Saturday, January 5, 2013

The Two-Legged Dog

This is an unbelievable dog named Faith that can walk on two legs!

American - English Idiom: "Have a dog in the fight"
Idiom Meaning - To have a stake in the outcome of the problem at hand or to opt out of being expected to assist.

Someone wanted to know my take on the outcome of Goldhog Day, so here it is.

First of all, I view today's (quote-unquote) "gold" market as a two-legged dog. It has only two legs of support: private support (what we could call "the paper gold bull market" or private demand for paper gold from mostly metals, commodities and currency traders and dealers) and official (CB) support. I don't consider the demand for physical gold to be a leg of support for today's "gold" market. It has been more like a baseball bat to the "gold" market kneecap for quite a while.

Think of it like this: The position that lends the most support to today's "gold" market is "long paper gold and short physical gold." This was the position of Western gold bugs during the early 90s—trading in their physical for paper gold:

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

The Western governments needed to keep the price of gold down so it could flow where they needed it to flow. The key to free up gold was simple. The Western public will not hold an asset that is going nowhere, at least in currency terms. ( if one can only see value in paper currency terms then one cannot see value at all ) The problem for the CBs was that the third world has kept the gold market "bought up" by working thru South Africa! To avoid a spiking oil price the CBs first freed up the public's gold thru the issuance of various types of "paper future gold". As that selling dried up they did the only thing they could, become primary suppliers! And here we are today.


The reason for "keeping the price of gold down to free up Western physical gold" was simply to prolong the $IMFS until the euro launch date. But once "that selling dried up" and the CBs became "primary suppliers", there was no longer a need to keep the price of gold down. At that point it was better if it went up!

FOA (8/22/01; 05:18:54MT - usagold.com msg#98)

The war between gold and the dollar has been over for a while now. The action, today, is between the dollar and the euro arena and this is what will break the price lock on gold. Leaving gold bugs with a lot of questions that ask why this: both systems will strive for a higher currency price for gold; one doing it because they have to; the other doing it because they want to! The casualty on this battlefield will be the world gold market as we know it.

FOA (11/3/01; 14:39:16MT - usagold.com msg#129)

…any massive rise in physical gold values cannot be priced into "derivative gold" without crashing the system… This paper gold market will be cashed out at prices far below real bullion trading…


When I talk about support for today's "gold" market, don't confuse that with price. Always remember that the ultimate supportive position is long paper/short physical. So it is possible to support "the market" at a low price by selling tonnes and tonnes of physical gold. Likewise it can be supported by buying "tonnes and tonnes" of paper gold, which tends to raise the price of "gold" and "stretch" the physical supply.

Again, the two legs of support are the "gold" buying public and the CBs. The actual "use" (hoarding) of this particular commodity (physical gold) is not supportive of today's "gold" market, it is a major threat. And when I put "gold" in quotes, that means all the various paper that tends to move together with the $PoG constituting the entire precious metals sphere as we understand it today. I'm not just talking about a strictly defined type of paper gold. It is also helpful to exclude physical gold demand when conceptually thinking about today's "gold" market since it is a threat rather than a supporting element of that market.

Even though I said not to confuse support with price, the rising $PoG is, in fact, the only thing holding today's "gold" market together. That is, the buying of tonnes and tonnes of paper gold which raises the price of paper gold thereby "stretching" the physical supply is the main action being taken by one or both of the two supporting legs (private traders and/or CBs) that is holding today's "gold" market together.

On 8/22/01 FOA wrote:

"Both systems will strive for a higher currency price for gold; one doing it because they have to; the other doing it because they want to!"

And this is what we, in fact, saw:

Wednesday, August 22, 2001 - GOLD AT $276
Friday, February 8, 2002 - GOLD ABOVE $300
Monday, December 1, 2003 - GOLD ABOVE $400
Thursday December 1, 2005 - GOLD ABOVE $500
Monday, April 17, 2006 - GOLD ABOVE $600
Tuesday, May 9, 2006 - GOLD ABOVE $700
Friday, November 2, 2007 - GOLD ABOVE $800
Monday, January 14, 2008 - GOLD ABOVE $900
Monday, March 17, 2008 - GOLD ABOVE $1000
Monday, November 9, 2009 - GOLD ABOVE $1100
Tuesday, December 1, 2009 - GOLD ABOVE $1200
Tuesday, September 28, 2010 - GOLD ABOVE $1300
Wednesday, November 9, 2010 - GOLD ABOVE $1400
Wednesday, April 20, 2011 - GOLD ABOVE $1500
Monday, July 18, 2011 - GOLD ABOVE $1600

Prior to that, "gold" had been range-bound for two decades.

Freegold!

FOA (08/09/01; 10:27:19MT - usagold.com msg#93)
"everything to do with a gold bull market"

This not only has "everything to do with a gold bull market", it has everything to do with a changing world financial architecture. And I have to admit: if you hated our last one, you will no doubt hate this new one, too. However, everyone that is positioned in physical gold will carry this storm in fantastic shape. This is because the ECB has no intentions of backing their currency with gold and every intention of using gold as a "free trading" financial reserve. None of the other metals will play a part in this.

Clearly, the coming drastic constriction in dollar financial trade will trigger a super "print press" response from the Fed. They will not be pushing on a string; rather picking up the ball of twine and throwing it! All the while using the old 1980s "monetary control act" that opens their use of monetizing almost anything and everything. They won't be adding reserves to the banking system in the future; rather buying any and all debts from anyone that needs fresh cash. Believe it!


The new "world financial architecture" (to use FOA's term) or the "fully-fledged Freegold paradigm" (to use Ari's) will be "assertively rolled forth" only after these two legs of *support* for the old "gold" market are gone. Whenever that happens, I personally envision the price of "gold" free falling very low before trading is halted, but that will be only the effect, the climax of a chain of events or the denouement of today's (quote-unquote) "gold" market. So if we want any kind of advance warning, however brief it may be, I think we should pay close attention to the sentiment of those two legs of support.

And this is the basis of what I called my two "indicators", the FPI and Goldhog day. Those are just silly names that I made up to explain what I think could be a potentially predictive snapshot of the sentiment of these two very different legs of support. The FPI is a snapshot of private support and Goldhog day is a snapshot of CB support. And the timing of Goldhog day is based on a specific theory about the MTM practices of the ECB. This is why I said in my Dec. 26th post that it was just something I was "watching for the next week and a half. It could be a signal of sorts, but I wouldn't put too much stock in it." In other words, take it with a big grain of salt!

For the FPI (or Freegold Puke Indicator) I'm gauging the sentiment of a very narrow band of the market, a segment that we could call the "swing producer" of private support for today's "gold" market. Forget the permabulls (most of the precious metals community) and the permabears (most of the MSM and mainstream investment community) and look for technical traders who have been bullish on gold for most of the last decade but who are always on alert for the top, preferably someone with substantial influence and financial weight.

I have found a good bellwether for my own purposes in this regard, and here are some of the things he has been saying over the past two weeks (paraphrased):

"Gold sentiment is off the charts low right now. It will be interesting to see how low the HGNSI (Hulbert Gold Newsletter Sentiment Index) will go after Friday's (yesterday's) action."

"The more Turk and KWN talk, the lower gold goes. Gold is heading below $1,550."

"Gold sentiment right now is suicidal."

"10 years in gold is enough. I'm selling 100% of my gold over next 3 months."


He believes that the secular "gold" bull market of the past decade has ended and a new secular bull market in the dollar and the S&P 500 has begun. And that's why I said that my FPI had "fired".

It is impossible to know which of the two support legs were responsible for the rising price of "gold" at any given point during the last decade, but I think it's safe to assume that the private (trader) leg carried at least its fair share of the weight most of the time. But there have been a few instances of "support" that seemed counterintuitive or at least "eyebrow-raising".

I presume a fundamental difference of motivation between these two legs. The private (trader) leg supports the "gold" market when it thinks it can make a profit in currency terms. The official (CB) leg supports the "gold" market for a purpose other than profit. That purpose I presume to be the prolonging of the status quo in the absence of sufficient private (trader) support.

All of the instances of curious "support" that have raised my eyebrows occurred during or after the financial crisis of 2008. Granted, I have only been watching since 2008, but even so, there is evidence that this is when "it" began. Take the GLD puke indicator for example. Notice that they began in September 2008:



What makes the GLD puke indicator interesting is that the price of "gold" tends to levitate following a puke. I do realize that there are theories and explanations for why this happens and I'm not going to get into mine in this post. But I did want to point this out as an example of several instances of curious "support" that began in 2008.

The other three instances were the Nov. 2008 bottom in "gold" which I mentioned in my New Year's post, the June 2010 MTM snapshot described in this post and the mysterious "eleventh hour levitation" mentioned in this post. The latter two being associated with the ECB's MTM practices are what gave me the idea for Goldhog day last May.

To my mind there are three prerequisites for a valid Goldhog day. First, we must have a prior FPI firing indicating low private (trader) support, especially from the swing producers. Second, we need a gold price that's significantly lower than we'd expect it to be just prior to Snapshot day given the uptrend of the last decade. And lastly I think it needs to be either a mid-year or year-end Snapshot day, not March or September.

Last May my FPI fired and the price of "gold" was very low for the June Snapshot day which was still 45 days away. But then the price levitated into range by early June which suggests private (trader) support was more likely than official (CB) support, technically invalidating June 29th as a true Goldhog day. So yesterday was our first-ever true and valid Goldhog day!

Someone asked whether the ECB takes their snapshot from the AM or PM fix at the LBMA. The answer is that they take their own snapshot during the day. Sometimes it is close to one of the fixes while other times it is not. For example, last September it was almost the same as the PM fix. The PM fix was €1,377.278 and the ECB's snapshot was €1,377.417. But in June and March the ECB's snapshot was actually lower than both the AM and PM fixes. On June 29th the AM fix was €1,248.012, the PM fix was €1,260.448 and the ECB snapshot was €1,246.624, which is why I picked €1,246 for my Goldhog day prediction.

The actual gold fixes yesterday were €1,254.323 in the AM and €1,262.932 in the PM. We won't know until Wednesday what the ECB snapshot was, but I'm going to guess €1,257. It certainly didn't hit my low of €1,246, so I can't make a decisive call. But I can explain my take on it.

Here are all of the MTM snapshots beginning in 2008 along with the percentage of "gain" or "loss" from one quarter to the next, and also for semiannual periods:



Notice that yesterday was the largest quarterly "loss" by a longshot, which is significant. But I'm focused more on the semiannual periods because, as I mentioned before, there are indications that the mid-year and year-end snapshots might be more important to central bankers (for whatever reason) than the other quarters. One indication is the more frequent dips from quarter to quarter versus semiannual dips, and the other indication is that the two instances of "curious support" occurred at mid-year and year-end snapshots. So take it for whatever it's worth, but there it is.

If we had hit my low of €1,246 this time, notice that it would have registered as a negative number in the far right column, or a "loss". But it wouldn't have been the first one. There was another semiannual decline of -1.1% from January to July in 2011. But this time would have been significantly different from 2011.

The difference would have been that in 2011 there was a huge dip in the price between January and July. So even though July came in slightly lower, it still represented a massive levitation to get there. This time was the opposite. There was a huge rise between July and January so, even though it's flat for the past half-year period, it represents a huge decline (i.e., lack of support) to get to where it is today. Can you see the difference from a CB Snapshot day perspective?

But we didn't get there, even though we came remarkably close. I never thought that anyone would intentionally take the price down. My point, instead, was that if it did happen to fall that far without hitting even official (CB) support, that would be a significant indication to me in support of my other reasoning for 2013 being the year of the window.

As it turns out, the euro price of "gold" did find some support at €1,254. Was that official (CB) support or private (trader) technical support? To be honest, to me it still looks like the two "fundamental" legs of support for today's (quote-unquote) "gold" market are possibly gone. And as I said, normally I couldn't care less about the price of "gold", but I think that my "bellwether" might just be right, that the decade-long bull market in paper gold might be over. If so, look out below!

And if you think this whole post sounds like pure speculative gold-hog-wash, that's because it is! :D That's what you get if you want me to do timing. As I said, take it or leave it, but if you take it be sure to take it with a huge grain of salt.

So what's my take on the outcome of Goldhog day? I say it still looks like "game on" for 2013, Year of the Window!

Sincerely,
FOFOA ;D



____________________________________________________

UPDATE:

LBMA’s Best Gold Forecaster Hochreiter Says Bull Market Over
By Claudia Carpenter (Bloomberg) - Jan 7, 2013
(h/t Jeff)

504 comments:

1 – 200 of 504   Newer›   Newest»
dieuwer said...

I have one remark and one question:

Remark: What I find interesting to note is that from mid 2010 until today, the tonnes in the GLD trust have gone nowhere. It seems to be "stuck" at about 1300 tonnes. WHY? Clearly, it was rather "easy" to obtain gold for the trust the 5 years prior to 2010. So what changed in 2010?

Question: It seems that paper gold derivatives (like ETFs) are being marketed to Asians these days. I believe that numerous of the ETFs now trade in Hongkong, and even in India there is a gold ETF. In fact, Indians are actively pushed to buy this ETF in lieu of bullion. Do you think that this could prolong the paper gold market as Indians have their bullion "stolen" and "swapped" with paper?

michael3c2000 said...

Greetings from Mikal, long-time Usagold forum poster.
Thank you for your ongoing output FOFOA and to those whose support and contributions make it possible.
Like Usagold, this site is vastly underused and underappreciated, but measureless in value.
I have been reading this extraordinary blog almost since the start, and if I can recall, posted once or thrice never identifying myself.
Good to see Belgium and Aristotle again.
Thank you for the forum archives downloads, and Another and FOA files, everyone who linked them here.

Max De Niro said...

All,

How is that the ECB supports the paper gold market? Do they buy COMEX contracts, LBMA unallocated? Where would this show up on their balance sheet?

duggo said...

So for the simple man we are at the top of the Big Dipper waiting for the hair-raising plunge to the bottom before hurtling up the other side. Does the simple man take the chance of throwing out all of his physical Gold hoping to catch it again lower down as he plunges or does he sit tight feeling sick and terrified by the plunge hoping the cart doesn't leave the rails and throw him out at the bottom.
What are you doing FOFOA

Get Gold said...

Can anyone tell me if the Gold Puke indicator given a buy signal recently?

TontoD said...

For MaxDeNiro:
http://victorthecleaner.wordpress.com/2012/11/26/central-bank-gold-leasing/

Central Banks lease the gold to the Bullion Banks... but not anymore.

Tyrannyofthepresent said...

How interesting...

I wonder whether there may be some other factors that have shifted the price/s/d dynamics in the physical versus paper markets in recent years. Just a few thoughts:

High price -> increased "we buy gold" physical supply
High price -> increased "high price" Indian physical supply
High price -> reduced "high price" Indian physical demand (silver substitution was apparent in 2012)
Low EUR/USD due to media attention on the "Eurozone crisis" -> high EUR price
Low EUR/USD due to "risk off" events -> ditto

Since the harder part of the pair to manage appears to be the physical flows and since China is apparently not playing, I would consider that the Indian market is one place where the linkage is still being maintained. Perhaps it is a good idea to continue to watch the bumbling political moves taking place there to suppress physical uptake and improve paper demand. The consensus there seems to be that excise duty is futile since smuggling can easily circumvent it given the fragmented physical market. Regional physical flows occur cheaply and easily for the same reason. Physical market conditions are freely reported and media control is unsophisticated, leading to refreshing transparency on physical market conditions.

