Wednesday, May 15, 2013

Glimpsing the Hereafter 2

In this, my 400th post, I will peer into the future, to the Freegold revaluation and beyond. But I do not have an actual crystal ball. All I have is logic and reason, and a little help from Another and FOA. So to quote FOA, "If you came with a notion that I am someone who sees the future, grab the children and run far away." But if you came bearing your own logic and reason, then perhaps you will find this post useful. :D

I will touch on a few topics that have been the subject of recent discussions, both here and elsewhere. The first topic is gold mining shares. I will explain why I do not own any. It is really simple logic, but I think that I would be doing a disservice if I did not make it perfectly clear right now. Anyone considering Freegold should at least be aware of this reasoning, whether they accept it or not.

Next I will discuss the difference between gold-denominated lending and the use of gold as physical collateral for currency loans following the Freegold revaluation. And, finally, we'll delve into the deep topic of gold's true function in the new Freegold paradigm. If Freegold frees gold so that it can function properly, what does that actually mean? This has been a topic of debate for a few months now, and I'll attempt to put that debate to rest.

But before we get started, let's take a moment to enjoy this Leonard Cohen video called "The Future" from my first Glimpsing the Hereafter post 15 months ago:

Mining Shares and the Freegold Revaluation

This is a touchy subject for those who are already deeply invested in gold mining. Indeed, mining shares had a great run in the 1970s. And gold mining is a big topic, but for today's Freegold investor there's one question that precludes everything else. Given the presumption of Freegold, are even the best mining shares a viable and comparable alternative to physical gold? If gold is revalued in real terms, as Freegold presumes, then the new value will be many multiples of the cost to pull new gold out of the ground. This is simple logic.

Therefore, if the value of gold is to become many multiples of the cost to pull it out of the ground, then this would constitute a windfall profit for gold miners. Whereas everyone else in the world would have to expend, say, $55K worth of resources to obtain an ounce of gold, a gold miner would only have to expend ~$1,200. On the surface, this makes gold miners seem like a good investment today, especially if you're expecting the revaluation of physical gold.

But here's the catch. I have written about what I call the moment of "peak risk" which is the moment of revaluation. The biggest risk in Freegold is that someone else will take or simply keep the windfall profit that you thought was yours. In my opinion, the best way to avoid someone else taking or keeping it is to possess your own gold.

In every case where someone else is holding your gold for you, there is some amount of risk. Here's a purely hypothetical example just to illustrate my point. Imagine you have a custodian holding your numbered bars when the revaluation occurs, but then he reports to you the very next day that your bars are missing from the vault. They must have been stolen!

The problem is that the LBMA is now closed indefinitely and the COMEX is frozen, and the last-known price was $1,400 per ounce. You know that your gold will soon be worth $55K per ounce, but your custodian has put in the insurance claim at $1,400 per ounce and is already in the process of sending you a check. It's a sticky situation, because now you're going to have to sue your custodian in court. But the bigger problem is that it wasn't just your gold that was stolen, it was all of the gold he was holding. His insurance is capped at the limit which is linked to the last London fix, and there's no way he'll be able to cover everyone's windfall profit, even with a total liquidation. He is judgment proof. The most likely outcome is that he'll file for bankruptcy and eventually disappear to a private island somewhere.

The point of this hypothetical is that, in the eyes of the law, all of the investors were made whole insofar as they recovered their initial investment. All that was lost was their expected windfall profit from the Freegold revaluation. That windfall was taken from them by someone else, and without the recovery of the underlying physical, there was no other way to recover that value.

Let me be clear. This is only an extreme hypothetical example and not a prediction. I certainly hope nothing like that happens. But the point is simply that the biggest risk in a revaluation is that someone else will have the opportunity to take—or simply keep—your expected gain. And the bigger point of this exercise is that *gold in the ground* is possibly the most at-risk gold in terms of someone else keeping the one-time windfall profit. The logic is simple enough that you should be able to decide for yourself if it is worth the risk. I'm not trying to tell you what to do, I'm only explaining the logic so that you can decide for yourself.

The government, which is the representative of the collective population, what I like to call the hungry collective, has a claim on that windfall that trumps even the miner's claim.

The miner has a claim on the ground, a claim recognized by the country. But the country owns the gold in the ground in extremis. The miner is licensed or permitted to dig it up. That permit comes from the country, from the government.

Another and FOA explained this point and, again, it's just simple logic. And the logic is this:

If the hungry collective has a claim on the windfall profit, a claim that is senior to the miner's claim, will they use it or not?

If not, then why not? Because they didn't know they could? And if they do claim the windfall, then how would they go about it? Here's how Another put it:

Date: Sun Apr 19 1998 15:09

The world debt system and currency exchange, as we have known it, will implode and leave little room for political maneuvering. The governments will revalue gold and "demand" that the public carry it and use it! It will be the source of all gold, the mines, that will be controlled! That's Controlled, with a capital "C", not confiscated!

Here's how I put it back in 2011:

I can see that you like owning a fractional interest in a corporation licensed to dig up a country's gold! But what we are talking about here is maybe a 30x revaluation of gold against all other commodities as well as against the cost of mining. This will happen as a functional change for gold, a global shift away from its present treatment as just another commodity.

When that happens the mines will be treated in one of three ways: 1. They will be nationalized as gold in the ground will suddenly be viewed as national reserves (unlikely). 2. They will be forced to sell all production to the government at a low "commoditized" price (less likely). 3. They will be able to sell to the public at market prices but will have to pay a windfall profits tax and deal with many restrictions (most likely). In other words, the windfall profit of a 30x revaluation will not be passed on to those holding a government license to dig up gold that is still in the ground, a profit that can thereby be claimed by the hungry collective.

As a commodity, with the price of gold only slightly higher than the cost to mine it, governments grant license to the mining companies to dig it out as with all economic minerals. But when the value of that natural resource is suddenly worth 30 to 40 times the cost of mining, that government license will suddenly become very expensive.

When that Sunday evening announcement finally comes, that the banking system will be on holiday starting Monday morning, you want to be sitting on gold that has already been pulled out of the jurisdiction governed by the classification of gold as a simple economic mineral or commodity. FOA may be right that there will come a day on the other side of the punctuation when gold mining will be very profitable. But between now and then, few investors will be able to stomach the ride down to zero.

And here's what FOA wrote about mining shares back in 2000 and 2001:

FOA (1/6/2001; 9:49:51MD - msg#52)

Gold production, everywhere will eventually be extremely controlled with citizens reporting unofficial mining in much the same way as people report each other to the IRS. But, make no mistake, miners and citizens will all benefit. All mines, both big and tiny will make huge profits on the limited production allowed because the price will be so high. ($30,000+ in dollars (big smile) But, the road between here and there will more than likely price mine owners close to zero, first.

FOA (05/14/00; 20:39:25MT - msg#22)

There will be some huge profits to be made by holding certain mine stocks. But, almost all of them will go close to zero first. I doubt many investors could hold their current percentage through this price action. Physical gold will find a new market and soar in that medium of trade. In the face of this, few if any stockholders will hold their falling mining shares while watching gold soar. Yes, some will (like me) hold through thick and thin because they have a right percentage of (the best) mine shares to bullion. But, many, many others will pressure the market as they attempt to adjust to (our) level of holdings.

FOA (8/2/01; 12:52:55MT - msg#87)

An investment in the gold industry, not just mining, can be nothing more than an investment in a business that balances fiat production cost against fiat market prices for its product; gold. The return, if any, is always in fiat and places this portion of one's wealth smack on the tracks of more political manipulation. Today, we can see this play out all over the world as fiat returns in the gold business head towards and even sink below zero. The investor watches this fiat illusion of his net worth drain away while the opportunity to build a real wealth of "bullion ownership" escapes yet again.

FOA (10/23/01; 10:30:12MT - msg#123)

Truly, if ever there was a way to profit from gold mining, today, it's by buying this almost free physical gold the mines are producing; while mine players and paper gamblers pound their wealth into the dirt. This is what PGAs [Physical Gold Advocates] call benefiting from the leverage in mining (smile).

Here are the questions that you should answer for yourself, now that I have explained why I don't hold mining shares, and also based on your personal understanding of Freegold. The issue isn't, "Will mine shares go up or down?" The issues are, "As compared to physical gold, are mines worth the risk?" and "Do mines offer any diversification value in addition to holding physical gold?" and "Are you prepared if mines go to zero for a time?" and "Can you pick the mines that will survive?"

Lastly, here's a wonderful video tribute to the tireless gold miners and their priceless product, by Freegoldtube. It is true that you can't really eat, wear or seek shelter in gold. We don't need it to breathe, and it's not very fun on the water. But once you come to understand gold's true function, you'll see that it is an irreplaceable, invaluable, truly priceless and almost incomprehensibly vital component in the human Superorganism's effort to survive and thrive. So God bless the miners, even if they don't get to keep the revaluation windfall on the gold that's still in the ground at the moment of revaluation:

Gold lending and collateral use in Freegold

On the subject of gold lending versus the use of gold as collateral for a fiat loan in Freegold, here are some thoughts.

This topic has been a source of discussion, debate and confusion for a long time. Does there need to be a law passed to prevent the reemergence of paper gold? No, I don't think so. I don't think Freegold requires any changes in the law, international or otherwise, but that doesn't mean there won't be some new laws. It only means they aren't a necessary prerequisite.

Gold lending and gold used as collateral are two totally separate issues. I have no problem with gold being used as collateral for fiat-denominated loans in Freegold, my only problem is with lending (credit/debt) denominated in gold ounces. But I also don't think there will need to be a law to prevent it for the simple reason that it won't be a profitable activity. The reason there may be a law passed is to simply preempt the reemergence of fractional reserve bullion banking somewhere down the road, and that would be more than enough of a motive for someone like the Eurozone to pass a simple law that otherwise didn't need to be passed. FOA never pushed this subject, he only explored it when others pushed for "but, but, what if…" answers.

One of the common arguments I hear is that people will still want to lend their gold. I disagree.

Where does the silly notion of gold lending even come from? Well, pre-1971 gold was money to one extent or another. Money is credit/debt which means that debts were more or less denominated in gold ounces, off and on, from 1971 going back to cavemen. So when money was gold, people lent gold, even if they didn't have physical gold to lend. They simply extended credit to credible people and the repayment was denominated in gold ounces, even if it was paid back in other ways. That's gold lending. Freegold is different because gold isn't money.

Around 1983-1985 was the birth of modern gold lending, via the European CBs actively encouraging and supporting the expansion of a new paper gold market meant to buy the time necessary to launch the euro. What we think of as gold lending today didn't really exist before the 80s for all intents and purposes. (You can read more about what changed in the 80s in Checkmate, and don't miss the great Freegoldtube video that sums it up at the bottom of the post!)

The fact of the matter is that, unless gold is money, there is no good reason other than price suppression for gold lending. There's no profit motive to lend gold when its price is falling, and there's no profit motive to borrow gold when its price is rising. So to bring both counterparties together, lender and borrower, one of them must be motivated by something other than profit. In the 80s and 90s, the lenders were CBs and the borrowers were mines and hedge funds. This is the crux of what Another explained. In Freegold, gold won't be falling in price so who'd want to borrow it, and the CBs won't have a reason to lend at a loss.

I can't think of one good reason why anyone would lend gold in Freegold, be it the lending of actual physical gold or simply lending dollars but denominating the repayment in gold ounces.

