Monday, February 11, 2013

Think like a Giant 2



"Think that I a fool, because I trade gold for thousands US an oz.?
You will think much on this in the future."
-ANOTHER


"Something that Big Trader or Another said a long time ago about trading gold off market in the thousands. Trust me, it's there somewhere way back in the pre USAGOLD days. It seems that gold was then and is today traded between countries, CBs, special accounts,,,,,,, at not only contract prices but in the "perceived prices" that would exist in a non-dollar world. Hard to believe? Don't be so quick to laugh. We are talking about gold traded in large amounts on the "possibility" of a no dollar reserve world,,,,,, gold moved from "under the skin" to "under the skin" so to speak. […]

Today, gold is worth far more than its traded contract price,,,, and has been for some years. […]

Listen to this and listen closely: "the real value of gold today is based squarely on the probability of whether the US dollar can survive as a reserve currency"! No problem, you say? Well, you may think a little different in a few weeks or years. […]

In some cases more than a few people have "done the math" and come up with some startling probabilities and possibilities. In some perceptions, it's a political certainty!"
-FOA


In Legs there was a quote from Another that mentioned the "discount trade" in gold: "If gold rises above its commodity price it loses value in discount trade." In the comments under the post, Woland asked about it:

Woland said…

I have a question about the specific meaning of a phrase quoted in a paragraph by Another;

"[Central] banks do lend gold with a reason to control price. If gold rises above its commodity price, (me: cost of production) it loses value in discount trade".

My reading of this is that "discount trade" refers to oil sold BELOW the currency price OIL would otherwise demand, in return for gold being made available to OIL at a price far lower than would otherwise be possible, without the CB leasing/intervention. Is this the correct interpretation of the phrase?

(I am reminded of the old example by Another of $30 oil plus X amount of gold, then later the same $30 plus XX amount.)


January 18, 2013 at 11:08 AM

I responded to Woland with this comment:

Hello Woland,

My reading is that "discount trade" refers to the BIS deals in physical gold at a "discount" to the "future reset price", deals that kept the really big money wanting real gold from blowing up the paper markets and the "plan" to make it to the euro's birthday party. In the 90s, the "discount price" ranged (according to ANOTHER) from $1,000 per ounce up to $6,000 per ounce. This was a big discount on the "future reset price" of $10,000 and the real future dollar price of $30,000.

Of course he may have simply meant the low commodity price of gold when he wrote "discount trade." But I put the emphasis on the word value: "…it loses value in the discount trade." The value was the control it gave the CBs in managing the Giants. The wider the gap between gold's "price" and its obvious "value" the more room the BIS had to negotiate deals that would keep the Giants happy. Here, I'll try to make my case using ANOTHER's own words! ;D

First, let's look at the deal the Saudi's cut for themselves in the early 90s which you mentioned above. Here's how ANOTHER explained it:

Date: Sat Oct 18 1997 21:04
ANOTHER (THOUGHTS!) ID#60253:

The Deal:

We ( an oil state ) now value gold in trade far higher than currencies. We are willing to use gold as a partial payment for the future use of "all oil" and value it at $1,000 US. ( only a small amount of oil is in this deal ) And take a very small amount of gold out of circulation each month using its present commodity price.

If the world price can be maintained in the $300s it would be a small price for the west to pay for cheap oil and monetary stability.

The battle is now between CBs trying to keep gold in the $300s and the "others" buying it up. In effect the governments are selling gold in any form to "KEEP IT" being used as 'REAL MONEY" in oil deals! Some people know this, that is why they aren't trading it,, they are buying it.

Not all oil producers can take advantage of this deal as it is done "where noone can see". And, they know not what has happened for gold does not change in price! But I tell you, gold has been moved and its price has changed in terms of oil! For the monthly amount to be taken off the market has changed from $10 in gold ( valued at $1,000 ) /per barrel to the current $30 in gold /per barrel still valued at $1,000! Much of this gold was in the form of deals in London to launder its movement. Because of some Asians, these deals are no longer being rolled over as paper!

First of all, they said they valued gold at $1,000/oz. in this deal and took $10 worth of physical off the market per barrel for a "small amount of oil." This was in the early days of the deal (c.1991). $10 is 1/100th of $1,000 so they were taking 1/100th of an ounce per barrel. In the early 90s the Saudis were producing about 9 million barrels per day. ANOTHER said that starting in 1991 they were taking about 20 million ounces of gold per year off the market through this deal. 20M ounces X 100 = 2 billion barrels of oil per year. Divide that by 365 days and it looks like the "small amount of oil in this deal" was 5.5M barrels per day, or about 61% of their production.

20 million ounces at $360/ounce would have cost $7.2B. At $1,000/ounce it would have cost $20B. 3.3B bbls of oil sold at $30/bbl would have brought in $100B per year. So let's say that they came to the negotiating table in 1991 saying that 20% of their production was "net-production" or surplus for which they needed a real wealth reserve (gold) in return.

There were two options on the table. To use ANOTHER's first example, they could lower the dollar price of oil from $30 to $25, but also price oil in gold at 1/400th of an ounce per barrel. Here's how ANOTHER put it:

What if the oil states offered to buy gold with oil, OUTRIGHT? No currencies involved. " We will produce flat out, all the oil you want. And, we offer this oil as payment, per barrel, to buy ( say? ) 25US dollars or gold priced by us, at ( say? ) $10,000oz.!"

The answer is very simple, the world would sell them gold for oil. I tell you now, this almost happened!

If that had happened, as ANOTHER said, anyone with gold would have gotten oil really cheap. And the gold arb would have immediately taken gold to $10,000 per ounce. The Saudis could easily exchange gold to cover their overhead costs and save their 20% excess without a problem. The problem for the CBs would be that the world would be off a fiat standard and back on a gold standard a decade before the euro's birthday party.

The other option on the table was, let's not rock the boat just yet. At $30/bbl, you want to save about $20B in gold each year. At current prices that would be 50 million ounces or 1,555 tonnes per year. But you saw what happened in the late 70s. Obviously you can't just go to the market and get that much—in other words, obviously the price of gold today is bullshit. Obviously it's going to have to reset at a much higher level someday, we'd just prefer that day not be today.

So let's see if we can figure out a way for you to take, say, 20M ounces, or 622 tonnes per year off the market as long as we can keep the price of gold low so as not to rock the fiat currency boat. We'll even underwrite (guarantee) this deal with our own gold (and we have lots of it!). From what you, the Saudis, obviously understand, this is an excellent deal for both of us, especially if the gold you get comes from someone else and not from our vaults. But either way you're covered. Deal done!

I guess we will never know the exact deal, but ANOTHER sure spilled a lot of details in his early posts if you look closely!

Now let's see what ANOTHER said about the discount trade in gold:

"As long as there is an open market for gold, it will not be allowed to trade above its commodity price! It has far too much value for that to happen. You see, in much the same way that a zero coupon bond trades at a discount to face, gold is traded for its discount of "money value to commodity price! Think that I a fool, because I trade gold for thousands US an oz.? You will think much on this in the future.

[…]

With gold discounted to its production cost and below, those that have it can trade it for its monetary value. Make no mistake, the BIS knows gold in the many thousands. The future "reset value" of gold is the key. "support the dollar with oil and the currency system works" "fail the currencies and the dollar will come off the oil standard and the BIS will reset gold to $10,000+ with many conditions. That is why they continue to accept the dollar as a reserve. If Japan or any other COUNTRY sells US treasury debt it's all over!"

[…]

The selling of old dollar reserves, alone will reprice gold in US$ terms of at least $6,000/oz! Its present interbank reserve value.

[…]

The $6,000 valuation of gold can only be true if currency deflation destroys enough dollars to bring it down to that range. Without deflation, the dollar will be devalued much lower than this (higher gold price)! Once the Euro is created and begins to effect world trade (late 1999 perhaps), the gold market will begin a transition as never before! I think it will be interesting to follow the politics of this change, yes?

[…]

When the battle to keep gold from devaluing oil ( in direct gold for oil terms ) is lost, the dollar will find "no problem" with $30,000 gold, as it will be seen as a "benefit for all" and "why did noone see this sooner"?

[…]

The true value of gold, as a monetary currency, in today's current US$ values, is over $30,000. If all currencies were destroyed, and gold only was used, this value would be higher. However, currencies will be used in the future, as today, only their value in trade will change. They will no longer be held as reserves, without gold at their side!

Okay, so if you've got really big money and you want to protect a large portion of it in physical gold, you've got to pay what to us shrimps would be a big premium. But to the true Giant it is actually a discount.

Imagine, Woland, that you woke up one day and discovered that you owned an oil field that would produce millions of barrels a day for the rest of your life. Would you consider that a windfall? In fact, that's exactly what it is. And with that windfall you will be able to raise your standard of living up to the greatest standard available to mankind in 2013. You will even be able to accumulate wealth on top of your unlimited "maximum consumption" binge. What a rare treat!

But what you won't be able to do is get the full windfall profit from moving your excess into physical gold that we shrimps can get. You already got your windfall. You simply have too much money to do what we're doing. If you tried to go "all in", you alone would drive the price so high that you'd never get the windfall you were after. Go ahead, try. Approach your local Bullion Bank and see how far you get. I bet you'll eventually find yourself in a private room somewhere in London receiving an education and an offer. What seemed like a huge premium when you walked in will feel like a big discount by the time you leave.

When ANOTHER used terms like discount (and even premium) in this context, I think he was usually referring to gold, and I don't think he was talking about the 10% and 20% premiums and discounts we shrimps are used to. I think he was talking about Freegold-sized premiums and discounts. Remember this fellow from the post?

"A proposal was offered to borrow in broken lots, 3.5 and 5.5 million ozs for resale. It was turned down. The owner offered to sell only, no lease. What turned heads was that someone else stepped in and took it all, at a premium!"

I wonder what premium he got. That's the same 9,000,000 ounces I mentioned later in the post converting it to 280 tonnes. Remember ANOTHER saying:

"Think that I a fool, because I trade gold for thousands US an oz.? You will think much on this in the future."

Think now! I wonder if this guy got "thousands US an oz." when he was expecting $310/ounce. Let's see, that was a $2.8B sale offer at $310. At $1,000 it would have been $9B. Yeah, I guess that would turn some heads.

Woland, have you noticed that in ANOTHER (THOUGHTS!) there are many times when ANOTHER gives brief replies to various people yet we don't always know the question that was asked or the context in which it was asked? Well, I added the link to the old Kitco archives to my list of links in the sidebar. It's called Early Kitco Forum Archive.

It's pretty easy to click over and find the comments associated with ANOTHER's answers, and I think it adds a new dimension to (THOUGHTS!). For example, here's a discussion about that 9 million ounce deal, but you wouldn't have known that's what it was about from reading only ANOTHER's side of the conversation. I included a little more of the discussion for additional context (and also just because it was interesting), so enjoy!


Date: Fri Dec 12 1997 22:18
sweat (To Anybody) ID#23782:


Is there any way to find out if the 9,000,000 oz. deal really happened?

Where might the trade have taken place?

Is this whole gold trading business really that much "cloak and dagger"?


Date: Fri Dec 12 1997 22:31
ANOTHER (THOUGHTS!) ID#60253:

SW,
What is "cloak and dagger"?


Date: Fri Dec 12 1997 22:54
sweat (ANOTHER) ID#23782:


"Cloak and dagger" is an expression I would use for an action ( or trade ) done in great secracy.

My experience as a trader has taught me to value such things as
a ) time and sales - as reported on various exchanges
b ) open interest - as reported on various exchanges

The market always moves to size, you spoke of "making the turn". I would love to see documentation of a trade that size.

No offence intended, of course.


