, and currency the store of value, in Freegold because, finally, currency will be stable (with gold functioning at long last) and will finally fulfill all three functions, I think he was applying his own view of value as some "universal basket of necessities". But value is subjective, preferences change, and therefore any basket of value must, by definition, constantly change.

Furthermore, as I wrote above, while the necessities are necessary components of wealth, they are not the defining element. The defining element of wealth is excess. So if we want to consider the "value abstraction" in terms of wealth, it might make sense to consider it in the context of those who produce more than they consume and therefore carry excess value through time. For them, a store of value simply means something that someone else will value in the future whenever they decide to sell it.

It comes down to time preference. If you are just a little bit wealthy (in Freegold), then you might like to keep your excess denominated in some "universal basket of necessities" like a stable currency does over short periods of time. But if you are planning on producing more than you consume (i.e., running a "trade surplus" or "becoming wealthy") beyond the foreseeable future, you'd probably rather your excess be denominated in the focal point wealth item since imbalances that build up over time tend to be corrected by rebalancing currency exchange rates (either by the market or by force).

So gold's use as a "store of value", with value defined as "tradable with some unknown person at some unknown time in the future", is possibly one of the most important uses to mankind, right up there with food, clothing, shelter and energy! For it is this function, this utility, that enables those who produce food, clothing, shelter and energy in excess of their own needs (i.e., that will be consumed by other humans) to continue doing so without suffering a net-loss that would likely make them be a little more selfish and stop producing so much. IMO that puts gold right up there at the top! Forget this proxy nonsense, gold is wealth par excellence!! :D

Sincerely,
FOFOA

Tyrannyofthepresent said...

Cyrilbe,

You said "likewise everything else". This is untrue and it is the key to an immense amount of effort, thought, planning and activity by wealthy people. Particularly when it comes to capital gains and inheritance taxes.

As long as there is more than one sovereign nation in the world, and as long as tax systems are complex, there will always be ways to preserve wealth - which inevitably means legally avoiding taxation on wealth. It will just always require maintaining 1) awareness of political power structures and pending legislation in all the relevant jurisdictions and 2) mobility.

burningfiat said...

Jonas,

Excellent link to the Julian Phillips interview.
Thanks.

duggo said...

Now that most of the great minds and deep-thought aficionados have decided Gold is Wealth and that Freegold is a "dead-cert" in betting parlance. Would it be possible for Black-Belt Thinkers of the site to come up with a WHEN?
Will it be 2013 or 2033
I'm sure that if the great minds were to start dissecting the "when" I'm sure they could drill-down to a reasonable event horizon.

CyrilBe said...

@Tyrannyofthepresent

Unless the most well to do people on Earth advocate in a very public way for 0 taxes on, say, anyone who earns less than 5 million a year, I cannot believe they can hide their wealth from tax collectors in the medium term, but this is, in part, why I say that the richest and poorest are linked and that, thanks to that link, taxation in advanced societies will fade over the medium terms.

PS

Mining costs prove precious metal prices are a ponzi
http://www.papermoneyshield.com/2012/09/mining-costs-prove-precious-metal.html

duggo said...

Just a small thought for all of those people who believe you cannot possibly trust any commercial organisation. The people who only feel safe with a bar of Gold under their pillow at night.

I'm am quite long in the tooth now and had parents that went through World War2 My father fought in Burma. I had numerous uncles killed and my Grandfather died in the First World War. My first wife was German and her father was killed on the Russian front. There are numerous events you cannot foresee.

Many people in Europe lost everything. I remember a time when owning a house was thought mentally insane. Why own a property that an invading army can just take or destroy with all of the possessions nicely prepared for looting. I bet those people would have loved the ease of a quick email to sort out their finances instead of trying to lug a metal box up the road.

The thing that I find interesting about the people who mistrust companies like GoldMoney, BullionVault, Perth Mint etc. etc. is their fear which is concentrated around the fact that they might miss out on the possible windfall the might happen if and when Freegold happens. This strikes me as the lottery players mentality or a best an investors dream.

As nobody (as far as I know) has come up with a fairly specific date it could be 50 years from now. They seem to base their lives on religious thinking. They will suffer all sorts of privations for a better life promised in the hereafter and forget to live in the present.

My thought have always been that after my nearest and dearest have been taken care of I want to cross the line into the "eternity" all wealth spent with a grin on my face.

Amen

A PIIG said...

Cyril, that post you linked is hilarious.

Bookmarked.

Woland said...

The following is off topic, but puts a number (a very big one)
on a subject of some recent speculation; India. Via Bloomberg:

"Cash for gold loans hide "shadow banking" risks in India".

The subject of the article is gold being used as collateral for
currency loans from private, non state registered lenders, at
rates about double the 12% that commercial banks' charge.
The state is not happy that there exists a large sector of
"shadow banking" over which it exerts no direct control. The
big takeaway line:

"Gold holdings by individuals and corporations total about
$950 billion. That converts, at around $50 million per ton,
to 19,000 tons". That compares to about 10,200 tons for
the eurozone central banks, and 8100(?) for USA. No wonder
China wants to play catch up. FWIW

PS. The God Vishnu is reported to have about 400 tons at one
temple location, and has no apparent plans to sell.

Alan2102 said...

JR said...
"You say its a speculative investment where most have piled in "For the speculative 20-30x gains." But it appears your are basing your labeling of "speculative investment" on this 20-30x retrun. But the only way you view this "20-30x" return is to ignore the difference between price and value.... our savings, our wealth, is priced based on what it can buy today, but what matters is nto what it buys today, but what it buys in the future when we need it. So price and value are tricky ideas."

Nothing "tricky" in that. We invest in things because we perceive undervaluation; we think the price will be higher tomorrow. We buy gold because we think that it will, tomorrow, go for $5,000/oz, or $55,000/oz.

Maybe it is the phrase "speculative investment" that you don't like. That is not the best description. Gold is not like an internet stock. On the other hand, you must admit that looking for such spectacular overnight appreciation ($55k) is in the nature of speculation.

"there's something very important that you really REALLY need to understand—right now—about people with really big money. And that is that they are much quicker to panic than we are. Big money is nervous money. Always. They live much closer to the panic end of the panic-calm spectrum. While we shrimps sleep soundly, big money wakes up in the middle of the night with cold sweats."

How pathetic. These are the celebrated "super-producers"?

John Fry said...

Seems the FG transitional shift-in-perception will challenge western thought in a fundamental way.

A sense of the dollar, being like a fishbowl and the water in it, presently precludes deeper understanding for most individuals. The problem is like one of those dot-matrix pictures hidden inside another, with a particular perceptual tuning required to see it. Even after one gets the knack, it can still be difficult, but the original discovery is certainly revelatory. Some of us got the trick from Another, or FOA, or Randy Strauss, or FOFOA, or from the insightful commentators on this blog.

Our minds and concepts shift back and forth on the wealth or investment question, likely in proportion to our tendency to use the dollar as an instrument of measurement. I suspect that even after the FG transition occurs, many still won't be able to see the picture-inside-the-picture, gasping like fish-out-of-water or like psychologically-blocked scientists who refuse to acknowledge polymorphic bacterial-evidence staring them in the microscope.

Credit is an accounting of character in my understanding and wealth is distilled character; however one chooses to accumulate, enjoy and deploy it. It's what's left over after the pursuit of life and productivity has been accounted. Our character is what we actually trade in this world; represented by quality goods, useful services and inventive thought. PG then, is the most effective way to denote (pun) that to others. Since accurate understanding of the real world is an essential component of character, character is actually what folks are working on here at FOFOA's blog.

Helping others see the hidden picture and emerge from the fishbowl is an essential part of it too. For those like my wife, who have not yet had the revelatory glimpse, I find it useful to use something like FOFOA's "drips and drabs" concept. I describe PG/FG as the best annuity one could ever create for themselves. Some who have never had an estate may begin to think generationally after the transition, but many of us will utilize our PG like an ATM for retirement living expenses and helping others.

My hobby when I can afford the travel will be to join a few gold-panning and gold-detecting clubs that do their thing on private property. Hire someone to watch over the homestead and head on out to Arizona and Montana and have some fun with new friends and explorers. I'm hoping this will still be a legal activity. I don't see why not.

@Pat - your analogy to a Hepa filter and signal-to-noise struck a chord here. I'm designing a Faraday cage large enough to sit in to read, sleep and meditate. It should be fun to print out the blog and peruse it in there to see if my understanding of FG and its ramifications is further clarified.

@FOFOA - happy to hear you now have the complete archive at your disposal. Merry Christmas.

P.S. - my guess is 2015

Alan2102 said...

Duggo said...
"[No one wants to miss the] possible windfall the might happen if and when Freegold happens. This strikes me as the lottery players mentality or a best an investors dream."

Yes, it is a speculative bet, and a risky one, in terms of opportunity cost, though not in absolute terms (i.e. gold will not lose ground). But it could work out beautifully, and probably will. It will probably beat all the other opportunities along the way. And I mean freegold or not. Freegold is an extra super-mega-bonanza possibility, which may or may not come in our lifetimes. But it is lots of fun to think about, and we might indeed live to see it. For all we know, it might be next year.