So any tightness in the physical market globally should also occur in India and relatively transparently reported in India an early stage. There are also signs that the vacuous nature of the pro-ETF narrative is also being exposed and ridiculed in the Indian business media - perhaps this is blowback from attempting the pro-ETF game in such a sophisticated physical market. Perhaps it would be good to look for changes in Indian regulatory and media conditions, representing a more robust policy determination to get a handle on this situation.

Levers such as "we buy gold", paper ETF and perhaps even the "Eurozone crisis" seem to be much less effective recently. It is difficult to know whether it will be feasible to convert a significant proportion of Indian physical demand into ETF demand as the government intends.

Of note, quite a few of the above drivers (including ETF demand) were all introduced at around the same time and with policy input. Not much new has happened recently. If there are no new ideas perhaps the game is indeed close to exhaustion.

TontoD said...

I'd like to thank FOFOA and everyone else who supports him. I find the information discussed here extremely valuable.

However, I have a big question. Once FreeGold had been implemented, what prevents the BBs from re-issuing paper gold and ETFs? What if governments didn't create a law to enforce gold as payment in full only?

Russia began issuing bonds a mere 3 years after default. Same thing for Argentina and many other countries. I guess I don't understand why BBs can't get their old trade back up and running a few years after that COMEX default.

john said...

Long time lurker/fan. Great take on the Indian physical market for cues, Tyranny.

My take with some salt as well.

http://www.quickmeme.com/meme/3sg6l6/

michael3c2000 said...

Duggo, gold is rising every year for 12+ years as the main trend.
No real, conceivable method exists to reverse the main trend.
Should the paper (digital futures) price fall too far against that trend, the market is broken temporarily (or permanently) when unprecedented product demand arises that can't be met.
For example, a couple years ago POG fell precipitously causing supply interruptions, contract delays and dealer refusals to release precious stock.
Gold's "move to zero" or "dip" in that context, is rhetorical description, like using a euphemism for "breaking the market", "default", or "exchange closure". While paper trades settle at lower and lower pricesThe PM's will "dip" out of paper restrictions in that scenario, until true price discovery achieves balance, market equilibrium.
In the practical sense, our precious metals are real time trading, physically, not in paper (digital) markets, but in real, practical, tangible ones.
Our physical pricing world preserves and protects our assets and wealth (for posterity, peace and progress).
Before gold becomes remonetized, a "dip" or "move to zero" denotes going out of paper, out of artificial, mechanical pricing and being revitalized- reinstitutionalized and respected as the recognized universal settlement mechanism and global payments benchmark.

Beer Holiday said...

@john Oh stewardess, I speak jive

burningfiat said...

Here's the recent article to go with Johns excellent, meme... Yes it is a bit gold in here, FOFOA, turn up the heat please!

http://www.dailymail.co.uk/news/article-2257209/Wealthy-Indian-Datta-Phuge-spends-14-000-shirt-GOLD-impress-ladies.html

And to preempt RJP, Game on!

/Burning

duggo said...

@michael3c2000

Nice speech but I prefer laconism myself. When all is said and done if you want to buy Gold you have to use fiat currency at your Gold dealer. I've tried chickens but he doesn't seem to be interested.

Are you buying, selling or staying pat?

michael3c2000 said...

Should gold be remonetized in that way, suddenly, overnight or not, the "transition" becomes apparent quite quickly. You will not have access to physical gold at lower prices. Before the markets reestablish themselves with something comparable, to the Comex for instance, all these events must take place.
And because these markets are trading in real time, with real people and finally, REAL gold as opposed to virtual or digital, they must be and ARE responsive enough to quickly minimize losses or damage to interested major parties, so that liquidity in the gold market is resuming within days, if not hours.
Therefore, "dip" AKA "move to zero" could not occur for ANY practically meaningful length of time. Few if anyone, will be able to trade "dip" physically or by futures, etc.
It is theory and rhetoric that many are accustomed to believing. That anything can and SHOULD happen because it DID. But now these comfortable assumptions have reached the limit of indulgence.
In most respects, little has changed since I first admired gold markets in 1982 and bought some in 1988.
Everything points to a rapid transition, where liquidity in the gold markets should be restored very rapidly, within days if not hours. For example, I said:
"Gold's "move to zero" or "dip" in that context, is rhetorical description, like using a euphemism for "breaking the market", "default", or "exchange closure". While paper trades settle at lower and lower prices, PM's will "dip" OUT".
Out of their paper restrictions, as true price discovery achieves balance, a stable market in reasonable equilibrium.
Although our global economy uses gold payments and physical contract settlements, leveraged trades and traditional investments such as stocks and bonds (and overindebtedness) dominate today's headlines.
Real-time physical exchanges in gold are between nations inside or outside of the US$ sphere (of influence and trade activity). Old-world countries and traditional local markets, shops and bourses are the backbone of wealth preservation culture and mercantile tradition that underlie trade everywhere else.

duggo said...

Is the tendency to use 6 words instead of one an affliction or a blessing?
Is the construction of the most complicated sentence or paragraph a sign of intelligence or lack of conviction?
I sometimes wonder about the motivation of writers. Is to clarify or confuse?
I only pose these questions as a simple person trying to perceive the real personal motives and actions others.

Tyrannyofthepresent said...

Correction to my comment above

On reflection, it is an oversimplification to say that China is "not playing". There is substantial skew in the Chinese business media in favour of "paper gold" (and silver). These are presented as modern, convenient, urban and sophisticated, while physical bar and coin hoarding are subject to premia and other disincentives.

This constitutes evidence that they are "playing", to set alongside the evidence of the one-way, ratcheted, lobster-pot style rapid and irreversible physical flows of both monetary metals into the Middle Kingdom.

They are definitely "playing", but it may be a game of their own and there is no real way of knowing from here.

Beer Holiday said...

@michael3c2000

Thanks for posting - it is obvious to some from your first posts that you've been watching gold for a long time, and I hope you realise how invaluable your perspective is to us "young Turks".

Cheers mate
BH

michael3c2000 said...

Duggo, I understand your sacrifice in submitting antigold venom. I don't know how you manage to deal with the pressure to earn an annual six figure compensation (to peddle fraudulent gold investments such as gold pools?) whilst trolling the blogs to dampen gold demand by diverting focus from issues to "writers", "the motivation of writers" and their evil attempts to "ccnfuse". Your need for comforting reassurance is especially apparent with such sincere pleas as:
"I only pose these questions as a simple person trying to perceive the real personal motives and actions others."
I am SO moved. It must be SO hard for you.
I hope some day soon your customers will not be "repatriating" their so called "gold" from it's so called "allocated" gold pool account, only to discover it is not allocated, but missing. As in NADA or Nitler. Hypothecated and rehypothecated over and over, swapped, leased?

michael3c2000 said...

Thank you Beer Holiday. Pleased to be here.

Pat said...

Gosh Duggo, I feel your pain also.
http://videosift.com/video/SNL-Unfrozen-Caveman-Lawyer

sean said...

Thanks for laying your cards on the table here FOFOA. It's very helpful to see your thinking process.

Duggo, when the tide retreats in the minutes before a tsunami, does the "simple man" sell his lifeboat and try to buy a yacht?

:)

MatrixSentry said...

Welcome michael3c2000!

I for one appreciate your writing and I must say it is refreshing to see a blog participant who brings focus to our purpose here, rather than distraction.

I certainly hope you find the time spent here to be worth the effort. Something tells me that I will not have to ask you to RTFB or RRTFB!

Happy New Year everyone! 2013, Year of the Two Legged Dog!

duggo said...

@ pat

Unfrozen Caveman Lawyer. He's the "man"

Wil Martindale said...

Thanks FOFOA for further stressing what "gold" is, depending on context and author. I think there are so many counterbalancing factors in large systems (gold, debt, population growth rate, energy consumption) that the net effect tends to balance volatility - until the system breaks.

It is interesting to see these huge volumes of record breaking coin sales (massive buying from many tiny shrimp??) amidst the backdrop of some medium trader shrimp dumping physical en masse due to sentiments like your guy described above.

What will break the system? Massive coordinated change in sentiment of one or both legs?

And in that context, though not of the same subject, a thought about debt. Will not the FEDS massive accumulation of US debt simply place the US, as a sovereign, under an unrepayable obligation to the BIS, through its proxy the FED, such that the Treaury's gold is encumbered by default?

And will that not, assuming the Euro plan is the BIS plan, place the BIS in the position of assuring that monetary policy extends into the Amero and the American Economic Union?

These are changes grand enough to break the system without war. And yet, if the US, Canadian and South America political will defies it, I do believe "surpise aliances" await.

We know where we have been monetarily, and where we are going.

Politically, socially, and most of all MORALLY ... those are questions we hate to answer, but burning nonetheless.

duggo said...

@michael3c2000
How petulant and small-minded of you. Petulant because you think I dispense "antigold venom" which is the exact opposite of my position.

Small minded because you resort to calling me a "troll".

Grow up and stop taking yourself so seriously.

duggo said...

@sean
That's a nice parable but what I ant to know is "what are you doing personally?"
As you mention buying something here's a thought.
When a person decides to buy a car he may take all of the information given by progressional car reviewers to heart and not be aware of their allegiances to certain manufacturers. What I do when I buy a car is try to find reviews written by people who actually own that model of car.
So on this sight I will always look for people who give their experiences rather than engaging in the esoteric nuances of the financial World.

My comments are sometimes too different for a few here. Some people here don't like this. It seems to upset their little cozy World of "intellectual debate"

I really appreciate the FOFOA articles but find many of the long-winded "comments" exceedingly mind-numbing. But hey that's me others find them instructive.
I believe in a broad church does anyone else?

Pat said...

Wil, I could be wrong, but from context his FPI guy who sold his "gold" was not physical gold. He was a member of one leg o' the two -legged dog supporting paper gold( the private leg ).

Wil Martindale said...

Pat,
Ahhh, you may be right, I'll have to re-read, re-think that. Here I thought he really understood freegold from his understanding of FOFOA, meaning he had acquired physical, and was now selling it off.

I may have misunderstood that part of it, that he had truly been converted by the freegold concept at the outset.

Wumpski Wumpski said...

@dieuwer I dont think ETFs will overly excite people here in Hong Kong. With rocketing property prices and rents, i see the homogenisation of local retail delights to restaurants, real estate agents, and jewellery stores. This is where much of the money is going I guess. Other businesses struggle. So physical precious metals are not sidelined.

I dont know about accounts in the US or UK, but I have 3 here in HK, and they all offer easy purchase of paper gold, no need for your cash to leave the safety and security of your bank account (lol).

Rgds

John said...

Here's a better way to understand paper gold......imagine it was 2008 and Bernie Madoff had just added a "gold fund" to his burgeoning empire of financial products.......

John said...

It would have been investors genuinely interested in gold as an asset class who would have participated......what they ended up getting is another matter....and how the NAV of this fund would have eventually printed at zero is easy to understand once the veil was lifted.

RJPadavona said...

Hey Burning,

I'm honored by your preemption! I'm glad to know there are other fans of Roky here at this blog. You may remember that I mentioned my cousin sent me certain publications when I was in prison that piqued my initial interest in economics. That same cousin is also who turned me on to Roky's music.

So, I know a little about the history of that song. It's based on true events:

"Two-headed dog, two-headed dog,
I've been working in the Kremlin
With a two-headed dog"


Vladimir Petrovich Demikhov was a Russian scientist who performed several experiments for the Soviet Union, including heart and lung transplants on animals as far back as the 1930s. But what he was most well known for was his transplantation of a second head on a dog in the 1950s. I doubt he ever dreamed some schizophrenic horror-rocker would someday write a song about his experiment :)

......And that was your worthless bit of information for the day.



There once was plenty of structural support for Tsar Nicholas II and there once was plenty of structural support for the old Soviet Union. Apparently enough support to fund silly experiments like two-headed dogs. That support eventually crumbled. Now there's another "tiger that needs to be tamed" in the world. That tiger being the $IMFS. The structural support for it is also in the process of crumbling, to be replaced by a new European Queen, the ECB/BIS. (somewhere, DP is dancing!)

"This not only has 'everything to do with a gold bull market', it has everything to do with a changing world financial architecture. And I have to admit: If you hated our last one, you will no doubt hate this new one, too."


The "Elites" have always been in control of the world financial architecture to a certain degree. We just know about more of their shenanigans nowadays due to the internet. So, the best course of action is to not let our emotions get in the way of insulating ourselves as much as possible from the crumbling support of a dying monetary system. In other words....

Don't hate.
Acclimate.
Then Insulate
With Physical Gold.
Get you some.


RJ


罗臻 said...

I hope gold sells off steeply this year. It's time for a correction, as happened in the 1970s. There are many traders in this market and they behave according to investment cycles. Especially in China, the amount of traders in gold is enormous. They will puke tons and tons of gold, paper and real. (The Chinese government will easily move the physical gold out of the banks' investment accounts and into the central bank.)

The market needs a correction to clear out the weak (investment, trading) hands.

jojo said...

LOL. Welcome michael3c2000! Keep up the 6:1 ratio! :)

Placidus said...

@duggo,

Perhaps you should re-read FOFOA's September, 2010 post - The Shoeshine Boy: http://www.fofoa.blogspot.com/2010_09_01_archive.html

Keep in mind that FOFOA never claimed to be good with timing, but the idea presented near the bottom of the post suggests that physical will not be available after the $PoG plunges.

Woland said...

Oh my God RJP. You have just shed a light into a corner of
which you are (probably) unaware! The author of the literary
work from which the name Woland derives, Michail Bulgakov,
also produced (in 1930's Russia) another shorter work which
I have read, "Heart of a Dog". It appears that you Vladimir
Petrovitch Demikhov is the unquestioned model for the central
character in that work, a physician involved in human/animal
transplantation. Many thanks, and Greetz!

mr pinnion said...

duggo
"That's a nice parable but what I ant to know is "what are you doing personally?"

If everyone told you they were 100% in physical gold, would you rush out and do the same?
How would you know they were telling the truth?
And if they were,so what?,they could be wrong.
Best thing is to try and wrap your head round their arguments and make your own mind up based on your own circumstances.
Buy as much as you understand.
Regards
Ozzy

Tyrannyofthepresent said...

Perhaps that accounts for the remaining UST balances held by PBOC - they have grounds to expect a more favourable conversion opportunity. Nice thought!

MatrixSentry said...

A new year, a new compendium! On the occasion of FOFOA's first posts in 2013, the 2013 FOFOA Compendium is now in works and is posted. It can be downloaded at the Ron M's Air-Friendly PDFs link found in FOFOA's link list.

All the annual compendiums are there plus the Another/FOA archives (Thoughts! and After Thoughts!) for easy download to your desk top, laptop, or tablet.