Let's think about one instance in which it might make sense to actually borrow physical gold, which is if you were a gold fabricator. You work with a very expensive medium to turn a profit that is tiny compared to the price of the raw material, so it would make sense to borrow your working stock. But would it make sense to the lender?

Your output is the sale of a finished product and your income is in dollars, so why would you need to borrow in ounce-denominated units? Why not borrow the cash to buy your working stock? Even if I'm the one providing you with raw gold, why would I lend you the gold? Why not extend you the credit to buy my gold and you pay me back in dollars after you have added value and sold the finished product to someone else? I'm not giving you gold to have you return it to me in a different form. I'm selling you gold to make a currency profit from the interest on the currency loan which you easily cover by adding value to the gold.

Can you think of a good reason why someone would lend gold in Freegold? And if there's no good reason why anyone would do it, then there's no pressing urgency for a law prohibiting it.

It is the existence of credit denominated in gold ounces that automatically suppresses the price of gold. Using gold as collateral for a loan denominated in fiat currency does not. The conflation of these two totally separate issues and the confusion it causes arises from FOA's explanation of how easy it would be to prohibit the denomination of credit in gold.

It's quite simple. It's about enforcing the seizure of, foreclosure on, or liquidation of attached collateral in the case of default on a loan. The courts will only enforce foreclosure on attached collateral in the case of default on a standard fiat loan. If the loan is denominated in anything other than fiat currency, like tractors, Renoirs or gold ounces, then it will be a non-standard loan and the most the courts will do is to issue a default judgment denominated in fiat which might be impossible to collect.

Like this. Say you want to borrow my car for a week. I say sure, but I'm going to need the deed to your house as collateral. So you give me the deed and we write up a basic loan contract where you borrowed 1 car and you owe me 1 car. Then let's say you lose the car, or crash it, or you simply sell it and ignore my phone calls; a blatant default on our contract. So I go to the court with the contract and demand to foreclose on your house since you defaulted on the 1 car loan. Absurd, I know. What's the court going to do? If the court doesn't tell me to get lost, at most it will issue me a fiat judgment in an amount equal to the value of the car, but it will not enforce the attached collateral of your house, not because the house is worth more than the car, but because it was a non-standard loan.

Remember, I don't really care if gold is used as collateral. The only thing I care about is the numéraire for repayment on the loan document. You can use any numéraire you want, but if it's not fiat currency, then the courts won't enforce the attachment of collateral.

In most gold lending, no physical gold is actually lent. It is simply a loan denominated in gold ounces and then converted to dollars at the current exchange rate so that it can be spent. If actual physical gold is lent, then it must be sold first before it can be spent.

Like this. Imagine you wanted a car loan and I said I would lend you a tractor so that you can buy a car. We draw up a contract, and your new car is going to be my collateral. I lend you 1 tractor and you owe me 1 tractor. And I will hold the pink slip on your new car as collateral against your repayment of 1 tractor. But you can't take my tractor down to the Chevy dealer and buy a new car with it. You have to sell the tractor first to get fiat currency and then you can go buy the car. And then, to pay me back one tractor, you'd have to buy it back or buy another one just like it. This is a non-standard loan. It is absurd on the face of it. And the same principle will apply to gold loans.

Why would I lend you gold when you're just going to have to sell it to buy whatever you want to buy? Why wouldn't I just sell the gold and lend you the fiat currency, that way I could attach your purchase as collateral in case you fail to pay. If I lend you the gold and make you go sell it and the loan is, therefore, denominated in gold ounces, then I'd better hope you don't default because the courts won't enforce the collateral attachment.

So it's not my fear of not being able to recover the lent gold that keeps me from lending it, it's my fear of not being able to enforce foreclosure on your property if you default on the loan.

Gold used as collateral for fiat loans is a totally different subject from credit denominated in gold ounces. I have no problem with gold used as collateral. But if I am a lender, I'll probably want to hold that collateral so it doesn't get lost in a boating accident. A house is easy collateral. You can't lose a house in a boating accident. A car is a little trickier because I have to hire a repo man to chase you down. Do they even have gold repo men? ;D

Here's how gold might be used as collateral in Freegold. Imagine I am a giant with 1 tonne of physical stored at my bank. I'm also a businessman and I regularly draw on my credit line at the bank. As long as I have no need to sell my gold anytime soon, I will allow the bank to attach my property as collateral to my credit line which will translate into a lower interest rate for me than I would have otherwise paid. This is not paper gold. It is not financial collateral. It's the same as a house, a car, a tractor or a Renoir being used as physical collateral for a fiat currency loan. If I died with an unsettled credit balance, the bank would have the right to sell some of my gold to settle the balance before turning the rest over to my estate. This reduces the bank's risk which is why I get a discounted rate of interest.

Gold's True Function

The debate I mentioned at the top began with this comment from Blondie last November. The question it raised is this: Will gold be the focal point store of value for savers as A/FOA and this blog have proposed, or will currency finally fulfill this role once gold has been revalued and is free to function properly? Because if "functioning gold" means gold will have to fluctuate wildly, including short term declines in purchasing power in order to transmit price signals and moderate the imbalance cycle, then it will make a poor medium of savings.

This section is my answer to the debate.

What if gold never declined in price again after revaluation? What if it only rose (in real terms, of course)? If that were true, then gold would indeed be the focal point for savers, would it not? If it never performed worse than base money in real purchasing power and, in fact, gained purchasing power more or less over any timeframe, then gold would be the medium for savings in Freegold. Can we at least agree on this hypothetical statement?

Okay, good! Now I will make two arguments that will, if not put this debate to rest, at least establish a new front for the other side to attack. Remember that we are discussing the future on the other side of a singularity called the Freegold revaluation, so keep in mind that the following glimpses are based mostly on common sense and reason, with a little help from A/FOA. And then each of you can decide for yourself whether I have settled the debate here, or whether you wish to follow Blondie and Victor down a slightly different trail, one which Poopyjim humorously dubbed "Freefiat".

Victor writes:
Poopyjim wanted to mock what I wrote and said:

"I say we start calling it "freefiat" because what it really frees are CBs from their obligation to inflate against USD. Finally CBs will be able to shoot for that 0% inflation target they wanted all along."

I'd say he is spot on. Freegold frees the CBs from the obligation to inflate their fiat along with the old paper reserve currency (=dollar) and, for the first time in history, allows them to manage their fiat currency as a proper SoV.


This is really a debate about what it means for gold to "function" in Freegold. Victor and Blondie believe that gold's function will make it a poor medium for savings, therefore Freegold actually means a return to holding currency as your savings. They say that gold will "fluctuate wildly" with a guess of maybe 5% in a year, and this includes wild declines in the real purchasing power of gold by that amount, which would mean that the newly stabilized currency will be a much better store of value for the savers. And gold will, therefore, be an "investment" because it will carry short term price risk.

So I am going to make two related arguments:

1. I will show that, logically, gold should be expected to perpetually rise in real terms in Freegold. There is no logical reason it should ever decline in real terms again, once it is revalued, except in the case of economic disaster in which case fiat will most certainly be sacrificed so it won't be any better.

2. I will show that, theoretically, gold need never decline again in real terms in order to "function" in international settlement and to act as spur and brake in the cycle. It need only rise to greater or lesser degrees depending on what's happening in each zone, which makes perfect sense while "wild fluctuations" do not.

1. Why gold will always rise in Freegold

In Victor and Blondie's ideal 0% inflation world, this means both nominally and in real terms, since they are the same. So the price of gold would simply never decline. It would just rise and rise, at differing rates of speed of course.

I know… never say never. What I mean by never is almost never, and if it ever does decline, that would be a rare anomaly and certainly not significant enough to scare away the savers.

Now let's look at that word, "savers". Also, "savings" and "store of value", because these concepts seem to be at the heart of the debate.

Savings is not some perfect basket of purchasing power carried through time. Savings is a choice made by savers. And most people are savers, as opposed to investors, so they are a large group. Whatever savers choose to save in becomes the de facto savings medium.

Now when I say that most people are savers, that simply means they are more interested in preserving their surplus purchasing power than gaining from it. They will forego a gain in favor of a lower risk of loss. Today the focal point savings medium is fiat. So in the "Freefiat" world, that focal point doesn't change even though we move from a broken paradigm—broken by saving in fiat currency—into a new paradigm. That's a pretty big divergence from the Gold Trail that I have been following!

Back to gold…

The global supply of gold is relatively fixed. Today it grows at about 1.5% per year. There is disagreement on what will happen to mining after revaluation. Some think that 1.5% will increase, and I think it will decrease because surplus zones will likely choose to leave their reserves in the ground. But no matter. As long as the global economy is expanding faster than the global gold supply, the real value of gold will always be increasing.

So if the real value is always increasing, why would its price ever fall? Let's look at a few reasons why it could fall. If it had previously been overvalued then the price could fall. But in Freegold we expect gold to always be properly valued due to two major changes, the revaluation and the physical-only market, i.e. the elimination of paper gold.

Really, the only way for gold to fall in Freegold is for supply to exceed demand at some price. And if that excess supply isn't coming out of the ground, then it must be coming from dishoarders. The alternative is that demand drops, but that would be the disaster scenario. Since we're assuming a global economic growth rate greater than ~1.5% (greater than the expansion rate of the gold stock), we can assume a steady to growing demand for gold at all times, which leaves us with supply shocks as the only possible cause for a declining price. So let's look at some possible causes for supply shocks.

An aging community would be one. We tend to save during our productive years and then spend that savings in our retirement years. So imagine a dying society with such a low birthrate that every year the percentage of retired people grows. If this was a closed society like North Korea, then the real price of gold would fall as gold supply constantly exceeded demand. But in the real world it won't, because another society with more productive workers than elderly dishoarders will supply real goods to this aging community for its gold.

This is a good example of how the spur and brake is not a function of wild gold price fluctuations. Would you expect in this hypothetical dying society, where nearly everyone is simply dishoarding their gold until they die goldless, that the (real) price of gold would drop forcing them to get out of their Barcaloungers and build some factories, or at least greet people at Walmart? I wouldn't, because the spur isn't a punishing decline in the price of gold. It is much more subtle than that. And without young, productive workers to require an inflow of gold, all of the gold in this dying zone can theoretically flow out without ever declining in price until it is gone and no one else remains.

You've heard of the carrot and the stick? The Japanese have a similar saying, a whip and a candy. Two forms of motivation, punishment and reward. Rather than being the declining price of gold which punishes everyone saving in gold, the spur is simply the growing opportunity for easy profits that lures only the marginal gold saver (net-producer) into expansionary and/or different entrepreneurial pursuits with his ongoing surplus income, not necessarily selling gold to build a factory, but rather redirecting his current surplus income back into production. In fact, the opportunity to profit might even cause the migration of younger workers into our hypothetical aging society as long as culture, language and immigration laws weren't an obstacle.

So perhaps a painful spur isn't the best analogy. It's more like a carrot dangling in front of the horse than a painful jab. And then the brake, rather than being the pulling of the reins, would simply be the absence of the carrot once it is eaten. Like I said, much more subtle.

Now there's one other way that supply from dishoarders can overwhelm demand, driving down the real price of gold, and that is if gold was just one of many investment options rather than the focal point store of value. If that was the case, then we could see capital outflows from gold as gold is traded for different investment options according to changing investor preferences over time. But this becomes a circular argument. Like this: Gold is merely an investment choice among many because it will fluctuate wildly, but it will only fluctuate wildly if the majority of people consider it an investment choice among many.