Date: Fri Dec 12 1997 23:08
ANOTHER (THOUGHTS!) ID#60253:

SWEAT:
You will not see 80% or more of gold deals. If it was done with all to see the discount value would be lost as the world price would explode. This is not the relm of any public “wall street”. At one time it belonged mostly to the Barron. Now it is large with the BIS and super rich. Wars will be fought over the lack of “visibility” of these dealings.


Date: Sat Jan 10 1998 21:50
sweat (ANOTHER) ID#23782:


What quantity of GOLD, paper or physical, has OIL traditionally purchased on an annual basis? How much paper GOLD is out there ready to be squeezed? Do you think OIL will be able to collect what is owed to them?

Why would OIL not want some ownership of GOLD EQUITIES?

Date: Sat Jan 10 1998 23:13
Cmax (COMEX is only but a refernence to the value of paper gold, NOT physical.) ID#344205:


It is interesting to watch all these various reasons for gold’s fall…..but most are missing the REAL issue.

The fact is, that when we talk about the purchase of gold, we are really talking about two divergent things:
a. that of the physical metal……… ( money )
b. that of a paper derivative, an I.O.U., kind of like a dollar bill…… ( currency )

What ( and who ) determines the price every day of the gold market?

Obviously, everyone looks first to COMEX as a reference before adjusting their prices.

What does COMEX use?

Supply and demand determined by it’s participants, who trade in gold contracts ( er ah, derivatives? ) , gold leases, and options and futures ( er ah, derivatives of derivatives ) .

One point must be plainly put forward:
Gold contracts, no matter what they are printed on or HOW they are worded, they are merely DEBTS, nothing more than a simple I.O.U. There is nowhere near enough gold on the planet to satisfy all these I.O.U.’s ( debts ) that are outstanding…….. and they are the very antithesis of what acumulators ( hoarders ) of wealth find in the spirit of holding real gold ( money ) .

I find it so wildly insane that holders of physical gold, ( money ) , would allow their wealth to be sold ( or valued ) at a price that is established by the supply of FIAT gold. If this scenario was written into a novel, no one would believe it……. or one would read it only as a comedy.

ANOTHER said it quite well, in his comment that “there is no end to the amount of paper gold that can be created.” All of this FIAT supply has overwhelmed the REAL demand for physical, and most people believe that they REALLY have purchased gold, when they buy these contracts. As long as the majority of gold purchasers believe that their paper is as “real” as physical, the COMEX paper gold value reference will continue to drop.

I for one, no longer accept established paper gold values for the real value of gold. Just try and buy a substantial quantity of the yellow……and what do you see? 6 months ago, you could buy at spot. Today, one ounce coins have a premium of $14 over spot….and rising every day. Oh, and don’t forget that even when paying the “premiums”, one has to really work at finding the coins for delivery. Easier said, there is now a phenominal demand, but very little supply of physical. And yet we allow paper to determine gold prices. Gold has never had the brute demand as what we have today……yet we are told that prices are down due to lack of interest.

COMEX should now be looked upon as the animal that it really is……
A REFERENCE TO THE VALUE OF PAPER GOLD. It has nothing to do with the price of physical beyond suckering in the few ignorant to sell there physical for the price of paper.


ANOTHER (THOUGHTS!) ID#60253:

CMAX: You are exactly correct! Follow your thoughts. good luck

SWEAT: What quantity of GOLD, paper or physical, has OIL traditionally purchased on an annual basis?
From 1991, appx. 20m/oz./yr., now it is more.

How much paper GOLD is out there ready to be squeezed?
Over 14,000 tons.

Do you think OIL will be able to collect what is owed to them?
It will come outright or thru the increase in value of metal owned after an oil for gold bid.


Date: Wed Feb 04 1998 20:09
kuston (followups) ID#273227:


Another - Did I misunderstand you posts last year? When you were promoting your gold theory last year - you stated silver and platinum would crash along with paper. I remember specifically asking this question just before I made a large physical purchase. Today, you are promoting world wealth will go into all physicals. I ask only for personal reasons. My physical collection has been going on for a long time, that's how I found Kitco many many months ago.

Date: Wed Feb 04 1998 20:04
sweat (ANOTHER) ID#23782:


Is it still possible that OIL will make a bid outside the BIS? If so, where might one look to follow this drama? How has the collection of physical progressed? Kitcoites have surmised RBA's 167 tonnes went to China or South Korea. ( Korean collection of 161 tonnes looks suspicious ) Any comments?


Date: Wed Feb 04 1998 23:23
ANOTHER (THOUGHTS!) ID#60254:

REPLYS:

Mr. Sweat,
If oil or the BIS bid for gold, you will know it ! In your terms,

" up front and personal"??

RBA's 167 tonnes ? No comment.

Mr. Kuston,
Please understand, that wealth will move into all forms of real assets as the destruction of our debt/ digitial currency system continues. When the currencies move to a final resolution, it will be the "marketplace for precious metals" that will die first! It is well known that gold will hold it's value above everything. All other metals could lose much of the value they gained prior to this meltdown! Remember, "when the currencies go to nuclear war, all paper and paper markets will burn"! Many hard assets will lose in the public mind as confusion will rule. In the thoughts of many, gold will perform!
______________________________________________________


The discussion above sparked an email exchange with a reader, the conclusion of which I wanted to share with you:


Hello XXXX,

Okay, now I think I see where you were going with this "top level approach". Here's what I think. At the highest level of wealth, I think the giants that understand gold have a lot less than 50% of their wealth in gold at today's price. At a Freegold price it may be closer to 50%, but I doubt they would book their gold at Freegold prices now, or even at the much higher off-market price they paid.

At that level, gold is merely insurance of sorts, even if they understand Freegold, and especially if they understand Freegold. The reason it is transacted at a higher-than-market price is so that the seller of the gold gets the future Freegold windfall now at the time of the sale, and the buyer simply preserves his current purchasing power through the transition. I'm only speaking very roughly, of course, since the higher prices mentioned by Another were not the full revaluation figure, but some number in between. So essentially the "Freegold windfall profit" is being split between the buyer and seller at the highest levels.

If you have, say, $20B that you want to put into gold, you can only do so in paper unallocated through the BBs. When the revaluation happens, as Another said, you will get your $20B in real gold at the new Freegold price. In other words, you buy $20B in unallocated paper gold today and then after Freegold you will have about 11 tonnes of real physical. Alternatively, if you want to take possession of your physical now, or have it allocated now, you are taken into a private room and given a very private education on the realities and constraints of today's gold market.

Here's my guess. Perhaps you are given two choices. $20B in paper gold as above and you suffer the same fate as everyone else in paper gold but you're at least guaranteed that physical at the revaluation price (11t), or you can take 22t now for your $20B. Let's see, that 22t option would be at a present price of $28K per ounce. So you're still likely to double your wealth if you take the latter deal and believe the story. But there's no way you are going to get the 370 tonnes that today's price says you should be able to buy.

But more likely than that is they simply say, look, you can't get more than 5 tonnes if you want physical. If you want paper gold, we'll take your $20B and give you the paper gold credits, but you can't have it allocated because there's simply not enough physical to go around. So let's say this guy gives them his $20B and also gets the 5t allocated. Come Freegold his paper gold will bring him 9.9t plus he'll have his 5t allocated for a total of 14.9 tonnes. See how that outcome is right in between the two choices above? And the best part is that this way they didn't have to explain Freegold to him, they simply had to explain the realities and constraints of today's gold market.

So now let's look at this guy's net worth. Let's say in Freegold his gold is roughly half of his net worth. 14.9 tonnes in Freegold would be about $26B, so let's say this guy is worth around $50B in Freegold. Maybe he's worth $40B today (pre-Freegold) because he's going to make a little bit of a gain (~25% gain overall) through the transition because of his choice to go after some physical gold. Today he only has 5 tonnes in actual physical, but in reality he has the equivalent of 14.9t because he put half of his net worth into a combination of paper and physical gold.

So, at $1,680, 14.9 tonnes is $805M, which represents only 2% of his current net worth. This is what I mean by insurance. The really big money cannot go deep enough into physical to get a windfall anywhere near what we shrimps can. It can only use gold as insurance to preserve what it already has, and with a little foresight, make a relatively modest gain.

Now, if we apply this across the board to those elites with $35T in net worth, 2% in real physical would be $700B or about 13,000 tonnes of physical, which sounds reasonable. But perhaps some of them have much more, like, for example, the Saudis. They could easily have 6,000+ tonnes alone (according to Another's figures), but even that is small potatoes compared to what they could have bought at market prices over the years.

Here is what the USG worried about back in 1973. It's from Foreign Relations of the United States, 1969-1976, V. XXXVI, The Energy Crisis, 1969-1974:

Saudi Arabia, Abu Dhabi, and Kuwait, limited by small populations, inadequate numbers of technically capable people and a dearth of non-oil resources, will not be able to increase spending on imports as fast as oil revenues mount. Nor could their gifts to other Middle Eastern nations even on a generous scale, greatly reduce this surplus of receipts over current expenditures.

Thus the foreign assets of the Middle East countries could amount to between $50–$80 billion by 1980 in constant 1973 dollars. At the upper limit these assets would be equal to about 60% of the world’s gold and foreign exchange reserves in 1972. The trends already in motion, if continued through 1985, would result in the Middle East oil producing states accumulating foreign assets that would be truly astronomical. Their assets would range from a low of $100 billion to as much as $180 billion by 1985, comparable to total gross U.S. foreign assets and to more than double net U.S. foreign assets.

Foreign assets of such enormous magnitude would inevitably be held in relatively liquid forms, such as securities and short-term instruments. The Middle East countries lack the industries and managers to make direct investments abroad on a really massive scale. Moreover, their buying up existing foreign companies would cause strong policy reactions.

In any case the Middle East oil producers would have unprecedented financial power. Discretionary use of such vast assets obviously has enormous potential for disruption of financial markets. Attempts to neutralize these assets through capital controls in producing countries might induce the producers to curtail output.

Footnote:
In an April 17 briefing memorandum, Saunders and Quandt reminded Kissinger of Yamani’s proposal for a special relationship with the United States (see Document 140), the “real purpose” of which was to develop closer strategic ties by binding the United States to Saudi oil, offsetting a short-term U.S. balance-of-payments problem by investing in the United States, and thus guaranteeing that the Saudis would not cut off the flow of oil.

The point here is that they knew, even back in 1973, that the Saudis essentially had gold cornered. The Saudis could, theoretically, have had 60% of the world's gold by the early 80s and probably all of it by the late 80s (and it's a good thing for them that didn't happen). But instead, someone worked out a deal and, by 1999, let's say the Saudis had 6,000 tonnes of physical amounting to maybe 4% or 5% of the world's gold at that time, rather than all of it or even 60% of it.

You see, the Saudi's windfall came in the 1940s when they woke up and found themselves sitting on top of the world's richest resource. Freegold will not be their windfall, they already got that long ago. Freegold will simply preserve it for them long into the future, perhaps even well past the end of fossil fuels. And that's kind of the way it is for any Giant at that level. If you're worth $40B today, you already got your "windfall" and Freegold is simply a way to lock it in and preserve it far into the future, it is not a way to multiply it many times over. The realities and constraints of today's gold market make that impossible.

There's plenty more that wealth at that level can do other than just hoard gold:









The point is that they don't hoard gold for profit. They do it to lock in the profit that they already made above and beyond their ability to spend it in their lifetime. And that's the way the gold market has been managed at this level. Sure, they will get some gain, some profit from the Freegold revaluation, because not everyone at that level is in gold.

So, yes, those higher prices are already here for the super-wealthy Giants, and always have been. That's what Another was trying to tell us. And this is my version of a "top level approach"! ;D

Sincerely,
FOFOA

Hello Fofoa:

Wow! Thanks for a really comprehensive answer. The "back room" explanation was vaguely familiar, so I'm sure you're dealing with questions already asked and answered. Your email read like a personal post, and I'm going to go back and re-read it several times until I get it all. This bit...