RTFB and then RRTFB.

duggo said...

@ mr pinnion
"If everyone told you they were 100% in physical gold, would you rush out and do the same?"

You obviously don't get my point.

"Best thing is to try and wrap your head round their arguments"
Why do I need to wrap my head round their arguments?

"make your own mind up based on your own circumstances."
I did that long ago.

Understand me as much as you can.
Regards
Duggo


duggo said...

@placidus

"Perhaps you should re-read FOFOA's September, 2010 post - The Shoeshine Boy: "

Read it twice already.

Motley Fool said...

Duggo

Fwiw, as tempting as it may be, I am not taking the chance personally.

If I happen to have some spare cash at that time (doubtful), I will buy what can be had(again doubtful).

TF

RJPadavona said...

Glad to be of help, Woland. That just goes to show there's no such thing as worthless information ;)

The Seen and the Unseen are always at work. Whether we realize it or not.



duggo said...

@Motley Fool

Hooray! A real answer!

Well done Motley Fool

Victory said...

Funny while RRTFB i noticed this subtle nuance....

Ari: 'Plus, that timing nicely accommodates my additional view -- embracing a culturally significant standpoint -- that the December 2012 conclusion to The Hobbit will forever cement the desire for gold into the minds of all western moviegoers, resulting in a perfect storm of the golden variety.'

Well I saw 'The Hobbit: An Unexpected Journey' yesterday and while RRTFB today I noticed Ari must have been speaking of 'The Hobbit: There and Back Again,' which is the conclusion to 'The Hobbit series,' as opposed to the movie 'An Unexpected Journey,' that was released last month and is currently in theaters.

Wiki: The Hobbit is a series of three epic fantasy adventure films directed, co-written and produced by Peter Jackson and based on J. R. R. Tolkien's 1937 fantasy novel The Hobbit. The films are, by subtitle, An Unexpected Journey (2012), The Desolation of Smaug (2013), and There and Back Again (2014).

Since this conclusion is not set to be released until 2014 I assume that it was rescheduled (pushed back) from the time Ari made that initial observation in December 2010.

...so perhaps too 'the fully-fledged Freegold paradigm'. 2014?

Ari..Ari.. Ari....?

h/t Brian aka 'Gary' aka Clarence or whatever his name is :)

enough said...

Duggo:

If you are concerned then hold physical and short paper gold !!!

ampmfix said...

Welcome michael3c2000, I appreciated your comments.

dieuwer said...

'Tonnes in the GLD trust' could be an indicator of the arrival of Freegold:
When physical gold goes into hiding, GLD will be one of the last entities where physical gold can be obtained at the paper price. The effect will be that GLD will lose tonnes rapidly until the trust is terminated.

dieuwer said...

Edit to add: I suggest watching for a MASSIVE puke.

Robert Mix said...

Nassim Nicholas Taleb (author of the very influential book "The Black Swan" of 2007) just wrote a new book that I am plowing my way through now: "Antifragile: Things That Gain from Disorder". Fragile things (banks for example) do not like random stresses, they could fall apart or weaken easily.

The popular ("before Taleb") thinking of the opposite of fragile would be "robust", "resilient" or "strong". These would be things or systems that can get banged up, even a lot, with little or no damage (European cathedrals).

Taleb had to invent the word "antifragile" as it apparently does not exist (as the true and logical opposite of fragile, even in various other languages he checked). Antifragile systems get STRONGER (within limits anyway) as they are subjected to stress, errors and random events. The human body is one, exercise you get stronger. Fast, and certain weak cells and proteins die off, newer and stronger ones take their place.

***

Taleb does not mention GOLD (as an investment or an asset) in his book. That seems to be an oversight... So I would like to KICK OPEN THE DOOR and invite comments on GOLD as an "antifragile" asset (gets stronger as our financial system comes under more stress).

Oh, and BTFB! It is likely to be as influential as his other book was.

michael3c2000 said...

MatrixSentry- Thank you, the feeling is mutual and the New Year is Happy.

jojo- Thank you, nothing to it and don't mention it. :)

ampmfix- Thank you, stay the course as a priceless resource.

Knotty Pine said...

Hi Duggo,
I am buying gold on price dips (when my better half lets me ). Lately I have been buying mostly 10g and 1oz pamp suisse bars to add some variety to my coin stack. I may be in the minority but I listen to Dan Norcini over at KWN for clues on short term price action (at least for the present the price we pay is determined by the paper traders and Norcini is one of the best). I also have cash to deploy to buy on the way down but am not counting on it.

costata said...

Wumpski,

no need for your cash to leave the safety and security of your bank account (lol)

LOL

Thanks

enough said...

Duggo,

I know that Vic and FOFOA do not agree, each for their own reasons but I use DZZ and GLL to hedge long physical exposure with paper gold shorts.

FOFOA has concerns that these vehicles may not act as they should in a paper gold meltdown and that one would be better off just using those funds to buy more physical. Vic rightly points out that there is "leakage" in these products.....

I believe that they will work as they should at least part of the way down and I am 100% convinced that even if there is no paper meltdown that physical premiums will rise dramatically relative to paper gold so the long/short should perform in any event (in theory)

There may be better vehicles to put on this hedge. If you discover one please share.

I dont like using options due to time decay and it is impossible to predict when and if this paper meltdown might occur....

victorthecleaner said...

Wil,

place the BIS in the position of assuring that monetary policy extends into the Amero and the American Economic Union?

I encourage people to rethink this 'New World Order' talk and first check whether it makes any sense at all.

The point of the Euro was to combine the currencies of a number of countries in such a way as to obtain a currency area whose trade account and whose capital account are both naturally balanced. This was primarily a reaction to a world in which the mechanism that balances international trade and capita flows is broken. The Euro zone 'works' in terms of international payments as long as their exports are paid in the same currency they need for their imports. The Euro zone is indeed more than the sum of its parts (well, a certain sum is close to zero by design).

Now think about all the 'Amero' talk. It just falls flat on its face. Something that's obviously pointless isn't even good enough for a conspiracy theory.

What will be interesting, however, is to see what the Golf Cooperation Council is going to announce this spring. How will they align their currencies, given that the region as a whole is a huge net exporter? How do they think they could emulate the ideas underlying the Euro?

Victor

jojo said...

The Harvest of Exorbitant Privilege?

Tony said...

Duggo,

I get you...I have the same dilemma, probably in part because I'm as shrimpy as they get. I'm staying put and saving my fiat. Keeping what I have and prepping to take advantage of the free fall. I, for one, think it's highly likely that I'll be able to provide some fiat to panic sellers who have a lesser understanding of gold than I do.

While I agree that gold may not be readily available at your LCS, I'm pretty confident that online classifieds will have some deals to be had.

Traumatic events (e.g., huge week-over-week price drops) expose weak hands....even in gold.

costata said...

jojo,

Thanks for the link.

There is plenty of research evidence that competence and self-confidence operate inversely. In other words the tendency to over-rate oneself increases the more second-rate the subject is.

There is no bigger cliché in business psychology than the idea that high self-confidence is key to career success. It is time to debunk this myth. In fact, low self-confidence is more likely to make you successful.

http://blogs.hbr.org/cs/2012/07/less_confident_people_are_more_su.html

The author:
Dr Tomas Chamorro-Premuzic is an international authority in personality profiling and psychometric testing. He is a Professor of Business Psychology at University College London (UCL), Visiting Professor at New York University, and has previously taught at the London School of Economics. He is co-founder of metaprofiling.com.

tintin said...

China Forex Reserves, Postion for Forex Purchase Drop in Nov.

China’s foreign exchange (forex) reserves dropped for a third time in November in 2012, according to the latest statistics released by the country’s central bank on its website.

According to the People’s Bank of China (PBoC), foreign exchange reserves of China’s monetary authority dropped to 23.52 trillion yuan($3.78trillion) at the end of November, 2012, down 10.4billion yuan($1.67billion)from a month ago, also the third fall in the year.

The central bank’s foreign exchange reserve recorded the first decline in nearly eight years in October in 2011 followed by a two-month consecutive drop.

The November decline in forex reserves also explains the drop in position for forex purchase in the same month.

Earlier statistics showed position for forex purchase of the country’s financial institutions declined 73.6billion yuan ($11.8billion) in November from the previous month despite a trade surplus and negative FDI figures.

China Customs statistics showed the world’s largest economy fetched a trade surplus of $19.63billion in November, largely flat with the same month of the previous year.

tintin said...

it's from here: http://english.caijing.com.cn/2013-01-06/112412664.html?utm_source=Sinocism+Newsletter&utm_campaign=45a833bef7-The_Sinocism_China_Newsletter_For_01_07_2013&utm_medium=email

costata said...

Patrick continues to make headway with Jim Sinclair (my emphasis):

Jim,

The bull market in paper gold could be over. Let the bull market in physical gold begin.

That would be a line which would make your CIGAs scratch their heads.

CIGA Patrick

Patrick,

Not really. In the major price move to full valuation paper gold’s price lags behind the cash gold price, and there always is the tendency to try and turn a paper exchange into a cash exchange which is simply impossible. The result of that is either a novation of the contract (Hunt’s bull silver market), or a very loud explosion heard all the way to Andromeda.

Jim


Did Jim Sinclair explain in this passage how the paper gold market ends?

The attempt to follow the physical gold revaluation upwards breaks the paper market because it is simply not capable of following.

costata said...

tintin,

How do you interpret that fall if not capital flight or outbound FDI?

tintin said...

Costata,
"How do you interpret that fall if not capital flight or outbound FDI?"

I would say FDI is the main part of it.

Capital flight should weaken RMB exchage rate because it's people "fleeing" China converting their RMB assets into USD to be sent out.

On the other hand, FDI does not directly impact on FX as these are existing USD spent directly into businesses or mining projects.

Another wishful thinking: Spent on gold imports?

Physical imports from HK was about 60 tons a month, or USD$3.2b a month. And China does buy physical gold also from other countries as well.

tintin said...

Chinese New year is on 10th/Feb this year. China needs to stock up so it's reasonable to expect some USD$ are spent importing more good stuff to meet demand.

KnaveChild said...

Inquiring minds would like to know if institutions such as GoldMoney or Bullion Vault are considered vulnerable to a paper price plunge, if such an event were to occur?

Wil Martindale said...

VTC said (quite correctly):
"The point of the Euro was to combine the currencies of a number of countries in such a way as to obtain a currency area whose trade account and whose capital account are both naturally balanced. This was primarily a reaction to a world in which the mechanism that balances international trade and capita(l) flows is broken."

Broken partly courtesy of the U.S. of A.

And with freegold, the Euro wins the currency war against the dollar, the U.S. will be broken, no support for the dollar, hyperinflation, civil unrest, mass dissilusionment, the global fat finger of blame in the USG's Face.

Why would it be a nonsensical conspiracy theory to try and consolidate the U.S. into the Eurosystem in that moment of great change and strife, as Mundell has advocated ever since the Euro's incept??

Am I missing something? Or are ICBMs the better bet ?

victorthecleaner said...

KnaveChild,

Inquiring minds would like to know if institutions such as GoldMoney or Bullion Vault are considered vulnerable to a paper price plunge, if such an event were to occur?

The main risk I see is that they (and also the ETFs) decide to close their business in precisely that moment when the London gold market is suspended and when you cannot find any physical gold anywhere.

Then the question will be:

(1) Do you own a specific bar or coin that they store for you? In this case, you need to be confident that there is no theft or embezzlement.

or

(2) Can they tell you, we are sorry, dear customers, but due to the disruptions in the gold market, we have decided to wind down GoldMoney/Sprott Physical Silver/GLD, and we will pay you cash on Friday next week? In this case, you can get fleeced in a perfectly legal fashion.

Wil,

Am I missing something? Or are ICBMs the better bet ?

So, firstly, you are saying there won't be any Amero. Right. No alliance of the debtors.

Why would the Euro zone accept any new members that distort their balanced trade account?

What use were the Soviet ICBMs in 1991?

Victor

duggo said...

Thanks everyone for their "personal" experience.
Just a brief resume before I shut up which may help to see where I'm coming from.
Before early retirement I ran a large section of an international airline (German). I got to this position without any real academic qualifications.
You don't need people who can tell you how to fly a plane you want those who can actually do it.
My job was making a profit and I did it well. Difficult in the airline industry. (costata: I didn't lack confidence!)
In early-retirement I took up day-trading and TA big time. I soon discovered that the "little guy" is too far down the line to get the best information and that TA is just wishful thinking. Still I did OK.
Real gambling with dozens of internet sites across the World was better. I didn't gamble I used arbitrage but the work was too much for the gain.
Latterly I was into property development in France and then into Silver and now Gold.
One thing I've learnt in life is that you maybe the fastest gun or the cleverest thinker but none of it counts until you are faced with the moment of truth. That's why I ask about personal experience. All the bullshit in the World counts for nothing until you put your money on the line.

costata said...

tintin,

Regarding your comment at January 6, 2013 6:34 PM I hope that you will accept my response as an attempt to be helpful rather than critical.

This is wrong:

Capital flight should weaken RMB exchage rate because it's people "fleeing" China converting their RMB assets into USD to be sent out.

On the other hand, FDI does not directly impact on FX as these are existing USD spent directly into businesses or mining projects.


The effect of FDI and capital leaving China has precisely the same effect on China's FX reserves. FDI in a non-RMB currency reduces China's reserves of that currency. Chinese converting RMB to, say, US dollars in order to invest outside China reduces China's reserves of US currencies.

The currency transactions are the same. The motivation behind the transaction doesn't alter the effect of the transaction. Do you understand what I am saying?

Tyrannyofthepresent said...

Euro/gold experts,

I have tried to find this but failed, so at the risk of being instructed to RRTFB:

Two facts:
1 - EUR was priced extraordinarily flat at 100mg from 2000 to mid-2005

2 - EUR has declined with a steady half-life of approximately 4 years since mid-2005.

3 - There was a sharp discontinuity from one situation to the next.

I have heard convincing explanations for the equilibrium/trade-off underlying (2).

I am seeking explanations for two things:

1) Why did (1) continue for 5 years - was it intended to be a new status quo (failed) or what other reason?

2) Was it a decision or a set of uncontrolled circumstances that led to sharp transition (3)?

I ask because the chart clearly appears to indicate two different equilibrium situations or, more likely, policies. Changes of policy generally have a cause.

Many thanks.

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

hi Costata,
I do totally understand.

My logic:

In capital flight, RMB is sold to buy USD, thus exerting upward pressure on USD and downward pressure on RMB; It does reduce FX reserve.

In FDI, no RMB/USD exchange occurs, no Buy/Sell on FX market, thus no pressure on FX rate. But this FDI also reduces FX reserves.

So, my point is: yes, both actions reduces FX reserves, but one influences FX rate while the other does not.

The RMB/USD exchange movement seems to contradict capital flight explanation of FX reserve change: the RMB/USD rate should drop if the decline in FX reserve is mainly caused by capital flight which results in the selling of RMB to buy USD.

is there a hole in my logic?

gold-kiwi said...

KnaveChild said...