Finally, let's talk about the real versus the nominal price of gold in Freegold, just in case we don't end up with Victor and Blondie's 0% inflation. If we have, say, 2% inflation, then I'm contending that the very worst gold will do is to track inflation. In real terms its value will rise more or less at the rate that global growth exceeds gold supply growth. So its nominal price will rise, more or less, at that rate plus the rate of inflation. But the very worst it will do in any zone, deficit or surplus, is to keep up with inflation. Therefore, the only way we'll ever see a declining nominal (but not real) price of gold in Freegold is during bouts of deflation. How likely is that? It is unlikely because, very generally, I expect to see higher price inflation in the deficit zones and higher gold appreciation (in real terms) in the surplus zones, which will of course switch back and forth from deficit to surplus (ex. gold) over a reasonably short cycle.

Gold does not need to beat long term investment returns. That is old-paradigm thinking. Savers don't have a real focal point choice today, they have to go with a "diversified portfolio" just to stay even with minimal risk. The most important concepts here are that "most people are savers," and that "savings," or the focal point store of value for savers, is a choice made by the savers.

Victor and Blondie's main point seems to be that, in Freegold, "currency will finally perform all three functions." Of course currency performs three functions, MoE, UoA and SoV. But the function of SoV is different from the focal point medium for SoV chosen by the savers as a group. It is no argument to say that currency will finally be stable. I have said that all along. Here's what I wrote in The Return to Honest Money:

The Money Concept

FOFOA: The measure of any money's store of value is a continuum of time. It is directly linked to demand and velocity. Even the worst money (say, Zimbabwe dollars during the hyperinflation) works as a very temporary store of value. Perhaps you read stories about workers in Zimbabwe getting paid twice a day and then running out to spend it before coming back to finish the shift. This is an example of the briefest time period in which currency stores value.

FOA: Was gold a medium of exchange? Yes, but to their own degree, so were the bowls. Was gold a store of value? Yes, but to a degree, so were dinner plates. Was gold divisible into equal lesser parts to define lesser barter units? Yes, but to a degree one could make and trade smaller drinking cups and lesser vessels of oil.

Here's the thing, 'store of value' and 'medium of exchange' are relative terms. Anything real stores value (a painting, a computer, a jewel), and lots of things are media of exchange in various settings (dollars, other currency, cigarettes in jail, etc). And for stores of value, there is a continuum as to how long things store value. What we are talking about is degree. And this gets to the heart of a semantic issue about money being media of exchange and a store of value.


Both of the above quotes get at the idea that, because money is a medium of exchange, it is also, to some degree, a store of value. Even Zimbabwe dollars were a brief store of value, but being a store of value isn't what money is all about. Being a store of value is not its central function—it is derivative of its being a medium of exchange. Being a medium of exchange is money’s essence—what makes money money. This means that, by definition, money’s ability to serve as a measure of value and store of value is secondary.

And here's what I wrote in Moneyness 2: Money is Credit:

In the future, I think that if you are saving for something known, especially something with a known currency price like a down payment or a car, you'll save currency or "money". But if you're saving for the unknown future, you'll apply your newfound understanding of the difference between money and wealth and you'll probably choose gold, the most salient and liquid of the tradable wealth items.

So if you want to believe that the savers will dishoard gold, not because they need the cash for retirement consumption, but to swap it for a different SoV, you need to explain how and why the real price of gold will have periods of "wild" decline even after revaluation and even in a physical-only market. I think this requires the swapping of gold for other investments rather than dishoarding for consumption spending, which is the circular argument I mentioned above.

I contend that, in Freegold, gold will be viewed and used as the tradable wealth item that it is and, because of the two major changes in the gold market, it will perform better than currency in the short run and worse than good investments in the long run, making it the focal point store of value for savers in particular, while no longer being the plaything of investors, traders and speculators.

Here's something that's worth thinking about for a little while. The revaluation of physical gold does not require new buyers. It only requires the sellers *IN SIZE* (other than the mines) to stop selling, which may have already happened. So when gold is revalued, every single ounce will already be owned by a saver at that point, one who already understood gold, more or less. And if the savers-in-money who lost their savings during the transition don't take notice, I'll be really surprised. I'm not advocating a fundamental change in the savers' perception, I'm predicting it.

In the next section I'll explore price signal transmission in Freegold and gold's role in such. I'll also explore gold's role in trade settlement and how it is about the physical flow, not changes in the price, which will bring us right to the heart of gold's true function. It's "the gold must flow," not "the gold must fluctuate wildly."

2. Why gold doesn't need to decline or fluctuate wildly in order to function

Just above, I explained why gold would always rise in Freegold, sometimes faster, sometimes slower, but almost never declining in real terms/price/value outside of a disaster scenario. The following argument is a little different because I want to address why it doesn't need to decline in order to "function" in settlement and price signal transmission as Victor and Blondie claim. But before I dig in, I think a little background is needed.

First of all, I want you to keep in mind that when I talk about theoretical principles in the new Freegold paradigm, they will generally apply at any and every scale, from the individual to the family unit, to the neighborhood, to the city, to the state, to the region or nation, and even up to the most broad of categories, the East and the West. One of the things that I think Victor tends to do in his "Freefiat" arguments is to focus on international settlement as a key factor, when "distributed settlement" or "decentralized settlement" at all scales will not only effect international settlement, but it will also preclude its primacy.

Here is an example of what I mean. In Freegold, net-consumption over long periods of time will no longer be possible. It will be a thing of the past. This applies on all scales, although of course it doesn't apply to those who are simply incapable of surviving without assistance. And net-consumption over short periods of time is, of course, perfectly natural and will continue. But in general, any group, from the individual on up to the hemisphere, will not be able to net-consume indefinitely like we see happening today.

The reason is simple—settlement. The only way net-consumption can continue for long periods of time is for imbalances to accumulate without a mechanism for reversal. Economists and central planners struggle with this all the time, scratching their heads while trying to come up with an appropriate mechanism (i.e., motivation/incentive) to either reverse the trend or to at least cap it.

To give you one example, I remember recently that Aaron spent some time emailing with an economics professor at the college where he works. This was a while back, and I recall that he was trying to explain some of the principles in my Macrofreegold'nomics post. In her reply, it was apparent that she not only couldn't conceive of a natural adjustment mechanism, but that she wasn't even open to discussing anything other than a centrally-planned and administered one. Her proposed mechanism was to cap imbalances by automatically reducing the value of reserves by a set percentage if and when they came to exceed a predetermined level.

I'm just going off memory here, but it went something like this. Think about China's accumulation of Treasuries as being close to the imbalance cap. Today they are at about $1.223T according to the Treasury. Say the cap was $1.25T. If China ever exceeded that cap, then the total value would automatically receive a 6% haircut or something like that. So China could theoretically run a trade surplus with the US forever, but its reserves would never exceed $1.25T, and every time they reached that limit, they'd fall back to $1.175T. So the incentive would be to never reach that level; to stop buying Treasuries. This was a dead serious proposal.

The point of mentioning this story is that almost everyone, even the so-called experts, thinks only in terms of a centralized, controlled, planned and administered solution at one specific scale. Also, it is, without exception, a "whip" or "stick" solution, a potential punishment that can be avoided as the motivation for reversal. This makes sense, doesn't it? Because how can anyone other than the Superorganism itself offer a "carrot" or "candy" (reward-based) adjustment mechanism?

I see this same type of thinking from Victor as well, in his description of trade settlement in "Freefiat". An interesting idea from Victor recently was that settlement-by-proxy could be achieved by a CB like the ECB if the Eurozone's trading partners insisted on accumulating euros so as to run a perpetual surplus against the Eurozone. Instead of capping the nominal amount of reserves that could be accumulated as in Aaron's professor friend's proposal, the ECB would simply print euros in an amount equal to those being hoarded abroad and use them to buy gold.

This was an interesting concept, but I'm sure that some of you are already sensing a few problems with it. First of all, no real settlement will have taken place. The trading partner accumulating euros is running a trade surplus against the Eurozone, so for settlement to take place, gold should flow from the Eurozone to the trading partner. But instead, the ECB is buying gold, essentially on behalf of the trading partner.

But it's not really on their behalf, is it? Because any increase in the €PoG will go to the ECB and not to the trading partner. If we assume Victor's 0% inflation in the euro, then the imbalance could potentially accumulate indefinitely in real terms (in terms of goods and services), but would be capped in gold terms, not too much unlike the nominal capping proposed above, except that Victor's plan would isolate or de-link gold from goods and services.

This arrangement would probably be fine with the trading partner, especially if gold was fluctuating wildly! Imagine reserves of perfectly preserved purchasing power in goods and services! Yet if the €PoG was constantly rising as I contend, they might notice that even perfectly stable base money was a less than optimal reserve. But even if gold fluctuated wildly, making 0% inflation base money the perfect reserve, imagine what would happen if disaster struck in the trading partner's zone, wiping out most of the production capacity but leaving the people, the consumers, intact. This could force "trading partner" to liquidate those reserves very quickly.

The ECB's response, according to Victor, would be to sell gold in order to mop up the rapid inflow of excess currency, keeping its sound money stable in goods and services. Blondie says, "'Sound money' is just stable money, money stable in its purchasing power. No more, no less." (I have a different definition of sound or honest money—it's money that doesn't pretend to be something it's not—but we'll save that discussion for another time.)

If the ECB did this, it would give the disaster zone full purchasing power for all of its reserves, transferring the most immediate impact of the disaster right into the Eurozone where the outflow of "disaster support" in real terms would be disproportionate to what it would otherwise be. Or, the ECB might do the right thing and favor its own economic zone over its purely symbolic token currency in that moment of crisis. This would allow a temporary inflation to take effect, limiting the transfer of wealth in real terms. And here, in this moment of crisis, even one that happens outside of the Eurozone, we see that a perfect currency during normal times can be no more reliable than an FDIC sticker when the time finally comes that you need to cash in your reserves. Gold, on the other hand…

And this brings me to one last point I wanted to make before I dig into my argument, and that is regarding the Debtors and Savers dichotomy. Just above, I proposed a disaster wiping out the productive capacity while leaving the consumers intact. Why didn't I say it wiped out the producers, leaving the consumers intact? That's because everyone is a consumer.

Blondie has told me on a few occasions over the years that he never liked my Debtors and Savers dichotomy, even from the first time he read it. He thought it should be the Producers and the Consumers. But that's a false dichotomy, because everyone is a bit of both. "Savers" denotes a specific group, those who net-produce and attempt to save their excess purchasing power for later. They are still consumers. They don't save everything they produce. Others have also criticized my dichotomy saying it should be the debtors and the creditors. But that's also a false dichotomy, at least in this context, because A) all savers are not engaged in lending, and B) savers should not be engaged in lending because that's a recipe for a disaster that historically ranges from tears to bloodshed.

Okay, let's talk about price signal transmission and imbalance settlement. I'm going to start with settlement. Here's another statement I made with which Blondie once told me he had a problem: "It's all about savers." Blondie said that statement was too imprecise, that it should be changed to: "It's all about the reserve."

Now I want to point out something that may not be obvious on first glance, and it is that my statement refers to a group of living, breathing people while Blondie's correction refers to an inanimate object. I didn't say it's all about the "savings" or "the savings medium", I said it's all about savers. My full statement was this: "Freegold is all about savers. Everything else flows from that." And Blondie's full correction was: "Freegold is all about the reserve. Everything else flows from that." Blondie's point in this particular disagreement was to illustrate for me how I could make my statements more precise to avoid people misunderstanding them, and yet I'm still fine with my original statement while I disagree with his.