"freegold windfall profit" is being split between the buyer and seller at the highest levels...

is a great explanation, of a more scrambled thought I had, but this...

they don't hold gold for profit

is a Goliath idea: nothin' like that ever entered my head before! Both concepts would be very bloggable, by the way. Thanks again, and all the best!

XXXX



762 comments:

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milamber said...

@ TontoD

I don’t think that the the fact that CB’s (gov’ts) have seigniorage is the reason the Hunt Brothers got blown up in Silver. They were trying to corner the silver market on margin, and they got their knees capped.

http://fofoa.blogspot.com/2008/09/story-of-hunt-brothers.html

Milamber

GrumpsLabastard said...

PAAS Pan American Silver just increased dividend by 150% in spite of 2 year consolidation in silver price.

Get paid while you wait for Fed gold operations.

I know miners are a no-no within the Freegold thesis. Freegold represents the liberation of shrimps from the plantation. It doesn't hurt to hedge that shrimp farming will continue and that the revaluation of gold will be managed.

TontoD said...

@milamber

Apologies if my post was confusing. Two separate statements:
1) CBs can never run out of money since they can just keep printing. That is called Seigniorage.
2) A single entity (only three brothers, right?) can corner the silver market. If you understood their mentality, they can go "all in".

#1 has nothing to do with #2. However, when the time comes that the CBs are buying physical from the open market, they will never run out of money. If anything, the value of their reserves go up as the price of gold goes up.

TontoD said...

Correction: "can go all in" should be "tried to go all in"

Frank Pansy said...

Nice line, TontoD!

#1 has nothing to do with #2. However, when the time comes that the CBs are buying physical from the open market, they will never run out of money. If anything, the value of their reserves go up as the price of gold goes up.

price of gold goes up = price of currency goes down

So when would a CB decide it wants to buy gold? When there is inflation and gold is already going up?

Hi-ho silver!

Edwardo said...

You may not agree, but I think this "new program" that Bruce Krasting has analyzed, and found wanting, represents another data point in favor of the thesis, advanced here, that The Feds have no intention, regardless of what that may entail, of curtailing their lifestyle.

The only question I have is, can we chalk this transparent bit of swill up to to wanton stupidity or madness. Of course the two are often inextricably bound up with one another, at least at first glance.

In the meantime, I'm going to go out on a limb, though a sturdy one by my reckoning, and offer that yesterday's low in "paper gold" will not hold.

KnallGold said...

OBA, Fiat Silver, well, but Another said, and he was (well, is) very credible, in the end Gold will outperform all! Remember the meeting point by FOFOA?

Wil Martindale said...

Well, I managed to add a piece to my collection last night that I NEVER thought I'd shake loose, and another piece coming in for repair that is the ONLY ONE in existence (the repair will pay for the first piece on consignment and already paid for).

And I traded mere paper for these rare antiquities. Mere paper ... just a "thought in the mind about the associated value of an item" which someone else wise enough to compete missed by a mere 21 dollars in the last 5 seconds of the auction.

Sometimes ... to have a deeper understanding of value ... is to be able to guess at another's associated value and beat that value out by a margin that thin.

I too am pure "American" of Italian, Irish, English and German heritage (in that order, some of best of Europe there) born and bred to this western culture mindset.

And yet, we seasoned collectors do understand gold, and always have, in a way that the Western investor does not.

I know it's off topic, and I hope you don't mind my "jump for joy" as I celebrate with a cold Lagunitas "Little Sumpin' Wild Ale." 8.8% octane.

Life does have it's perks when you go for the gusto!@!

enough said...

Not a puke but still a substantial purge.......

GLD loses another 9 tonnes....

Knotty Pine said...

This is OT but what better place for a heartwarming story about a hero, a saver, and a shoeshine boy!

http://minnesota.publicradio.org/collections/special/columns/news_cut/archive/2013/02/fighting_the_cost_of_health_ca.shtml

KnallGold said...

UN: certainly no problem with that Asian looking silent worker, just thinking ahead a couple of years. And certainly no problem with that Asian looking Vice chanccelur. btw got that birthday card from my good friend roger, all fine, congtrats!

victorthecleaner said...

The loss of 9 tonnes of GLD inventory today is another buy signal according to my trading strategy (disclaimer for the newbie: You don't want to trade this signal - it's merely academic).

Victor

enough said...

I have removed all my paper hedges for the time being....

tomorrow's COMEX COT report will be very interesting even though it will not include the big takedown wednesday. Release tomorrow at 3:30pm EST is for reporting period tues 2/12-2/19 .....

Michael dV said...

enough
what compelled you to un hedge at this time?
My hedging is I suspect less sophisticated than most would use but I have slightly different worries.

One Bad Adder said...

KnallGold - "ultimately" yes it will mate ...but IMHO, whilstever the Fiat regime holds sway ...and particularly in it's final stages, I feel F-Ag will outperform F-Au - on the back of it's (Ag's) superior utility.
...In fact, I'm betting on it!

Oakay Nobmilka said...

@DP

On the 15th you wrote this:

"Giants demand physical gold from the paper market price. They get it or their products stop flowing. The products are worth more than mere money.

BBs need physical gold to keep the paper markets functioning and delivering physical when demanded.

CBs buy physical gold from Giants, if necessary, through the BIS and at a Freegold price - because the BIS/Giants know the leverage in the paper market, and therefore understand what value physical gold really has.

As long as the Giants and CBs have the political will for the paper gold market to continue, there will be enough physical flow to satisfy demand. Orcas need not apply."

Care to expand on this?

DP said...

Date: Sun Oct 12 1997 10:42
ANOTHER (THOUGHTS!) ID#60253:

How DO they do it?

It's more complicated than this but here is a close explanation. In the beginning the CBs didn't sell their own gold. They ( thru third party ) found someone else who had bullion. That "party" sold to a broker who sold forward for a mine or speculator or government ) . In the end the 3rd party had the backing from the broker that he had backing from the CB to supply physical if needed to put out a fire. The CB held a very private note from the broker as insurance and was paid a small fee. This process mobilized free standing bullion outside the government stockpiles. The world currency gold price was kept down as large existing physical stockpiles were replaced by notes of future delivery from the merchant banks ( and anyone else who wanted to play ) .

This whole game was not lost on some very large buyers WHO WANTED GOLD BUT DIDN'T WANT IT'S MOVEMENT TO BE SEEN! Why not move a little closer to the action by offering cash directly to the broker/bank ( to be lent out ) in return for a future gold note that was indirectly backed by the CBs. That "paper gold" was just like gold in the bank. The CBs liked it because no one had to move gold and it took BIG buying power off the market that would have gunned the price! It also worked well as a vehicle to cycle oil wealth for gold as a complete paper deal.

Are you with me?

DP said...

RT @darenpa72 Riders ready. Pedals ready. Go! http://bit.ly/14OKfOI

Account statement: paid in full

enough said...

hi Michael dv,

if we assume that the current paper continues for a time then we must look at the traditional paper mkt indicators to determine probable future direction.....

sentiment- more bearish than at anytime since paper gold bull mkt began, therefore bullish....

technicals- daily stochastics are extremely oversold and more importantly the weekly stochastics are lined up with daily's at extreme oversold levels. This happens in the weekly's at most twice a year....

charts- we just hit the bottom channel line of the 2 year old consolidation triangle. We should now bust out higher as this consolidation at the top 20% of the 12 year range should now have run it's course. Only a print below the low of $1525 would cause me to rethink things.

smart/dumb money (COT)- the smart money, bullion banks, have been aggressively covering their shorts and in fact have added longs while the dumb money(hedgies) have aggressively been adding shorts and in fact have record short interest now. This is the set up for a furious short covering rally at the least. See Aaronsberg link below....

GLD PUKE SIGNAL- has been good for a minimum 5% rally.

When/if we get to $1630, I will re-evaulate readings....

all IMHO of course and if indeed the paper show is closing then all this is moot....





http://www.gotgoldreport.com/2013/02/got-gold-report-courtesy-release-of-our-entire-February-18-report-.html

enough said...

Michael dV,

I have tried twice now to post an extensive answe but the post did not take...

bottom line is that if we assume the paper mkt is going to continue for a while (and I do)then paper mkt indicators must be evaluated...

all are screaming at minimum a furious short covering rally is coming.....

http://treo.typepad.com/files/20130218-ggr-cot-notes.pdf

J said...

I did some shopping right outside of the ski slope in the mall of the emirates http://imgur.com/OiImy8u

Edwardo said...

Is paper gold dead, and they just don't know it, can't even conceive it, let alone believe it? We're going to find out.

MatrixSentry said...

Paper gold is not acting dead, yet. As a former trader, I see nothing particularly alarming when looking at the long term Gold Chart. Price is right at the lower boundary of a trend channel that has been in place for over a decade. For the status quo to be maintained we would expect a rally back toward the middle of the channel, then a series of higher lows that stay within the confines of the channel. If that does not occur, I would say the character of the trend is definitely changing.

In order for me to say the bull market in paper gold is over, I would need to see a move down through 1300. That would be a Fibonacci 38.2% retracement and a move through that level violates strong natural support in the bull market. The only time we have seen that kind of retrace was during the crash in 2008, and then there was a very strong V bottom reaction after the 38.2% level was briefly breached. That reaction solidified the notion that market was inherently bullish and the weakened price was refreshing the trend.

A move through 1300 without a strong buying response similar to what was seen in late 2008 and 2009 suggests an end to the bull market in paper gold. Since I do not see fundamentals for gold changing, as a result of a miraculous resolution to the $IMFS crisis, the need for gold will remain. The lack of ability of "gold" to adequately satisfy the need for gold will be reflected. I expect this to be a sudden realization and not a gradual one. That should provide an exclamation point in the form of a waterfall and should set off a stampede. It will not be hard to miss and we will not be asking whether this is the end of "gold."

Peter said...

Yes.

Date: Sun Oct 19 1997 13:41
ANOTHER (THOUGHTS!) ID#60253
:

If you are searching for facts you will find them, but the items you find will not be true! Did you think that the high powered world of the LBMA would operate in a fishbowl for all to see? We cannot take what is on the outside as evidence for what is on the inside. To find the answer work with inside assumptions and extrapolate them to the outside!

Think now:

Would the world CBs really have kept gold this long if they only valued it at it's ongoing commodity price? Cannot only the offer of gold have some value in a deal? Can paper gold that has a commodity face value of, say $300 be traded for it's true value of many thousands? Indeed, if your worldly investments ( US stock market? ) are valued in the long run by a full supply of oil, would not future gold in a Swiss acct. make a good trade?

ein anderer said...

»Next goal between 1420 und 1320 Dollar«, says today Frankfurter Allgemeine Zeitung.

Edwardo said...

Matrix Sentry,

You may be correct in your analysis. We all have our own TA metrics that we assign validity to. So, while the jury is out on the state of "paper gold's" vitals, it has a distinctly morbid cast to this longtime observer.

Alien said...

EA

wie kommst du auf die Idee, dass FAZ irgend eine Relevanz hat? Geht's noch dümmer?

ein anderer said...
This comment has been removed by the author.
ein anderer said...

@Alien: My comment was directed to MatrixSentry above
»The end of parity between paper gold price discovery and physical gold price discovery« is one of the »key aspects to Freegold«.
A decline of paper gold price is said to be one of the first signs that this par(i)ty ends. You will find many sources forecasting such a decline: not least in this blog.
So (1) don’t switch to irrelevant FAZ bashing since it’s data are firm. (2) Please stay polite (for the case »Geht’s noch dümmer?« is directed to the OP).

enough said...

COT for tues 2/12- tues 2/19

Commercials, essentially the bullion banks covered a large 24,000 contacts of short futures positions and added 4300 contracts to their long side....

I consider the bullion banks to be the "smart money", the "spiders" closest to the physical market....

If the spiders thought that the paper game was up, they would not position themselves this way...