Inquiring minds would like to know if institutions such as GoldMoney or Bullion Vault are considered vulnerable to a paper price plunge, if such an event were to occur?

victorthecleaner said...

(2) Can they tell you, we are sorry, dear customers, but due to the disruptions in the gold market, we have decided to wind down GoldMoney/Sprott Physical Silver/GLD, and we will pay you cash on Friday next week? In this case, you can get fleeced in a perfectly legal fashion.

This prompted me to have another read of the GoldMoney customer agreement, since I have a holding with them (in addition to the physical I hold in hand).

Under Section 10, Termination, it states:

"The termination of this Agreement does not relieve Us of Our obligations to account to You for the Metal and Customer Money within Your Holding. In circumstances of termination, You can choose to take delivery of Your Metal in accordance with clause 8.G or to have the value of Your Metal added to the balance of Customer Money less any applicable fees and charges in accordance with this Agreement."

There are no guarantees in life, but I don't think GoldMoney is out to fleece their customers.

Lord Sidcup said...

gold-kiwi said...

"In circumstances of termination, You can choose to take delivery of Your Metal in accordance with clause 8.G OR to have the value of Your Metal added to the balance of Customer Money."

The word OR above tells me that GoldMoney will decide what the customer gets, not the customer or the law.

GoldMoney only has 400 oz bars.
If a customer only has 10 or 100 oz with GM it is not possible to take delivery.

I started with BullionVault and GoldMoney, but thanks to this blog have found what I think are better solutions.
I left a small holding with BV, because (irrationaly) I feel I can trust Paul Tustain/The Rothchilds more than James Turk when TSHTF.

Tyrannyofthepresent said...

Euro/gold experts,

PS: the flat phase since July 2011 is maintaining/slipping at the 25 mg level in exactly the same way as the flat phase in the early 2000s maintained/slipped at the 100 mg level. Obviously 25 mg and 100 mg are both salient round-number levels.

The only action similar to what is now taking place was pre-2005. In the 2008 consolidation, the upward bias remained in place, with no evidence of a tendency towards any particular value. Furthermore, at that time the value of EUR was nowhere near a salient number in mg terms.

Wacky thought to deconstruct: could it be that someone is testing salient values for EUR to find the highest one that is sustainable?

Max De Niro said...

Gold Money uses another company (Baird and Co) to send you gold bars of denomination no smaller than 100g.

If there is no gold available from this other company, then how will you get your gold from Gold Money?

What is the relationship between Baird and GM?
Do you know the details of this contract?

This puts yet another legal and physical layer in between you and your gold.



victorthecleaner said...


Tyranny,

firstly, I like gold in Euros better than Euros in gold, just because the Euro is relatively stable (in terms of goods and services), and it has really been gold whose real price increases.

Then you need to figure out which one of these two charts is managed (if any):

gold in dollars

gold in euros

Is gold/dollars managed (nice 19% annual increase over 11 years and trend still intact) and gold/euros a consequence of EURUSD?

Is gold/euros managed, and there were policy changes at the beginning of 2005 and towards the end of 2011?

Very good question.

Victor

duggo said...

BullionVault, GoldMoney and Physical in-the-hand.
As a person who appreciates real experiences communicated on this blog here's my action.
12% in-the-hand, the rest split equally between BV and GM. Even 12% is too much for comfort so it's not immediately in my possession. And that's the problem. If you have a relatively small "stash" then hiding it at home could make sense. If you have a larger amount physical you run the risk of it being discovered in your home when you are away (or when it burns down). If you stick it in a safe the cleaning lady could enlist the rest of her many cousins and brothers to relieve you of your burden. Also you cannot insure your "stash" as everyone at the insurance company will be waiting for your annual vacation. A lady in the UK didn't trust anyone or any institution so she carried her life savings around with her and was mugged. Nothing is safe totally. The quickest and easiest way I know of getting money and Gold out of a country is with BV and GM. Driving around with a big metal box in your car is not the best method.
Having a belts and braces approach is to my mind the best. Being too paranoid about institutions is pointless. You could just as easily buy property in another country for safety and then find the state confiscates it. Nothing is truly safe. Not even FOFOA's sister if I remember rightly.
The great thing about BV and GM is your money is at least fixed at the Gold price so you can afford to buy more physical quickly at anytime. With GM you can even have bank accounts in several countries.
I'm not advocating BV or GM. Make up your own mind. Don't be swayed by others paranoia either.

Woland said...

Hi Flore. A stupid question. What is a CIGA? I know what a
cigale is, as well as a fourmi. But a CIGA? The G must be gold,
right?

Wil Martindale said...

Am I missing something? Or are ICBMs the better bet ?

"So, firstly, you are saying there won't be any Amero. Right. No alliance of the debtors."

Correct, no debtors alliance, the new currency would not represent that

"Why would the Euro zone accept any new members that distort their balanced trade account?"

How would the post US dollar alliance distort balanced trade? A defeated "exhorbitant privilege" currency has no power to do this.

"What use were the Soviet ICBMs in 1991?"

Little by then, prior to this a great deterrant in that when a country and it currency are broken, panic and depair lead to acts of desperation.

... no crystal ball here, but what is the U.S. plan? They (IMF ESF Treasury) have long enjoyed BEING the capital markets. They have determined discount rate and cost of capital for some time, distorted notwithstanding.

Absent this great advantage, what is the go forward plan??

Pat said...

Woland, Comrades In Golden Arms.

Pat said...

And sometimes a CIGA is just a CIGA

Tyrannyofthepresent said...

Victor,

I can think of plausible arguments for both, have held both views at different times and consider the charts very different.

On the dollar chart, the dollar appears to be the denominator. The only decent efforts made were at $1000 and possibly an attempt to stay clear of $2000. The character of the effort would be consistent with "smash, terrify, destroy". It appears defensive.

On the euro chart, gold appears to be the denominator. The substantial efforts appear to have been at 100 mg and then at 25 mg as I said. The character of the effort would be consistent with a policy of "track and release if necessary". It appears constructive.

The two efforts do not appear to be coordinated.

What do you think?

Phil_O_Dendron said...

Woland

CIGA - Comrade In Golden Arms.

I have been reading Sinclair for a while although I have never posted there.

M said...

The "price" of "gold" is down another 10 handles this mornin..

enough said...

Another Moribund trapdoor event in the paper gold mkt....ay Edwardo :-)

Tyrannyofthepresent said...

Victor,

To be fair, there was also a dollar/gold hit at around $700.

In dollars per gram (China? Europe?), there was perhaps something like tracking at 20 and at 30.

And the Euro action could also be interpreted as Euro per gram (especially at 10, 15 and 40, and perhaps also 20 was being attempted when the events of 2008 supervened).

This could even be natural psychology at work, since to some extent all salient points from all perspectives appear to create pauses.

enough said...

I really have crystal ball but my gut tells me that the system managers wont dump the paper gold mkt just yet. The BB's have covered almost 100,000 short contracts since 12/5/12.....

Why would they do that if the paper gold mkt was about to implode.....

No, I see one more liftathon to suck the hedgies and riverboat gamblers in for one more good fleecing....


Dow: Gold ratio has just hit it's 200week moving average and upper bollinger band simultaneously....

Slow stochastics are under 20 and this happens on ave. only twice a year and normally means a good rally is coming...."normally"

So one last pop before the drop and the BB's will have to make it look convincing as the players are very skeptical at present....

Aquilus said...

Regarding the falling price of paper gold/paper losses/sell-re-buy/etc, I want to show you how that exact scenario came up in 1999 while FOA was posting. Direct link

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


FOAComment#120648/25/99; 11:29:26

---------The Stranger (08/24/99; 21:34:29MDT - Msg ID:12005)
The Post With No Name
Last night, somebody calling himself Skip posted a sad commentary of his experience in the gold market and issued a plaintiff call for reassurance from this Forum. Tonight, Canuck, in an act hardly anybody could fault him for, suddenly jumped up and made a run for the exits. The last time we were at these price levels (and after years of pie-in-the-sky forecasts) ANOTHER and FOA suddenly reversed themselves and announced that the POG was very likely to collapse. And now, just to be sure we are all scared as hell, Farfel shows up tonight to remind us that the world
economy is about to slip down a black hole, taking gold with it, of course. (Needless to say, I think such pronouncements are as looney as they are facile.) -------------
(to see the rest, read his post)


What do we conclude from the above post? Stranger, I appreciate your presenting your thoughts and perceptions. They validate my own perceptions of how westerners feel about gold. I also used to read Another's Thoughts, as an observer when they were presented by someone else. The one common thread in all of them was his council to buy only gold, physical gold. Yet, it never failed to impress me that every time those considerations were given, all discussion immediately turned to buying gold options, futures and mine stocks. It was like an automatic response that was ingrained in investor psychology from years of indoctrination. Your conclusions fit the same pattern.

Why is it that professional brokers and investment councilors in this country lead the public to this end? Is it because they have on depth of history to draw from or is it that they have "no fear" of losing others money? Mention that gold may rise and could become a bedrock for your life savings and not one paper pusher tells his clients to buy real gold. Yet, we let the facts speak for themselves. The gold price having fallen from manipulation has literally destroyed a large percentage of portfolios invested primarily in gold stocks. Some of these mine stocks have gone to zero and are in bankruptcy, never to return.

All the way down Another (and later myself from association) said to buy gold for the long haul because in the long term it may go very high. Then in typical like form, traders said buy gold stocks for the long term also. Don't listen to Another, it will never go that high and with these paper items you will get rich if it only goes up $100 bucks! Indeed, leverage ruled the day all the way down
with little regard to the fact that the "little guy" could lose it all with no hope to run for the final payoff . Now, here at $250 gold, Another presents a case for the destruction of the pricing market mechanism and still says, buy gold for the long haul. A concept, I might add that fundamentally offers the most bullish case for physical gold, while posing a worst case scenario for mine stocks.
Yet, intelligent thinkers and admitted white collar investment professionals, such as yourself, lay the
blame of of loses to mine stock investors at the doorstep of physical gold advocates.

The whole philosophical reasoning for buying physical gold was always to negate the possible total loses to ones assets from a breakdown of the worlds modern derivatives pricing system. A system that spans our entire financial structure, not just gold.


(cont)

Aquilus said...

(cont)


Even with this risk in mind, I submit that it is still the current system advocates that present a "pie in the sky" council to new, unseasoned
savers. Just as you use Bill Gates and other "risk takers" to portray an "American Spirit" of "plunging in", it hides the hideous failure rate inherent such accomplishments. Had Skip not listened to the sirens song of great wealth, he would still have had a chance today to benefit from a
centuries old investment, real gold. So consider this, the next time you drum the march for the average persons savings to the tune of "paint your wagon and come along". For myself and many others, long term playback and asset safety are more important to our family than the bragging rights of day traders.

enough said...

meant to write absolutely "NO" crystal ball....

not that full of myself, yet....unless I turn out to be right of course :-)

milamber said...

@ Victory.

If the timestamps from FOFOA are accurate (and I am assuming they are), When Ari wrote the email to FOFOA (back in Dec 2010) The Hobbit had just recently been greenlit. And it was greenlit initially as a 2 film project. It was in 2011 when it added a 3rd film making it a trilogy. So Ari's statement is accurate.

And the trilogy is supposed to comprise source material from The Hobbit, The Tale of Years, The Appendices in the ROTK as well as the Silmarillion.


Milamber

And Y said...

@Victory

The Hobbit was originally set to be one film. Later it was rumored Peter Jackson would make it into 2 feature-lengths. Finally in August 2012 the 3-movie plan was officially announced. The 3rd will premier Summer 2014.

So I guess Mr. Jackson is being made aware of the FG-RPG timeline.

Or...not.

milamber said...

@Go:

Kudos and my apologies. I like what both you and Jesse have done with the archives.

When they had gone offline I was working my way through them and am very happy that we have them back. Lots of very interesting discussions going on back then. And with the benefit of hindsight, they are even more interesting IMO.

Milamber

Börjesson said...

milamber (January 7, 2013 7:11 AM): Actually, Peter Jackson doesn't have the rights to the Silmarillion, or to any other Tolkien books than The Hobbit and The Lord of the Rings. The Tolkien Estate is notoriously litigious, and will sue the film company given half a chance. Jackson has to balance on a knife-edge when he tries to widen the story and provide more background depth.

For instance, there's a scene in the current Hobbit movie where they are talking about the two blue wizards, and Gandalf, sounding a bit surprised himself, says something like: "Do you know, I've actually forgotten their names!" The reason for his somewhat uncharacteristic amnesia is that if he had remembered and mentioned their names, which can only be found in books they don't have the rights to, then a nice crisp lawsuit would have been gleefully submitted by the Tolkien Estate within hours.

milamber said...

@ Börjesson

Yeah, but I think that Chris is eventually going to settle with Peter. If you remember before the making of the LOTR, Chris wasn't going to let that happen & then sued because the profits weren't split adequately. IT all got settled. There is too much money to be made for it not to happen. Wega can CGI anything too as needed to satisfy the lawyers, depending on the final settlement.

I (and it sounds like you too?) have been following it for years at the different fanboy sites.

I just didnt want to clutter up FOFOA's site with Tolkien ramblings. I just wanted to set the record straight that Ari was correct at the time he penned his email to FOFOA.

Milamber

vizeet srivastava said...

FOFOA and Others

From your previous article "Year of the Window" it seems that Gold devaluation/re-valuation is planned by CBs. I can see a reason why this can happen. I think planning revaluation is the only way to keep the control on currency system. I think if CBs are really controlling devaluation/re-valuation then we are not going to see FreeGold but a different economic system which will have Gold as one of the reference point. They will probably make system fairly complex so that they can misuse the system. What do you think about this?

Börjesson said...

milamber:

Yes, I have been following it, though I'm really more a fan of the books. And I know this is hardly the place for a Tolkien debate! I just couldn't refrain myself from correcting your little error. Now that I have, I'll go back to my habitual lurking. :)

mr pinnion said...

@ duggo
"Don't be swayed by others paranoia either. "

How about this for paranoia...

"Also you cannot insure your "stash" as everyone at the insurance company will be waiting for your annual vacation"

"A lady in the UK didn't trust anyone or any institution so she carried her life savings around with her and was mugged. "

"If you stick it in a safe the cleaning lady could enlist the rest of her many cousins and brothers to relieve you of your burden. "

"Nothing is truly safe. Not even FOFOA's sister"

But it seems...

"Being too paranoid about institutions is pointless"
Yeah, institutions a cool.

Regards
Ozzy

Regards
Ozzy

Biju said...

Just some personal experience which may not be extrapolation:

I went to local coin dealer last Friday to buy and he had no Gold left other than 2 slightly scratched Gold Maples. This is a good volume location, but he makes most of his money is from people selling their jewellery. He has plenty of silver coins and recommended to me, which I passed.

They mentioned that no one is bringing any Gold Coins/bullion to sell to the dealer. I think they also stopped stocking on them from their suppliers because they are seeing the price of Gold is stagnant/dropping.

APMEX and other still have them and I ordered 8 oz from them last week. Gold sentiment is at all time low as seen from ZH/news media..etc.