"As nobody (as far as I know) has come up with a fairly specific date it could be 50 years from now. They seem to base their lives on religious thinking. They will suffer all sorts of privations for a better life promised in the hereafter and forget to live in the present."

Brother Duggo, our travails and burdens in the temporal world are NOTHING, compared to the sublime exaltation of our final victory -- when we are raptured to the heaven of $55K gold! ;-)

Alan2102 said...

John Fry said...
"wealth is distilled character; however one chooses to accumulate, enjoy and deploy it."

Surely you don't mean this. What if one chooses to accumulate it by way of theft?

PS: 2015 sounds great! Here's hoping!

Jeff said...

Duggo,

No one said you can't trust anyone; it's just counterparty risk, so measure it accordingly. I'm sure MFGlobal was trustworthy, until they weren't.

FOFOA,

When you say all the A/FOA comments are you saying there are additional posts, or comments which were left out of the archive? That's exciting stuff!

Woland said...

Hello John Fry; Your reference to those "magic eye" pictures
which were so popular many years ago crossed my mind as
well some time ago. The relaxed, unfocused gaze required
in order for the underlying image to emerge, is much like the
setting down of ones "baggage" as Matrix likes to put it. One
difference; there are whole "industries" devoted to promoting
your continued tight grip on that baggage. Not so with the
pictures.

Cheers.


Tyrannyofthepresent said...

Alan 2102,

At the risk of advocating Freegold, I think your analysis of the psychology is flawed. Very broad figures:

If global assets are valued at $500 billion, if gold is perceived as rightly worth about say 50% of global assets (the retained vs productive portion) or $250 billion and if there are 5 billion oz of gold, that's $50,000 per oz. That's not the value in the future, that is the value now. If you buy the premises (and these people do, although my figures are oversimplified).

The fact that it is currently priced under $2000 is just an anomaly, like when the foreclosed $500k home goes for $50k at the auction because none of the usual buyers showed. They even know why the price is lower and have teased out in detail how the system was constructed, so feel confident in ignoring it.

Is that a lottery winner or even an investor mentality? The attitude feels to me more like it's just picking up money off the sidewalk and then resisting the temptation to run back and replace it: just the smart thing to do.

Tyrannyofthepresent said...

Duggo,

Have you ever lost a lump of wealth due to counterparty risk? It doesn't sound like you have. Once tasted, never forgotten.

A PIIG said...

On the question of how a $55k per ounce price may come about and be maintained:

FOA
A grand hyper inflation of prices is now directly ahead on the trail. It should be ushered in with a large "crackup" in the currency derivatives market. Once this event is "in process" the paper gold markets will quickly rush to discount against physical gold. A discount that will break our gold market pricing and physical allocation system.

Understand that the largest gold rush will be from the paper gold arena into real gold. Any form of asset allocation that took the form of:

" "hey buddy, this security belongs in your portfolio as the gold portion" "

will be dumped and the remaining value placed in hot pursuit of the real thing. Just watch how it all unfolds, you will fell the pressure.

I for one hope someone can force paper gold lower while physical supplies still sell into it. Because once paper credibility is broken, our physical markets will seem like a speck of sand washed on an ocean shore.

Tyrannyofthepresent said...

PS Alan 2012,

Sorry, forgot to comment on your "pathetic" assessment. I think you are being too hard on them. Have you ever tried being wealthy and responsible for managing a fortune on behalf of a lot of people? With a cohesive, extended family who all depend on you making the right calls and have become accustomed to the way it is? Running businesses, with employees? Carrying the weight of your position in the dynasty and the successes that came before you?

Scared people have good reasons for being scared and nothing is scarier than your own family. When I spend time with them they seem pretty scared to me, too, even when they are talking about things that could happen after their own death.

Alan2102 said...

Tyrannyofthepresent said...
"Unless it happens overnight, you will never know where you are on the curve. Regardless of the dollar price, if gold rises 1000:1 may not be the top. If silver rises 10:1 may not be the bottom. But if one of the wealth assets you hold is going to fail signally in relation to the others, rebalancing will definitely kill your wealth."

Are you talking about gold:silver ratio? I assume that you are. If silver rises to 10:1 (gold:silver) that would be a fantastic time to switch out into gold. Yes, it could go even lower, but who cares? Fantastic opportunity to convert. How would that "kill your wealth"?

"It has to be a weight ratio that carries on buying the wrong way into the extremes. Or, if you hold one asset as many here claim to do, a superhero-like ability to ignore the price, even the price in terms of land and buildings etc."

Why would you want to ignore the price in terms of other tangible and clearly very valuable assets? I guess it depends on your investment goals. At that moment, you might want to leave everything on the table in anticipation of even larger capital gains -- which is fine. Highly speculative, but OK for those who are determined to catch the ultimate top, and perhaps (they hope) stay there.

On the other hand, there is such a thing as being too greedy, isn't there? Maybe excessive greed is what causes the super-rich to be nervous wrecks, as JR described. Life not worth living.

Thora Splaura said...

100 silver : 1 gold

A great time to sell gold for silver?

How about 200 : 1 ?

400 : 1 ?

800 ...

Alan2102 said...

Tyrannyofthepresent said...
"Is that a lottery winner or even an investor mentality? The attitude feels to me more like it's just picking up money off the sidewalk and then resisting the temptation to run back and replace it: just the smart thing to do."

The difference between "investor" mentality and "picking free money off the street" mentality is perception of relative soundness, or certainty. Investors are never 100% certain of the outcome, unlike people picking free money off the street. The problem for the latter is if the "free money on the street" does not exist in actuality yet (as is the case with freegold). They may be convinced that it WILL come into actuality -- that freegold is a 100% certainty, some time or other -- and they may be right. In which case the problem becomes one of time, i.e. WHEN. The "free money off the street" gold buyer is betting that the free money will come into actuality in a time frame that renders it a good investment. (I suppose there are a very few who do not care at all about time -- those for whom freegold in the year 2060 would be OK. But I assume there are very few of such in attendance here.) So, in other words, the "free money off the street" gold buyer has uncertainty, just like any investor, except that it pertains to time rather than price. Show me a freegolder who knows the date, as well as the price outcome, and I'll show you someone who is not an investor, but a true free-money-off-the-street picker-upper.

PS: good discussion! It stimulates thought.

H. M. Socialist said...

@Alan2102

How pathetic. These are the celebrated "super-producers"?

LOL I know! What a bunch of punks! REAL men aren't concerned with protecting their wealth!!

::grits teeth, spits::

REAL men give their wealth to the oh-so-grateful collective! I'm talkin' 'bout fightin' malaria n' shit!

::throws table through window, boards helicopter, takes off::

Get some unallocated paper gold you plebs! Get some mining stocks! Get some! Get some!

::dishoards wealth from above onto grateful populace::

Yeah! YEAHHH! Get some 1000 oz. silver bars! Oh shi... SORRY

@duggo

The thing that I find interesting about the people who mistrust companies like GoldMoney, BullionVault, Perth Mint etc. etc. is their fear which is concentrated around the fact that they might miss out on the possible windfall the might happen if and when Freegold happens. This strikes me as the lottery players mentality or a best an investors dream.

YEAH! That's what I'm talking 'bout! Real men trust in the banking system, and trust in big daddy gubmint in all things, especially when it comes to carrying their wealth through biggest crash in history... where the banking system and government are at the epicenter of that crash! And if it doesn't work out, well then your wealth went to the collective, AS IT SHOULD YOU WUSSES.

You freegolders are a bunch of punks for trying to protect your wealth with physical (LOL) gold! Trust in James Turk, Eric Sprott, and big daddy G!!!

Greetz,
HMS

Alan2102 said...

Tyrannyofthepresent said...
"Scared people have good reasons for being scared and nothing is scarier than your own family."

Living in a state of fear does no good for anybody, least of all your family. Living in a state of fear for loss of super-riches is terribly neurotic, and as I said is life not worth living. Even living in a state of fear for loss of modest wealth is neurotic, and makes for life not worth living.

Of course we should all have a reasonable desire to take care of ourselves and our own. We should protect and husband what we have, wisely. But the state that JR mentioned (chronic nervous turmoil) goes way beyond the pale. To be in that state, regarding money, is to have a profound misunderstanding, or ignorance, of what is truly important.

Pat said...

Wow, we often hear about readers "Aha" moments, FOFOA just sent me an early Christmas present.

"So gold's use as a "store of value", with value defined as "tradable with some unknown person at some unknown time in the future", is possibly one of the most important uses to mankind, right up there with food, clothing, shelter and energy! For it is this function, this utility, that enables those who produce food, clothing, shelter and energy in excess of their own needs (i.e., that will be consumed by other humans) to continue doing so without suffering a net-loss that would likely make them be a little more selfish and stop producing so much. IMO that puts gold right up there at the top! Forget this proxy nonsense, gold is wealth par excellence!! :D"

Something has always bothered me, that gold is indeed useless. Sure, I got the 6000 years of history, the fungibility, the universal acceptance, "follow the Giants, especially in light of the petrodollar, etc etc. My fear, could something that really is useless actually be a barbaric relic, in truth?
But it isn't useless! And the utility FOFOA pointed out is so crucial. The mega-producers of critical things the world needs, why would they extend such effort if there was not something
they had complete and utter trust in, to accept in return for their goods. I especially think of oil-in-the-ground; why extract beyond your needs if what you get in return is not in your mind infallibly wealth?
Gold then has incredible utility, it is the lubricant of world commerce. The Chinese, for comparison, accepted for far too long something of terrible ( long-term ) utility, USG debt. In the words of the Templar knight to Indiana Jones, of the Nazi dude who drank from the wrong chalice," He chose poorly "

RJ, this is for you ( FREAKS )
http://www.youtube.com/watch?v=Np67piTSAzk

Jeff said...