The speculator class, hedge funds and the like, increased their shorts by 30,000 futures contracts.....

The speculator class had record short interest prior to this release and so now they have been well and truly set up by the BB's for a monumental fleecing....IMHO

enough said...

and here comes the squeeze......

Hill C said...

GLD just barfed up another 10 ton hairball! That is 70 in the last several weeks.

victorthecleaner said...


GLD lost another 10 tonnes today - another buy signal. It is now down 42 tonnes or just over 3% for the week. This isn't even the record. The record was 58 tonnes in the week of 22 August 2011.

Victor

Wil Martindale said...

"For the status quo to be maintained we would expect a rally back toward the middle of the channel, then a series of higher lows that stay within the confines of the channel. If that does not occur, I would say the character of the trend is definitely changing."

And the moral of this story, as I see it, is that long view TA, as long as it is recognized as "gold" TA does have value. Because it is a signal of how a mature market (despite manipulation) has behaved over time, is supposed to behave and will behave as long as the "status quo" is in play. We could call it status quo TA inasmuch as the players are still gaming the system now as before.

http://www.macrotrends.org/1333/gold-and-silver-prices-100-year-historical-chart

Jeff said...

Victor cited (not sighted):

http://www.zerohedge.com/news/2013-02-22/gold-and-potential-dollar-endgame-part-3-backwardation-and-gold


There is strong anecdotal evidence (VtC, 2012) that for the decade prior or longer, Central Banks had been the primary suppliers of gold and therefore served as a backstop to the rapidly expanding paper gold market.

Jeff said...

Also FOFOA: Is it possible that this falling gold price was signaling something deeper than potential bank failure? (FOFOA, 2013)

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

I think it's worth pointing out that all paper gold is not created equally, and, therefore, does not behave equally in what passes for the present day marketplace. Let's face it, the world of paper gold is vast, and while it is all prone to get left in the dust relative to physical come reval time, one mining stock is not the same as the next in the here and now for a host of reasons.

There is a tendency to treat the two golds monolithically such that on one side we have physical gold, and, on the other, we have "paper gold."

There is a certain cruel irony in the fact that while gold mining stocks are among the more risky investments one can make in the world of equities, the product of these risky companies for which equity is floated represent the sine qua non of stable value, at least over long periods of time.

All physical is the same everywhere, four hundred individual one ounce coins will cost a bit more to acquire than a standard LGD bar because of premiums, but that's about it. And while finding a buyer for your four hundred ounce brick might be a tad more challenging than selling four hundred gold Eagles, as long as there is no question regarding authenticity, the task will be achieved without too much trouble.

As for obtaining physical, we know, or think we do, that physical is, at the least, bifurcated such that those acquiring it at the level of shrimps, even jumbo shrimps, entails very different circumstances than those encountered by the largest sea creatures.

All this by way of saying that when we talk of paper gold being dead or alive, clearly, quite a bit of paper gold is long since dead. Other paper gold products are so battered and bloodied they might as well be taking last rites. And, then, even amongst all the carnage that has occurred of late, one can find shares, not too many I'll grant you, that have held up relatively well.

Pardon me if you think I've belabored the point, and this is not meant to be read as a promotion of paper gold.

One Bad Adder said...

It's a cruddy weekend here so "we surf".
This compares the 3Yr performance of Fiat Gold vis-a-vis Fiat alt-Money (reciprical DX)
Seems to me FG has well outperformed the alt currencies these past 18 mths ...whoda thunk?

Motley Fool said...

From that ZH piece linked by Jeff :

"Some believe that they will be able to look at various metrics measuring the level of stress in the gold market or even backwardation and “know” when it is time to move to physical."

I find this interesting. It reminds me of FOFOA's analogy of ten bidders all thinking they have a house in the bag, since they can just outbid the others.

I have a trader friend who has this mentality. Of course, when such metrics start screaming, only some of those who thought they could do so would be able to find gold, the rest would be SOL.

I wonder two things. How many paper traders have this mentality, and how much cash they have at their disposal. Secondly, this game of waiting till signaled means these do not put collective pressure on the current market, which in itself delays d-day, even if they may understand that gold is the endgame.

TF

ein anderer said...
This comment has been removed by the author.
ein anderer said...

Bespoke table: "% of Companies Beating EPS Estimates as Season has Progressed".
Source, via Gaertner’s Blog

Edwardo said...

Motley, your musing has put me in mind of an an old market adage,

"As soon as you find the key to the locks, they change the lock."

ein anderer said...

FOFOA,
what do you think of a Post called "Quotes", where everybody could post smaller quotes of (FO(FO))A inclusive links?
My first candidate (found today) would be:

"In my world, Freegold is a way to view unfolding events as they happen. It is a view of the valley below, as seen from a high vantage. It is a cipher for understanding what we see. It is not a description of what should be. Instead, it is framework, different from almost everything else you are reading, in which you can interpret unfolding events in a different light."

Wil Martindale said...

The only thing fundamental about today's gold market is that what is traded is "fundamentally" NOT gold. It is merely the tenure of this manipulated market that provides signal value in trending the status quo.

Mining stocks have nothing to do with this, as they are not pretending to be gold, but rather more like paper gold in fact, as they are a bet on an industry's future ability to leverage and/or profit from newly mined gold.

After all, it is the default of the Comex / LBMA which is the main event here. Neither is puking paper stocks.

Further, there is ample "dumb paper" in 401 K's to rob (and similar contrivances), surely enough to keep Giants entertained as they continue to support the status quo just enough to make it worth their involvement.

As I have said before, when the lights come on and "who has what gold" is seen, there will be a HUGE surprise - much more in the very private hands of generational wealth dynasty's than ever imagined being used now in "political bribe form" for it's sytemic importance.

As we have discussed here before, the premium that is paid to Giants to support the next BB's exposure to these pukes is measured and weighed against the political, social and systemic value to maintain this current system. Therein lies the premium.

As the dollar's utility in this poker game loses use value, the premium inches further and further up until there is no Giant left who will not withhold at any dollar price, and the endgame begins. The dollar loses its utility as it is hyperinfated to pay the premium. There is your chart.

And there is your "big poker hand" because we already know the winning hand ;0)

This is why to call it the IMF$ is a bit of an understatment. It should be understood as the IMFP$.

Cloud Father ... let my eagles soar !!

ein anderer said...

May be via Twitter? With a ittle help of Twitlonger?
With hashtag(s)? "#freegold + #quote"? "#freegoldquote"?

One Bad Adder said...

...AND (FWIW) here's Another Comparison Chart this time showing DX and $IRX. What this and the previous Chart tells us is that we have quite a ways to go before the stresses and strains of the current system are such that FreeGold becomes a reality IMHO.

ein anderer said...

Will,

I go along with you (as far as my knowledge allows me to do so).

For my understanding:

"much more in the very private hands of generational wealth dynasty's than ever imagined":

More then CBs?

One Bad Adder said...

Just on $IRX - we're currently seeing a 2 Yr high which doesn't bode well for the retreat into the Here 'n Now hypothesis any time soon.

What this all points to is (probably) Another $PoG uptick (lower high) next week ...
...and on (and down) we grind!

These things can turn on a dime tho.

Wil Martindale said...

ein,
If one merely projects estimated Roth wealth from it's earliest (presumed accurate) accountings in the currency du jour, over many generations - even at a modest pace of growth (and if I mat say, I do believe that family has outrun most in terms of % growth, over 450 years or so) ...
AND ... we presume that the single rigid foundation of that "continuation" strategy is a deep, say "giant" understand of true wealth, or how to optimize accumulating it at cheap paper prices without gunning the marke, over time ....... (This my friend why they call it "Rothschild continuation holdings:)

I think your solid German math and logic will tell you what mine does.

And of these of 13 or 14 giants, the Roth is but a King among Barons.

Yes, they hold a "systemically important" amount among them, in IMFP$ terms. If not more, certainly enough to matter more than ever thought.

Wil Martindale said...

And while it is clear that I seem to have tripped down the stairs, bumping my head considerably, to the extent that my former post has been types in gibberish ... may I nonetheless add ... to the thought above ... compare this continuation strategy, over centuries, to the political thoughts from term to term, "blowing in the wind".

Or said "another" way, do you think the 8 year stint of Wall's Streets shiny new Madison Avenue contrived MASCOT has ANY impact on that LONG ... and I do mean LONG ... strategy??

Or does he just read his cue cards and look down his nose at Ron Paul when the crazy old uncle in the closet dares to question the FED.

Oh the old man does need a back room lesson eh?
But I digress.

Oh Ancient Father of the plains, set my eagles free as we pass the pipe of understanding. Your power alone is a hand above giants.

Pat said...

Wil, you are waxing poetic this day. What have ye in your pipe of understanding?

Wil Martindale said...

So ... if the CBs have stopped supporting the BBs, does this not create a premium bidding war between them for Giant gold? A premium relative to the systemic importance (albeit to all) of keeping the current gold market afloat (if not then my understanding of these pukes is wrong).

And which of the two, is in the interest if the giants to support, as this all unfolds.

It seems to me that freegold is in the hands of the giants. When it is their collective best interest to withhold, why would all not withhold?

Such is the idea of the Euro ... to pool resources together under a "continuation holding" strategy, almost as a generational wealth dynasty would.

But does W.D.'s political separation from the currency hold through?

Time will tell.

Wil Martindale said...

Yes Pat,
The Medicine man does come down from the mountain from time to time, with gifts from the ancient father, as old as rain and dirt and sun.

Even older than great Eagle, soaring between the dancing clouds !

Wil Martindale said...

But thunderstorms of white man and his iron horse of paper send great eagle into hiding.

He waits for the rising Sun to clear the way ...

Wil Martindale said...

Or does Kyle Bass's axiom of "would you go joint and several even with members of your own immediate family" hold true ...

ein anderer said...

:)
German head was too lazy for looking into estimated 1997 data from Markus Angelicus by himself. Yes:
Accounting for the Rothschild Wealth and Influence
Morton (1962) noted that the Rothschild wealth was estimated at over $6 billion US in 1850. Not a significant amount in today's dollars; however, consider the potential future value compounded over 147 years!

Taking $6 billion (and assuming no erosion of the wealth base) and compounding that figure at various returns on investment (a conservative range of 4% to 8%) would suggest the following net worth of the Rothschild family enterprise:

$1.9 trillion US (@ 4%)
$7.8 trillion US (@ 5%)
$31.5 trillion US (@ 6%)
$125,189.1 trillion US (@ 7%)
$491,409.0 trillion US (@ 8%)

To give these figures some perspective consider these benchmarks:

• A little of $300 billion US buys every ounce of gold in every central bank in the world (see John Kutyn's estimate (http://www.gold-eagle.com/gold_digest/kutyn111597.html).
• U.S. M3 money supply August 1997 was $5.2 trillion
• U.S. debt is currently $5.4 trillion.
• U.S. GDP (1997; 2nd Q.) is $8.03 trillion.
• George Soros' empire is worth an estimated $20 billion.


That means: If this wealth has doubled in the last 16 years and if we go for 8%, Rothschild could bailout the USA debt (of about 200 trillion) three times today.

Pat said...

EA, now that meine freunde, is thinking like a GIANT!

Wil Martindale said...

A VERY modest gain for a Roth. Think of how much physical 1% of this buys ... over time.

Wil Martindale said...

Because this my friends:

$1.9 trillion US (@ 4%)
$7.8 trillion US (@ 5%)
$31.5 trillion US (@ 6%)
$125,189.1 trillion US (@ 7%)
$491,409.0 trillion US (@ 8%)

Is just a means to an end.

This currency did not exist throughout the early days of Roth. There were other means back then, not planted so deep as the dollar.

But the end is gold.

byiamBYoung said...

I feel ya, Brother Wil!

Pat said...