I would be concerned only if paper Gold price crashes in Indian Rupees, which I think will not happen because there will be huge physical buy order at lower price from the collective masses.

In 2008 Gold price crash, Indian Rupee price did not go down much, but price in Saudi Riyal crashed because Riyal is pegged to US dollar and I remember a news that Saudi countrymen were flocking to their Gold souks to buy Gold.








dieuwer said...

Paper gold in euros now at €1254 sharp. It lost €10 this morning alone. Let's see where it ends today...

sean said...

For those with GM accounts, you may be interested in the following answers I received to similar questions last year. They were happy to answer any questions I had. I think they're used to dealing with a certain level of paranoia ;-)


"A representative of the GoldMoney Relationship Management Team wrote :

Thank you for your message.

I will answer your queries in order:

1, If for any reason GoldMoney stops operating, you will receive your precious metals balance in physical metal in any of the gold, silver, platinum and palladium bars we offer,
provided you have a Holding balance greater than one bar. This includes the London Good Delivery Bars, as well as the GoldMoney 100 gram and 1 kilogram gold bars.
Alternatively, you can receive the equivalent value of your metal in one of the national currencies we offer.
Payment to you is assured by a court appointed administrator who would complete the winding-up process. Please see Clause 16 (Winding-up or bankruptcy of GoldMoney) of our Customer Agreement for a detailed explanation:
http://www.goldmoney.com/customer-agreement.html

The link below provides information about the gold, silver, platinum and palladium bars stored by GoldMoney:
http://www.goldmoney.com/good-delivery.html

Further information on the 100 gram and 1 kilo bars available for delivery can be found here:
http://www.goldmoney.com/100-gram-1-kilo-gold-bars.html

Information on GoldMoney’s security procedures is available here:
http://www.goldmoney.com/metal-security.html

The important point is even if GoldMoney goes bankrupt, GoldMoney Creditor's cannot lay claim to our customers' metal to pay GoldMoney outstanding liabilities because the metal held in our vault belongs
to our customers' and not GoldMoney. The metal held in our vaults on behalf of our customers' do not form part of GoldMoney's balance sheet, meaning it cannot be targeted by GoldMoney outstanding Creditors.
If you own 198 goldgrams in your Holding then you can only have 1 x 100 goldgram bar for delivery. You will be required to sell the remaining 98 goldgrams to a national currency.


sean said...

2, We cannot credit gold to a customers' Holding if the physical bullion has not been deposited into the vault. Therefore, if we cannot fulfil a buy order of metal because we cannot obtain the metal from our
supplier then the order will remain unfulfilled. We can only fulfil customer buy orders once we have physically obtained the metal from our supplier and has been deposited into the vault.
We have in the past reduced the amount a customer can purchase in precious metals during high volatile market conditions.
When a customer places an order with GoldMoney, we ensure there is sufficient metal or currency in our inventory to process the order. However, at times it is necessary to enter market trading to
obtain the required commodities. If market conditions change unexpectedly the market value of metals and currencies is affected and, in turn, the number of orders to be processed by
GoldMoney may increase or decrease. GoldMoney is required to adapt to variable conditions. This is why we inform our customers that we may lower these Spot Price Limits at any time during periods of unusual market activity or high order volumes. In such cases, we may need to enter trading to acquire metal and currencies to meet demand.
We constantly monitor both metal and exchange values, and our inventory. The accumulated amount of metal orders and the existing inventory at a given point in time determines whether the Spot Price Limits
need to be adjusted. Limits are adjusted when unusual market activity takes place and/or a high volume of orders is placed. As these kinds of exceptional situations are hard to predict, it is impossible to
know in advance if and when the Spot Price Limits have to be changed.
For example, a customer can fix 2,000 goldgram at the current spot price. During high volatile conditions, we may lower the fix rate to 1,000 goldgrams. In other words, the customer is aware there perhaps is a shortage during the buy order process, not after.

GoldMoney has appropriate tools in place to monitor all unusual market activity and order volumes. We will inform you of any adjustment in the Spot Price Limits when you place a buy, sell or exchange order.
The limits are automatically adjusted back to the usual Spot Price Limits when market conditions stabilise and the order volumes received by GoldMoney return to typical amounts.

3, We will mail the gold bars to our customers' in the UK.

I hope I have answered your queries satisfactorily. However, please do not hesitate to contact me with any further queries.

With kind regards.

James Mitchell
Senior Relationship Manager – GoldMoney

steerpike said...

@michael3c2000

A bit confused by your terminology.
You frequently use the term remonetized gold.

Please set me straight but in my understanding of FG gold is going to be demonetized not remonetized.

ciao
steerpike





M said...

@ Biju

I just got back from the Scotia bank in Mill Woods Edmonton this morning. There is a huge Indian population there so its the only other branch that they sell physical from other then the main city branch. I picked up a couple ounce bars and I started talking to the teller who was Indian herself.

I asked her what how much they have been selling lately. She said " as the price goes down, we get more buyers" That was her exact words. She said they get at least one customer buying physical every business day.

I used to buy at the main branch and there would be 3 or 4 buyers there every time I was there. They used to have one office cubicle for bullion sales in 2009. Now they have 4. I was there once and the guy next to me was buying $70,000 worth of physical gold.

Jeff said...

http://www.bloomberg.com/news/2013-01-07/lbma-s-best-gold-forecaster-hochreiter-says-bull-market-is-over.html

Stel said...

GM and BV can have any policy they want.

Wall Street Journal " MF (Global) customers have been wronged, certainly. They had every right to expect their funds to be "segregated" and returned immediately when MF failed, not caught up in the competing claims of a bankruptcy. Inevitably, somebody from pre-bankrupt MF must face criminal charges over so gross a violation. But the money isn't "missing." It's just uncertain now whom it belongs to. Moreover, the greatest threat to its timely and complete return to customers is the trustees themselves.

As Mr. Freeh has pointed out, conflict is inevitable when multiple trustees, in the name of multiple claimants, are pursuing a single pot of money. But the pot isn't getting bigger. It's getting smaller, consumed by the trustees' own fees and litigation expenses."

You can´t trust any counterpart 100%. And 99,9% isn´t good enough for me.

Knotty Pine said...

I have a holding with GoldMoney. I am comfortable with it. For one thing I have allocated PG outside of the USA. I truly sleep better at night for it. I could care less if I ever have this gold in my possession. My intention is to convert (electronically) this gold to fiat (as needed) in my retirement. Time will tell if I have made a good decision. I have confidence in James Turks' integrity ( a good friend is close to the Turk family and speaks highly of them). To each his own!

poopyjim said...

I still have 1/2 oz. with goldmoney. I don't think I will ever increase my holding there and I am thinking of liquidating it for currency. As an American, taking delivery was a bureaucratic nightmare since it had to be shipped from England (got a "request for information" from customs requiring me to send in a picture of the gold bar and answer some questions).

Maybe post-transition I would store some gold with a comparable service. But it's too costly, too risky, and too difficult to take delivery for me to be at all interested in it right now.

Also, the risk IMHO has less to do with the integrity of the individuals running these operations than it does with their ability to actually remain operable and intact through a massive, destabilizing financial crisis.

Stel said...

@ Knotty Pine

Not my intention to say what is right or wrong. I just trust me more :)

M said...

@ Poopyjim

Doesn't some of the bullion banks in the US sell physical at the main branches ? Eg. JP Morgan ?

poopyjim said...

@M

I researched that a while back. I couldn't find any banks that have some kind of a "bullion window" where you can walk in and get gold. Does anyone know of any in the US?

There is one bank near me, Fidelitrade I think, that allows you to buy physical, but you can't just go in and buy it, you have to register an acct., take delivery, and all that jazz. I prefer the local coin shop.

Woland said...

Hey Jeff; Thanks for the "tip"!!! Sold all my gold last week,
and bought helium. I hear its sure to go up! GREETZ.

M said...

From BullionBarrons blog

Rui November 28, 2012 8:25 AM

Freegold has been thoroughly debunked at popular gold websites such as TFMetalReport.

Hehe

Aaron said...

Hi M/Jim

We have a local bank in town with four branches and they all sell silver and gold right at the counter. The silver is in 1 oz denominations only. Gold you can buy Maple leafs from 1/10 -> 1 oz and Eagles from 1/20 -> 1 oz.

The upside is you don't have to be an account holder at the bank and they don't ask for ID. The downside? You're paying some wicked premium at 30% over spot. That's some downside.


By the way, it seems we have quite a few Freegolders up here in crispy cold New England.

byiamBYoung said...

@Woland

"Sold all my gold last week,
and bought helium. I hear its sure to go up!"

Almost choked on a meatball laughing at that one. Thanks a lot.

Cheers

Goodsalt said...

PoopyJim - Regarding Fidelitrade - Don't know if they have branches but their main office is near me - I can't remember the details of my first transaction with them over 10 years ago, but I'm sure all I did was call them up and arrange an appointment. I showed up at the appointed hour and exchanged my paper for their coin. Wished I had done more but I'm the very definition of shrimp. Lotsa security - chain link fence around the parking lot, receptionist behind bullet proof glass - you do the deal in a locked office off the main entrance, etc. Unfortunately it's not in a very nice section of town (Wilmington, DE.)

poopyjim said...

Hiya Goodsalt.

Yes, I thought I remembered reading that you could make an appointment to buy gold in person. But when I looked them up again recently, on their how to buy page it seems they now want acct. registration? Maybe it's a DE thing? The place I used to buy gold at in DE asked me my name and recorded it each time. Seriously - I'm paying in cash why on earth do you need my name?

In any case Wilmington ain't too conveniently located to me. I like my current guy, no appt. necessary, no hassle whatsoever.

@Aaron

Interesting. That's one heck of a premium though - wow. I don't think there are too many freegolders in my neck of the woods. People around here seem to abhor gold with a fiery passion. Mostly they just like to sell it.

/SleepingVillage/ said...

M,

hah, good old Rui. Every time I read something of his I can't help but visualize Mr. Magoo!

And now I bet you all will too:)

Got to See my Way

Sir Tagio said...

Naked Capitalism reports that the SEC has given JPM the greenlight to create a fund to warehouse copper. Critics say this will lead to other funds to do the same with other commodities including agricultural commodities. Obviously this creates the opportunity for blatant price manipulation through the creation of artificial shortages. However, the stock piling or evil hoarding aspects also suggest that the end is coming fast and the hot money wants to have stockpiled hard assets.
http://www.nakedcapitalism.com/2013/01/sec-gives-jp-morgan-and-other-big-banks-license-to-manipulate-commodities.html

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

@ Sir Tagio

"However, the stock piling or evil hoarding aspects also suggest that the end is coming fast and the hot money wants to have stockpiled hard assets."

Copper and Ag commodities isn't exactly what I would call hard assets. How are they assets ?

They are goods or raw product

Edwardo said...

I like this ZH feature because it provides another reason why QE can't stop. The first reason, the primary reason, that QE can't stop, and why all talk to the contrary is just that, talk, and nothing more, is, as we know, because there is no longer sufficient support beyond U.S. borders for U.S. bond issuance. The second, and less important, but, strangely, I suspect, far more scandalous reason that QE can't be halted, is that the monies provided to commercial banks have almost certainly made their way into risk assets, like stocks, thereby levitating pension funds and 401Ks far and wide. And while the performance of stocks, for example, is certainly not part of the remit of The Fed, they, likewise, have no interest in seeing the S&P 500 go poof. In real terms it can get hammered, but not nominally.

Phil_O_Dendron said...

Concerning the Trillion Dollar Platinum coin that has been in the news and blogs lately I wonder if this is really a possibility. Many people on of some the blogs seem to think this is all posturing and will never acutally happen. But "what if" this is the Black Swan event that seems so unlikely and it actually happens. What would be the likely consequences? It seems to me that this event would really remove any pretense about the US being able to dig themselves out of this hole. When the people with the power to do something like this actually think it is a viable solution they just may do it. It may seem silly but I am wondering if the fact that it seems so unlikely is reason enough to fear that it might happen.
Gideon Gono would be proud.

costata said...

Time for some oil! (My emphasis)

http://www.financialsense.com/contributors/jeff-rubin/how-big-is-canadas-oil-subsidy-to-the-us

Aside from a few hundred thousand barrels a day from wells offshore Newfoundland that get Brent prices, virtually all of Canada’s 2.4 million barrels a day are priced off WTI.

An even bigger concern for Canadian oil producers than the discount between WTI and Brent is the price differential between WTI and Western Canadian Select—the benchmark price for western Canadian oil exports to the US. It’s trading around $60 a barrel, a third less than WTI and 45 percent lower than Brent.

Do the math on some 2 million barrels a day of heavily discounted oil exports and suddenly you’re talking about an enormous wealth transfer from Canadian oil producers to American refineries. (Note, the subsidy is pocketed by US refiners, not motorists, who don’t see the Canadian discount when filling up at the pumps.)


gold-kiwi said...

Lord Sidcup said...

"In circumstances of termination, You can choose to take delivery of Your Metal in accordance with clause 8.G OR to have the value of Your Metal added to the balance of Customer Money."

The word OR above tells me that GoldMoney will decide what the customer gets, not the customer or the law.


"You can choose" clearly means the customer has the choice, not GoldMoney.

Gold Money uses another company (Baird and Co) to send you gold bars of denomination no smaller than 100g.

If there is no gold available from this other company, then how will you get your gold from Gold Money?


My understanding is GoldMoney supplies a 400oz bar that is melted down and refabricated into 100g bars when required.

victorthecleaner said...

Tyrannyofthepresent,

What do you think?

If I knew what to think...

There are at least three different thoughts to think:

1) In GLD Talk Continued, FOFOA and I speculated that the GLD Puke Indicator works because there is some mechanism inside the bullion banks that increases the paper price after GLD loses inventory. It does not matter whether this is just the overall effect of some internal market mechanics or whether some people at the BBs more or less deliberately manage it. The point is that the mechanism that makes the Puke Indicator work, is somewhere inside the banking system rather than government intervention. (The puke indicator works for SLV as well, albeit less efficiently, but CBs don't do any silver operations, and so you would conclude that it's not government intervention, no?) Does the Puke Indicator 'think' in dollars or in Euros? Good question. If it's about managing the flow of physical gold, it probably 'thinks' in terms of dollars, simply because most gold is still traded in dollars.

2) But Ari's end of quarter effect is independent of GLD and points to some official intervention by the ECB, some national CBs in Europe, BIS perhaps - someone who targets gold in Euros (at least between 2005-2011).

Both (1) and (2) can be valid at the same time, just different actors.

3) But how do they do it? They could do some short-term trading in paper gold, in some way that doesn't show on their weekly balance sheet, perhaps in derivatives.

Is this how it works? I am not sure. In the past, they probably targeted the "credit volume" in paper gold by supplying or withdrawing reserves (gold leasing) and thereby influencing the lease rates. Just as you'd run your dollar based banking system with an interest rate target. So does this mean they still use leasing in order to manage the paper price (stick to what has worked in the past)?

They are winding down their leasing, and so this effect should diminish over time. On the other hand, the BIS has some 450 tonnes on their books now (correct?), and it could be them who leases.