So what did I mean by "it's all about savers"? Well, this is a big concept that encompasses many elements of Freegold, not the least of which is the element of imbalances and the need for settlement, which directly affects price signal transmission which I'll get to in a moment. Imbalances occur when one zone produces more than it consumes in aggregate. Yet not everyone inside that zone is a net-producer. Some are net-producers and some are net-consumers. So if, on aggregate, the zone is running a trade surplus against the rest of the world, then the net-producers inside that zone must be producing enough for their own consumption + the net-consumption of the net-consumers in that zone + the amount of the trade surplus. In other words, the net-producers are the only group inside that zone who are directly responsible for the trade surplus. The surplus (i.e. imbalance) is entirely attributable to the savers as a group. It's all about savers.

It's also all about savers because, just as imbalance is a choice made by savers, so is settlement. Consuming less than you produce is a choice. We have good examples of people who produce huge incomes and consume equal or even greater amounts, so underconsumption is a choice. Likewise, what the saver does with his surplus income is also a choice. To lend it to someone else is to not choose settlement. To lend is to choose imbalance rather than settlement. Likewise, to invest one's surplus is to not choose settlement. To invest is to bet on future imbalance changes.

Imagine a net-producer in a surplus zone investing his proceeds back into his own business. He is not choosing to settle, instead he wants to produce more; he is betting that his zone's surplus imbalance will expand even more, because if it doesn't, his investment will probably not pay off better than savings. Or he could invest in production in the deficit zone which would be a "foreign investment". This would, on average, be a better bet for a surplus-zone investor in Freegold.

But you don't have to worry about that choice, especially if you are a saver. Some people are just born investors, entrepreneurs and gamblers, while most of us are savers. They look for the best bet while we look for the least risk. Are savers better than investors? Nope. Or are investors selfless and giving while savers are greedy hoarders? No way!!! We both play important roles, and I am in no way casting moral judgments. I am only observing.

You see, the marginal saver will switch back to investing during the deficit leg of the cycle in his zone, but he is not the grain that tips the scale turning the cycle. Natural investors will "see around the corner" and invest wherever the best risk-weighted profit opportunities lie, either domestically or elsewhere. This dynamic movement, the expectation of growth potential, will shift real economic growth from the surplus zone to the deficit zone where it is needed, and then back again.

So then why did I say it's all about savers? Why didn't I say it's all about investors? Well, because an investor will do what an investor will do. That's not unlike saying that a debtor will do what a debtor will do. Think of them as relative constants when compared to the wild-ass variable of savers, the elephant in the room, or more like the bull in the china shop, as long as they don't have a good focal point to herd them out of the busy economic highway.

The best thing the savers can do for the economy is to get out of the price signal transmission business and settle their accounts. Simple as that. We don't need anyone to "help" the Superorganism in identifying and enabling credibility. That's a natural process. The savers, which most of us are, should simply get out of the way, settle their accounts and let the organism work. It is only the lack of such settlement that messes it all up. And that's the main point. That's why it's all about savers.

So what is settlement? Well, it's not lending. It's not investment. It's not speculating in commodities (i.e., betting on future price signals). It's not consumption. And it's not necessarily buying gold. It is simply spending your excess income on durable goods that are not consumable and are not economically important. And, for savers, this means goods that tend to have resale value because of the focal point and network effect principles. This includes all of the usual goods I list as collectibles, but without a real focal point, none of them suffices enough to do the job properly and get the savers, as a group, out of the way. The best durable assets currently are out of reach to most savers, and the ones in reach suck. So the savers turn to investments and speculation which messes with the price signal transmission system built into the human superorganism.

For a review of price signal transmission, I refer you back to "I, Pencil" in the Superorganism Open Forum. Price signal transmission is an impossibly complex symphony of price movements that direct the structure of production. From the post:

"First, while no central planner is responsible for pencil production overall, entrepreneurs and workers at each stage do have plans and expectations, which they strive to coordinate with one another across stages and time periods. The key to coordination is the price system. If there’s a brass shortage, rising prices will communicate that information to the ferrule and pencil makers. The downstream entrepreneurs will have to adjust their plans in response to the new conditions–say, by finding a substitute material. The demand for a substitute material will in turn set appropriate processes in motion as entrepreneurs react. In the real world of disequilibrium, change is the rule, so plans are always undergoing revision…"

You see, it's not the fluctuating gold price that is needed for price signal transmission… it is the exact opposite! It is the price of everything else that fluctuates, transmitting signals, and it is gold that remains stable enough to sequester the savers as a group and get them out of the way of the Superorganism so it can do its job! Gold does not need to beat investment returns. Born investors will not be drawn to gold, and we don't want them to be, because they are a fickle bunch which makes them an important component in the Superoganism's price signal transmission system. The savers just need to let them be, which is why I ended that post with "Let It Be" by the Beatles.

So "properly functioning gold" is not wildly fluctuating gold, it is steadily rising gold, not better than investments in the long run, and not worse than currency in the short run. This is not a hard money fantasy, it is a Freegold reality. It is not the result of stable money as Blondie says, it is simply the result of a revalued physical-only gold market.

One last thing. The settlement of a saver's account in gold doesn't deprive the economy of ANYTHING. Quite the contrary! Any money spent on gold that would otherwise have been lent or invested goes instead to a net-consumer who used to be a net-producer, and is spent on the consumption of chosen products. It thereby flows to deserving companies and their employees. One does the economy no favors by leaving the distribution of their excess income up to governments and banks, central or otherwise, who must engage—by definition—in central planning.

Forget about lending being something that someone has to lend. If someone has a credible plan to expand the economy, their credibility will be funded. They don't need to borrow the saved surplus of past production. They get credit based only on their future production, not on anyone's saved past production, and use that credit to rent whatever they need for their future production. Credit isn't something first earned, then saved, then lent. It is simply the enabling of the borrower's credibility. That's why we have banks that can "print money from thin air". Because that's how it has always been! If you're a saver, just buy gold and let it be.



Tyrone said...

Is this the Free Gold that awaits...

Free... gold?

I'll take the regular FreeGold.

Cheers! (LOL)

Sam said...

I consider my questions about the freegold function debate answered. Thanks FOFOA

S P said...

The basic problem is that the current amount of gold above ground (even if it flows) is not enough to satisfy the needs of every saver.

This means one of two things:
1) genuine freegold can only work after a dieoff and the human population growth rate once again begins roughly compatible with the biosphere as a whole

2) if there is no dieoff, this means the human superorganism will turn to other precious metals as no amount of fiat money earned will obtain a proper amount of gold. Gold will not become a universal for savers, it will become a universal for wealthy savers.

Do you really think people will keep $1000 of purchasing power in a tiny gram of gold that could very easily be misplaced even if taken care of?

No they won't which means they will have no other recourse other than fiat, which brings us right back to the problem again.

Aaron said...

S P said...

The basic problem is that the current amount of gold above ground (even if it flows) is not enough to satisfy the needs of every saver.

Says who? Gold will flow to anywhere it needs to flow at the right price. There is PLENTY of gold to meet savers needs, ~180,000 tonnes -- a 60 year supply at current consumption rates.

Indenture said...

If you are new to FOFOA, welcome.
Understanding Freegold is a difficult endeavor because it touches on so many different aspects of the financial world. There are now 400 posts on this blog and reading them all can be time consuming so to help new readers 'Matrix Sentry' has organized lists of FOFOA articles to help the beginner.

They are located at Ron M's Air-Friendly PDFs

I suggest:

Aquilus & Matrix Freegold 101- An Introduction
Indenture’s Reading List
JR’s Suggested RPG- Freegold Reading List
Blondie’s Freegold Summary

If you have any questions please don’t hesitate to ask.

If you are a returning customer:
Please remember that FOFOA appreciates donations.

JR said...

It is true that you can't really eat, wear or seek shelter in gold. We don't need it to breathe, and it's not very fun on the water. But once you come to understand gold's true function, you'll see that it is an irreplaceable, invaluable, truly priceless and almost incomprehensibly vital component in the human Superorganism's effort to survive and thrive.

Aragorn III: People ask, "Why waste effort to dig up Gold from the ground, only to rebury it in vaults?" I say, "For the same reason the central banks toil to print millions of fancy notes that nobody reads. If you've read one, you've read them all."

Luke said...


Gold is nearly infinitely divisible, and since it's value is arbitrary, there will always be enough to satisfy savings demand.

Brady said...

"The issue isn't, "Will mine shares go up or down?" The issues are, "As compared to physical gold, are mines worth the risk?" and "Do mines offer any diversification value in addition to holding physical gold?" and "Are you prepared if mines go to zero for a time?" and "Can you pick the mines that will survive?"

Thanks fofoa, that pretty much hits in on the nail.

In my mind, before the transition, I break it down as a) paper price gold will go down not up b) paper currency will burn ie. worthless c) ergo, if i held mining shares (ie. paper), they will likely go to zero. On the other hand, even if mining shares did rise, I don't care b/c I need to sell the paper shares for paper currency that is worthless. Or I'm a gambler and need to not only predict when to sell mining shares but also have the understanding to buy physical gold presuming it is available.

1) Ergo, pre-transition, it makes sense that I buy physical gold now and wait vs. holding paper mining shares/paper currency.

2) If hypothetically I had the gall to hold mining shares through the transition, watched as they plummeted to zero, with the hope (prayer?) gov'ts do not control the gold mines, I think it makes sense to hold physical gold now until after the transition, let the dust settle and aim to buy some mining shares on the cheap post transition.

3) If post transition gov'ts will control gold mines, I'd still prefer to hold physical gold now and post transition, continue to hold physical gold and wait/see/compare risk/return of continuing to hold physical gold or deploying some physical gold into currency and then into the purchase of select mining shares.

Ultimately, it makes the most sense to this simpleton to hold physical gold now, before and post transition as before transition a) paper price of gold plummets down b) paper currency is worthless c) mining shares go to zero

and post transition d) gov'ts will control gold mines and keep the windfall (for the collective) that would otherwise be profits to the shareholders.

Attitude_Check said...


Good answers to the recent questions. i was confused about the concept of Gold-loans. I couldn't understand why I couldn't use Gold as collateral in Free-gold. That would appear to make Gold worthless. Now I understand, and It makes sense. Fractional gold loaning would destroy the limited amount of gold (financially at least) harming it's SOV function, and have the same macro-economic credit/debt instabilities as fractional fiat lending.

M said...

Excellent explanation on the miners.

No wonder why Sprott or Casey Research wont touch freegold with a ten foot pole.

My mining share investments where predicated on a paper bull market in gold first. Looks like I am losing that bet but I don't think its over yet.

One weird thing about these times.... The great unwashed appears to be right about gold. Appeared being the operative word here.

Nickelsaver said...

"You see, it's not the fluctuating gold price that is needed for price signal transmission… it is the exact opposite! It is the price of everything else that fluctuates, transmitting signals, and it is gold that remains stable enough to sequester the savers as a group and get them out of the way of the Superorganism so it can do its job!"

So simple a dimwit can understand it. Lucky me.


Luke said...

Physical bullion fund GTU is currently trading at over a 4% discount. Pretty strange. Side, note I do own a couple of miners and have been feeling the pain. ANV might have the saddest chart I have ever seen.

Michael dV said...

even now in India small groups of the impoverished pool resources to buy gram quantity gold bars at $ US 55 per gram at todays rates. I could easily see bank storage of small quantities of small amounts of gold and clever products to enable buying and selling it in less than a gram quantities.
BUT remember only savers need gold. Fiat will work just fine for the marginal folks who live paycheck to paycheck.

jeb said...