So the Roths discussion, and any of the other long-term generational GIANTS ( Warburgs,Oppenheimers, relative newbies like Rockerfellers, Morgans et al )piqued this thought. These giants have so much income, always, that the gold they hold basically never will see the light of day again. Why? No need, ever. I recall FOFOA's post showing the Roths 12 castles. One can imagine they have every worldly good available, in mass quantity. Gold lying extraordinarily still. Would be interesting to know this quantity. These entities are GIANTS among giants.
Next we have sovereign super producers like SA, that have a finite means of producing and so store gold for the day when it is needed; it lies very still now but not "forever". Sure, they are using some oil proceeds to try to position themselves to produce other non-oil products in the future, but I see no signs that they have established anything to equate to oil wealth production. And they have on-going expenditures always; infrastructure, shiny skyscrapers, etc.
Then you have other sovereigns rapidly buying gold in lieu of say Treasuries; they are finally awake and see tangible assets are SoV, paper not so much. Gold of course primarily, although Chinese have so much paper they are buying copper, steel, etc to stockpile, anything tangible.
My point then? The Roths of the world have no care about the price whatsoever, they have so much income they will never have to convert into currency to buy anything, ever ( current system ). SA, other sovereigns care very much and I think they will not only support an overt price reset, but at some point push for it behind closed doors. Maybe they already have, and the rush to gold by China, Russia, Brazil, CB's and other giants ( not GIANTS )is action we can see that supports this. Think of it from SA's perspective. Sure, we'll pay x thousands/ounce for purchases in size, since the coming reset value is x + y.
Anyway, just a rambling thought after two cups of java.

enough said...

A question for the think tank?

First my thought process.......

The COT report is useful in several ways. As mentioned prior, I believe the commercials (Bullion banks)are the smart money and the COT offers a window, with a slight delay into how the smart money see the paper mkt going forward in at least the near term......

This is useful in terms of hedging my physical position but more importantly, maybe offers a window into the timing of the final collapse of the gold futures mkt.....

So I guess my first question is, if the BB's knew that the paper gold mkt was ending, would they want to be extremely short paper gold or flat?

Short to take advantage of falling paper price or flat so that they have no liability to deliver on those contracts. I know technically they have no liabilty and could cash out longs but maybe it would be less hassle to be flat and not have to deal with that?

Therefore if they want to be short into paper gold collapse, a COT that shows robust positioning on the short side by the BB's when paper gold is in a precariuos position chart wise could fortell the end of paper gold....

But if the BB's are flattening out shorts near the bottom of the price range then it could mean that it's still possible that paper gold is nearly done but they want to be flat into it?

So my questuon becomes, how do we believe the BB's will be positioned at the verge of paper gold mkt ending?

One thing I am sure is the BB's would not be adding longs if they believed/knew the paper mkt was ending.....

Unless they wanted to decieved, misdirect using the COT?

Maybe all of this is meaningless and no conclusions can be drawn regarding timing of the end of the paper gold futures mkt using the COT nor as an indicator for either near term direction or catastophic terminal collapse?

thanks in advance if anyone feels this is worthy of a response.....


ein anderer said...
This comment has been removed by the author.
ein anderer said...
This comment has been removed by the author.
ein anderer said...

Dow Jones in Gold.
Thanks to Nikolaus Jilch, economic editor at the daily newspaper Die Presse, Vienna.
Nik wrote also a beautiful article about possibility and consequences of a COMEX default—and why Gold (phys) is so shiny.
He is blogging.

Pat said...

EA, two deleted posts so you could nail comment # 666. Devilishly clever.

michael3c2000 said...

This mini Rothschild documentary looks like a 3 minute clip of a larger film: http://www.youtube.com/watch?feature=player_embedded&v=Ym4TTmOJ4I8#!
(The gold ownership claim may be an approximation at best. Nor do I think the Rothschild's have cornered the world's gold supply. They also left the London gold fix after the video was made.
In another slightly longer video, CNBC's Mario Barteromo interviews Evelyn De Rothschild-http://www.youtube.com/watch?v=dAMANiO9dic

A 3 minute interview (not David or Nathan Rothschild), Evelyn and a MSM "journalist" includes derivative topics- http://www.youtube.com/watch?v=NT2vap9RouM

World currency, China, PTB and weather control come up in this 3 min interview- http://www.youtube.com/watch?v=FRrv1pSzGyc

michael3c2000 said...

British Pound Sterling predictions for this year, that many made last year, seeing further fulfillment: http://www.jsmineset.com/2013/02/23/in-the-news-today-1462/ As this credit downgrade dawns on the markets tonight, some will be watching this instead:

http://www.reuters.com/article/2013/02/23/us-usa-stocks-weekahead-idUSBRE91L1A520130223
Investors Face Another Washington Deadline - EXCERPT:
"...The latest data on fourth-quarter U.S. gross domestic product is expected on Thursday, and some analysts predict an upward revision following trade data that showed America's deficit shrank in December to its narrowest in nearly three years.

U.S. GDP unexpectedly contracted in the fourth quarter, according to an earlier government estimate, but analysts said there was no reason for panic, given that consumer spending and business investment picked up.

Investors will be looking for any hints of changes in the Fed's policy of monetary easing when Fed Chairman Ben Bernake speaks before congressional committees on Tuesday and Wednesday...."
Hackers, spies and "diplomacy" is the subject, noting a big security conference in SanFrancisco tomorrow. Underlying the technology are the global traders, spook faders and geopolitical currency confabulators:

http://www.reuters.com/article/2013/02/24/us-cybersecurity-battle-idUSBRE91N03520130224
The Near Impossible Battle Against Hackers Everywhere

ein anderer said...

LOL, Pat … :)

milamber said...

@ TontoD

Interesting. I have always seen seigniorage defined as the difference between the cost to create a currency unit versus the face value listed on said instrument.

While I agree that theoretically CB’s can never run out of currency, they have to be mindful that they don’t destroy the “moneyness” of their currency. So while Greenspan (and the MMTers) was technically right, that the US can print as much currency as is needed, they are constrained as the currency ceases to be used as a MoE, UoA or SoV. Or as Another said,

"the printers of paper do never tell the owner that the money has less value, that judgment is reserved for the person you offer that currency to"!

So more than likely, If a CB prints unlimited amounts of currency just to buy gold, their printing press will be obliterated. And remember a functional printing press is more valueable to the state than gold.

On the cornering of the silver market, all I can say is they tried to do so (on margin) and got their legs cut out from under them. I think a lesson was learned by others: don’t attempt to take a monopoly position in an industrial commodity.

Especially through an exchange “regulated” in the States. And really especially don’t do it on margin when the very entities that you are borrowing your “money” from will be destroyed if you are successful.Members of the SLA could learn a lot from that lesson.

And incidentally, only CB’s that mark their gold to market will see their balance sheets supported by a rising gold price. Others still list it at $42.22/oz.

Milamber

KnallGold said...

-Buy/sell exchange rate for a 20 Vreneli 270/290sFr. last Friday, 301sFr. paid at local bank. The 100g bar rate was 4703/xxxx, hmm, will sell it Monday 25., hope its higher; its an old CSFB bar but they will take it without hassle as Gold is Gold, looks like this is becoming a trend!

-a day late and a $ long, well used the time to relax a bit, dived further into Sysyphe, good title here ;-)

http://www.youtube.com/watch?v=pUFRZ7meFjc





Luke said...

SILVER RUSH!!!!

Check out Discovery channel right now(8-11pm est). Its a pretty interesting show about recovering PMs from old shipwrecks.

ein anderer said...

This time is different.
84p PDF titeld "Perfect Storm. Energy, Finance and the End of Growth" by Dr Tim Morgan Global Head of Research, Tullet Prebon.

Quote:

“This report describes an impending economic crisis. Although, and as we have already seen, the post-2008 slump is the denouement of the biggest financial bubble in history, this is, in many ways, the least of the problems faced by the global economy collectively, and by the Western economies in particular.”

Have a look into the summaries.

Myself no time yet to read, but it popped up already here (blog of a german writer sitting at the west coast of the USA).

ein anderer said...

Some german data:

• Short term bank deposit vs. gold ratio = 4:1.
• 11% of the gold owners are invested in paper gold.
• 85% of the gold savers do not want to sell (2013). 2011: 58%.

ein anderer said...

@Luke,
found a very nice FOFOA piece on silver here:
http://fofoa.blogspot.de/2010/12/kicking-hornets-nest.html

KnallGold said...

Shortterm POG outlook, taken from the yahoo site. As we have broken that 1588, it looks like the 1600 barrier can be be broken now.

"Prices are testing support-turned-resistance at the bottom of a falling channel set from October, a barrier reinforced by the 23.6% Fibonacci retracement at 1588.61. A break above that targets the 38.2% level at 1609.40. Near-term support is at 1555.00 – the February 21 low – with a turn back beneath that targeting the 1522.50-39.35 area marked by the December 29 2011 low and the May "

Polly Metallic said...

I watched part of the Silver Rush show. Seeing all those shipwrecked bars on the bottom of the ocean, tarnished and ugly, made me think how much more common silver is than gold and how much better gold retains its beauty when subjected to the same environmental conditions!

I am glad people are waking up to investing in something other than fiat. A lot of people prefer silver who do not fully understand gold's future. This is good since I need to sell silver to defend "the precious." Thankfully there are ready buyers! And compared to fiat, silver will do well, at least up till Freegold, when its future becomes more uncertain. I like silver, platinum and palladium (hence my name) and especially like old silver coins.

I have spent awhile lately puzzling out what will become of rare gold coins post Freegold. Will the shrimp and even Jumbo Shrimp melt the rarer Saints and Libs etc.? I doubt anyone would buy them quickly enough to prevent them from being converted into 400 oz bars for Giants. Rather a sad thought.

ein anderer said...

Why melting.
An ounce will be fine to cover personal needs for 6 (24) months in €-Europe (USA).

ein anderer said...

Now let's see where Italy is going ;)

Polly Metallic said...

Ein Anderer

Judging by what we have seen here in the US of public behavior, most people will sell all their gold and buy McMansions and designer clothes!

Michael H said...

Giants should be well familiar with de facto position limits, since they apply to every investment they make.

Say company ABC makes the greatest product ever and is headed for a 20x gain. Great! Our hypothetical giant calls his stock broker and asks for 100 million shares at $10 each, which is the current trading price. Hm, there's a problem. The average daily volume is only 500,000 shares, and there are only 10 million shares outstanding.

Does our giant scream 'fraud!' and 'manipulation!' and call the media to get the story out there? No, it's just how things work. Every investment is limited in size.

In the stock case, our giant has a choice. He can accumulate slowly within the 500k share daily volume, or he can pay a premium for a larger piece of the pie. But chances are that a large portion of the 10 million shares outstanding are owned by the founder, and he knows what he has in hand and won't be selling for $10/share, because he expects the 20x value increase as well. And there is no way our giant will get the 100 million shares he could theoretically afford.

The story with gold is likely similar. Our giant calls his bullion banks, and doesn't ask 'what is the price of gold' but rather asks 'how much gold do you have available for sale'. If he's not happy with that amount then he'll ask how he can get more.

Motley Fool said...

Polly Metallic

I would simply point out that gold bugs are a rare breed, and to be such for the most part people who have fundamental issues with the current system and it's debt fueled ways...in a word savers, for the most part.

Something like that, requires a certain personal ethic, especially in the face of the glut of cheap credit out there. And so, I do not think you will find all turned into ravaging consumers overnight. They may perhaps consider the future bright enough that they no longer have to hoard as much, and can invest in their own and other ventures, but devourers of savings...I don't think so.

We shall have to wait and see what happens. Perhaps I am overly idealistic.

TF

ampmfix said...