FOFOA: It is very difficult for shrimps to think like Giants. Usually we just follow in their footsteps. But there's something very important that you really REALLY need to understand—right now—about people with really big money. And that is that they are much quicker to panic than we are. Big money is nervous money. Always. They live much closer to the panic end of the panic-calm spectrum. While we shrimps sleep soundly, big money wakes up in the middle of the night with cold sweats.

We talk about making a return on our money. But the truly wealthy are first and foremost concerned with preserving their capital. Earning a return is a secondary concern. Big money stays invested mainly because they are not losing money. How many fund managers beat the index in the long term? Nary a one. Yet their clients stay "invested" as long as (at least) they aren't losing money.

Compare these big money folks to the average guy who rides the bus. You miss a bus, so what? It's inconvenient but another bus will come. It takes a long time to sink in that another bus isn't coming. It's not until there is such a big crowd waiting at the bus stop for the next bus that people start thinking "even if a bus comes there are too many people to fit on one bus." In that mindset the surest way to cause a riot is to send one bus i.e., not enough buses. You have to fight to get to the front of the queue. This is a bank run mentality.

And this is a key difference between the average guy and the big money. Big money isn't used to being kept waiting. Big money owns the "bus company". They know the buses aren't going to run before the little guy. They panic early. There was an electronic bank run around the time of the Lehman collapse. That was one of the reasons why governments around the world stepped in with fresh deposit guarantees. But there were no lines outside the banks to alert the average guy to what the Giants were up to.

Motley Fool said...

FOFOA

For me this differentiation helped clarify why the hoarding of gold, or storing of value therein is not immoral, since it does not deprive any other of utility required for living.

As you say, wealth must have utility, and the utility of gold lies in the storage of value, this being it's function.

I tried later in my comment to differentiate between wealth and productive wealth. I should have done so sooner too. Gold is wealth, and the master proxy for other wealth with different utility.

It is all perhaps simply semantics, and as you have noted words tend to obscure concepts at times rather than illuminate them.

I do not think we are in disagreement. :)

TF

byiamBYoung said...

PoopyJim,

HaHaHa! Popcorn shrimp. Perfect! We pop some popcorn and watch this show together, yes?

Cheers,

A fellow popcorn shrimp

JR said...

Hi Alan2012,

I'm sorry you think the ideas being discussed are pathetic (or maybe you just think Giants are pathetic, but then again some would say the same of class envy). Either way, perhaps I can help your misery by alleviating a big source of your confusion. You write:

We invest in things because we perceive undervaluation; we think the price will be higher tomorrow. We buy gold because we think that it will, tomorrow, go for $5,000/oz, or $55,000/oz.

Who is this "we" you speak of?

A key point is its all about the giants, not the shrimps. FOFOA even wrote a post about this idea, in which he highlighted the importance of being able to Think like a Giant.

So why are you thinking like a shrimp? A shrimp may buy gold for investment purposes, for the lure of a 20-30x return. But:

The vast majority of currency is traded for life's necessities and debt service rather than the timeless wealth asset of Kings. Following in the footsteps of giants requires more than pocket change.

The transition to Freegold is all about the big players.


So why are you focused on bit players Alan2012, when its the big folks who matter?

Its all about the Giants, and for the Giants, its all about wealth preservation. You write:

Maybe it is the phrase "speculative investment" that you don't like. That is not the best description. Gold is not like an internet stock. On the other hand, you must admit that looking for such spectacular overnight appreciation ($55k) is in the nature of speculation.

Nope, its the fact that the folks "looking for such spectacular overnight appreciation" have no bearing on the issue. They are just shrimps along for the ride. Its all about the folk with *PLENTY*:

The whole point of the [hyperinflation] debate is about the denouement, the final outcome of this 100-year dollar experiment. It is about the ultimate end, and the debate has been going on ever since the 70s when the dollar was separated from gold and it became clear that there would be an end. The debate is about determining the best stance someone should take who has plenty of net worth. And I do mean PLENTY. People of modest net worth, like me, can of course participate in the debate. But then it can become confusing at times when we think about shortages or supply disruptions of necessities like food. Of course you need to look out for life's necessities first and foremost. But beyond that, there is real value to be gained by truly understanding this debate.

Alan2102 said...

FOFOA said...
"Is gold a speculative investment because we bought it in anticipation of a systemic revaluation? I don't think so.... The value is already there, it's just selling at a discount right now for reasons that have been explained."

Yes, understood.

See mine, here:
http://fofoa.blogspot.com/2012/12/what-is-gold.html?showComment=1356007965606#c39957952068651717
...and especially here:
http://fofoa.blogspot.com/2012/12/what-is-gold.html?showComment=1356012759912#c2828130005339391625

....................

from bing's dictionary:
"spec·u·late [ spékyə làyt ] .... 3. make risky deals for profit: to engage in financial transactions such as commodity trading that have an element of risk, especially in the short term, with the hope of making a profit"

I see two elements there:
1. risk, uncertainty
2. hope/intention of making a profit
and a partial or possible third:
3. short-term

Buying gold in anticipation of freegold is not a *classic* speculation. But it does have a speculative nature, insofar as there is the intention of making a profit, combined with risk (which is judged acceptable, given the profit potential) that it will not happen in a timely fashion -- such as in your lifetime, or within your useful or effective (say, below age 80) lifetime. ("Useful or effective" referring to the ability to fully enjoy it, be fully cognizant and engaged in its deployment, etc.)

Again, this leaves aside those who are looking at gold as generational wealth, to pass to heirs. For them, time may be no issue at all, in which case the speculative nature of the act is weakened, if not abolished.

Tyrannyofthepresent said...

Alan 2102,

Thora Splaura,

I would say ... nope in both cases. If you are holding something to swap for something else, why not buy something else in the first place?

You could sell out your 100 oz at 800:1 and end up with silver worth 10 oz a year later.

You could sell out your 1000 oz at 10:1 and sit on your 100 oz of gold while you watch the metals go to parity.

The metals are different, so as for me, the only way to hold both is to hold both firmly and ignoring both the price and the ratio. If I were certain that one would outperform in all my meaningful time frames, and barring other factors, I would not hold the other one at all.

In other words you would only hold two metals because of uncertainty and odd moments like those you mentioned don't create certainty.

Alan2102 said...

JR said...
"I'm sorry you think the ideas being discussed are pathetic"

I never said or implied anything like that.

I said that people who live in perpetual nervous-wreck fear of losing money are pathetic.

JR said...

Hi Alan2012,

You described FOFOA's decription:

"there's something very important that you really REALLY need to understand—right now—about people with really big money. And that is that they are much quicker to panic than we are. Big money is nervous money. Always. They live much closer to the panic end of the panic-calm spectrum. While we shrimps sleep soundly, big money wakes up in the middle of the night with cold sweats."

as

How pathetic. These are the celebrated "super-producers"?

I won't speak to your agenda or intentions, but you words indicate you believe the idea expressed by FOFOA was pathetic, and then you went further in mocking his description of what you terms the "celebrated" super-producers?

=====================

As an aside, no on but you has suggested "people who live in perpetual nervous-wreck fear of losing money are pathetic."

Rather:

They live much closer to the panic end of the panic-calm spectrum.

Tyrannyofthepresent said...

Alan 2102,

On being a picker-off-the-pavement, I don't even think it is about time vs price, but rather about whether you trust your own valuation or the market's. So it is more a matter of perspective. This facilitates waiting for the market to price it, because you are just waiting for what went up, to come down. There is no doubt in your mind.

And on anxious neurosis, I am reflecting. Just because people show eagerness when talking about their own assets and a powerful sense of responsibility to their families does not really mean they are neurotic. Perhaps vigilant is a better word than scared. But sometimes their wives and kids truly are scary - no other word for it.

And I think you are right that great wealth distorts your world view and priorities. No question about it. That is a tough one to overcome, unless you find meaning in giving it away. Just check out your plans with your wife and kids first.

poopyjim said...

@Alan2102

I never said or implied anything like that.

I said that people who live in perpetual nervous-wreck fear of losing money are pathetic.


Your thinly veiled contempt for the wealthy and your collectivist inclinations are obvious to all who read here! No need to hide it brotha, just be yourself!

Tyrannyofthepresent said...

Alan 2102,

Sorry, last one for now:

"for them, time may be no issue at all". Quite right. So, not knowing when it will be needed or why it will be needed, but knowing that it will probably be a hell of a long time and a very great need, since otherwise it would be left alone... how on earth are they going to decide what to buy?

JR said...

Alan2012,

But it does have a speculative nature, insofar as there is the intention of making a profit,

Stop thinking like a shrimp. Your repeated contention that the vast majority of gold owners and purchasers, aka Giants, are doing so for a profit is lacking in support.