Personally, Im hoping the new system will bring about a more healthy productive vibrant society and less people demanding something for nothing. A change in attitude. More Jobs and cheap oil.

victorthecleaner said...

If you are interested in Blondie's argument and how it was developed, please feel free to take a look at this discussion at the NeuralNetWriter forum (up to their page 6) and at the snippets on my blog. Although time didn't permit to turn these into a proper blog posts, you should be able to understand

1) why Blondie's point of view is superior in explaining the monetary system AG (=after gold functions again)
2) that with his point of view, the Euro architecture and the present actions by the ECB make a lot more sense
3) that Blondie's and my argument about international settlement, it never depended on whether it was done centrally or by the private sector in millions of smaller transactions
4) that this

FOFOA: Victor and Blondie believe that gold's function will make it a poor medium for savings, therefore Freegold actually means a return to holding currency as your savings.

was never the main point of the argument nor one of the key insights. But that you cannot get from FOFOA's remarks above. For this, I am afraid, you need to take a look at the original. (Although it is true that I expect gold's real value to fluctuate quite a bit AG, perhaps even +/- 5% per year over two years and then back, pretty similarly to how it behaved before WW1. But this is a consequence of a conceptual insight rather than an assumption without which the argument would fail.)

I am not an "activist" as FOFOA likes to call it. I don't think Blondie is either. All that material is offered for your open minded consideration, hoping it provides you with some "value" AG and allows you to understand the current actions in Europe better.

As I don't think it is productive if I repeat stuff that was explained elsewhere, I will let this matter rest on FOFOA's blog. If you are still interested, please follow the other sources. I am not going to advertize here in case there is some new material over there.

Kind regards,


A PIIG said...

FOFOA is saying gold will match the CPI closely, is Victor just saying that it will match the CPI over a longer timeframe, but fluctuate massively over short periods, maybe rising up to 5% faster than the CPI for 2 years, then 5% less than the CPI over a different 2 year period?

If that is the case Gold would still be considered a stable SoV over the medium and long term. Sure if your near retirement you might make a loss on the gold you purchased over your last 2 years of net producing, but over your long 30-50 years of saving gold you have preserved purchasing power pretty darn stably.

Jonas said...

FOFOA is getting more and more into the mainstream. Jim Sinclair often refers to Freegold and the FOFOA writings in his commentaries. Other more gold related "gurus" are latching on to FOFOAs writings as well. It could take a long time before MSNBC catches on, but I suspect it will be the same transfer of knowledge and awareness as what took place 2005-2011 regarding gold as "investment". This time it will be gold as a hard currency for savings and preservation of wealth. A ticket out of the failing fiat system for those who want to keep their savings until a new system can be established with gold as the main pillar of confidence.

burningfiat said...

Wow, number 400? Congratulations FOFOA!

And what an anniversary! No. 400 is without doubt in the all time top 10 of FOFOA articles IMHO.

In essence it feels like the subject of gold and its (future) function have been treated deeper than ever before in this very article. Thank you FOFOA!

I would also like to tip my hat for Victor and Blondie. Without them openly exploring this side-trail, FOFOA wouldn't have been pressed into making this piece...
I hope that the miniature Freegold economic community continues to make open and polite discussion possible, such that we can continue to have these debates between differing views.
It has really driven my understanding further I think.

(No troll, bad troll, that was NOT meant as encouragement for you!)

anand srivastava said...


I recently bought a 0.5gm gold coin. Yes it was packaged in a credit card sized package. I don't think I will be losing it. And it is like money. I won't be taking out the coin either.

Expect post transition such packages for even smaller sizes of gold. It could be made easily for 10 milligrams of gold. You would see a very small very thin wafer of gold in a plastic window inside a credit card package :-)

ein anderer said...

Thanks, FOFOA, again for your kind and logical warning to all those mining share holders out there. Hope some will understand and appreciate. Great post.

anand srivastava said...


Thanks for a very good article.

"You see, it's not the fluctuating gold price that is needed for price signal transmission… it is the exact opposite! It is the price of everything else that fluctuates, transmitting signals, and it is gold that remains stable enough to sequester the savers as a group and get them out of the way of the Superorganism so it can do its job!"

I think what you are meaning here is that it will be more or less stable. There will be swings but not very wild. At 55000$/oz, a swing of 5% will be very very large, but will still be considered stable in the big picture.

If the currency is depreciating at around 2%, it would amount to 3% reduction in price in the short term, maybe a few months. But even over a couple of years it would not be very far from 2%+ some_natural_appreciation_linked_to_growth_of_the_economy.

I hope I am getting your intent right. I don't see how it can be as stable as fiat in the short term :-).

FOFOA said...

Don't get hung up on 5% not being a "wild" enough fluctuation. "Wild" is the term Victor likes to use. I used 5% in the post to avoid being accused of exaggerating Victor's "wild" fluctuations because that was the smallest number he has mentioned. And again, I'm mainly disputing downward fluctuations that would make true savers dishoard gold in favor of currency, even for unknown future expenses. Here's what Victor has repeatedly predicted: "You should expect fluctuations in the real price of gold of perhaps 10%-15% over 2-3 years." And he says that's "nothing special," so perhaps he's expecting fluctuations even greater than 15% over shorter time frames. I don't know, but I'm not.

anand srivastava said...


10-15% would be unimaginable for me :-), and that too over 2-3 years. This could happen on the positive side in badly managed regions, but downward is not possible IMO.

Agree with you, wild fluctuations do not make sense. It wouldn't be a store of value if it did vary that much.

Motley Fool said...

Personally I think option (2) is more likely for the miners. If we are talking about a supertax, option (3) then it changes the behaviour of the company, incentivizing them to make as much expenditures as possible to lower their tax burden...and employ other such tricks. I think governments will get more benefit from option (2), and hence go with that. I know that for both South Africa, and Australia, two big gold producers, this is how it used to work prior to 1971, and in both cases those laws are still on the books and have only been suspended 'temporarily'.

Still, it's a minor disagreement. :)


Robert said...

Congratulations, FOFOA, on the 400th addition to the library. I do not doubt the other reviews that proclaim that your analysis is as erudite as ever, but I confess that this one did not grab me in the way your older work did. At the moment I could care less what happens after the transition. I think we get way ahead of ourselves if we start spending a lot of time speculating about what a Freegold world would look like after the Great Reset. Will prices fluctuate? Will people pledge gold as collateral? Will people embrace the system or will they reject it? Will the government try to seize gold or tax gold transactions? Will Freegold "work"? Thinking up answers to all of these questions before the transition actually happens is a complete waste of time in my opinion. But I am no monetary theorist. I do not seek an "economic utopia" to fit with my political convictions. My eyes glazed over as I tried to follow the exchange between VtC and Blondie. All I care about is undertstanding the next major development in the world's monetary system, and how to protect myself against the risks of what is coming with the Great Reset. This is no criticsm of your work, as I see that you are simply trying to answer the questions that we in the peanut gallery have been raising. It's the questions and the direction of the conversation that I think has gone off in a tangent -- not your answers or analysis.

I think it is far more important to focus on the questions leading up to the Great Reset, rather than to opine whether it is good or bad to to speculate what happens after that. But that's just me. So today I went back and reread Deflation or Hyperinflation (April 2011) -- the first post I ever read and still may favorite of all time. And it's work like that that has me checking in every day, even two years later.

Jeff said...

Happy birthday FOFOA. You don't look a day over 250. :)

Freefiat is the dream of an idealist and a mechanist. Is it theoretically possible to enforce a 0% inflation standard? Maybe. Is it desirable to ignore the time continuum and the continuum between MoE and SoV, forcing the currency to do everything? Is it the stated goal of the ECB to castrate the debtors? Is this consistent with A/FOA?

Duisenberg: "The euro, probably more than any other currency, represents the mutual confidence at the heart of our community. It is the first currency that has not only severed its link to gold, but also its link to the nation-state. It is not backed by the durability of the metal or by the authority of the state. Indeed, what Sir Thomas More said of gold five hundred years ago – that it was made for men and that it had its value by them – applies very well to the euro."

It was made for men, not some men (savers). All men. Our human tribe won't succeed with hard money, the old gold standard or freefiat. Don't ignure human nature.

Trail Guide (02/11/00; 09:49:21MDT - Msg ID:24996)


Many writers today offer nothing less than a philippic discourse about the flaws in today's fiat systems. Always looking backwards, they are lost to grasp how what was considered "hard money policies then",,, "eventually failed then". Truly, a hard financial structure trying to blend with a soft, flexible "human nature". In a larger degree, how much more could it not work in today's modern world. Once implemented today, these same policies would again "crash and burn" in response to the demands from "real people" living a "real life".

No longer do we hold our greatest portions in real forms that transcends the peaks and valleys of fiat money value ,,,, a variable fiat money system that our "changeable nature" demands. No, we opt to ignore the true purpose of this paper money system and cast the entirety of our resources into it. Never stopping to understand that this money is but an "economic need" "to process a trade". Not an "economic product" and therefore wealth itself.

Throughout recent time, fiat money has responded well to human nature, flowing like a river as it expands and contracts to our wants and desires to buy and sell things. From drought to flood it is the channel of our trading system, as it moved the "end product water" that flows within its wide banks.

JR said...


Do you recall what the government did with the gold? Were they a middleman to final distributors or did they undertake the merchant role and sell via directly to the public via like Krugerrands?

Just curios how much the governments entered the market as opposed to (1) contracting the private sector to do it for them for or (2) just acting as middleman for the private sector.

Pat said...

My wife has gently taken me to task. My rationale to buy at much higher prices, even after explaining to her that the "paper" price will plummet, has her baffled. She just pointed out that not only has the lower and lower paper price not affected physical premiums upward, but just the opposite. Apmex for example is only offering a $37 dollar premium for purchasing AGE's, while it used to be $40+ for years. I noticed the premium to buy from them is lower as well. Sigh. I guess the notion that it would increasingly difficult to find well priced physical as the paper price drops was not to be. I know I know hindsight yada yada.
It does give me pause though to wonder how long this charade can be maintained, it seems TPTB have all the power, to levitate the stock market in defiance of sanity, to suppress gold in defiance of sanity, etc.

Sir Tagio said...

Damn, Fofoa, you are one freaking brilliant dude. Such clarity of thought! Thank you!

I LOVED this part:
"Today the focal point savings medium is fiat. So in the "Freefiat" world, that focal point doesn't change even though we move from a broken paradigm—broken by saving in fiat currency—into a new paradigm. That's a pretty big divergence from the Gold Trail that I have been following!"

One of the biggest things I learned from this blog, probably more important than any other, is the difference between "wealthy on paper," and real wealth. Wealth is real physical possession of things used in one's life. I would never save in currency again, except as you say, to accumulate some MoE for a planned purchase, such as a car or house, or to have a modest reserve for contingencies, such as car repairs, etc., or if I were a Giant, to purchase some company I had my eye on, or to have slush find to jump on opportunities that might present themselves. A difference of scale, not of the fundamental distinction between currency and wealth. Having seen, I won't unsee. I don't care how secure the Euro or any other currency is, it's still freaking currency, not wealth.

Thanks for a fantastic post!

Sir Tagio said...

Bringing our spouses with us along the Gold Trail is a challenge for all of us. It seems that, for some reason, our spouses don't seem to find this blog the page turner that keeps them wanting more! So we have the job of trying to explain the Trail simply, in table conversation, to garner the support of our loved ones, and we are sure to be challenged when the price is falling and we are risking savings in gold while the stock market is going up, up, up. I do the best I can, and I am fortunate to have succeeded in explaining it well enough that my wife is comfortable enough with the situation. I RRTFB not only for my own understanding and peace of mind, but so I can communicate my understanding better to the mostimportant person in my life.