Agree 100% with MF, being a saver, I would only spend into "safe"(...?) RENT producing assets, like:
- very high quality flats (to rent to wealthy people), in a "safe"(...?) city (Geneva? Zürich?) those flats would produce rent and also be perfectly positioned to become part of the inheritance, when the time comes.
- some small biz/franchise in the food/entertainment area (to keep busy in a pleasurable activity).
- Obviously keep most of the gold.

That's about it. No fancy cars!

Polly Metallic said...

MF,
I hope you are right. Based on the number of people I see selling their coins at the current low price, I imagine that most people who have only a few coins to begin with will sell. Those who have a quantity of gold because they have a better understanding of gold/wealth, will probably hold (most of) theirs.

It is a common refrain amonng people who sell us their silver and gold coins: "They just sit there. They don't DO anything." Naturally I find that viewpoint perplexing. People with dollar savings in the bank don't lament that their savings "just sits there." I don't know why they view coins as something that need to have the functional utility of a television,an iPad, or coffee maker to be worth holding. They just don't see silver or gold coins as true wealth. They view them as dust collecting objects better converted to cash. Sigh.

The Dow Theorist said...

Michael H,

best explanation! Kudos

ein anderer said...

But selling is not bad, neither pre nor post FG.
Because some put all their small wealth into Gold (phys) to avoid a destruction of al its value for the case / as soon the financial system goes into transition / breaks down. Who knows what will happen tomorrow? Who knows what will happen tonight?
Now they are selling here and there again to pay for their living. Okay, they lose something depending when they have bought. See this lost as the price a new "I own physical gold"-insurance. Now each minute can happen what wants to happen.
Yes: There is a possibility that Gold will be set free (from speculative papers) during one of the quarterly Mark-to-Market meetings: (FO(FO))A wrote about it several times (newer look here).
But it is also possible that the landslide which sets FG free happens under some other strange circumstances (Black Swan, Golden Swan) next night.
Therefore if you are not rich but yet have to protect something which should survive a coming earthquake it seems to be wise to think: How much of your wealth should survive?
In the end there is one thing true for all:
Buy only as much gold as you understand. In other words, only what you are comfortable with. (Freegold in Proper Perspective)

Pat said...

I find Jim Sinclairs recent adoption of all things FOFOA-ish quite remarkable.
http://www.jsmineset.com/

KindofBlue said...

From Sinclair today:

My CIGA Friends,

Debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationists get their WRONG direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today’s dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! Worthless dollars, of course, but no deflation in dollar terms!

CIGA FOA


http://www.jsmineset.com/2013/02/25/jims-mailbox-1186/

Flore said...

Perhaps FOA can come out of the woods ?

burningfiat said...

I like the original FOA quote better than the one delivered by "CIGA FOA".
The inserted "WRONG" is utterly redundant in that paragraph IMHO...

Flore said...

Sinclair has to make things a bit clear for the CIGA..some of them are not that bright as those overhere

One Bad Adder said...
This comment has been removed by the author.
One Bad Adder said...
This comment has been removed by the author.
One Bad Adder said...

Grrr! - burningfiat: - tick!

One Bad Adder said...

Sorry bout that - Posted twice and tried to remove one ...then the other, only to remove BOTH!

One Bad Adder said...

FWIW - The ONLY THING (imvho) that will usher in a Hyperinflation is a concerted "genuine" DEflation. In a global Fiat regime (such as that which is currently du-jour) They (DE and H)are cause-effect.
We're NOT there yet.

dieuwer said...

GLD lost another 8 tonnes. Now at 1,272.85 tonnes.

One Bad Adder said...

This is what Faux-Inflation looks like IMHO.

DP said...

You think we might see a golden cross on $IRX in due course, OBA?

One Bad Adder said...

Hi DP: She's at an interesting point eh? Ultimately it'll cross over methinks.
Zacks takes a peek into the Fiat fish-bowl identifying an "eerie" similarity with '87 ...but basically dismisses it.
I think an analysis of the situation nowadays needs also to "specifically" focus on the curve ...which they neglect to do ...at least in this report.

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

Where stocks are concerned, the rally from '09- I simply can't call the liquidity flow induced, suspend mark to market accounting rules fraud of a move over the last four years a bull market- is either done now, or this is a correction before the final move higher that will then usher in a bear market that will take this thing below SPX 1000 again. This has implications for freegold, because, despite today's relative strength in paper gold, paper gold won't fare well in a bear market. And the fate of paper is, as we (should) know, unfortunately, intimately conjoined with the behavior of the real thing...until it isn't.

One Bad Adder said...

DP; The recent $IRX uptick to a 2 Yr high (Yield) might well* be a precursor to a concerted drive back toward (and through) the Zero point ...given that they "needed" the space. They'll defend the ZP with all they've got as I'm sure they are well aware of the ramifications ...ie: unbridled DE.
$PoG watchers might be encouraged to know there's now also room for a $100odd uptick* in the mix as well without upsetting the Fiat applecart IMHO.
*take with Grain of Salt.

Luke said...

Polly,

I have been thinking the same about numismatic coins as well. I enjoy "collecting" the lunar series gold coins if I can get them near the cost of an Eagle. I find it turns saving gold into somewhat of a hobby.

Will the $50 or so more over an eagle translate at all on the way to or after FG? I doubt it.

Börjesson said...

There's a very interesting new video interview with Jim Rickards on Kitco, of all places. (It's fairly long, about 20 minutes, but well worth the time, I thought.) Now Rickards doesn't see Freegold happening - or if he does, he keeps it under his hat. His most likely scenario, if I've understood him correctly from his book, is a collapse, and then new a gold standard pretty much of the same type as the old ones. But his prediction for the nearer future, the road to that collapse, seems very similar to what's discussed on this blog. Has anyone been able to pinpoint exactly at what point Rickards strays from the path? What is the essence of the difference between his view and the Freegold view?

Placidus said...

@Pollymetalic

"I have spent awhile lately puzzling out what will become of rare gold coins post Freegold. Will the shrimp and even Jumbo Shrimp melt the rarer Saints and Libs etc.? I doubt anyone would buy them quickly enough to prevent them from being converted into 400 oz bars for Giants. Rather a sad thought."

In the after-thoughts archives I found FOA's perspective on rare gold coins very interesting. He liked them and bought them. I searched through and found quite a few references to these. Much is taken out of context, but it is worth going through to see his take on it (also apparently Another may have liked rare gold coins - see below):

From the archives:

"Again, anyone that holds rare coins or physical will stand outside the risk and view all of this as an interesting motion picture.

Yet history shows that even in the worst of it, wealth appears and investors bid for rare coins, art works and yes, old violins!

Look at what happened in Paris when in WW2 the Germans came marching in. You didn't see those boys grabbing
any French currency did you? They took art work in the form of paintings, gold, diamonds, RARE COINS, collectors items of every nature. What made those Things so valuable? Besides supply and demand.

"Any particular choice of one bullion coin or another? I've observed numismatic precious metal ownership is for more subjective than straight bullion. Do you agree?" In a way, I agree. However, major investors do look at "numismatic" coins as an "Art Form" not unlike paintings. And, just as paintings were carried off by invading armies, rare coins will also hold their higher value during a currency war. Note: I didn't always feel this way. Another guided me into this style of thinking.

Again, anyone that holds rare coins or physical will stand outside the risk and view all of this as an interesting motion picture.

As such, a lot of old paper traders are now buying gold itself for what used to be a "paper trade"! Bars, old world coins, bullion coins and rare coins are being purchased with an eye on selling some of them at huge percentage gains later.

IN any event, I buy the bars, K- rands (because they addressed this a long time ago) and low premium rare coins. To be honest and open, I buy a lot of the rare items mostly because I view them as an art form. But also: because just such a future (dollar changing) event could cause all
their premiums to sky-rocket!

Still, for one with understanding, the most risk free and most profitable wealth to own today is pure bullion or coins. Rare and near rare coins will seldom trade in the future and if they do at all at a tremendous premium.
We shall see (smile)

Get some of those old European coins and you could be holding what was once a "Kings wealth"! For myself, any gold that is not US legal tender.

For myself, I expect to be holding gold as a "real wealth" asset that will rise in currency terms. It will rise from any further fiat inflation and,,,,, it will rise from "it's" world currency demand. I expect to use bullion coins "lawfully" as a currency that cannot be lent or borrowed. However, the premium on old pre 33 coins will soar because they will be the only form of gold that can be lent and borrowed against. As hinted on the Trails page, the laws could be changed making it impossible to force any loan payment in bullion gold. Voluntary payment accepted by both parties is ok. But one may not,,,, in court,,,,, force gold payment to cover any debt. This would not stop gold use, but would stop all bullion gold lending as no one could be sure of the return of physical gold."

Wil Martindale said...

I find the coins (new and old) much more aesthetically pleasing than bars. It's the collector in me, who sees value in aesthetics, not just "ROI". In some cases a few are older, but none were rare enough to warrant a premium any higher than new (at the time).
Not only are coins more beautiful to look at, I suspect there a little tougher to fake.
And while I do hold a little silver for the turn, that Morgan dollar is a beauty.

Dante_Eu said...

Speaking of which form of gold:

One of mine 100 gram PAMP Suisse Fortuna gold bars (sealed) have developed red spots on one side. Quite a few of them actually, both "large" and small ones. Maybe this baby is becoming a teenager? :-)

Quick search on google shows that it can be traces of other metals that contaminate the surface during the striking process.

Anyone else notice the same thing? Reason to exchange it or let it lie very still? :-)

Jeff said...

Borjesson,

Rickards goes off the ranch in a few different ways. Probably the biggest difference from freegold theory is his claim that the US will confiscate european gold. See this post, plus the comments:

http://fofoa.blogspot.com/2011/11/discussion-forum.html

ampmfix said...

Dante,

Never experienced that on sealed bars, but on some old mexican coins I could see tiny reddish spots but those come from the copper in the alloy (the coin is 90% gold 10% copper).

ein anderer said...

From ancient gold coins to modern paper coupons:

The graph shows US inflationary use of coupons since Oct. ’12. Most used for needs of daily living. Quote:

This pattern is almost identical to the one that played out right before the last major economic downturn. The higher the index value, the more consumers are under economic pressure …

Thx to Markus Gaertner.

ein anderer said...
This comment has been removed by the author.
Indenture said...

FOA: "However, the premium on old pre 33 coins will soar because they will be the only form of gold that can be lent and borrowed against."
Anyone want to explain? I understand, "But one may not,,,, in court,,,,, force gold payment to cover any debt. This would not stop gold use, but would stop all bullion gold lending as no one could be sure of the return of physical gold" so what is this form of gold that can be lent?

ein anderer said...

Confiscation:

Since the last comment there (thanks, Jeff, for your reminder!) is from Nov. ’11, I am asking here: What does FOA mean by saying, quote:

(…) So, don't count on this destruction of our paper gold market to mark the real value and availability of physical gold; that ratio will split somewhere down the goldtrail.

Is he saying that the ratio split between paper gold and physical gold will not be the one FG trigger but will happen quite a time before, »somewhere down the goldtrail«?

Thanks for clarification if possible.

And don’t forget if you’re on your bike – donate …
(Tribute to Stones)

Polly Metallic said...

@Placidus,

Thanks so much for providing those snips. Some sounded familiar, others I do not remember reading.

It sounds like A/FOA believe that rare coins (not necessarily just rare GOLD coins) will do well. Perhaps not better than gold after a Freegold reval, but still worth owning. And rare coins made of gold will be especially desireabe from an art and history standpoint. This was also my conclusion. My present thoughts are that initially after a gold reval, the premium for semi-rare numismatic material will be completely absorbed by the high price of gold. Gold will be priced higher than most of the rarer gold coins, so only the very rarest gold coins may bring a premium. I think it will take a while, possibly a few years for this price confusion/disturbance to sort itself out. Thereafter, I expect the rare material to bring a premium again. During the interim period, it would be a good time to pick up better coins for low or no premiums. I also believe that collectors will sell a gold coin or two and buy non-gold rare coins that they have always desired but couldn't previously afford, and this will drive up the price of the rare coins. Actually, something along these lines played out in the 80s. Coin dealers who made a lot of money when gold and silver spiked high in the 1980s put some of their profits into rare coins and it drove up their prices. I want to have a shopping list of desireable coins ready when the opportunity arises the next time, after Freegold.