Preservation and profit are not the same.

=======================

I see two elements there:
1. risk, uncertainty


First of all, the word used in the definition is an adjective, "risky," which is not the same thing as the mere presence of risk. Everything in life has risk - its one of the fundamental components of time preference.

There is a reason most definitions of risky don't mere say its the presence of risk, but instead characteristically the level of risk, often using the word hazardous.

Yes, one could argue everything we do is an investment because 1) everything has risk and 2) its done for our benefit, aka our profit, and 3) in the long run we are all dead so its all hort terms.

But to what end would such disingenuous semantic games deliver us - the hell of self-imposed exile to protect one's tortured world view form the reality that always seeks to creep in? No one, well most of us at least, want to suffer that.

Thora Splaura said...

What about the rebalancers and the deworsifiers?

Peter said...

"In other words you would only hold two metals because of uncertainty"

Yes.

You should definitely keep hold of your silver as well as your gold for now.

Edwardo said...

duggo asks,

Will it (freegold) be 2013 or 2033? Duggo, I daresay it will be much, much closer to 2013 then 2033. The $IMF system is hanging together at this point as the result of of super extraordinary measures that have, in the short to intermediate term, arrested death, while, simultaneously, guaranteeing it in the not too distant term.

Let's keep it simple, if not simplistic.

The U.S. dollar's reserve currency status, its status as the currency for pricing oil has the proverbial Sword of Damocles hanging over it and gravity is working its magic.

To wit:

The U.S. Central Bank, aka the Lender of Last Resort, has been very busy recapping TBTF commercial banks over the last several years and as a result now has a balance sheet chock full of marked to fantasy debt that they have no possible way of discharging except by either (hyper) inflating it away and/or seeing something on the asset side of their ledger revalued considerably higher. The Fed can't stop what they are doing, because their master, despite hysterical cries to the contrary, is Uncle Sam himself.

Unfortunately, for The Fed, what they are doing
will stop them dead in their tracks. And it won't take two decades, or anything like two decades for this process to run its course because this is terminal illness that is not in its early stages.

To wit:

The ROW, particularly the biggest nation state producer, is furiously erecting currency swap agreements that exclude the U.S. dollar. Why?
Not so much to bring down the dollar, but simply to allow themselves to continue trading when the dollar is, effectively, down for the count. This isn't the sort of initiative that snowballs into being because you think things might go tits up in two decades time.

In the meantime, save for waning "willy nilly" support, China and the rest of the ROW is avoiding placing their surplus into dollar denominated sovereign debt and, where possible, instead placing their savings into select "resources." I might also add, that even amidst all the furor over the Euro that nations, like Panama, are still investigating becoming part of The Euro currency regime.

These conditions are not the stuff of two more decades of waiting. They may not even be the stuff of two more years of it.


KnallGold said...

2033, now that's waiting for Godot ;-)

Bought 2 Vrenelies, looks like nobody wants them anymore, guess they are busy for end of world preparations...in case not, I'm sure I'll live in 2033 having a 1970 on my back. Maybe I'll even see the return of Halley's comet in 2061...

In the meantime, happy camping!

http://www.youtube.com/watch?v=NsAkMMrRM2o

Cheers,
KG

JR said...

So gold may appear to be a speculative investment from the personal perspective of shrimp like myself, who only see its "price" and thinks “I can go buy gold for its ‘price’ and look forward to ‘profiting’ from the 20-30x revaluation. Indeed for many shrimps that is the reality.

But not for Giants. As FOFOA has commented:

The vast majority of currency is traded for life's necessities and debt service rather than the timeless wealth asset of Kings. Following in the footsteps of giants requires more than pocket change.

The transition to Freegold is all about the big players.


It is important to be able to Think like a Giant and see their perspective. Here are some FOFOA quotes I posted above about Giants and their mindset with respect to wealth preservation:

The whole point of the [hyperinflation] debate is about the denouement, the final outcome of this 100-year dollar experiment. It is about the ultimate end, and the debate has been going on ever since the 70s when the dollar was separated from gold and it became clear that there would be an end. The debate is about determining the best stance someone should take who has plenty of net worth.[…]

Your biggest worry is keeping what you’ve already got… not getting more. You’re even willing to lose some just to keep your profile as low as possible....[…]

We talk about making a return on our money. But the truly wealthy are first and foremost concerned with preserving their capital. Earning a return is a secondary concern.



Giants are concerned with wealth preservation first, and are willing to take a hit to keep their profile low and to persevere that capital. And this is occurring in the context of the denoument of “this 100-year dollar experiment.”

cont.

JR said...

cont.

So lets think about being a Giant with huge net production who is looking to store that “value for the future. So a Giant looking for wealth in which to store value. Here is VTC:

Let us stress that as of February 2012, there exists no liquid private market for physical gold in € in which bid and offer would be quoted for tranches of 10 tonnes or more at any time. In fact, this is apparently not even possible in the London market in which gold is traded in US$:

James G. Rickards, Currency Wars, page 26:
In ordinary gold trading, a large bloc trade of as little as ten tons would have to be arranged in utmost secrecy in order not to send the market price through the roof [...]



So our Giant with with huge net production who is looking to store that value for the future is out of luck, because he can’t readily purchase physical gold.

But that Giant can purchase paper gold. Here’s FOA on how the paper gold market grew because of this need to hedge or “balance out” the risk of $ collapse and protect one’s net production, to find a way to store value should the $ fail:

FOA (10/9/01; 10:05:48MT - usagold.com msg#117)

What doesn't seem to be obvious is the "why for" the paper market grew so large. It grew to dominate because worldwide dollar expansion reached its "non-hedged" peak. In other words, the dollar's timeline was ending as its ability to produce non price inflationary economic gains came into sight.

In order to push dollar holdings further, international players needed and purchased "paper financial hedges" to balance their risk. Within their total mix of derivative hedges were found "paper gold price hedges"; modern gold derivatives. The important thing to remember is that these positions are not and never will be used to demand physical gold. They are held to buffer financial and currency risk associated with holding any form of dollar based asset. To work these items don't need to really perform "dollar price movements" in the holders favor as much as they are present in the portfolio to act as insurance stickers.

In that truth, these paper gold positions act like FDIC insurance at our banks. It can and will manage only a small determined portion of bank runs,,,,, not a full scale failure of the banking system. In a real full banking failure we would all get, perhaps, 80% of our covered $100,000 and 10% of the rest.


See that – “In a real full banking failure we would all get, perhaps, 80% of our covered $100,000 and 10% of the rest.”

cont.

JR said...

cont.

While many may not appreciate the “real dynamics” of what is going on in the gold market, some big players do. And that’s why, knowing physical gold is not available, they pile into “the next best thing,” aka paper gold. These are Giants looking to store value for the future, to preserve wealth, who are willing to buy paper gold, knowing it won’t perform as physical gold will.

They aren't after a speculative investment seekign a 20-30x return. Rather, they are willing to take a mild loss so they don't have to take a bigger one. What else are they going to do – buy USG debt?

Here is FOFOA from
Fallacies – 1. Paper Gold is just like Paper Anything pointing out the enormous demand from net producers for paper gold as a safe haven currency because physical isn’t available at the prevailing “price.”

On the demand side, gold is apparently used as a "safe haven currency". And we apparently had a demand shock of around 7,575 tonnes in Q1 2011. The normal supply for that period would have been around 700-1000 tonnes, so the paper gold market acted as a shock absorber and absorbed that demand shock by expanding.

So of these Giants buying paper as part of the enormous rate of7,575 tonnes in Q1 2011, are they doing so to make a profit of the Freegold revaluation? Or maybe is part of the story: 1) some see the risk of $ collapse, 2) they want to save or preserve of keep what they have, 3) they can’t buy enough physical gold and enjoy the revaluation, but 4) they don’t really care because their primary motive is keeping what they have, so 5)they buy paper gold knowing it won’t perform like physical, but also knowing its better than the alternative options where greater loss is likely - got Treasury debt?

AS FOA wrote: “In a real full banking failure we would all get, perhaps, 80% of our covered $100,000 and 10% of the rest.”

Losing some sure beats losing it all.



Edwardo said...

Costata, sometimes-though this time may not be the case-an erroneous thought and/or attitude, such as the one about deposits and why bankers need them, doesn't mean that everything that follows should be dismissed. It seems to me that the main point the poster was trying to make, and here he may also be in error, is the one that MichaeldV referred to, namely that...

"unless the central bank gets into a situation in which it is forced to pay out more in interest than it takes in in interest, it can't develop HI. "

Perhaps there was nothing new being added to the debate after all, though I did find the term quasi-fiscal deficit interesting. But just to be clear, the author's thesis misses what (I think) folks around here consider the key issue vis a vis HI in the U.S. which is that all the dollars presently floating around outside the U.S. are apt to be employed in the chasing of physical goods at some unspecified point in the future.

Mircea said...

https://www.youtube.com/watch?feature=player_embedded&v=VNKvbT_3b0s

Alan2102 said...

JR said...
"your words indicate you believe the idea expressed by FOFOA was pathetic, and then you went further in mocking his description of what you terms the "celebrated" super-producers?"