4) Then I hear Jeff Christian saying that CB gold leasing has been replaced by private gold leasing over the years. Private? Certain Arab gold holders come to mind. Could it be them who 'run' the paper gold market? On their own or advised by whom? They'd have a strong incentive to keep the market alive for as long as possible - at least as long as they still get their dollar gold at bargain prices. If it is them, then they'd keep it going until the dollar fails on its own, won't they?

Victor

Tyrannyofthepresent said...

Victor,

Many thanks for all that. Both 1) and 2), and using the rates.

After a little research into the India/Dubai pipe recently I am pretty convinced that the Indian physical market is large, robust, porous, poorly regulated and transparent. There is a pipe the size of a London sewer to Dubai where the gold can be converted into any form you want.

Currently there is no premium.

This suggests to me that nothing bad is going to happen to the physical market. They are trading off the paper market price with no stress at present.

Do they know or care how the paper price is being set (as you detail above)? I am not sure whether they do or not. They are quite sophisticated. I am guessing that if/when anything happens they will integrate premiums and eventually set their own bid/offer without batting an eyelid.

Looking through some of the stats, commentary and companies, I would contend that both Indian and Dubai markets are scaling effortlessly from 5 gram bangles in rural India to bars for Zurich. I find this information at least as helpful as the scanty (mis)information indirectly available about what is happening in London.

victorthecleaner said...

vizeet srivastava,

They will probably make system fairly complex so that they can misuse the system. What do you think about this?

How about the Europeans will make it so simple that the U.S. can no longer misuse it?

On GoldMoney,

the relevant question is not what happens if GM closes for business during quiet times. The question is what happens when the London fixing is suspended, and their refiner cannot deliver any physical gold. Does their prospectus contain clauses on 'market disruption' or something similar?

Victor

costata said...

VtC,

Then I hear Jeff Christian saying that CB gold leasing has been replaced by private gold leasing over the years. Private? Certain Arab gold holders come to mind.

What's your opinion (if you have an opinion) on how the gold:oil ratio factors into the range of incentives?

FWIW here's a few thoughts on the oil vs US dollar issue. Many pundits talk about the potential impact of the ME producers switching from US dollars to another currency or multiple currencies. I think this is a red herring.

IMHO the real danger is the oil:gold ratio blowing out. Negative real interest rates on US dollar paper "assets" has already removed one of the pillars holding up the US dollar. The guarrantee of oil supply to holders of US dollar reserves has been another pillar.

If that guarrantee is removed then to ensure the supply of oil a CB/Treasury should favour the reserve asset that assures them of (a) guarranteed supply and (b) the highest oil/energy return as possible for the least amount of reserves.

/SleepingVillage/ said...

Costata,

"the benchmark price for western Canadian oil exports to the US. It’s trading around $60 a barrel, a third less than WTI and 45 percent lower than Brent."

Yeah... that's a joke, and not a funny one. Kinda pisses me off as a matter of fact. Then we(Canadians) pay more than US consumers for fuel at the pump. Double fucked. Free trade!!!


Someone needs to grow some balls...

Seriously. Time to sell to the highest bidder.

Tyrannyofthepresent said...

Victor,

Forgot to mention that the gearing from the Western paper price to Indian s/d is modulated by USD/INR, which just experienced its largest shift in a decade. Moves in the USD/INR chart since mid-2011 mirror XAU moves just about perfectly - more evidence that the gearing is still just fine.

http://blogs.reuters.com/india-expertzone/tag/rupee/

anand srivastava said...

I just read this article.
http://goldnews.bullionvault.com/gold-mining-supply-crunch-120620126

I also read that the cost of production for gold was around 1500$/oz. This is average cost and would include extraction cost and exploration cost. So at 1650$/oz the companies are making pretty little money. If it goes only a little bit lower, they would have to stop exploration work. With that reduction they may be able to extract gold till the price hits 1350$/oz. At that point mines would start closing down.

If exploration winds down, the production will start to slow down. The chart in the linked article, shows that the production is increasing at the present time, but this is not really effective if we take out China from the picture, as they are the biggest producers and they consume more than they produce.

India is another big consumer.

If the prices keep on going down, the consumption in weight terms can only increase, since it is inelastic in monetary terms.

FOFOA's opinion from the main article, is that CBs are probably not supporting Paper Gold anymore, as the price of gold did not increase this quarter. Also Private buyers are also not buying enough paper gold, which shows in the reduced gold price.

If this situation continues further we might see the price of gold dip further, with the effect of increased physical demand.

The price of physical and paper are in a fix, which can get broken if there is too little interest in paper but too much interest in physical.

If the price of gold goes below by 300$/oz, or the production costs rises by 300$/oz, we would be at the point where mines will start to close down. This would cause the friction between the two prices to increase a lot.

If the fix between the two prices breaks, then the paper price will go down to zero very fast. I would think the price will first break in India, when the gold will be sold and bought internally, and external input is reduced to a trickle.

The paper gold it seems to me represents a huge amount of $ wealth, more than 50Trillions, maybe even 100trillions. This looks big enough to cause the whole paper pyramid to collapse, because I think the paper pyramid uses paper gold as collateral.

I am not sure if the system could survive the annihilation of paper gold. Although I would love that :-).

The present situation looks like unless we get another bull market in paper gold we might be at the end of the cycle. In any case I think the probability this system survives more that two years is unlikely.

Are there any venues where the paper gold can be propped up for a few more years. I am not sure Indians will help :-), despite the govt.

Tyrannyofthepresent said...

Anand,

Thanks for your interesting comments. If it happens as you have predicted, at least we will always know what the price is in the Indian physical market, and there seems to be little the govt can do to alter the flows there. I have little doubt that people here will be watching it carefully.

KnallGold said...

Best description of the current state of the paperGoldmarket, Sysyphe with Sinking (into orblivion...)

http://www.youtube.com/watch?v=WgyM2QbvRrk

well, until it seizures (now this will scare the shit out of you so please wait till midnight)

http://www.youtube.com/watch?v=XgvEdokv7_g

A belated happy 2013! (it seems I can't misallocate more than 24h'r per day, and I heard it got even less after the Japan EQ, with that altered axis. Spent about everyday in front of TV until 3am collecting all the collected information of mankind. There needs to be a time to process, but I think I can see clearly now....)

Health, Wealth and Love, this exists all in abundance,
KG

Woland said...

From the department of - Who do you trust?

Fofoa: Reference Point Revolution, March 25, 2011
"Reference kilo loses 50 micrograms...."

Yahoo News, Sunday, Jan 6, 2013,
The Kilogram has Gained Weight

"The Kilogram has gained tens of micrograms of mass
from surface contamination"

WTF! The kilo is on a yo yo diet? I thought platinum iridium
plus the double bell jar was supposed to prevent this!

Edwardo said...

Yes, things seem to be rounding into form as The Japanese line up to buy EU debt, not U.S. Gov't debt.

On the other hand, "they" seem to be interested in paper gold.

CharlieBravo said...

A little help, please. Rereading "moneyness" and I am unable to resolve a lack of understanding on the clearing of credit between " our banks", "their banks" (commercial) and central banks. Inevitably, i am trying to reach an understanding of how the Fed's purchase of MBS adds to the base money supply. I recall FOFOA publishing recent correspondance in which he laid out the reasons, however, i still lack the basic understanding that would being it all together. There was a blog posting (FOFOA, possibly VTC) that explained the clearing process between banks using representative balance sheets. Can anyone point me to this posting. Thank you.

CB

costata said...

Hi Edwardo,

From the link you posted (my emphasis):

The ESM held its first debt auction today, selling 1.9 billion euros ($2.5 billion) of three-month bills at an average yield of minus 0.0324 percent. Investors placed bids for 6.2 billion euros of the securities, the Bundesbank said.

Marshall Gittler, head of global foreign-exchange strategy at IronFX Financial Services in Cyprus and a former yen strategist at Deutsche Bank AG in Tokyo, said he doesn’t think the plan will have a significant impact on the Japanese currency.


No "significant impact". Yeah, right, OK, it didn't work for the Swiss.

On a more serious note, the reaction from China will be something to watch.

tintin said...

Hi costata,

More on China:
from Bloomberg: Gold Imports by China From Hong Kong Double on Economic Recovery

Gold imports by China from Hong Kong almost doubled in November from a month earlier as expectations of an economic recovery and lower prices spurred purchases.

Mainland China bought 90,764 kilograms (90.764 metric tons), including scrap and coins, compared with 47,478 kilograms in October. Shipments were 11.5 percent less than the 102,603.7 kilograms a year earlier, data from the Census and Statistics Department of the Hong Kong government show.
http://www.bloomberg.com/news/2013-01-08/gold-imports-by-china-from-hong-kong-double-on-economic-recovery.html

90764kg = 2.9moz = USD$4.8billion at 1650 per ounce.

From my previous pasted news/comment: China's FX reserve declined by USD$1.67billion in November.

There is a capital flight from China, into gold it seems.

KnallGold said...

If there would be Another up-leg ahead in POG, shouldn't POS start to outperform now? I'd least that's what I hope for, you know, the chance for a better conversion ;-)

Buy Silver, buy lots of Silver, there is a serious shortage out there!

tintin said...

A quetion about possible ECB support for the paper gold market, or the withdraw of such: How do they do it?

In previous FOFOA posts, I understand that ECB banks would lease/sell gold to bullion banks to either meet redemption demand or/thus to enable BBs to fractionalise, creating more paper gold.
More paper gold from BB = weaker POG;

If ECB is not supporting, then no physGold from ECB = less gold fractioning = fewer paper gold = higher POG??? And if POG drops even though less physgold to fractionalise then higher leverage in the system = more fragile.

So you see, I am struggling with ECB support = higher POG or withdraw of ECB support = lower POG.

Wil Martindale said...

KnallGold,"
Whenever I see "POS" I think "piece of shit", but in this case it's the sudden demand for retail silver that has suddenly turned UP!

First gold coin, now silver coin sales in US have (reportedly) spiked. I ask again, as I did before about gold, what has suddenly aroused the U.S. sheople from their slumber?

I have to assume that in these reports it is the US consumer who is buying up US MINT gold and silver coin. What has awaken the shrimp?? Has the Keynesian mantra to consume been turned on its head??

TinTin,
I see where your formula makes sense, but there are many other inter-related factors. For example, and foremost, do you assume that there is, and always will be, a fixed relationship between ECB physical support and BB fractionalization?

As entropy takes over, bullion banks could go 1000-1. They very well might be sliced up and sacrificed anyway when the paper gold market crashes. The exchanges will simply point to the price of worthless paper gold, and how it is derived and say, "this is the cash price for your gold, discovered same as always, but since we can't scramble the metal from the BBS on this run, we're going to settle for WAY MORE, OK?" as the spiraling inferno of fiat flame corkscrews beneath the dirt.

When traders are screaming for physical and only getting worthless paper, someone has to be the scapegoat.

It won't be the CB's.

IMHO

Wil Martindale said...

Or if COMEX and LBMA are sacrificed, either way, the physical won't be there, not 100 to 1 or 1000 to 1 ... at that point the ratio won't matter.

tintin said...

Hi Wil,
No fixed relationship between BBs fraction and ECB support assumed, but rather an enhancing factor.

Also regarding Comex, I am assuming that a big big majority are just punters/traders etc playing for $$$ gains, real physical buyer do their buying somewhere else using the Comex derived spot price as pricing reference, right?

Punters/traders in $$$ using gold as reference will almost never demand physical. If they lose confidence then my thinking is that they simply stop playing, resulting in a drop of trading volume/open positions.

So, if there is a relationship between ECB support and BB's paper mill, then lack of ECB support translate to fewer gold papers. Either POG goes up due to lower supply or paper gold volume declines indicating lack of interest or confidence. But a lower POG?

Who can find a hole or two in my reasoning?

dieuwer said...

@Tintin,

the problem with your simplistic formula is that there are several POGs:

1) the price of cash-settled bullion, e.g. at the coinshop
2) the price of derivative-gold held at trusts (e.g. GLD, PHYS, etc.)
3) the price of paper-gold at the COMEX (derived from future contracts).

Note that the actions of the ECB have zero effect on the paper gold price derived at the COMEX as that price is discovered by the paper longs and shorts at the COMEX. Note for instance that the amount of "open interest" is many times higher than the amount of physical available. Therefore, this "price" will always be the lowest price of the three and whether the ECB leases bullion or not has zero effect on the amount of paper contracts ("gold papers" in your words).
Now, the price of gold expressed in high quality trust units (like GLD) is closer to the cash-settled price of bullion as when everyone place nice, you can buy units of the trust and redeem for bullion.
Finally, THE price of gold is that which is discovered by buying BULLION directly.

dieuwer said...

Ok, then what happens on F-day? No one wants to sell bullion and everyone wants to buy.

1) The cash-settled price of bullion does not exist as buyers n/0 = unendless.
2) The price of units trusts like GLD is dropping as people are liquidating shares for the real thing. This POG to zero.
3) The price of paper gold at the COMEX can be any as paper longs can be forced to settle for paper, as the paper shorts do not have to deliver physical. Therefore, this POG can be anything, but likely very low.

vizeet srivastava said...

Tyrannyofthepresent and Anand,

I think even today India and China are supporting Paper gold market and gold prices will not easily go further down unless govt puts cap on gold import which I believe will happen someday.

I think there is a reason why India do not see dip in gold prices. As the gold prices goes down people in India buy more gold which increases Indian deficit and consequently causes rupee to depreciate bringing prices of gold up in Indian rupees. Since gold prices are not going down in India rupees there is an attractive paper gold market flourishing. The continued high gold imports because gold prices are not increasing will force govt to finally put cap on gold imports. When this happens gold will enter India through other channels. This will increase its cost which will impact gold imports. This will also reduce deficit causing prices of gold to reduce in Indian rupees. That will be the point when paper gold demand in India will go down and I am expecting something similar to happen in China. So when support from India and China for paper gold goes away we will see the price of gold to reach below cost of production. This will be the time when production of gold for bullion/jewellery market will stop. And Indian market will switch to internal buying and selling.

So Tyrannyofthepresent as you said Indian market will always have price of gold but buying gold will become extremely difficult.

costata said...

This brief article from Kitco seems to have put paid to a few myths about the proposed use of gold in the banking system (my emphasis).

http://www.kitco.com/reports/KitcoNews20130108DeC.html

There was some confusion in the gold industry with the terms Level 1 and Level 2 and Tier 1 and Tier 2. While both are considered assets, they play different roles. Level 1 and Level 2 deal with the new rules for liquidity, while Tier 1 and Tier 2 refer to core capital, or what is generally defined as a bank’s common stock and disclosed reserves or retained earnings. Gold has never been considered to be included as a Tier 1 asset.

““The element we are concerned about is the liquidity coverage ratio. That’s completely new versus Basel 2 and Basel 2.5…. (Banks have) always had to own Tier 1 which is core capital, but … it’s not a factor in the liquidity coverage ratio,” said Natalie Dempster, director of government affairs at the World Gold Council.