I remember FOA advising to hold some K-rands because they were generic and didn't have a face value. It seems he was suggesting they would be safer if there was a move by the US to confiscate anything that was legal tender. This is a bit perplexing since neither Another nor FOA really expected there to be confiscation of gold. I guess he was just being extra cautious.

Polly Metallic said...

@Indenture

I found that passage confusing as well. The only interpretation I can decipher from pre 1933 gold being lent/borrowed is that it could be used as collateral, based on it's higher-than-spot-gold value as a numismatic collectible.

I think it's quite possible the more common date and condition US $20 gold pieces might get melted if gold spikes high quickly,much less goes to Freegold prices. The general public would initially be shell-shocked by the price and dealers wouldn't be able to sell them. If dealers think the new price may not be sustainable, they will melt them. It has happened before and is likely to happen again. This will make the remaining gold coins all the more rare and more likely to sell at a premium to generic new gold products.

The same is true for Morgan silver dollars etc. When silver hit $50 in the 1980s, dealers were melting Morgans, which typically had sold at a premium, because no one would pay the higher price. Silver had moved too far too fast. Given a year or two at higher prices, I think market sentiment would have stabilized and people would have purchased the coins at the new higher price, but there wasn't time for that to evolve because the silver market crashed. Even a couple years ago when silver spiked near $50.00 there was a glut of 90% US silver coinage. I don't think dealers could sell it fast enough and some was melted. I can't say how prevelant that was, but our refinery said that at least one customer used to ship silver coinage to them in 55 gallon drums! That is a LOT of silver coins!!!

Ever the opportunists, Mr. Metallic and I are keeping some silver coins, gold watches and other gold items, knowing that much of this material is/will be melted, leaving the remaining population in higher demand.

Biosci said...

Jeff,

Your link is a fascinating read in light of recent events. What are the odds that the recent German repatriation is simply a response to German domestic political pressure as a result of Rickards' book?

Knotty Pine said...

Borjesson,

I used to think Rickards views were antithetical to freegold because he always talked about a gold standard being a viable alternative if "you just get the price right." This sounds like currency pricing gold. Now I think his views are pretty close with the main difference being his perspective is from the POV of currency management (monetary & fiscal policy.)

This is a relevant discussion from early this year:

costata said...
Knotty Pine,

Blondie and Rickards were talking past each other. I think Rickards did explain his position (clumsily) and Blondie's arguments were rendered incomprehensible to Rickards by the way he framed them.

Blondie also muddied the waters by bringing in too many extraneous issues. This may reflect his thinking or it may simply be a communication issue.

In essence BOTH of them are correct. Since Blondie is silent these days I'll try to clear up the confusion.

Blondie is saying that you let the floating price of gold determine the exchange rate of your currency. Rickards is saying that you need a "fixed rate" in order to assist the users of the currency to plan ahead.

IMHO Rickards use of the term "fixed rate" was clumsy. The tip off is that Rickards acknowledged elsewhere that the rate would have to be adjusted periodically. You can only maintain a target rate of exchange for your currency with gold. You do so by managing your currency not by trying to manage gold.

This gold management strategy represented a major departure from the basic principals of currency management. I can understand the political motivation for doing so but it was pure hubris and dumb luck that the USG was able to pull it off.

If a viable alternative to the US dollar had existed at the time when the USG went off the gold standard it could easily have been lights out for the US dollar decades ago. There would have been no compelling reason for the structural support the rest of the world provided.

Returning to Blondie's arguments. Here's an example of those "extraneous issues" I'm talking about:

Blondie: “Could you (as a central bank) not more easily engage in open market operations in which you let the price of your gold stock float, altering your bid or offer accordingly until the equilibrium level was found?

Blondie is describing the role of a market maker. Having discovered the market price it merely tells you that your currency is rising, falling or stable in its exchange rate with gold. The issue is: What do you, as a currency issuer do in response?

No discussing monetary policy, implementing it, waiting for the market's judgement as to whether or not you have gone far enough, too far etc.

There is no way to avoid responsibility for these tasks if you are a currency issuer. Also a currency issuer cannot avoid being reactive to the market because there is a time lag in receiving feedback. Note the ECB's mandate of 2 per cent inflation on average over a period of time (the cycle).

Informed by sound economic theory a currency manager could perhaps anticipate the market's reaction to policy but they still need the market's final judgement to be passed.

Blondie also left out a key word in the passage above. It should read "monetary and fiscal policy. Both are equally important considerations for the currency issuer/manager.


Börjesson said...

Interesting about Rickards and gold confiscation. Thanks, Jeff! But I wonder if he still thinks so. In the Kitco interview I linked to, he talks about Euroland having 10 000 tonnes of gold as a "plan B" (and the US having an 8 000 tonne plan B, and the UK having no plan B at all), and how the euro is a strong currency and will keep getting stronger. Not a word about any danger of confiscation. Perhaps he has changed his mind on that point? Or maybe it's just one of the many inconsistencies of his theory, like those brought to light in the comments to that 2011 FOFOA post.

Maybe someone who's on this newfangled Twitter thing (yes, I'm a technophobe!) could ask him about confiscation? It would be interesting to hear if his view has changed in any way.

Börjesson said...

Thanks, Knotty Pine! But to be honest, I don't understand a word of that. Far too technical for me!

Jeff said...

Biosci,

German paranoia about gold probably predates Rickards' book, but all the blogs and books suggesting the gold is stolen, confiscated, or just not there probably don't help the situation. OTOH, we have an infrequent German poster who angrily insists that his countrymen are sheep for shearing by the European powers that Be. So take your pick.

IMO it was just another signal of the differences between the dollar and Euro, for people who pay attention to such things. The long road to freegold.

Totara said...

@ Dante,

Red spots are a nuisance. I have seen them form even on 99.99% coins like Maples and Buffalos, as well as the 91.7% coins like sovereigns.

The spots are caused by minuscule traces copper or silver at the surface. Over time, volatile sulfur compounds react with the impurities to create the discolouration which can be reddish or even purple.

Volatile sulfur compounds will migrate through plastic, so a seal is only a barrier against dust and dirt which might cause scratches.

In a museum setting, the sulfur compounds can be released from wooden storage drawers over decades. I suspect that keeping gold in a smelly sock drawer would speed the process up :-)

To get rid of the spots you can soak the coin in a jar of concentrated nitric acid for a few days; but that is hazardous. Alternatively, if you are very gentle, a bit of 'Silvo' silver polish on a soft cloth will get rid of a light spot.

jojo said...

Dante,

If you send it to me, I will clean it and send it back.
If you weigh it and it is slightly less than before, don't worry, that's the red I clean off.






;)

TontoD said...

@Frank Pansy
I wouldn't bet on timing. As been said here before, it is better to be a decade too early than a day too late.

@Milamber
As for seigniorage, I read a book that used that definition. But I think your definition is more accurate.

Yes, you're right. CBs won't print money to infinity just to scrape the last piece of gold out there. However, I don't think they'll have to print that much. Sure, the Hunt brothers used margin, but the point is they were operating with mere tens of billions. How much do CBs need to print in order to raise the value of gold into the tens of thousands? Maybe a hundred billion? Spread that over several CBs worldwide, and we'll hardly see inflation.

If we get into a full-fledged currency war, that might be a different story.

Dante_Eu said...

@ampmfix, Totara and jojo:

Thanks for clarification. All my gold bars are 99.99. I have one 5 grams (also PUMP Suisse) that had red dots from the beginning. I was never worried, after all it’s only 5g. :-)

Yes, smelly sock drawer and smelly safe deposit box at the bank may speed up the process. I sometimes wonder what people keep in adjacent safe deposit boxes? :-)

I am not going to open the sealed package because I don’t think it’s a forgery or something like that. And if it is, then whoever did it, should get an Oscar for counterfeiting, because it looks brilliantly performed! :-)

On the other hand, with my luck, it shouldn’t surprise me that, after Freegold, half of my gold isn’t real. Still, I would be a happy man. :-)

dieuwer said...

GLD lost another 2.5 tonnes. Now at 1,270.44 tonnes.

Dante_Eu said...

The one and only, professor Antal E. Fekete at Keiser Report:

February 26, 2013: professor Antal E. Fekete - Keiser Report

Points I noted:

"Gold is going to flow like water, from high ground to low ground."


"...internal bleeding..."


"...gold going into hiding..."


"Bird in the hand is worth dozen in the bush."

:-)

Placidus said...

@Polly Metallic

My interpretation was that FOA was only talking about rare gold coins. But that is just my bias. In my opinion it is most important to establish a core position in gold coins, accumulating as close to spot as possible. After that, one might consider buying beautiful old and rare gold, but the motivation should be for the beauty (not for expected leverage). Numismatic gold coins may or may not achieve the leverage (as you state). Note that FOA advocated low premium rare gold (lower risk). Very rare US gold today is difficult to touch at prices less than a factor of 10 times spot. Will such a coin maintain market value of 10*55K + X in a freegold world? Who knows. Best to own them for the beauty, not for expected leverage (my opinion). It is nevertheless interesting that FOA sees a place for rare gold.

Lisa said...

Polly

I have really enjoyed your Cash for Gold perspective. In our small town, we are down to one CFG storefront (there used to be 3 or 4). It happens to be across the street from my office, and I seldom see anyone in the store.

We went to our first coin show this weekend, for two reasons. First to assist a young relative with buying his first gold coins, and second to exchange some silver (bought preFOFOA days) for gold.

There were only 3 dealers that had any gold bullion(a total of 3.5 ounces of gold bullion at the entire show). I am wondering if that was due to the $1582 price, or if dealers don't have much gold around. Most of the dealers had primarily numismatic coins, and almost entirely silver.

One of the guys we talked to had been at another coin show the day before, where there was a dealer who was selling only bullion (silver and gold). He told us the bullion dealer was very busy all day long.

There was a fair amount of interest in picking up our silver eagles (uncirculated from a monster box), but premiums really varied (from spot to $2.25 over spot).

We were able to get what we needed, by meeting one of the dealers at his store after the show. He told us he does not bring much gold to coin shows, so that he limits what he will lose in case he gets robbed.

Thought this might be of interest to those of you who are hoping to play the GSR when selling your silver.

By the way, one of the coins we got was a proof Buffalo, which to me, is now the most beautiful coin we have. It is not rare , but it sure is pretty

Wil Martindale said...

This is a bit of a new thread, and it may seem painfully obvious, but as I read what passes for financial "news" it occurs to me that the paper chasers have completely ceded to the central planners as completely having "the ability to determine all value".

Now I have to step back and let that sink in for a moment. I mean, all mouths are agape as we wait for the words of the printer in cheif to give us a clue as to the manipulation du jour to front run.

If that does not solidify the true power of "fiat" endowed by its willing enablers, then I cannot fathom what does.

The lemmings all dutifully agree that since the intrinsic value of paper gold, that fiat imitator of wealth, is COMPLETELY in the hands of the market manipulators in cheif, that all values are subject to the whim of fiat rule, in a hopelessly manipulated marketplace ... AND THIS IS THEIR REALITY!

They simply and truly believe that the value of ANYTHING is determined purely by the whim of the central manipulator(s).

And well trained they are, as after all, those same manipulators made their homes worth $487,000 in 2005, when in fact, only 9 years later, instead of further "appreciating" they are now worth $300,000.

Like I said, this is painfully obvious, but excrutiatingly frustrating when one sees the light of day, through the fog all around us.

And that is my rant for the day.
Good night.

gary said...