What I thought was pathetic was as I said: being neurotically obsessed with, and living in fear for, your money. I made it very clear in a followup post that this does NOT include a reasonable, wholesome concern, and diligence, with regard to one's financial future. But when it gets to the point that you are "waking up in the middle of the night with cold sweats" (YOUR WORDS, JR, verbatim), it has gotten entirely out of hand; it has then become a neurotic obsession, a psychiatric problem even. Yes, I think that that state is pathetic. It would abolish all the pleasure and joy that might have followed from that material abundance. Are such people to be celebrated, adulated, admired? Or pitied? You tell me.

"no one but you has suggested 'people who live in perpetual nervous-wreck fear of losing money are pathetic.' Rather: They live much closer to the panic end of the panic-calm spectrum."

JR, to "wake up in the middle of the night with cold sweats" (YOUR WORDS, verbatim) over your money is to live in perpetual nervous-wreck fear, in my book -- very much on the PANIC end of the spectrum you mentioned. Though maybe you define those words different than I do, or than the dictionary does.

Alan2102 said...

JR said...
"Alan2012: 'But it does have a speculative nature, insofar as there is the intention of making a profit'
Stop thinking like a shrimp. Your repeated contention that the vast majority of gold owners and purchasers, aka Giants, are doing so for a profit is lacking in support."

JR, it would help our exchange wonderfully if you would read my words. I never said that the giants -- the super-rich -- are buying gold in order to make a profit. (Maybe they are, maybe they aren't; I did not say.) I said that most of us in attendance here, perhaps all of us, (NOT GIANTS), are buying gold with the idea of an upcoming dramatic re-valuation, from which we will profit handsomely. If I'm wrong about that, please say so and we'll go from there. But please refrain from saying that I said things that I did not say. Thank you.

Michael H said...

JR quoted above:

In order to push dollar holdings further, international players needed and purchased "paper financial hedges" to balance their risk. Within their total mix of derivative hedges were found "paper gold price hedges"; modern gold derivatives. The important thing to remember is that these positions are not and never will be used to demand physical gold. They are held to buffer financial and currency risk associated with holding any form of dollar based asset. To work these items don't need to really perform "dollar price movements" in the holders favor as much as they are present in the portfolio to act as insurance stickers.

Now compare to this comment from ChrisF on the previous thread:

Re. my business need to hedge MoEs vs. gold.
My factory in Nigeria produces widgets which we also export to L.America invoicing in US$.
My shareholders (owners) only care about gold as a UoA and the Nigerian MoE and US$ are both weak and unstable vs. gold. I perceive a need to hedge my 6 month forward income stream and the original capital investment against further MoE weakening vs. gold. Thus a legitimate business need for a paper position as described above.


Thank you, ChrisF, for providing a great example of what FOA was referring to.

Jonas said...

burningfiat, I think we'll see more of these interviews and comments appearing in the near future. The world is ramping up towards either full scale world war(with nuclear weapons), which would threaten the existence of our species, or a new monetary system that could give humanity a chance to transition into doing what humans do best.

Indenture said...

athrone: Investment or Wealth? How soundly do you sleep at night? When I was heavily investing the moments were filled with interpretations of social flavors and my nights flitted between thoughts of profits in dollars. Then, somehow, I became worried about the demise of the dollar so survival reading was necessary. Nothing like a good EMP to brighten your mood. Thankfully the length of time spent in that camp wasn't too very long but like many others I learned the idea of preserving my purchasing power in gold. So it is at that moment where I was no longer an investor and was primarily interested in preservation. Then, after treading water at Zero Hedge and other sites I found FOFOA and began my journey trying to understand the groove he was laying down.

I entered FOFOA as someone purely determined to ride out the coming storm. But now I have knowledge that I can't negate. So most likely, like many of us, I look at each ounce as already worth $55,000. It became, in my mind, exactly worth that amount when I had my 'ah-ha' moment. I'm just holding it until every one else catches up. No investment on my part. I sleep well at night.

Alan2102 said...

PS: regarding "waking up in the middle of the night with cold sweats": if anything, I expressed myself with too much reserve. It sounds more like paranoid psychosis than mere anxiety-neurosis.

Tyrannyofthepresent said...

Alan 2012,

Quite funny to see those old terms being used. Anxiety-neurosis! It is just anxiety and the insomnia is a symptom. I would start him off with sleep hygiene and maybe a benzo if he is lucky. Watch those cold sweats though. CRP and ESR? Full blood count? More questions, certainly.

Whatever it is, however, it is not paranoid psychosis. If he tells me he is waking up because the FBI are talking about his gold outside the window, well maybe then. Only if they are "really" there.

Alan2102 said...

JR said...
"We talk about making a return on our money. But the truly wealthy are first and foremost concerned with preserving their capital. Earning a return is a secondary concern."

Cool. Good for them. But I'm not wealthy. I have different objectives. My understanding is that most of the people here are the same, i.e. not wealthy, and with capital appreciation as a primary concern. My understanding is that the audience here is very interested in a 30X (or whatever it is) revaluation, i.e. a huge gain, and are much less interested in mere preservation of present purchasing power. If this blog spoke only of preservation, without mentioning 30X revaluations, then it probably would have very few if any readers. Please correct me if I am wrong in my assertions.

Tyrannyofthepresent said...

Indenture,

On your point of the value being already present but just not yet current, I am very tempted to agree with you. If required, I can always escape admission to a psychiatric unit resulting from such an insistence by further conceding that I am perfectly aware that this view is a delusion.

KnallGold said...

1. Outlaw enlightenment?

http://en.wikipedia.org/wiki/Eleusinian_Mysteries

http://en.wikipedia.org/wiki/Mescaline

Albert Hofmann wished that his Sorgenkind someday will be a wonderdrug again, certainly research is exploding again...

2. A politician recently said CO2 is a toxic gas, now you better hold your breath ;-)

3. Still thinking about this Riemannsche Vermutung, any mathematicians here? Guess the key is not to be found in mathematics but rather in some philosophical thoughts...

4. We really need some new treatments for cancer, a good friend is diagnosed with skin cancer, already metastatic. I'm trying to get together an old story, it was a treatment for the mother of my apprentice which appeared to work, something from a fungi if I remember that correctly. The guy brought the pills with a Mercedes, always feared big pharma but then, I think it was Roche who discovered it. Bill Gates was also said to invest in it. Strange story but I didn't have reasons to not believe.

5. and there is plenty of Silver. Heavy elements just don't go away...

6. this moron likes to thank all who bought us time :-)

Best Regards,
KG

Alan2102 said...

Tyrannyofthepresent: Let's just say that if they are waking up in the middle of the night with cold sweats over the prospect of their $5 billion fortune possibly going to $4.5 billion, (or for that matter even down to .5 billion), then they are pitifully disturbed people with paranoid tendencies, whether or not formally psychotic.

Also: sometimes the old terms are better than the new ones. For example, manic-depressive psychosis is far more meaningful and accurate than the sterile new term "bipolar".

Jonas said...

Freegold friends, Follow K-POP. It is the bridge between East & West, hard currency and fiat. It is the change of mind that is about to follow. It is easy for westerners to learn, but you must want to.

athrone said...

The point is: why are 90% of people on this website voting that Gold is wealth when 90% of people are using it for speculation of 30x gains?

When someone asks you "What is ____" usually you answer in the context of it's personal use in your life, do you not?

I'm afraid people here have lost the ability to think rationally about this subject. If you are 100% invested in a speculative asset, I'm not sure you can really discuss it objectively.

Alan2102 said...

JR:
"There is a reason most definitions of risky don't mere say its the presence of risk, but instead characteristically the level of risk, often using the word hazardous."

I did not say "hazard"; I said risk. If you want to read into my word the idea of hazardousness, then I guess you can, but why would you want to? For the record, and as you already know if you've read many of my posts, I think there is NO HAZARD AT ALL in owning gold. None. You simply can't go wrong, at least for several more years, perhaps many more years. You won't lose, (almost) no matter what. It is only a question of how right you'll be. The risk I referred to had to do with timing of the great freegold revaluation; I wrote: "risk (which is judged acceptable, given the profit potential) that it will not happen in a timely fashion -- such as in your lifetime". THAT is the risk. And I admit that it is not all that big of a risk, considering that gold will almost certainly continue rising even while you are waiting for the great watershed moment. The risk would be for those whose conviction about freegold is so total, and whose investment objectives are so high (like $55K gold) and inflexible, that they wind up sitting on their gold for too many good remaining years of their lives, waiting for the big reset. And yes, I understand that freegold could arrive in February 2013. Indeed, I will be overjoyed if it does.

athrone said...

I've raised several questions about the Freegold thesis, none of which have really been addressed. It seems like the topics these days are back-patting about how great it will be to have 30x gains, or a discussion between which side will have the most 30x gains: silver or gold.

Well what if neither has 30x gains?

It seems to me that Another/FOA raised the possibility of Central Banks transitioning from a USD based system to a Gold based system. It's been 13 years and it hasn't happened yet. Today the price of gold is 6x higher and the USD no longer has a significant market share of worldwide assets.