However I admit that I am greatly aided by the fact that we are both so ticked off at the financial and political system's shenanigans and sociopathology, that we would never give those bastards the chance to play with any surplus we produce ever again. Eff 'em, hypothecate this, jackasses! is our attitude, Russian scorched earth is our policy. We'll live in a trailer park and eat cat food before we let those a-holes "manage" our money ever again. And yeah, we're sharing those sentiments with our children, so there's a generation coming behind that will feel exactly the same way.

Wil Martindale said...

For me, the first two points were already in the bag. This third idea, I hoped to better understand.

Intuitively, I see the price of gold as being relatively stable post FREEGOLD (unlike today) while all assets around it fluctuate mildly, not wildly.

With gold as the preferred reference point for value, and with it's value in currency terms no longer being the focal point of "price suppression" I hope (and believe) that we will evolve into a much more stable system than the current "wild" boom and bust cycles which facilitate the unequitable transfer of wealth.

These cycles come through leverage and fractionalization, the crux of which we are departing in the destruction of the fractional paper bullion market.

So FREEGOLD is a self-referential corrective mechanism (for me) as a stable value reference, which in turn brings stability to other assets through relative association with a stable value of gold, in essence the "anti-bubble."

I may have to devote more time to better understand Victor and Blondie's revelations, but they are not a point of great interest to me, as they do not materially alter the onset of FREEGOLD, but rather examine certain details of it.

More important to me are the forces that would and could prevent or stall FREEGOLD and the problems that would create.

There are powerful forces, I suspect, with a vested interest in preventing, minimizing and/or delaying the USD hyperinflation. Giants benefit from stability and maintenance of status quo.

And while I hear the term "inteconnected" quite a bit, I prefer Zbigniew's term "interdependent" to describe the IMF$ and it's highly charged tectonic political component.

Thanks so much for this post FOFOA, and for your diligence in providing a worthwhile means of discussion around this important topic.

To leave you with one tidbit of value, and over at neuralnet they seemed to be channeling Greenspan for a moment along these lines, I found this reference at the Cafe quite interesting:
"I think that a fiat currency can 'work' if it emulates the rigor of an external standard. (is this not yet another wonderfully concise description of FREEGOLD?) and it was made in reference to Greenspan's commentary here:

A PIIG said...

Had a better read of the collection of posts on the forum linked. Be careful, Vtc makes the case that the Euro, not fiat currencies in general will be a SoV. This is based on it being managed well and simply adjusting their inflation target from 2 to 0%. The Euro's severance from the nation state makes this good management possible.

Sam said...


Freegold is a complicated subject. You might have an easier time if you got her hooked on a typical gold bug site. Then when she thirsts for more knowledge introduce FOFOA. I used to check the SPoG everyday. Now I simply keep track of how many ounces I possess and rejoice at the low price and available inventory each payday. I can tell you that for me personally I have already revalued them in my mind.

Sam said...

@ Robert

398 posts about the coming transition and 2 glimpsing the hereafter is ok with me. Though most of the conversation is about the boats hitting the shore, I still want to have an occasional insight at what to expect after we storm the beach

A PIIG said...

MatrixSentry, I'd love to see this discussion in a pdf file.

Up to you though.

Polly Metallic said...

I particularly like this passage:

"Here's something that's worth thinking about for a little while. The revaluation of physical gold does not require new buyers. It only requires the sellers *IN SIZE* (other than the mines) to stop selling, which may have already happened. So when gold is revalued, every single ounce will already be owned by a saver at that point, one who already understood gold, more or less. And if the savers-in-money who lost their savings during the transition don't take notice, I'll be really surprised. I'm not advocating a fundamental change in the savers' perception, I'm predicting it."

A couple thoughts:
There will be many small savers in countries like India and China who will sell some of their gold as it becomes a windfall , life altering change in their wealth. They will be able to buy things they never dreamed of, and that will be good for their local economies, and for deficit nations as well as these new consumers buy products from around the world. The governments, who will become the primaryl beneficiaries of the dishoarded gold, will be benefited by the privately held gold flowing into their reserves. Little wonder the Chinese government has been encouraging its people to buy gold as personal savings. It will be a double windfall for the government in providing new consumption by the population and a new source of gold reserves for themselves.

When I first read the concept of the average person buying gold after the revaluation, I found it a strange thought. Why would people buy gold at that high price when it wasn’t likely to go up in value? I was trapped in the old mindset of always needing to “invest” in things that increased in value rather than to be content to “save.” Savings for all of our lives have been a battle to simply stay even with the ravages of inflation over time, and to find a means of savings that didn’t incur risk of loss as well as risk of loss due to currency devaluation. How many of us have used those “retirement calculators” to see how much we needed to “save” during our working careers just to keep ahead of inflation? Once it dawned on me that saving in gold made all those worries and headaches go away, the light came on in my head and I “got it.”

Brady said...


Here's one of my fav quotes:

"Understanding how the world works is easy as soon as you understand the Wealth Hierarchy. Like this: Earn money/currency, buy what you need, save Gold, enjoy what life has to offer."

Real wealth. Get you some. ---Aristotle

KindofBlue said...


Simple. Direct. Class.

Motley Fool said...


If memory serves they had to sell it to the Rand refinery at a government mandated price. It was then cast into bars and exported.

Kruggerrands were first minted in 1967 I believe, so until that point I do not think they sold to the public.


Ps. Prior to 1965 the Republic was still a Union and under the influence of the commonwealth. I do think some sovereign gold coins were made locally. I recall seeing some of the same coins (sovereigns) originating in Australia.

Motley Fool said...


You may find this of interest.

Pamplona said...

VtC made an interesting comment in some previous post about Jim Sinclair and his royalty ownership.

I've tried to ask questions here before but no one has really bothered to hold my hand walk me through.

Two questions yet unanswered.

(1) Will royalty covenants/arrangements be honored in Freegold? Wouldn't that make royalty trusts an attractive investment? Maybe not for capital gains but if royalty trusts dividend out gold every quarter I would really care less what my shares are worth because I would never sell them.

(2) How does does this windfall tax account for the fact that much of the world's unmined gold is a byproduct of copper mining? I would think that if these copper deposits lost their optionality to gold, many of the largest copper projects would be uneconomic. And the world certainly needs copper.

JR said...

Thanks TF

Motley Fool said...


With some searching I also hit a 'jackpot' of sorts as regards the south african reserve bank.

Their annual and quarterly reports are available from 1946.

I have skimmed over a few interesting years...but I don't have the patience to sift through it all. Perhaps Mortymer would be interested.


JR said...

"imagine what would happen if disaster struck in the trading partner's zone, wiping out most of the production capacity but leaving the people, the consumers, intact. This could force "trading partner" to liquidate those reserves very quickly.

The ECB's response, according to Victor, would be to sell gold in order to mop up the rapid inflow of excess currency, keeping its sound money stable in goods and services. Blondie says, "'Sound money' is just stable money, money stable in its purchasing power. No more, no less." (I have a different definition of sound or honest money—it's money that doesn't pretend to be something it's not—but we'll save that discussion for another time.)

If the ECB did this, it would give the disaster zone full purchasing power for all of its reserves, transferring the most immediate impact of the disaster right into the Eurozone where the outflow of "disaster support" in real terms would be disproportionate to what it would otherwise be. Or, the ECB might do the right thing and favor its own economic zone over its purely symbolic token currency in that moment of crisis. This would allow a temporary inflation to take effect, limiting the transfer of wealth in real terms. And here, in this moment of crisis, even one that happens outside of the Eurozone, we see that a perfect currency during normal times can be no more reliable than an FDIC sticker when the time finally comes that you need to cash in your reserves. Gold, on the other hand…"


Randy: Gold as a store of value in national reserves

The new trade arrangements between Russia and China are instructive. Forsyth writes: "Dissatisfied with the options of the dollar or the euro, the ascendant economic powers are essentially cutting out these middlemen. ... Russia and China have agreed to settle their bilateral trade of about $50 billion in their respective currencies. That means Chinese importers don't need to obtain dollars to buy oil from Russia. Nor does Russia need greenbacks to buy Chinese goods." It should be obvious and intuitive that bilateral trade between any two given countries could be similarly invoiced in their respective currencies. The timeline is effectively zero given that these currencies already exist and are in local use. At issue, mostly, is the simple matter of breaking with mere tradition — curbing the habit of invoicing/contracting in this third-party currency, the dollar. Given the suitable functionality of most national currencies for the individual invoicing and payment of their various bilateral trade arrangements, there is no need for the world to spend any time or effort conjuring up a new supra-national currency unit as a universal invoicing agent to replace the dollar.

With invoicing/payment alternatives ready and waiting, the only other aspect of usage left to address in the dollar’s international role is that as a reserve currency — that is, as a store of value. Here most of the conditions are begging for change and offer the largest scope for improvement of the international monetary order.

Store of value (reserve usage) is a significant element because, at the end of any given trade cycle (i.e., monthly, or annually, for example), a nation actively trading with its international peers as described above will inevitably end up with a net position in various foreign currencies. It becomes a matter of national importance to consolidate those paper positions into a more reliable form that is not dependent upon the fiscal policies and monetary management skills of your international trading partners. It is the form of asset chosen for this consolidation of the net position that embodies the “store-of-value” function from one trade cycle to the next and beyond.

JR said...

One more Brady,

it is best that you work to actively establish your desired gold position without undue delay. With peace of mind you can then turn your full attention to the business of living your life as it was meant to be. In this time of transition, spending significantly further time and energy running along the treadmill of alternative currencies and their derivatives in a gamely attempt to keep up or get ahead is a fool's errand

Ashley said...

@Pat: Times of great change are fraught with peril for everyone, including gold dealers. More than a few will likely be driven out of business as we go through the transition because they will continue blindly along, selling inventory at the spot price and standard markup percentage, expecting replenishment of inventory that never comes.

The rational approach for any merchant experiencing a supply shock relative to demand is to rapidly mark up prices by 100, 200, 300 percent until demand vs supply stabilizes. However, all the good little public-school educated citizens have been conditioned to react in anger (and legislation) to such "price-gouging" and so retailers are caught in an impossible position.

Either the inventory recovers and gold dealers such as Apmex continue on a while longer or it doesn't and they will have provided us with one last gift of cheap gold while running themselves out of business.

Woland said...

Re: The new trading arrangements between Russia and China are

I'm kinda puzzled no one has seen fit to comment on the Putin/Glaziev
document made public at the BRICS conference in Durban in May of this
year. Anyone (hint, hint) have any thoughts???

Nickelsaver said...

Victor writes:
Poopyjim wanted to mock what I wrote and said:

"I say we start calling it "freefiat" because what it really frees are CBs from their obligation to inflate against USD. Finally CBs will be able to shoot for that 0% inflation target they wanted all along."

I'd say he is spot on. Freegold frees the CBs from the obligation to inflate their fiat along with the old paper reserve currency (=dollar) and, for the first time in history, allows them to manage their fiat currency as a proper SoV.

Victor. What I believe you have presented here is a fallacious argument.

It goes something like this:

$IMFS inflation necessitates Euro inflation,
ALL inflation is bad,
therefore, the Euro will be not allowed to inflate post $IMFS.