Gary here (not the troll - or maybe a different type of troll :)
I exchanged some Ag for Au 3 days ago and noted a few things as well. Firstly, there were line-ups of people selling Silver (candlesticks, cups, old coins etc.) Typical investor attitude for the metals - as prices go up they panic buy - as they drop - they panic sell. secondly, I, strangely, drained this large shop of 1 ounce Au Maples... more to come next Wednesday - the lady told me. Hmmmm... may have to battle this snow storm, tomorrow.
I began to think about if Freegold was a per-ordained plan that the price of Gold (albeit paper) would be most desirous to drop, quell this panic buying attitude and supply no competition with the USD. After a revaluation - it will be too late and too far out of reach for the masses. The panic out of the dollar and into Gold never really transpires.
And also the miners - 'They' will lower the world price of gold to the extent that it remains just above "production costs" crushing most miners - leaving only a handful of the large ones to be taken over by the Government. Sounds like a good plan, Stan...

One Bad Adder said...

THIS is rarely if ever a good look as we'll either(a) see $PoG realign with the alts ...OR (b) DX needs to retrace - assuming of course "things" are as they should be. I'd not be too keen on a DX retracement here ...so DOWN (again) $PoG goes without the applecart even hitting a bump in the road ...IMHO.

One Bad Adder said...

Wil, Gary: Don't put too much faith in the Fiatmeisters "ordaining" a high $PoG as a panacea for all current monetary / fiscal ills - you will be sorely disappointed I feel.
There IS a fairly well-defined path to FreeGold ...and they, along with the mass of humanity, will be resisting it all the way.

Even so, with this substantial Wall of Whimsy stacked up against it, FreeGold WILL come to pass ...FWIW.

Grinners said...
This comment has been removed by the author.
ein anderer said...

Since there is mentioned "intrinsic value" and so on: Newcomers and non economists could find some help here: fofoa.blogspot.de/2010/12/value-of-gold.htm. Found it yesterday. But heavy stuff.

There you find also some hints to some blogs FOFOA is following by himself. I opened Unqualified Reservations and, yes: marvellous work.

BTW: My question above is still a question mark for me. For the case someone has an idea …

And: Got an e-mail after donating a bit. FOFOA seems to be working on a new masterpiece kind of ;) So let’s see where we are going …

Boner Parte said...

Vote for ein anderer's linked comment

Wil Martindale said...

OBA,
My comment above has no impact on my world view or the inevitability of Freegold.

It is merely an observation regarding the madness of lemmings, and the years of conditioning they will NEVER be free of until it is too late for them.

We humans for the most part are willing slaves ... to our own greed. Even we freegolders do put our faith in the hope that our stack will be worth a King's ransom one day.

But there is a nobler purpose to freegold, and it is to end an unearned dominance of one group over another by means of slight.

Though there are many ways to do that (as many as there are ways to part fools from their wages) this particular trend of sniffing the chairmans ass for crumbs every day is particularly distasteful as I attempt to savor my morning java.

Yes, I'd like to be free from these shackles of fraudulent debt just as much as I'd like the world to return to some semblance of reality.

It will not, and can not, happen soon enough for me.

Wil Martindale said...

From Sinclair, the trader who quotes Another:

"Gold is the only tool that is able to balance the balance sheets of the offending deficit spending central banks. There is no other tool. Therefore, the tool (gold) will be used. Just as QE was the only tool to feign sovereigns as financially sound, gold is the only tool to bail them (central banks) out in the end. It’s simply a fact, a reality, and it cannot be denied.”

Many have understood the progression of the sovereigns bailing out the banking system, such that unrepayable debt is now on the balance sheet of governments. And seeing this, they have asked, "Who will now bail out the sovereigns?" looking to all manner of idiocy including aliens from planet X.

But the answer lies right there below your nose, right there on your ring finger.

It is gold that will bail out the sovereigns, as it has time and time again over the millenia.

With debt such as this, and with a finite supply so limited not only by nature but by fiat induced production constraints ... what an extraordinary "price" it must rise to, in fiat terms, to accomplish this feat !


ein anderer said...

Since the link to my own post fails here my question again:

What does FOA mean by saying, quote:

(…) So, don't count on this destruction of our paper gold market to mark the real value and availability of physical gold; that ratio will split somewhere down the goldtrail. (End of quote.)

Seems to me quite relevant for a proper understanding of FG theory.

ein anderer said...

Will, marvellous quote. Thanks.

Lisa said...

Gary. Maybe you should amend your screen name to something like GaryTheGood :)

Polly Metallic said...

@ein anderer

I, too, hope that one of the regulars or FOFOA will address that quote. It is very intriguing!

@Lisa

Proof Buffalos are beautiful coins! I'm glad you had luck making a good contact at the coin show. We attended the largest national coin show this January: about 1600 dealers! There was one dealer from Germany with rolls and rolls of old European coins. Some were ones we don't see a lot of in the States such as 100 Franc Angels.(Close to the size of a $20 US gold piece). Plenty of US and Canadian gold was available from other dealers. I like different design coins rather than just having stacks of Eagles or Maples etc. To me, even if they are not really numismatic coins, they are works of art. Our local coin shows usually have plenty of gold coins, old and new, so maybe we are lucky to live where we do. If coin supply should dry up we can always buy ingots from our refinery, where we have the preferred customer rate which is the lowest premium over spot.

Another Cash For Gold shop appeared in our small city although it appears rather empty and deserted. We laughed as we drove by. They are about three years too late to do any significant business. Currently we have one pawn shop and two other C4G shops, plus a couple jewelry stores that buy, all in a community of about $18,000 people. Even back when our business was at it's peak, we seldom did local business. We live between two major cities and did 99% of our business there. Currently, the TV and radio ads have dwindled to a trickle as the ads have become too expensive in light of the reduced volume of material coming in. The C4G business is in terminal decline.

zabba said...

ein anderer,

It sounds, to me, like FOA is describing the transitional period into FG... the time between 2 paridigms. Don't expect to see FG gains immediately after paper burns... So, if you think FG is a possibility, then FOA is saying don't count on gold to save your ass, initially. You need other real things to, hopefully, get through this period of time so you can 'count' on gold once the real value is established 'down the goldtrail'. Just a guess.

--zabba

milamber said...

EA,

That comment from FOA was made in the context of gold going into hiding. When the paper gold markets blow up, no “gold” (in size) will trade for a while. Then gold will trade, but only for physical spot settlement. That doesnt mean that tons of gold will have to be shipped across oceans, but actual physical ownership will have to change hands. Not promises based on leasing schemes or forwards or other paper promises of pay me gold later.

FOA (08/13/01; 07:24:30MT - usagold.com msg#96)
Political Gold 2

… Of course, the US still owns it's gold and has yet to ship any of it's official stocks of the same. A quick check of the ounces held in storage will confirm that. Any physical gold that has "walked from our accounts", to date, came from some other supplier. We contend that this bullion was the
same stores that were "lifted" from other 3rd world countries in return for US support during their various banking and currency crisis of the 90s....

Several years ago, many gold bugs and gold advocates missed the path as the trail turned. ...almost all gold discussion still centers around "the dollar's war with gold". Truly, the evolution of this story will be how that war ended then and now the dollar's war with the Euro began! A very large part of that war strategy, employed by the ECB/BIS, was to let the dollar / IMF faction hang themselves by expanding and supporting the whole arena of this dollar paper gold market. Inflating
the gold market place with so much "paper gold" that we would eventually have to bankrupt ourselves just to keep the dollar in the war game against the Euro.

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

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

Yes, the war now is between the Euro and the dollar! The Washington Agreement placed gold "on the road to high prices" as it signaled a phasing out of Euro support for our American gold values. How fast gold can, now, rise will gauge how much staying power the dollar has in all this. If there is any gold war now, it's to be in just how fast the dollar gold market can disintegrate into worthless
IOUs! So, don't count on this destruction of our paper gold market to mark the real value and availability of physical gold; that ratio will split somewhere down the goldtrail. This action will scare most harden gold investors to death; especially the ones in leveraged gold stocks and lesser white metals!...


FOFOA brings this quote to current time (2012) as it relates to GLD, here(as well as other posts), but that should be enough to get you going :)

hth,

Milamber

ein anderer said...

Thanks to all. What a community.

KnallGold said...

Do we again

http://www.youtube.com/watch?v=UMPC8QJF6sI

?

Edwardo said...

This may not seem entirely apt, but I think it speaks to Wil's post from 7:05 yesterday. Some of the Congress critters (and their constituents) are not merely on to Bernanke and his tricks, and have caught him red handed, but now may be seen to be positioning themselves to do something nasty in response the next time the economy and financial markets experience problems.

costata said...

Edwardo,

This may be an important piece from Chris Whalen. The TBTF may not get a second bailout like the one Hank Paulson and Geithner provided at the onset of the GFC.

http://www.zerohedge.com/contributed/2013-02-26/zombie-love-true-sales-and-why-%E2%80%9Ctoo-big-fail%E2%80%9D-really-dead

The off balance sheet games may be over for the big banks.

One Bad Adder said...

EA: When This Chart updates today we'll see a comvergence which basically tells us that "currently" there is no loss of Faith in FiatGold (aka PaperGold - $PoG) despite this lower highs / lower lows environment.
What will ultimately be identified as the FreeGold "canary" will be a pronounced dual Cliff-dive thereabouts, or alternately an uber-divergence ($PoG and the US Dollar rising hard in concert) ...rather than this grinding down - up action we're currently witnessing.
From a FreeGold (NON-FiatGold) perspective, there's not a lot of encouragement to be had currently. - FWIW.

Hill C said...

GLD loses another 12 tonnes!

enough said...

incredible....

another 12 tonnes exits GLD

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

I wondered if, after yesterday, when paper gold was up, and GLD still lost physical, what would happen on a down day. Now we know. Just think what might be accomplished with some moves that are more dramatic than today.

enough said...

I thought maybe this roughly 5% move higher might bring out an inventory build but it seems we may need to go higher. FWIW, I dont think this paper rally is over yet.....

Wil Martindale said...

Thanks for your kind words, and contributions, ein anderer, and I do think that milamber's answer is on the right track as it meanders to other interesting posts further down the trail.

Here is a link you may want to keep handy.

Biju said...

One Bad Adder said
What will ultimately be identified as the FreeGold "canary" will be a pronounced dual Cliff-dive thereabouts, or alternately an uber-divergence ($PoG and the US Dollar rising hard in concert) ...rather than this grinding down - up action we're currently witnessing.


I remember reading a ANOTHER Quote echoing the same. ANOTHER was answering a Question regarding timing of when paper Gold will burn. He said in the initial stages of this both Gold and US Dollar will move up in tandem

Date: Sat Apr 18 1998 20:52
ANOTHER (THOUGHTS!) ID#60253:
The US$ is soon to become a " regular paper currency"! To this end, holders of US dollars and US$ assets, must make a decision that will impact all assets, worldwide! To this end, assets will move to "physical gold " and cash dollars" first, driving up the dollar against all currencies. Then the dollar will be sold as it is deployed into real things.

This change will occur before 2000, as it is beginning now, where no one can see!


There is one more specific answer from ANOHTER about the canary indicator about when paper will divurge from physical Gold. I will post when I find them.

Edwardo said...

enough said,

FWIW, I dont think this paper rally is over yet.....

It hasn't been much of a rally by my runes, just a bounce of sorts.

Art said...

Freegold is a lie.

Freegold says if you use gold as money it diminishes gold's value.

Freegold is absurd and stupid.

Are you stupid?

Tony said...

Oh dear, somebody call the pound. It seems Art has strayed from his cage again.

One Bad Adder said...

Biju: Something will trigger (one or the other, as depicted in that Chart) will ultimately usher in FreeGold ...and it's my contention that "something" will be $IRX parity ...FWIW.

dieuwer said...

Holy Shit! GLD lost 12 tonnes!!

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