Dead issue.

vizeet srivastava said...

victorthecleaner

How about the Europeans will make it so simple that the U.S. can no longer misuse it?

This could be possible only if US and China do not play important role in planning revaluation which I doubt.

anand srivastava said...

@TinTin

What I have understood is that CBs have stopped leasing gold for a long time now, since 2001. There has been little leasing since then. So that is not how the price has been manipulated.

So if leasing is negligible, then the paper gold cannot be increasing in size. So the only way to affect the price is to buy or sell the paper gold.

What FOFOA said in this article is that, probably ECB was pushing up the price of gold biannually, before releasing its report. This can be only done by buying paper gold.

But this year it did not happen. The price did not increase. This would mean that ECB has stopped supporting the price of gold.

The price of paper gold has been down for a long time now, over a whole year. This would mean that private support for paper gold is negligible, at the present time.

The paper gold already created cannot be extinguished unless people sell it to the bullion banks for cash. There is not enough physical with them.

So the price of gold is down because there is too much paper gold in the market. The next steps could be that people start to ask for the physical, aka puke.

Traders don't care about physical, giants don't want to damage the system. So unless the shrimps start asking for their gold, system will stay in this present limbo and the price of gold will continue to reduce. Causing the physical to become more and more scarce, as Asians will buy more of it, at the lower price.

Once the major mines start to shut down, due to the lower price, which probably will happen at around 1350$/oz, we can start to see the fix (which holds the price of paper and physical together), to break.

Yes we are pretty near to this thing happening, unless, we get another boom in paper gold buyers.

Yes this looks like the last year for cheap gold.

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

Anand,

I think it is not the shrimp but giants who will stone the boat. When gold will anyway become scarce stoning the boat will be the only option for giants to get back whatever they can.
At that time system will anyway heading towards collapse.

costata said...

Stewart Thomson discussing gold, silver and bank stocks:

That breakout suggests that a "reflation of the world" theme is probably now set to replace the deflationary mindset held by most investors.

If financial stocks begin to surge higher, it would likely signal an end to deflation, and a beginning of inflation. That would be very good news for your gold and gold stocks.

I'd like you to take a closer look at the current price action of financial stocks. Please click here now. You are now looking at the XLF weekly chart, and I've highlighted an upside breakout from what appears to be a truly monstrous inverse head and shoulders pattern.

That breakout suggests that a "reflation of the world" theme is probably now set to replace the deflationary mindset held by most investors.


http://www.safehaven.com/article/28311/silver-and-bank-stock-lovebirds

And here is Axel Merk discussing Japan and his other interesting predictions for 2013:

Abe’s government is as determined as it is blind. Abe believes a major spending program is just what Japan needs. As far as the yen is concerned, Abe may be getting far more than he is bargaining for.

http://www.merkinvestments.com/insights/2013/2013-01-08.php?registered=yes&utm_source=cc_newsletter&utm_medium=email&utm_campaign=2013-01-08-insight

Tyrannyofthepresent said...

Vizeet,

Another way of looking at this is that as the gold price goes down in Rupees, people buy more gold in India, raising the gold price. In other words the gold price elsewhere is influenced by the large Indian physical market, or at least influence flows both ways.

The recent pause, which is being interpreted as a failure of support for the paper price, also follows a major spike in the Rupee price due to a shift in the USD/INR exchange rate. This could be interpreted as having impaired Indian demand for gold thus affecting world market dynamics.

In your future scenario, we will certainly have plenty of warning from India that the gold is running out.

anand srivastava said...

Vizeet:

Look at it in a different way.

Real Giants already have enough gold, they don't need more.

The Paper Giants don't know about gold yet, and don't care about getting gold. When gold becomes scarce still they will not know about gold. They will know about gold only when crisis hits.

The scenario I am considering presently is when gold scarcity causes the crisis. In this case it is only the shrimps that can cause the crash, by demanding gold from the Bullion banks.

Or Indians who will cause the fix to break. It will not be a revaluation, just the breaking of the fix. The revaluation will follow the realization that paper gold is not as good as gold.

I think Indians breaking the fix is the more likely scenario. People holding the paper gold will not look for physical until its too late.

One Bad Adder said...

KnallGold: -
Wash your mouth out Sire - Ag is persona-non-grata around these parts ;-)
I find it amusing to read all the anti-paper-gold chat here implying the paper derived $PoG is going to crash as confidence in "paper" deteriorates ...but nary a mention of the potential for $PoS (a PM with heaps more practical utility than Gold) to rise (Ratio-wise) as a function of it's DUAL currency / commodity appeal.

25:1? Bring it on I say ;-)

tintin said...

I am not convinced about paper gold crash theory.

I am not getting to the right answer/conclusion when putting together the parts.

Tyrannyofthepresent said...

One Bad Adder,

There should be no such thing as a persona non grata - minds should be jammed open and everything should be discussed. I have encountered a lot of wisdom here on the subject of silver.

As for "nary a mention" of the "silver as a dual asset" argument, suffice it to say that you either have not read much of the blog or if so, you have forgotten it.

I am a convinced bimetallist, but the folks here have argued long and hard about the different effects on value of cumulative multiple uses (as Ag) vs. exclusive salience and use (Freegold). You may not agree with their conclusions - neither do I - but they have discussed it.

A lot.

Jeff said...

Right, anand. A stagnant to falling PoG isdangerous because the BBs leverage factor increases.

FOFOA: What we have here is an explosion in the bullion banks' physical leverage factor, not through an increase in lending this time (the lending is actually declining), but through customer withdrawal of reserves, with no physical backstop. Even a bank with a conservative leverage factor can experience a bank-busting, system-crashing run. Public confidence is the only thing that stands in the way. This is how a classic bank run runs.

Jeff said...

On indian gold and import duties:

http://www.brecorder.com/markets/commodities/asia/99866-india-gold-premiums-at-2-month-high-on-import-duty-talk-.html

Motley Fool said...

Tyranny

Haha, yes we have discussed it a lot. Your dissent is fine imo as it's your money to do with as you please. :)

TF

anand srivastava said...

@Tyranny

I don't think buying of physical gold does anything much to the gold price. There is so much paper gold that physical will not make much of a dent.

The problem that buying physical gold creates is that it makes the fix more difficult to hold. If people demand gold and there is none, then some people might sell at a higher rate that the buyer is willing to pay. This is what will break the fix.

Do this very commonly and openly and the fix is gone. Till the time that mines are open and operating these problems can be handled because the real demand for physical is mostly for jewelry, which is not that much, but is probably more than what is delivered from scrap alone. Look at the consumption of gold in Asia. India and China alone consume nearly 2000tons, and at least in India much of it is in Jewelry.

If you are a trader, or speculating with gold, there is no point in keeping physical with you, Paper gold works better. The costs and hassles are lesser.

There are very few people that are actually buying gold because they think that the system and paper gold system both will collapse. The rest are all better served by paper gold.

The physical investors are some gold bugs, that don't like paper gold or people who understand at a freegold conscious or sub-conscious level. There are few of such people.

Tyrannyofthepresent said...

anand,

Is that an Indian perspective? It doesn't match the attitudes in India that have emerged from my research, where jewellery is a major part of the market and represents an investment - which I have seen described as a kind of Freegold attitude.

The Dubai investment market at least (which is more transparent than London) is to a large extent physical:

http://www.dmcc.ae/jltauthority/gold/files/2012/12/DMCC-Gold-Bulletin-H1-2012.pdf

Paper is promoted in China, but people still buy both. The last reports I saw about the ETF market in India were that it represented about 10% of gold buying.

For these purposes I am treating the West, including Southern Europe, as simply a source of scrap.

Northern Europe, which I know well, is a different beast. People are buying physical gold and silver, storing it at home, in Switzerland (legally) and in safety deposit boxes e.g. in Germany where there are now none available. I cannot speak for North America.

I think treating the whole functional and transparent global physical gold market as nothing but an inconvenient destabiliser of the essentially Western paper market is a misunderstanding. Similarly, treating CBs as the only significant players in the physical gold market misses too large a proportion of the market.

An inconveniently large proportion of the world's gold is either outside the CBs, outside the West or both. It represents a large, functional physical market and is influencing physical price setting. It can be expected to continue to do so.

Tyrannyofthepresent said...

Provocative but genuine question,

So the "fix" fails, the Comex becomes an embarrassing irrelevance, the BBs crash and burn in a blaze of scandal and the public suddenly become aware of their existence. Some allocated holders turn out not to be allocated, and most unallocated holders learn to read the small print and receive some cash, or take their place in the line of creditors. The ETFs drain out as preferences grow for more robust allocation or physical possession. Whatever CBs actually have is disclosed and turns out to be more or less what we thought they had.

Meanwhile, everywhere physical metals are traded, they continue to be traded. Stock markets, bond markets and currencies do not respond violently. It is a gold issue. Some people who owned "gold" actually buy some gold, others run a mile. The price rises. Some metal flows from India to the West in response.

I can see a price rise, but how - in the short term - does this drive the price of gold in USD to five and a half digits or lead to any period at all without a valid physical price? I have read and re-read a whole lot here, but I must have missed or forgotten something pretty fundamental. Time for Aricept?

Even the ECB "revaluing" gold does not seem to make sense, since they are supposed to follow the market value rather than making up a value of their own. There is something missing here.

Robert said...

Tyranny says: "I have read and re-read a whole lot here, but I must have missed or forgotten something pretty fundamental."

Oil. Don't forget that Another talked about oil just as much as he talked about gold!

Tyrannyofthepresent said...

Robert,

Thanks, but what is the mechanism? After some stickiness, the gold/oil ratio reverts. Importers suffer. A former hegemon struts, boasts that it is now an autarky and continues to eliminate serious monetary and political threats to its residual import needs.

Exporters continue to receive gold for their oil as before. There is a global recession caused by this new wave of deleveraging. There is a lot of inflation everywhere, particularly where the gold is not. Social security get broken on an industrial scale. Shale, alternatives etc. do well.

How does any of this force either gold or oil to go twentyfold almost overnight?

anand srivastava said...

@Tyranny

I won't call buying of gold jewelry in India as investment. It is saving. They will only sell it at the time of need or to change it for new jewelry.

I am not sure what is your difference with my perspective. I also think that the major consumption of gold in India is for Jewelry.

I agree with the rest of your information.

I was wrong in how much gold is used in Jewelry. I was thinking it would be higher than the scrap availability. In 2009 it was 2/3 of the total. This is very high. If we have similar consumption patterns at the present times, we will not have to wait till all the mines close down. The fix will break much before that.

Wil Martindale said...

I think what is missing is the true value of gold in a world where fraudulent debt is piled upon fraudulent debt to "extinguish" more fraudulent debt. Let's call it the "Claudio Grass" cycle as explained very simply on the Lips Institute home page (I admired Ferdie a lot, though he was not Another, but Gold Wars is a must read).

I suspect we could replace "revaluation" with "realization".

Realization that the issuer of the world's reserve currency is essentially buying massive amounts of fraudulent debt because 1) it is grotesquely fraudulent by intention and design, and 2) mathematically, it is a certainty that there is no way to halt the exponential increase of debt by issuing more debt to retire it, and 3) it will NEVER be repaid by means of honest wage production. It ran away from that possibilty in the early 70's if not before.

Realization that this process places the USG and its Treasury's gold into the hands of the BIS just as surely as if the gold reserves were already on the FEDs (asset side of its) balance sheet.

Realization that the vast majority of debt will be moved from the asset side of all bank balance sheets to the liability side, with gold replacing it on the asset side to balance the worlds "books".

Realization that currencies are asset derivatives and that the 1.5 quadrillion USD denominated debt will be "paid in derivatives" (currencies) since it is impossible to balance the worlds balance sheets unless gold is valued at millions USD per ounce. The great write off of debt will bring gold down to maybe 55K/oz in USD terms.

And this is the trendline prediction. It does not account for some unpredictable wildcard which we can't even talk about here because it's just too unpredictable--they do occur.

We've talked about revolutionary science, like true cold fusion, global free energy ... one such wildcard we CAN imagine.

But the intricacies of paper gold price discovery will melt away into nothingness when this all happens (if it does) and the only thing that will matter is how much gold you have in your possession if and when it does.

For me, I like that my pants pockets are deeper than all the silver and gold I have to put in them, and that makes me "mobile" with all my true assets if the time comes to "cut and run".

My other assets are too weighty. I love them for their beauty and cherish the peace and freedom of the present day that I can relax and enjoy them, and the history they represent.

These days I cherish every minute of those times, because those times of peace and freedom are about to change.

Sadly, I must gradually divest of all but the best. The collector / dealer's lament.

Good thoughts here lately, and more people thinking them outside our little box here it seems.

anand srivastava said...

@Tyranny

Yes the price will not go to 30x in a very short while. It will take a long time. It would possibly go up 5x, if there was no economic crash at the time.

30x is equivalent to the 55000$/oz figure that FOFOA gives. I prefer this because I can't think in USD terms :-).

For reaching the 30x there are several things that must happen. The global economy (and oil) must shift from USD to Euro (or gold). RPG must be used to measure currencies. People must realize that gold is the ultimate store of value, which will only happen when much of the Paper denominated in USD must burn. Much of Balance of Payment must be balanced through gold movement, which is done automatically by people rather than govts extinguishing the (un)balance.

anand srivastava said...

@Tyranny

Just to add.

I do not think that the system will be able to survive if the complete paper gold collapsed. There are at least a million tonnes of paper gold, which would be more than 50T. The world economy is only 65T. Ofcourse much of this 50T will be somewhere in the OTC derivatives market of Shadow Banking. But such a large dent may be a likely trigger.

Wil Martindale said...

From yesterday:
http://www.gata.org/node/12099

Pat said...

@ Wil,
I like your term realization, not revaluation. I would only add what will transpire will be overt realization, as many/all(?) of the major players already have covert realization ( and will stay that way as long as the game as is continues to suit them )

Wil Martindale said...

Pat,
Quite true I agree, and am happy to see some realization coming from the (reported) shrimp stampede into silver and gold coin.

I'm truly not sure exactly what they are realizing, or how, but as long as they continue to stampede into the metals Anand's vision will surely manifest.

Jeff said...

We should hope the revaluation doesn't take a long time. There is no reason it should take long, and many reasons it should happen practically overnight. What system can't survive? The paper gold system? The $IMF reserve system? Yes. That's why we will transition to the next system.

FOFOA: We are all looking for "information leakage" as to the criticality of the systemic pressure we just know must be building. We look to the contango, the curve, the spread, stock and flow to leak us a hint about what kind of scramble might be happening on the other side of the curtain. But when I look back on other big Ponzi-like collapses, there never was much if any "leakage" before the event.

I think there are a couple of reasons why this is the case. In the last days before a Ponzi-like collapse, redemptions, conversions and exchanges are usually settled in an outwardly normal fashion. In fact, it is often those closest to the collapsing structure, like clients and counterparties, who are most in denial in the final days because they are directly privy to the superficial normalcy of transactions taking place.

It is at the precise point that the immediacy of collapse becomes unequivocally apparent to the inside operator that the plug is pulled and the music stopped. Operators pull the plug on redemptions all at once in order to either make off with the remaining assets, distribute them to favored associates, or in some cases, to preserve as large a pool of assets as possible. So any true "leakage" would have to be something of which the operator himself wasn't aware.