Even if you still believe Central Banks are transitioning to that system, where is the logic to connect their choice of of a savings medium to those of non-Giants? Central Banks generally are limited to two choices: currency or Gold. They cannot invest in real estate or paintings.

Everyone else does not have that limitation, so tell me why they would choose Gold given that massive array of productive assets, art, land, goods, etc. available?

If the Freegold transition is resting only on the shoulders of giants (Central Banks) then we are almost halfway there are we not? The USD market share held by central banks has been reduced by half already.

If it is the Central Banks who understand this transition, and are the primary holders are we to believe they are buying paper gold? If Another is right they are transacting in physical only [at higher prices] correct? So if they have the physical Gold, and they are driving the transition, how could the paper:gold diverge as a result of their actions?

There are a lot of gaps here...

Jonas said...

athrone, I did not vote. But what else will give the system credibility but gold?

athrone said...

So there is yet another question: Who is allegedly holding all of this fake Paper Gold (~300k metric tonnes assuming 30k tonnes in the banking system and 10:1 paper:physical ratio)?

Big Giants (Central Banks)
Little Giants (Wealthy entrepreneurs)
Shrimps (everyone else)

?

Jonas said...

athrone, you, of course, have to understand there are no "giants" involved in this game. Only gold. "GOLD", IS the giant. So, what are you going to do? That's what the world wants to know. That's the question, which will be posed to all of mankind. "What are you going to do"?

Jonas said...

Question: -"What are you going to do"?
Countries and peoples around the world, let us know your answer! Coming in 2013, Watch and learn...

Alan2102 said...

Tyrannyofthepresent said...
"If you are holding something to swap for something else, why not buy something else in the first place?"

Because you think that the first thing will rise farther/faster, allowing you to buy more of the other thing when that time comes. This is the reason that freegolders (I mean, of course, us shrimps; I don't know anything about the big guys) buy gold, rather than real estate, stocks or bonds: they think that gold will rise much farther/faster than those things. And they're very likely correct, IMO. Yes, I know, some freegolders will hold on to gold and GOLD ONLY, FOREVER, never trading for anything else. That's fine. God bless, and good luck. That may be the right thing to do.

"The metals are different, so as for me, the only way to hold both is to hold both firmly and ignoring both the price and the ratio. If I were certain that one would outperform in all my meaningful time frames, and barring other factors, I would not hold the other one at all. In other words you would only hold two metals because of uncertainty and odd moments like those you mentioned don't create certainty."

Yes, of course, uncertainty.

Why would you ignore the ratio if you could trade the ratio and accumulate more ounces (more ounces of BOTH, eventually)? That's what some people have done, quite successfully. I wish I were one of them.

I agree that the metals are different. Different fundamentals.

Michael dV said...

JR
I do not follow your story about the wealthy using paper gold to preserve some of their wealth. If the dollar becomes worthless in a hurry then how is the ownership of paper gold, which would be cashed out in dollars, of any value? They would be better off trying ti buy some physical or parking some of their cash in equities of strong international companies.

Jonas said...

I will make myself a cult figure here, but it can't be helped.. The battle is essentially a spiritual one. It's about where we want to go as a species. Gold/Currency/whatever proxy you like for human labor/creativity, it does not matter... The choice we have, is to be slaves of whatever is imposed upon us, or take the power into our own hands.

Alan2102 said...

Tyrannyofthepresent said...
"Just because people show eagerness when talking about their own assets and a powerful sense of responsibility to their families does not really mean they are neurotic."

You're right, and I did not say otherwise. I said that people who wake up in the middle of the night with cold sweats (following JR's description), in fear for their wealth, are neurotic. I made VERY clear in a followup post that reasonable concern for one's finances -- such as showing eagerness when talking about assets, and a powerful sense of responsibility to your family -- is perfectly appropriate, and laudable.

"And I think you are right that great wealth distorts your world view and priorities."

I did not say that. But if it comes to nightmares and terrified cold-sweat awakenings, then that would be true.

athrone said...

The idea that wealthy individuals are waking up with a cold sweat, is non-sense IMHO. If you have more than 25x your annual expenses, I think you are sleeping pretty soundly.

Now if you only have 1x your annual expenses, are waiting on a 25x re-evaluation, and are 100% allocated to a single asset...

Woland said...


OOOOOO OOOOOO
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
^
12 balls. Each appears identical. One is lighter, or heavier.
You have 3 separate weighings on a balance scale. Find the
light or heavy ball. Prove which it is: (H,L) Prove you can think
logically. Seasons Greetz! (prizes awarded in LV)



One Bad Adder said...

Having just ponied up my annual "donation" and ...given that the world is ending today (here) I thought I'd be uber-cheeky and "post-from-work".

Art: - Yes, it's all a little bit like that but the "worthless-tokens" System, ably?? managed by the current crop of whiz-kids - has it's merits my friend.
The "problem" as I see it (alluding to Gold) is that most struggle with what it is ...and where it fits into the scheme of things.
I personally have no "FAITH" whatsoever in Gold for Gold requires not one scintilla of Faith.
Faith based Systems (du-jour) come and go my friend and ...it would seem we're on the cusp of a "going".
The art ART is to think of Gold as the Fulcrum of a Teeter-totter ...and the Faith-based System of Debt / Credit the protagonists using the thing.
There's no place on either side for Gold however it IS an intrinsic part of the Mechanism.

Back to work for me ;-)

JR said...

So there is yet another question: Who is allegedly holding all of this fake Paper Gold (~300k metric tonnes assuming 30k tonnes in the banking system and 10:1 paper:physical ratio)?


It would include people/entities who need to hedge currency risk, yes?

From that LBMA survey, we can see that the LBMA had net sales in one quarter of 7,575 tonnes of paper gold. That’s a gross increase in the amount of paper gold in existence over only three months. 100:1 actually seems conservative in this light. That’s most likely FOREX use of gold as a hedge or a currency play. But even still, the BBs have to hedge their price exposure when selling that much paper gold. Without a hedge, that would be a 7,575 tonne naked short position for the BBs.

So that net increase in paper gold is also a net inflow of cash for the BBs, cash which they use to hedge that net exposure. In fact, we can see from the LBMA survey exactly how much cash it was. It was $338B. That’s over 3 months, so it’s more like $5.4B per day inflow. That’s a small percent considering the daily turnover in paper gold used as a FOREX currency is $240B and the daily turnover of all currencies is $4T. So in a $4T/day FOREX market, that’s a $5.4B/day net flow from other currencies into gold.


GLD Talk Continued

athrone said...

Yes JR, but how does that answer my question?

I am asking whether these people Giants, Little Giants, or Shrimp, not what their motives are.

costata said...

Hi Edwardo,

I'll take another look at those two theorist's work. Right now I have to do Christmassy stuff.

Interesting discussions. I'll try to catch up with the rest of the comments and add my 0.02. One comment to Tyrannyofthepresent. I accept your assertion that you deal with 8 and 9 figure (presumably) clients. It sounds like nothing has changed. The mentality and reality is the same.

JR said...



If the dollar becomes worthless in a hurry then how is the ownership of paper gold, which would be cashed out in dollars, of any value? They would be better off trying ti buy some physical or parking some of their cash in equities of strong international companies.

We are talking about Giants, so there isn't enpugh physical to buy and its not so easy to pump all that money into the stock market.

The paper gold contract will be cashed out at far below the value of the bullion, but they will be cashed out. The CB can make these hedges perform nominally, yes? (even if it means HI). The LBMA numbers reveal currency traders are using gold ounce-denominated accounts as a currency hedge (paper gold). One part of the $ derivative hedge system.

Just like with QE and buying back CHINA's MBS, a CB can make other derivatives, like paper gold, perform nominally (printing money to buy defaulting derivatives). So yeah, paper gold and physical diverge, and you are huge Giant necessary to internaitonal trade. I wonder if any G/CB will take your paper gold you bought as a hedge off your hands. You probably won't wanna play ball if they don't, and it would appear those G/CBs like you playing ball.

JR said...

Hi athrone,

YYou say:

Yes JR, but how does that answer my question?

I am asking whether these people Giants, Little Giants, or Shrimp, not what their motives are.


That's why I wrote: It would include people/entities who need to hedge currency risk, yes?

See how the ansswert to Who is allegedly holding all of this fake Paper Gold

It is those with a need to do so. So which one of these "Giants, Little Giants, or Shrimps," has such a need? I think its not shrimp, what do you think?


It would include people/entities who need to hedge currency risk, yes?

JR said...

I don't need to hedge currency risk. Who might?

I think of like international business who have lots of income in foriegn currebcies or exporting nations/their CBs.

Who do you think has such a need athrone?

JR said...

Weigh sets of 4 balls on each of the three scales.

Take the outlier set of 4 (the other two sets of 4 balls will weigh the same) and weigh three of those four balls - its the one with the odd weight or the outlier if they all weight the same.

athrone said...

The community here is the one asserting the theory, so it is your ideas that matter, is it not?

You seem to be implying it is Giants who are primarily engaging in paper trading. Well if it is Giants who are aware of and driving the transition to Freegold as implied by Another, and their end goal is to get into physical, why would be they playing around in paper?

Jonas said...

athrone, what's the difference? -Working for dollars, or working for gold?
You say:
"The community here is the one asserting the theory, so it is your ideas that matter, is it not?"