IMO, the best any currency issuer can hope for is stability of the currency relative to goods and services. The natural cycle within Freegold, given the spur/break, will be for currencies to modulate up and down (inflate and deflate). As opposed to continually inflate as they do now, because of the downward pressure of the $IMFS.

I tried to illustrate this with my car analogy found here:

Now because there will be a modulation (an Ebb and Flow of inflation and deflation) in the new system, the Euro will see it's currency fluctuate nominally in purchasing power. Not a lot, but enough that price signals (like the heartbeat of the system) will be apparent. But, I don't believe that the Euro managers will want to see real deflation (which I think we could agree is destructive).

Yet if they targeted zero, then this modulation would would see real deflation in the currency. If we imagine this modulation as a sine wave, as the currency deflates it crosses over that zero point into real deflation. It then reverses direction as it inflates and crosses over the zero point again. But, if it crosses over that zero point, that is a negative price signal to goods and services. And potentially destructive to the growth of the economy within that currency zone.

But, if that target where to be set above zero. Then the modulation would see nominal deflation as opposed to real deflation, because the zero point would never need to be crossed.

Now as to this statement ..."allows them to manage their fiat currency as a proper SoV"

Wouldn't the proper statement be "allows them to manage their fiat currency as a proper MoE". I think it is, because while any currency has SoV properties, its primary function is that of MoE - the facilitation of the flow of value. The SoV function is secondary, and to the extent that its stability (slow loss of value) is predictable to the market place, makes it undesirable as a savings vehicle, but very good as measuring stick.

For if gold does not perform primary SoV function, then Gold would find an even narrower distribution within the collective, thereby changing the entire dynamic of Golds network effect.

This to me is not merely a side trail, this is an entirely different mountain path altogether. It is to say "don't follow in the footsteps of giants, let them carry you"


Brady said...

one more JR, again from Aristotle:

Aristotle (2/7/2000; 8:10:15MDT - Msg ID:24593)

"While reaching out to my idealistic friends, I also hope to present a "roadmap of thought" for that larger, all-important population which falls into the second category mentioned above --those that have not tapped into a more thoughtful, enjoyable life which I have seen to be the general hallmark of my few Gold-minded friends (the ones who have themselves avoided the extremist idealistic trappings.)"

Wil (from another account) said...

Desperate measures to maintain the staus quo even include encouraging gold's bid for oil to continue unabated.

Nickelsaver said...


"398 posts about the coming transition and 2 glimpsing the hereafter is ok with me. Though most of the conversation is about the boats hitting the shore, I still want to have an occasional insight at what to expect after we storm the beach"

What about this -

Actually, FOFOA discusses Freegold "what will be" over and over and over again throughout many posts. You just have to read the posts in a mindset that is not merely interested in obtaining some conformation on a 30x revaluation. Don't get me wrong, that is a very important aspect. But it's not and hasn't been the only aspect of FOFOA's posts.

Börjesson said...

If gold fluctuates wildly against everything else, or if everything else fluctuates wildly against gold - doesn't it pretty much amount to the same thing?

jojo said...

I was just wondering: everyone keeps adding Blondie to this debate but Blondie committed HarryCarry, or is it Hara-kiri?
VtC engages so it would seem to be mostly him. Is this really just VtC's argument?

Now, supposedly, Blondie rose from the ashes as CGV on another forum....but that is a semi private forum (afaik no new memberships allowed.-well maybe if you petition in writing to the admin)
So from there, the pontiff writes, VtC transcribes, then delivers the message?? Is that this new trail?
Nice and insulated. One could get used to that. (#notrollsthere)
And what about pre-FG, money and the transition itself did Blondie disagree with so much so as to delete his writings on it?
I thought his disagreement was solely this stuff AG.
It's bizarre. Maybe we are in Seinfelds Bizarro world. Maybe Blondie and VtC ate one of the bad mushrooms on the side of the trail last fall??? They do ripen in fall but you really need your shroom guide on hand.
Anyway, it would be nice to see them address Fofoa's 1 and 2 above right here so we can all hash it out right here where it started.

Sam said...

macrofreegoldnomics - a good one I haven't re-read in a while. Gold under $1400. Mainstream explanations completely unconvincing. Many people will be seeking answers on the internet. If you are new and you just found this place, may I recommend you read until your eyes bleed, hit the donate button, and sleep well tonight.

Dante_Eu said...

Fantastic article FOFOA, thank you very much! not, I repeat do not, change the Debtors and the Savers, ever! Why? It's personal. Me and my brother have been fighting (literally) with each other for over 3 decades. Why? Because he allways spends more than he earns (and borrows no question asked), while I allways put aside no matter how little I earn. Polar opposites. Right now he makes much more fiat than me but guess who is borrowing from whom? Do I need to mention that he would never touch physical gold, not even with 50-foot pole?

Anyway, long story short, when I first come across Debtors and the Savers...oh was like describing us two. So, I explained to him that saving and borrowing is a natural tendency and that we should not be mad at each other because of that. He no longer questions my useless yellow rocks, nor do I try to persuade him to save.

No more fights. Ok, once in a while, but it's order of magnitude less than what it was before Debtors and the Savers. :-)

Prete Nana said...
This comment has been removed by the author.
Prete Nana said...

Hast du etwas Zeit für mich, dann singe ich ein Lied für dich von 99 Luftballons auf ihrem Weg zu einer realistischen Freegold. Leider hört keiner zu.


ein anderer said...

thx a lot for the Kosares-Link on USAGold!
Kosares seems to be a very wise man …

M said...

@ Pat

I think we are too far ahead of the game because we understand freegold now.

It looks to me like paper gold will be going through the motions of a bull market before we have freegold.

Then again, the price discovery mechanism is completely backwards. Gold crashed in April. So what was the result ? Buying like it was 1980.

If the physical market cant crash the paper market in these conditions then what will ?

A bunch of shrimps add up to a giant or two fairly quickly.

tintin said...

GLD lost another 6 tons, and the 90-day bill rates dropped to 0.25%:

Hi OBA, are we there yet?

Michael dV said...

JR (9:02) links an article, 2 actually, one by Michael Kosares and the other bu Randy Strauss. The one by MK is interesting. It discusses gold as a 'reference' point. It reminds me of the debate between (a very young) Ron Paul and Charles Partee. Fofoa linked this debate a few years back. Partee discussed gold as an Indicium, again a reference point.
In the RS article we see the discussion of 'mid 2013' as a possible transitional time.
What I enjoy about all these is that is shows we are not alone. Other serious and high ranking world thought leaders are (it is subtle mind you) also openly mentioning the need and plans for a reset. These are not just blow hard 'bring back the good old gold standard' folk. They are really discussing freegold in every way we discuss here.
If one needs some confidence in addition to knowledge to get up and do what needs to be done...there it is.
With a little extra effort this can also be 'spousal convincing material' as well.

One Bad Adder said...

@tintin: - Ask me on Monday (next) mate ;-)
We need to see whats going to happen tonight FriDAY local) - if they take out 84 (DX) ...then I'd say we're on the cusp.
An announcement over the weekend isn't out of the question.

One Bad Adder said...

We're also seeing (on the back of the continual $IRX loss-of-traction) how this is affecting Gold Futures.
A "genuine" contango isn't evident until the Apr 14 Contract.

Dante_Eu said...


Can you translate that to plain English? Or even better, real life example? :-)

vizeet srivastava said...

It is one of the few post I could complete because I am a bit bad at reading long posts. This post does excellent job in giving answers to few of the sticky questions.

Michael dV
I think the people who live on paycheck to paycheck are the one who keep gold for security in India.

Polly Metallic
After revaluation we may think that lot of people in India/China will sell gold to live luxury life but where would the luxury come from. These are the people who are producing for rest of the world to consume. For people to utilize their increased wealth they will need production to travel to them so world has to turn upside down. This won't be quick probably things will get bad before it improves. I think primary sellers of gold after revaluation will be middle class in India who is debt ridden and will use gold to get off the debt. Rich middle class (Investors holding gold) may invest in properties in top cities but middle class does not hold most gold. It is the little giants (poor unorganized labors) or big giants who hold most gold in India. They will continue to hold them even after revaluation because they cannot do much about it. And so even after revaluation 95% of gold will never hit market. Even the 5% that will hit market will be absorbed by big giants.

Wil (from another account) said...

Where I said abov ,"These cycles come through leverage and fractionalization, the crux of which we are departing in the destruction of the fractional paper bullion market."

I probably should have clarified with "leverage and fractionalization of debt."

With Freegold, currencies can properly multiply to lubricate commerce in the modern world, but they are not backed solely by debt.

There's quite a large faction out there who believe that "fractional reserve banking" is the root of all evil.

But when you think about it, it's fractional debt reserve banking that is unsustainable.

For currencies to be goverened by their free market bid for gold rather than their freemarket bid for unbacked promises does "emulate the rigor of an external standard" in a most eloquent compromise between the traditional "gold standards" and today's fiat standard.

That may be overstating the obvious, but ... I think it settles well.

Wil (from another account) said...

Noyer is obviously advocating for his Euro to be seen as safe. The line one item on the asset side of his balance sheet assures it.

It does not need to be mentioned ... far too obvious. Gold will give the Euro strength, i.e. safety in gold.

Jeff said...


You're feeding a deranged troll, aka FakeAnother, aka Franca, etc. Here's Blondie's, er...CGV's take on him.

CGV: Franca's contributions, such as they are, should be read in context: Franca is simply yet another alias employed by Gary Morgan, FOFOA troll extraordinaire, with whom we are all unfortunately familiar.

Sir Tagio said...

Big news to the readers of this blog, I think. It looks like the legal authority for unlimited rapid-fire printing (no more debt ceiling problems) has just been granted to the Treasury with the passage of the new House Resolution 807. See "Did the House of Repersentatives Just (Unintentionally) Eliminate the Debt Ceiling?"

Pete T said...

Brilliant, as usual. Impressed by what looks to me to be a concerted effort to tinker with style in order to facilitate accessibility, whilst at no point sacrificing the highest wisdoms and insights we have come to expect from your work. Thank you.

Sam said...

One can always do well in an argument if allowed to set up a false premise. (Though I’d say in this case Wil quickly dispatched you anyway). “Who knows more about what is coming Christian Noyer or a blogger (FOFOA)?” But that isn’t the right question is it? FOFOA is predicting the intentions of Christian Noyer and the BIS through careful study and analysis not challenging him. So the real question is who is interpreting Christian Noyer’s words better. A random troll commenter on a blog or the author of said blog? I’m going to go with the author that does no advertising or promotion and has a huge word of mouth following based on thoughtful work.

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

Sugarlover is banned Troll Gary. His posts will be deleted. Do not respond to him.

MatrixSentry said...

Another 3 tonnes of bullion left GLD today.

The window remains open.

One Bad Adder said...

Gold / Currency watch!

The curious thing with DX is that it took approx 3 mths to take out 83 on this go-round ...and three DAYS to best 84.
The comparison with $IRX appears to be following it's anticipated divergence and I'd be expecting a VERY interesting 3 mo Auction ahead this week.
the alt-currency:$PoG Chart isn't indicating a Physical - Paper disconnect ...YET! FWIW.

Wil Martindale said...

Awful quiet around here lately. Calm before the storm?

401K's being inflated before being annuitized??

The divergence between the DOW/DAX and the real economy are simply mind-blowing.

Clench your sphincters tight boys. I think the blowback on this one could bend your ankles a bit.

byiamBYoung said...

Brother Wil,

I stand (well, crouch) in sphinctermonious solidarity.