That first reason why collapses happen by surprise relates to the uncontrolled or unplanned collapse of a Ponzi-like structure. The second reason covers planned and controlled collapses. Planned or controlled collapses also happen by surprise, because that's how you get the maximum "bang for your buck" so to speak. I wrote this back in July '09:

The central banks of the world are well aware of this. It is why they have slowly, inconspicuously changed from net sellers into net buyers. This gradual shift is extremely significant, because as net sellers they were supporting their own fiat regime. But now as net buyers, they, as a group, are stressing it. Why would they do this unless they knew it was about to reset?

This fractional gold reserve imbalance is the one imbalance the media and governments do not want you to know about. This is the one that will RESET the entire system. This imbalance, once corrected, will make central bank fiat currencies sustainable once again. This is why they are net buyers! Here at FOFOA, we like to call it FREEGOLD!

Do I think this magnitude of a reset could happen overnight? Yes, I do. Why? Because that is the way you get the most "bang for your buck". Surprise is the order of the day! "Devaluations always happen by complete surprise as to exert maximum leverage effect."

anand srivastava said...

There is one more thing that can happen. The USG can buy paper gold, to prevent the mines from closing down. But they cannot do it openly. They would obviously not buy more than necessary. So there must be a resistance point for gold price.

Tyrannyofthepresent said...

anand,

Thanks very much, your comments are very helpful. I like the open-endedness and uncertainty "euro or gold" and like the idea of continuing growth in the valuation of gold as it slowly dawns on people that the old system was riddled with lies, as austerity bites, as consumption shifts and as habits of mind are altered. It takes time.

Also a slower revaluation of gold gives oil time to be revalued, priced out of existence, and replaced as a source of energy. All without upsetting the ratio too much.

I am still wondering whether the exponential rise we are seeing in the real valuation of gold is the beginning of this process rather than a precursor to it - whether Freegold is already coming into existence, just more slowly and not as expected. Perhaps even intentionally, to save humanity some of the death and dislocation.

I also like your willingness to see the collapse of USD and the deleveraging of paper gold as two distinct entities. They may be contemporaneous but not necessarily. The causative links between them that I can see do not seem all that strong, except via oil, where there is some stretch and time that could be taken for adjustment.

Wil Martindale said...

I think the massive current global monetization of debt represents the final chapter in the debt Ponzi collapse.

It is nearly unfathomable that it held this far. The realization that "wage wealth" comes from market based production and demand, and that we have run so far away from this is staggering.

But once you get to this point, there is no choice but to go "all in" with debt and see how far it can be sustained.

We are a not quite to the point where the shrimp sees 50 stacks of 100 dollar bills as equivalent to its weight in toilet paper, but I do agree with Jeff that this relaization will come "almost overnight".

Our host once mentioned, not too long ago, the work of Thomas Kuhn. I did my graduate thesis on his "Structure of Scientific Revolution".

As with revolutionary science, there will be revolutionary monetary policy - that whicg represents a complete break from the former paradigm.

It will be THAT revolutionary (IMO).

Jeff said...

The last two defaults on gold were overnight. When the gold window closes, it slams shut.

DP said...

Realization that the vast majority of debt will be moved from the asset side of all bank balance sheets to the liability side, with gold replacing it on the asset side to balance the worlds "books".

->

Realization that the vast majority of debt will melt away on the asset side of central bank balance sheets*, with the gold-value of the balance-sheet-denomination-unit (e.g.: euro) being pushed down by the system managers, thereby restoring balance to the worlds "books".

FYP?


But why GOLD?

The ECB could enter the market to devalue their euro against the dollar (or some other currency that is held in their reserves and in sufficient quantity to make it useful for this cunning ruse), to the same end. However, the economy living with that other currency [understatement] may be slightly reticent to accept the consequences of this unwelcome sudden exchange value strength [/understatement]. Gold wins by default — what else is there on the CB's balance sheet in the reserves section, which could be used for this purpose?

I don't imagine [understatement] many [/understatement] CBs accept "paper gold" as their reserve asset. But at the same time, they won't bid "whatever it takes to pry it out of someone's grasping hand" until they have to. If there is still enough GOLD for sale for the same price as "gold" ... well, ain't life just peachy?



* Bank balance sheet -> Central Bank balance sheet -> Mystery hideout.

anand srivastava said...

@Jeff

I agree that the collapse will be instantaneous. It cannot be slow. That is why I think that the crash of the paper gold will bring down everything. Also USG will likely buy paper gold till the confidence collapses.

The confidence collapse is an instantaneous thing.

Still this does not mean that Gold price will immediately revalue to its real value. I think there will be a discontinuity and we will wake up to a price of around 10x, from there it will shoot up to 30x as things fall into place, but not instantaneously. Possibly over a couple of years.

Another interesting data is that China is buying up gold mines. This could make it very difficult for USG to buy up enough paper gold to keep the price high enough that jewelry demand doesn't grow beyond the available gold. A quickly increasing gold value is also a problem for the system.

Motley Fool said...

I am reminded of the concept of being somewhat pregnant.

Gold value goes up x5 in a short period of time, USD is somewhat weakened and things deteriorate at a leisurely pace from there for years?

I think not.

TF

Tyrannyofthepresent said...

Wil,

Your comment reminded me: when travelling once I long ago I had to hand over several perfectly soft and robust pieces of paper to receive in return one unpleasantly crisp new piece of (toilet) paper, during the hyperinflation in Poland. Nevertheless I can assure you that I did not find the obvious alternative as tempting as one might think.

50sQuiff said...

I can't get on board with FOFOA's analysis here. The amount of salt required would horrify any physician.

The sample sizes involved are too small to take seriously. I can't draw profound conclusions about the Eurosystem's paper gold price management policy from a couple of half-year datapoints.

I don't agree with the suggestion that paper gold has been mysteriously levitated at key moments either. There are an equal number of occasions where paper gold has been crushed by obvious Central Bank intervention, such as prior to the Swiss Franc devaluation. Therefore any understanding of the ECB/BIS gold strategy needs to incorporate the manipulation of spot gold prices in both directions.

Furthermore, if you consider the stick-save rescue of paper gold prices as part of an upward manipulation, could the same be said about Emerging Market stocks, base metals, grains or any other market that reversed at the same time as spot gold?

I don't accept the contention that paper gold is practically worthless. It's like saying "you can't eat paper soybeans". It's semantically correct but as long as your soybean futures are exchangeable for the real thing, your contracts have value. Ergo, as long as gold paper is fungible for physical I don't see how paper gold is worthless or requires propping up.

Of course, in the end-game scenario paper won't be exchangeable for physical and it will be worth radically less accordingly. But the transition will probably be non-linear. Today, the paper has value.

Finally, ANOTHER suggested the Western Investor would not hold an asset going nowhere in currency terms and who am I to disagree. The corollary is that Western Investors are generally overjoyed to own paper assets that increase in nominal currency terms. I think it's more likely they will ride the paper gold market as far as it can possibly go before it finally expires. Jumbo Shrimp is probably (and I mean probably, not certainly) just another in the line of technical bulls who have been shaken out during three similar corrections and holds no special meaning for the gold market.

Tyrannyofthepresent said...

Motley Fool,

Well, here I am disagreeing again. For a start I don't think it will require even 5x if gold deleverages piecemeal, with messy media furore and without a corresponding USD HI. Even 3x over a year or two, and we survived that OK. Then perhaps 3x again a couple of years later.

Jeff,

This will not be a closing of the gold window. No specific currency will be affected. Banks, not governments, will default.

It will simply be a number of large bankruptcies, a lot of chatter about the gold market and a Western shortage of physical gold in size.

Borders will be leaky as usual. There will be some movement in the remaining physical markets. Local premiums and discounts will be arbed. Who knows, it may even be upstaged within a week or two by a celebrity pregnancy.

vizeet srivastava said...

Anand,

You made a good point. So if China holds major gold production then prices of gold must rise to keep the demand of physical low. This makes postponing the crash difficult.

Dr. Boer said...

WHEN WILL GOLD FLY. The question that has our attention. Is there any guess what the powers that be can buy with a stock of 144 tons of gold--how much extra time? BACKGROUND. Under US guidance, Libyan rebels established a central bank as one of their first deeds of independence. And no-one ever heard again about Libyan's 144 tons. Question: How much extra lifetime can 144 tons buy for the existing dollar system.

anand srivastava said...

@Tyranny

Banks, not governments, will default.

Haven't you learnt anything from 2008.
Banks (at least the TBTF varieties) will not be allowed to default. The countries that can print their own money and pay it back will not default.

US will not default, all its debt is in USD. Japan also has a lot of US Treasuries, so it has a lot more time to go, before default. UK will also not default, till it can avoid the default.

UK will probably be the first to go under, and would trigger the rest.

Yes there are multiple ways this system can break :-).

Tyrannyofthepresent said...

Anand,

The distinction is still important since banks, not govts, owe gold. Unallocated, you get paper or nothing. Allocated, you get nothing and perhaps they go to jail. That is not a bank failure, the break up options are already being actioned at least in UK, and bailouts are off the agenda. We are a million miles from 1971 style state refusal. It could be piecemeal and protracted. Both I and the public have retained a few lessons, have no fear.

One Bad Adder said...

Tyranny et al: -
Touche' Sire - The point I was tacitly making however was more to do with the percieved dichotomy a-la Fiat Gold / Fiat Silver, in that FS has more fundamentally going for it than does FG.
NON-Fiat Gold has no place in that particular discussion as, being "currently priceless", it's incomprable with either or.

Michael said...
This comment has been removed by the author.
Element 79 said...

I have just received from Goldmart an email with the following:

"On a another note, we are writing to let you know that we fully realize that we have experienced some growing pains over the last 3 ½ weeks and have not been able to provide the typical level of service that has made us the #1 Precious Metals Dealer in the USA. True, we kept our prices low, as always, but we experienced inventory gaps in several of our mainstream products due to a much higher volume of sales and because several of our distributors were late shipping our orders: two back-to-back four-day weekends for X-Mas and New Years didn’t help, and neither did the fact that our own shipping was suspended for fiscal-years-end inventory."

Aquilus said...

ECB ConFinStat at year end:

Gold: EUR 1,261.179 per fine oz.

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

TotP:

Thank you for your contributions to the comments here. I am having trouble understanding what you are saying. And I am certain it is because I lack the necessary economics education!

Specifically, this quote from above,

"Banks, not governments, will default."

I contrast that with what FOA wrote,

"My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed… hyperinflation is the process of saving debt at all costs, even buying it outright for cash… because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn!"

And I remember what happened in 2008 (and is still happening), I am at a loss as to how the banks will be allowed to "default".

I think that BB's and shorts in the COMEX will be "allowed" to NOT deliver gold when(if?) the paper gold market breaks, but the unallocated holder or the allocated fraud victim will simply be cashed out at the agreed upon "price" for gold.

Right?

Or are you maintaining that Banks will be forced to absorb actual losses ala the 1930's Great Depression?

Many thanks!

Milamber

Pat said...

Edwardo, I see where you are heading, but the trillion coin ( or teddy bear or magic flute, whatever ) is designed to be yet another attempt at spending with no consequence. Gold revaluation, err, realization, comes with the consequence of having to actually spend some to extinguish to balance future trade deficits.
Game over then for exorbitant privilege, and I'm one who can't see USG ever giving that up themselves. It will have to be taken away from the enablers, not the addicted sicko himself.

Tyrannyofthepresent said...

Milamber,

My point was a broader one - the BBs and other counterparties owe gold and many of them will not pay gold. They may or may not pay amounts of cash, which may or may not be generous or adequate. They may or may not be broken up and (parts of) one or two of them may or may not be nationalised. A lot of people will certainly be blamed and one or two recent hirelings may perhaps go to jail. It will be messy. We will first not be informed, then we will be misinformed, then there will be a celebrity wedding and we will forget.

My point: it will not necessarily be an existential or transformational issue for the fiat-based financial system, nor will it be a sudden, clear, inescapable slamming shut moment. For most people, it is more likely to be muddled, confusing and misleading.

poopyjim said...

it will not necessarily be an existential or transformational issue for the fiat-based financial system, nor will it be a sudden, clear, inescapable slamming shut moment.

And that's a wrap, folks! Totp has spoken, and therefore it is so. Turns out gold and oil DO in fact flow in the same direction, and the BB's are in fact non-essential to $IMFS! RoW loves giving us free stuff because we are just better than them! DUH!

For most people, it is more likely to be muddled, confusing and misleading.

That's right, and these people really matter! It's all about consensus formation among consumers and cultural salience man! Power to the people! They can choose between paper & plastic, aisle or window, big mac or happy meal, so they can choose the next monetary system.

Edwardo said...

Sorry, I needed to clean up some glaring mistakes in grammar.

I don't have the time right now to discuss, in depth, the "let's mint a trillion dollar platinum coin" idea, but I think it's significant despite being utterly unworkable.

Sorry, Treasury, you don't get to have your own trillion dollar coin in a vacuum. However, as we know, a certain yellow tinted, metallic, asset can be monetized that would address the proximate problem. In short, this "mint a trillion dollar platinum coin" idea has, in effect, and, perhaps, unwittingly, let a certain genie out of the bottle.

That's all for now.

Tyrannyofthepresent said...

Poopyjim,

Positively glowing from your charming style. But onward to look for some substance...

"Turns out gold and oil DO in fact flow in the same direction"

Wrong, and not asserted or implied.

"...and the BB's are in fact non-essential to $IMFS!"

Well, let us see what happens when one or two of them collapse, before we jump to any hasty conclusions to the effect that they are all essential, shall we?

"RoW loves giving us free stuff..."

I very much doubt it and it would not be wise to expect it. It is more rational and probably wiser to expect significant hardship everywhere in the West resulting from precisely that refusal.

"...because we are just better than them! DUH!"

Looking for content here ... nope.

"That's right, and these people really matter!"

Well in a philosophical sense they certainly do, and any denial of that would be morally repulsive. But no doubt that was not your intention.

On another point, it is not clear how the bewildered consumers of government propaganda following a financial earthquake would really be affecting its outcomes. That was certainly not suggested or implied either.

"It's all about consensus formation"

Well, we are travelling together on the trail with consensus formation. Not much value of any kind among humans without it. As long as we all agree on Yap stones, then Yap stones it is. But where is this leading, I wonder?

"...among consumers"

aah, lost it right there. Wrong. it is about consensus formation among those with power, who are producers, savers (who have individual power) and those with power over others in any way. All of them. Including those larger numbers of people who have smaller amounts of power.

"...and cultural salience man!"

Well how very kind of you to say so. Yes, it is indeed about cultural salience. It would be very interesting to hear your views on the maintenance of any substantial human institution, practice or activity for very long, never mind an economic system, without cultural salience. But I think you may be digressing.

"Power to the people! They can choose between paper & plastic, aisle or window, big mac or happy meal, so they can choose the next monetary system."

Now you are gabbling. Did you have a point?

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