Wise words indeed.. I want to see humanity live up to that...

Are you going to work for "gold", or whatever the next buzzword will be to keep you in slavery?

FoNoah said...

First weighing is 4 against 4 with 4 on the side.

Outcome 1: The 4 against 4 balance. That means the odd ball is in the remaining 4. The other 8 are known Normal.

Second weighing: Weigh 3-odd + 1-Normal against 4-Normal (1-odd on the side)

If there is balance, the odd-ball has been identified, (i.e. the one on the side) and one (third) weighing against a normal establishes its character.

If the 3-odd side goes down, you have identified 3 potential Heavies(H).

Third Weighing: 1-odd (H) against 1-odd (H) with 1-odd(H) on the side.
Similarly for the case if the 3-odd side goes up, you have identified 3 potential Lights.
___

Now for the interesting outcome. After the first weighing above, if there is a structural imbalance, so one side goes down (you have 4 potential Heavies), the other side goes up (you have 4 potential Lights) and 4 known Normals on the side.

Second Weighing: L L L H against N N N L
At this stage everybody knows where we have been, so it’s obvious to see where we go from here.

What’s the prize (in Oz’s)??

Cheers 0 FoNoah

FoNoah said...

Forgot to mention, the above is solutions to Woland's 12 bad balls problem at 2.47PM above

/SleepingVillage/ said...

I think you got it, FoNoah:)

My kind of "logic"? I'd probably use a digital scale, but I'd need a few more than 3 weighings, hah!

Yep...

Heavy Kingdom

athrone said...

JR,

Pretty funny that your response to Woland is exactly the kind of response you give to regular questions in this forum:

"Weigh sets of 4 balls on each of the three scales.

Take the outlier set of 4 (the other two sets of 4 balls will weigh the same) and weigh three of those four balls - its the one with the odd weight or the outlier if they all weight the same."

You aren't answering the question, nor do you even seem to even understand it.

There are not three scales, rather three weighings on a single scale. You also neglect to answer whether the ball is lighter or heavier.

Woland said...

Hello FoNoah;

My sources tell me that you are a "rigger" of sorts. One of my
favorite collections of stories is about one such as you, by a
wonderful author, now dead, by the name of Primo Levi. You
will receive that book in LV. But, first, you will need to complete
the logic of step 3, if only for the benefit of the amazed multitude.
Your "book mark", should you chose to accept it, will be revealed
when we meet. (and I know you have seen this puzzle before)
Until then, cheers.

Alan2102 said...

poopyjim said...
"Your thinly veiled contempt for the wealthy and your collectivist inclinations are obvious to all who read here! No need to hide it brotha, just be yourself!"

"Contempt for the wealthy" and "collectivist inclinations"? Poopy, the truth is much more serious than that. The truth is that I am a fanatical Marxist-Leninist and covert communist activist, on a mission to infiltrate, undermine and subvert the goldbug community. OK, I'll grant that my 15 years of efforts along these lines have thus far been totally ineffective. But just you wait! I sense a breakthrough in the making. And once I get ONE of you to convert, the rest of you will fall like dominoes! HAHAHAHAAAA! You'll play into our hands like the good little drones that you are! HAHAHAHAAAA!

Alan2102 said...

athrone said...
"what if neither [silver nor gold] has 30x gains?"

S'OK. 3-6X gains will do us in excellent stead, thanks muchly. :-)

"why are 90% of people on this website voting that Gold is wealth when 90% of people are using it for speculation of 30x gains?"

Again: great question. No answers.

"If you are 100% invested in a speculative asset, I'm not sure you can really discuss it objectively."

You're right. And yet, we soldier on, discussing it as best we can.

poopyjim said...

@athrone

Pretty funny that your response to Woland is exactly the kind of response you give to regular questions in this forum...

You aren't answering the question, nor do you even seem to even understand it.

There are not three scales, rather three weighings on a single scale. You also neglect to answer whether the ball is lighter or heavier.


And your reaction above is typical of your posts athrone, wherein you focus on irrelevant nonsense and make fallacious ad hominem arguments.

I'll give you credit in the previous thread for halfway conceding your misunderstanding of the gold market wherein you said:

My argument about Supply/Demand curves from Market Caps may have been weak...

Why yes I agree it was quite weak. And here is another weak i.e. fallacious argument which you should also concede as being such, as it was completely annihilated by JR et al.:

The point is: why are 90% of people on this website voting that Gold is wealth when 90% of people are using it for speculation of 30x gains?

As explained above by Indenture & JR it is (a) not speculation but recognition of value already there and (b) even if it were technically "speculation" your argument would still be irrelevant because our personal motives/reasons for holding gold do not affect the answer to the question of whether gold is wealth, seeing as we hold a minuscule amount of the total gold stock.

You have brought nothing to the table with this "argument."

When someone asks you "What is ____" usually you answer in the context of it's personal use in your life, do you not?

Irrelevant.

I'm afraid people here have lost the ability to think rationally about this subject. If you are 100% invested in a speculative asset, I'm not sure you can really discuss it objectively.

Another ad hominem. In my opinion, it is you who lack the ability to engage in rational discourse as you seem to only be able to offer fallacious arguments.

@Alan2102

I see my pointing out the obvious had quite an impact! Here, I have a production recommendation for you: no more tears!

FOFOA said...

Hello Jeff,

"When you say all the A/FOA comments are you saying there are additional posts, or comments which were left out of the archive? That's exciting stuff!"

There are some FOA comments which are not in my two pages marked "A/FOA Discussion Forum Archive" (copied from Martijn's pdf) and which are no longer on USAGOLD. So they are currently missing online as far as I am aware. One example is in my post above:

FOA (6/7/99; 7:45:04MDT - Msg ID:7282)

Steve, on this issue, they will move no slower than with the speed of one who finds a gold coin upon a sidewalk!


This line comes from one gap in Martijn's pdf between 5/11/99 and 7/19/99. I know there are other gaps as well, including the one that contains FOA's Brown's Bottom comment. To give you an idea of how much might be missing, this one gap contains 78 pages in the archive I received from my new correspondent. In total, he sent me 1,589 pages of material, so it will take a while to process it and post it. But for now, I temporarily put up the 78 pages from 5/11/99 to 7/19/99 (including the sidewalk post) here in case you want to take a look.

Sincerely,
FOFOA

Alan2102 said...

Poopy said...
"As explained above by Indenture & JR it is (a) not speculation but recognition of value already there, and (b) even if it were technically "speculation" your argument would still be irrelevant because our personal motives/reasons for holding gold do not affect the answer to the question of whether gold is wealth"

I think Athrone was inquiring about what gold is FOR US, not what gold is held to be by everyone else on the planet. On the one hand, we say it is wealth*, and it may be so for the rest of the world, or for the "giants", but is it so FOR US? It would seem not, if it is true that most people here are primarily looking for large capital gains on their gold. In other words, our personal motives/reasons for holding gold DO affect the answer to the question of whether gold is wealth FOR US.

* Wealth defined as something apart from investment, as per the view of FOFOA.

spaul67 said...

@Tyranny of the Present

I would look at what I call the ponzi factor in terms of selecting a SoV diversification strategy during the run up to Freegold and beyond. In simple terms the ponzi factor is the market price/manufacturing cost. For example, it is very likely for the reasons you outlined for real-estate prices to become depressed after a collapse of the credit markets and yet the amount of labor and materials (lesser SoV than gold) that constitute those assets will be the same on either side of the Freegold pop.

During the great depression you could have purchased stock in profitable well run companies for ‘less’ than their cash on hand and at 1 PE ratios to boot. So in Freegold world their will likely be some lesser SoV bargains out there. For example, say that the Freegold price is 50x its mining cost but real-estate is going for ¼ its manufacturing cost. I would also look at local rent prices $/sqft as well just make sure. Anyway, rebalancing from one to the other would be good way of locking in your Freegold gains for the long term and may give you a further gain down the road ‘if’ things come back into balance; say gold at ‘only’ 10x and real-estate 1/1.

I also looked at your concern with rebalancing your portfolio when even just one asset in it is ultimately headed towards zero, (i.e. Pets.com, MFGobal segregated accounts, UST etc.) You are absolutely right, ‘all’ your wealth will just get sucked into a black hole singularity never to be seen again. Rerun your model though while ‘only’ including assets classes that throughout human history have ‘never’ gone to zero. Then use the ponzi factor to guide your periodic rebalancing decisions among them rather than a fixed percentage. Let me know what you find?

The fact that there are ‘other’ lesser forms of SoV than gold is what keeps the gold price, even in a freegold world, anchored to some extent to the real world of stuff. In my mind silver has always played a direct role for gold in this regard because it still retains a number of the gold’s features only to a lesser extent, ie gold’s little brother. In fact when you get a chance plot the price of silver (inflation corrected) vs the GSR you get a correlation that is better than some experimental data in the physical sciences.

Best Fit Equation;

GSR=477.03*SilverPrice$^-0.633

spaul67 said...

@FOFOA, December 20, 2012 1:36 AM

Excellent summation of the many forms of ‘wealth’.

In fact it was only once my net production had covered the basic forms of lesser wealth important for independence and survival that I began to move into silver and then ultimately gold. Cash protects my silver, silver protects my gold and gold protects the necessities of life.

Your image of the person dead of thirst in the desert with a bag of gold comes to mind. I would add to this that life happens while you’re planning on other things.

My experience is that life is a lot less stressful after you have the basics covered. Getting all worked up attempting to create a massive tax bill for your next of kin is not what I would call a life well lived.

/SleepingVillage/ said...

"why are 90% of people on this website voting that Gold is wealth when 90% of people are using it for speculation of 30x gains?"

" Athrone was inquiring about what gold is FOR US"

Haha, who gives a shit what it is for us? It's actually none of anyone's business. The question FOFOA posed was simply "what is gold?"

We mostly agree gold is wealth. We mostly agree physical gold is currently undervalued. Now who in their right mind would not capitalize on that kind of an opportunity?

But, but, but you didn't earn those savings! It's not wealth! That's whiney douche language:) And a little too touchy-feely, socialist-leaning for me. But I do see what you're trying to do here, athrone. Smells like semantic bullshit to me. If you want to get all philosophical, that's fine, but I don't think anyone is biting here. I would encourage you to start a blog and hash it out with those that may be eager to engage in a heavy-duty semantic battle:)

It doesn't change what gold is because there happens to be an unrealized "storage" potential in gold at this time. Storage, as in... wealth.


You want us to say we're using gold as an "investment". Fine, maybe some of us are on a level, but gold is still wealth whether we (us popcorn shrimp) are taking advantage of a current, temporary condition or not.

I voted "wealth" because I like to think long(er)-term, and I took the question posed as more of a pure definition.


I'm no different than you, it's just that I do whatever I want to

milamber said...

FOFOA,

Another excellent thought provoking post!

What is gold you ask? How about this?

Gold is simply a blank slate. And each one of us projects onto it what we want it to be.

For some, gold is simply an abstraction represented by an electronic blip that races back & forth in nano seconds as they trade it. For others gold (in their possession or allocated) is a timeless wealth preserve that allows them to convert their lines in the sand into something durable. Some view it as “ the wealth of kings”. And for others, it (in coin form) is the best form of “honest money” ever devised.

In public, some central bankers say they hold it because it is traditional to do so. In private, others lament the fact that they have to intervene in it to keep their printer functioning. And yet others MTM every quarter.

Some hold it as “payment in full”. Others view it as a pox on mankind decrying the environmental destruction that accompanies the mining of it. Some claim those that hoard it are greedy, evil cultists. Others believe they are righteous warriors, slaying the Leviathan of statist central planning with their golden swords and silver shields.

So which “view” is correct?

Well, in my eyes, everyone is “right”. I mean, you asked people for their opinion of what gold is. How can “what you believe gold to be” be wrong? Just make sure that you are prepared to live with your decision!

However, as you have so ably pointed out. It doesn’t really matter what any ONE entity projects onto gold. What matters is what do the entities that matter think about the matter ( as it were). And most importantly how do they act in response to what they think gold is?

IMO, The trick is to figure out which entities matter and understand their motivations. And then based on that understanding, take what you deem to be the appropriate action. For me, that was to convert a portion of my currency into physical gold (among other items). I did this because I BELIEVE (I don’t KNOW),that I will see a new IMS come into being within my life span. And I want to enter that new system with physical gold (among other things) in my possession.

Was that the right course of action?

For me, yes.

For someone else?

I can’t say.

cont...
1/2

milamber said...

2/2


From Adam Fergusson’s “When Money Dies”

Money is no more than a medium of exchange. Only when it has a value acknowledged by more than one person can it be so used. The more general the acknowledgement, the more useful it is. Once no one acknowledged it, the Germans learnt, their paper money had no value or use — save for papering walls or making darts. The discovery which shattered their society was that the traditional repository of purchasing power had disappeared, and that there was no means left of measuring the worth of anything. For many, life became an obsessional search for Sachverte, things of 'real', constant value: Stinnes bought his factories, mines, newspapers. The meanest railway worker bought gewgaws. For most, degree of necessity became the sole criterion of value, the basis of everything from barter to behaviour. Man's values became animal values. Contrary to any philosophic assumption, it was not a salutory experience.

What is precious is that which sustains life. When life is secure, society acknowledges the value of luxuries, those objects, materials, services or enjoyments, civilised or merely extravagant, without which life can proceed perfectly well but make it much pleasanter notwithstanding. When life is insecure, or conditions are harsh, values change. Without warmth, without a roof, without adequate clothes, it may be difficult to sustain life for more than a few weeks. Without food, life can be shorter still. At the top of the scale, the most valuable commodities are perhaps water and then, most precious of all, air, in whose absence life will last only a matter of minutes. For the destitute in Germany and Austria whose money had no exchange value left existence came very near these metaphysical conceptions. It had been so in the war. In All Quiet on the Western Front, Müller died 'and bequeathed me his boots — the same that he once inherited from Kemmerick. I wear them, for they fit me quite well. After me Tjaden will get them: I have promised them to him.'

In war, boots; in flight, a place in a boat or a seat on a lorry may be the most vital thing in the world, more desirable than untold millions. In hyperinflation, a kilo of potatoes was worth, to some, more than the family silver; a side of pork more than the grand piano. A prostitute in the family was better than an infant corpse; theft was preferable to starvation; warmth was finer than honour, clothing more essential than democracy, food more needed than freedom.


And Duggo, I am reminded of this passage from the LOTR, when Frodo is fleeing the Shire,

“…Advice is a dangerous gift, even from the wise to the wise, and all courses may run ill.”
- Gildor Inglorion

Milamber

FOFOA said...

Jeff,

Another neat thing this new archive does is it has all of Another's and FOA's comments in the order that they were written, regardless of where they ended up on the USAGOLD website. In other words, FOA's "Trail Guide" comments from the regular forum are intermixed with the Gold Trail in chronological order. Also mixed in are other tangents like "Auxiliary Gold Trail Commentary". So rather than jumping around from Gold Trail to Auxiliary Trail to Discussion Forum to Hall Discussion and back to Gold Trail in order to read these comments in chronological order, this gentleman has already done all of the work for us and put them in order.

Also included are some gems by Ari (and others) which are gone from the USAGOLD website. If FOA referred to one of Ari's posts that did not make it into the Hall of Fame (HOF is still up on USAGOLD), then it is in this archive and nowhere else. One example I just came across is the full version of Ari's "The evolution and confessions of an unrepentant Gold advocate" of which I used only a portion in one of my posts, and FOA excerpted even less in one of his Aux. Trail comments, but no longer exists in its entirety anywhere on the internet. At least nowhere known by Google.

So, not only will it be good for searchability for me to put this up, but it may also be a new experience for some, to read these comments in the order that those who were following in real time read them. And that's what the 1,589 pages includes. It includes ANOTHER (THOUGHTS!) which is only 161 pages, and then all of their comments that came after (THOUGHTS!), between 9/20/98 and 12/16/01, in order, in context, which is an additional 1,428 pages.

So even if USAGOLD puts the Discussion Forum back online, I think that this chronological version (with most of the noise from other commenters filtered out) will still have its own unique appeal.

Sincerely,
FOFOA

costata said...

Alan2012 and athrone,

There have been a very large number of readers of this blog over the years who bought gold before becoming aware of A/FOA or this blog.

We (it was a joint decision) initially bought gold for one reason - to lessen our exposure to counter-party risk. After becoming aware of the A/FOA/FOFOA material we increased our target level of saving in physical gold.

We haven't bought a gram since then (aside from a paper gold currency hedge). We had to make personal sacrifices to acquire the gold and now we are spending on the things that we postponed. None of us know how much time we have. This (life) isn't a dress rehearsal.

It's simply outrageous to characterize "90 per cent" of the people here as gold speculators. Many readers, and some of the discussants, are from India and Asia. Buying gold is merely saving for a large number of people around the world.

For some of us "of Western thought" sure we didn't share that mindset at the outset. Gold was perhaps initially something we would sell-first if we needed the money. Over time, in our case, gold shifted further down the list toward sell-last. I think this is also true of other discussants and readers here.

I also want to say something about this 20-30 times revaluation of gold. I'm wondering if both of you are Americans. Can you grasp that the rest of the world are collectively on the other side of this (Anglo-American) $IMFS deal?

In other words, the ROW picked up the cumulative bill. (With most people completely unaware of it.) And I acknowledge some Americans will lose just as much as the ROW as a result of decades of this $IMFS "exorbitant privilege" but others can speak to that issue. Collectively the ROW were shortchanged 20-30 to 1 in, as yet, unrealized losses.

The events many here anticipate will allow gold holders in the ROW to break even or better compared to their fellow citizens. But for others holding paper these events will crystallize those 20-30 to 1 in unrealized losses. To be crystal clear, the past losses will become a present reality.

The revaluation of gold IS one of the central themes of the discussions here. But this discussion is not informed by speculation about the future. It is informed by analysis of the present and the past. We may attempt to extrapolate into the future but that is part of the fun and one way to test the predictive power of theories.

/SleepingVillage/ said...

Costata,

Thanks for that. Much more eloquent and diplomatic than my response, and much more important as well.

costata said...

My pleasure SV. Cheers

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