Something wicked this way comes.

We watch together, yes?


Nickelsaver said...

this we learn from the flower of understanding?

Nickelsaver said...

commonly known as the corpse flower due to its smell, its genus name is "titan arum"

which if I did not know otherwise, would have thought stood for "Giant Gold"

Wil (from another account) said...

Indeed My Brother, the iron horse comes, and dancing bear retreats to the great burial place of our ancestors.

The medicine man speaks of the flower of understanding, but his words smell of the white man's rotting scalps in the desert sun.

The shadow of the Vulture stands tall.

Wil (from another account) said...

If you can laugh at this world, surely you have beat it. I know I crack my own self up. They can probably hear me next door.

Wil (from another account) said...

Good scotch helps.

M said...

@ Wil Martindale

"The divergence between the DOW/DAX and the real economy are simply mind-blowing."

What is there to be said ? The world is fuct from one continent to the other. Anyone with an ounce of sanity is numb to it. Its killing me. Good thing the national hockey league playoffs are on. I don't even pay attention anymore. But I did take delivery of some more gold today.

If this doesn't crash the paper gold market then nothing will.

Wil Martindale said...

I echo these sentiments.

GOLD: payment in full!

And yet every ounce has a hundred paper counterparty claims upon it.

Ownership and possession.
Two sides of a coin.

And two ways to change title:
Voluntarily and by claim.

Another said that as the price rises it dries up. "It has a way of doing that."

And our central planers, learned in such truisms, carefully try to manage the perception that it is declining in price ... to shake gold loose, in opposite fashion...

And yet this does not seem to be working.

Did Another not account for the lack of credibility of the drop in paper price?

Or do claims trump the weak hands who voluntarily sell into the demand?

Ownership and possession ... voluntary and by claim.

The time comes when all gold changes title by claim alone ... when the weak hands are fully wrung.

These are the thoughts of the flower.

Jeff said...

Dax in gold

farmersteveg said...

I believe that by the time we read about "China and (fill in the blank) are entering into an agreement to bypass the dollar for trade, it is already in effect.

I believe that by the time we read about "the BRIC nations are setting up a development bank similar to IMF.... , it is already in effect.

I believe that by the time we read about anything pertaining to the logical end of the $IMF regime, it is already in effect.

As such, when I continue to read about US gold exports, I believe we are already settling our monthly trade deficits with physical gold.

Something happened towards the end of last year, and as such, we are easing our way into a new system of global trade not $$ based.

To me, the only thing left to happen for Freegold to arrive is the separation of physical gold from paper price. This will probably be the only part of this whole transition which we will be able to witness as it happens, instead of reading about it after it is accomplished. Followers of FOFOA will be the only "goldbugs" out there cheering every day as the paper price of gold collapses. We've got to be close to that day.

I believe that when we now read about "China continues to buy US Treasuries at a record pace ....,' Freegold is already in effect.

With Benghazi, IRS, sour economy, poll numbers plunging, ......, what better time for a distraction ????

gary said...


Followers of FOFOA will be the only "goldbugs" out there cheering every day as the paper price of gold collapses.

And I see the DOW rising much higher - continuing a downward pressure on the 'paper price' of Gold. We are going to see some incredulous, forehead-slapping, pundits in the Gold community this year, shaking their collective fists at those evil 'banksters'. :)

byiamBYoung said...

gary (Not the troll)

you mean like these pundits?

They are so self assured, I can't help grinning from ear to ear watching it. The whole clip is worth watching (with popcorn), but the guy at 3:10 makes me laugh out loud.


gary said...


I can't seem to access that video - maybe because I am in Canada. :(

But I don't think I meant THOSE pundits - I meant the 'Gold Community' pundits like Sprott, Embry, Turk, Sinclair and those at the fringes... all those sites extolling the advantages of Silver (to da moon!) - David (we'll never go below $30 again!) Morgan .

Like most 'Miner Newsletter' guys have thrown in the towel - I bet we won't be hearing from many of these guys in the future. Some who have Forums on their site have removed them (Tekoa) and those that have left them show their following are restless to say the least. Many have come to realize you can't 'talk up' the paper price of Gold. Sinclair is trying the opposite, expounding daily it seems, and just continues to put his foot in his mouth... poor soul. The $1600 line-in-the-sand was bad but the Bo Baloney charts were the nail in the coffin. 2 years ago he made the call to go heavy into Juniors... ohh my.

Woland said...

World Gold Council reports CB's added 109 Tons in Q1, with
Russia and S. Korea among the largest buyers. (Well, we're still
the world leader in scrap supply)

M said...

@ Wil

Think about this for a minute...

First Japan doubles its monetary base. Then the ECB cut interest rates again. Then Australia cut rates for the first time in forever.

Australia is particular had no good reason whatsoever to cut rates. They created the equivalent of 600,000 jobs in Australia the last time they counted. The price of oil in AUS is close to hitting the $150 barrel equivalent.

The point is, all of these actions by the BOJ, ECB and Australia happened for ONE reason. Because the US told them to. They all did this for the good of the status quo. (to prolong the US privilege on the backs of their own citizens.)

Dante_Eu said...

Oh man, you can't make this things up, from ZH:

First this: Federal Reserve Jobs: Great job opportunity! Penetration Tester

Then this: Job description

Great success FED, Great success...

Luke said...


Great video. Perfect for a "Peter Schiff was right" type of video once gold is revalued. What do these people see that I don't? I can't imagine that it is I who see more than they? I see the fed buying debt with newly printed cash, subsidizing the very problem that got us into the current mess, making it exponentially worse. They truly believe the fed can/will exit? HOW?!?

michael3c2000 said...

From Jim Sinclair's blog- mainstream media notwithstanding - wealthy fund mangers reverse bets on gold and miners, money talks we are told, no soul has been sold, come in from the cold, bet and bet bold... ;>)

michael3c2000 said...

The die have been rolled, this never gets old, it was meant to unfold, so we've been told. /8:P

michael3c2000 said...
This comment has been removed by the author.
michael3c2000 said...

LOL, good one. Fed should've asked for "Bad arse hacker needed. Apply within."

byiamBYoung said...

Two interesting articles from... Pravda! Those Russians sure don't seem to like the US...

Dollar crisis and the coming collapse of US global hegemony

Gangster state America


Edwardo said...

On a related note to M's "taking one for the team" theme, we have this from Christine and friends over at the IMF at the mere suggestion by The Fed that QE be wound down. As if they could or would. Now that's what I call playing good cop/bad cop.

KindofBlue said...


"Two interesting articles from... Pravda!"

Paul Craig Roberts wrote Gangster State America and is a former U.S. Assistant Secretary of the Treasury and author of several books worthy of note. He was a Republican until, as he put it, "I didn't leave the Republican party, the party left me." He is also a former editor at the Wall Street Journal.

He is well worth the time IMHO.

byiamBYoung said...

Kind of Blue,


I thought that name didn't sound so Russian. Thanks for the link.


Dr. Octagon said...

On the topic of taxing mining companies, I read this in today's issue of The Economist magazine (May 18th, page 32):

"Nevada’s constitution enshrines a tax on the net proceeds (ie, after operating expenses) of mineral sales. Since 1989 it has been capped at 5%. Several Republican legislators have called for the cap to be removed, and for the rate to be doubled. Democrats want to raise the payroll tax and to apply a uniquely high rate to mining. Any or all of these proposals may be put before voters in 2014. “The target is on our back,” says Tim Crowley of the Nevada Mining Association.

KindofBlue said...


No problem. Reading Roberts' work help cure me of being a Democrat which came about due to the issues of my youth: civil rights and Vietnam. I now reside in what might be the non-ideological, non-affiliated center. What I particularly like is that he thinks and I believe that same habit of thinking is what attracted me to FOFOA's blog.


MatrixSentry said...

Excellent post that has addressed many of the topics discussed here lately.

The trail FOFOA is following is a little clearer than before. Not so much the trail VtC and Blondie are following.

Our trail guide is a valuable resource. If you agree I suggest a donation may be warranted.

RTFB. Please consider a donation. RRTFB.

Wil Martindale said...

The status quo is the objective. For as long as possible, no matter the cost.

Yes, fill in the blank farmer Steve? Russia.

And NO they don't like us.

But the time comes when all gold changes title by claim alone ... weak hands in this Depression fold early.

This time I speak of is a time when small dogs should hide with what's in their belly.

When Ender's Giants fight over the last lion sized scraps, this is called WAR. The BIS has a plan ...

Edwardo said...

Speaking of mining, particularly PM mining, I see "news" has been trotted out regarding hedge funds of some repute taking sizable positions in derivatives instruments related to such entities as GDX and GDXJ. The irony is thick here since these inveterate pillagers of paper (POP) are exposing themselves to the derivatives of derivatives. I'm sure their paper bug metrics have flashed a big green light regarding "value", and their technical signals are, likewise, screaming sigma three oversold.

If the reports are accurate, it appears unlikely that these POP have, even briefly, considered that maybe, just maybe, what this free falling paper gold market is signaling is not another big, fat, buy set up, but, rather, the onset of an entirely different business model that screams "No Leveraged Paper Profits Here".

In the meantime, I'm guessing these hedge fund blokes took these positions well in advance of the press release and, so, they are already under water by a goodly amount. After all, GDXJ was trading at 12.75 on May 9th, and Friday's close was 10.46.

Dr. Octagon said...

I found Captain Goodvibes and Victor the Cleaner's discussion very interesting when I found it last week, and I appreciate the response to it here, FOFOA. Some of VtC's posts especially, were worthy of printing out, in my opinion.

Something which has been bothering me a bit lately is summed up in this statement from above, from FOFOA: "Now when I say that most people are savers, that simply means they are more interested in preserving their surplus purchasing power than gaining from it. They will forego a gain in favor of a lower risk of loss."

I wonder, are most people really savers? This is something I'd like to look into some more. Given the AG-era choice between preserving purchasing power, and "putting your money to work for you", I wonder how many of us are truly going to choose saving over investment. I'm sure it will be some mix, but given people's propensity to gamble, I wonder if the mix will me more toward investment than safety, even when we are fully aware of the risks, and feel their full consequences.

If the majority turn out to be investors, not savers, then I think the AG-era will be quite different.

Michael dV said...

Doc Oct
The 'Republicans' who led that effort were recently petitioned to leave the party (I signed the petition). The leader of the gang, swore an eloquent oath that he was conservative and all for smaller government. After he was elected....Apparently he got a whiff of power and maybe someone whispered in his ear that he could become governor if he played his cards right. Taxing mines is NOT the position of any good Republican. As Grover Norquist (Americans for Tax Reform)
has said: politicians who spoil the brand are like 'rats in a Coke bottle'. The rest of us work to make a party of lower taxes, smaller government and other 'leave us alone' stuff. These guys come around and kill the brand.

michael3c2000 said...

This Friday, I think Jesse tried to describe a mysterious, dark, and suspenseful scene like Edgar Allen Poe's The Pit and the Pendulum.
As Poe "Quothe the Raven- "Nevermore"" so many suspenseful times in a portentious, romantic New England precursor.

Excerpts (to compliment your bedside drink, the distant thunder and the wind in the trees):

"Gold Daily and Silver Weekly Charts - Curiouser and Curiouser

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it."

Sir Eddie George, Bank of England, September 1999

...I think we saw another such period of 'staring into the abyss,' and the Western central banks have reacted, and that reaction has continued, most likely to an excess...

I think that the official picture of what is going on is not what is happening, and that for some reason we are being misled.

I hate to engage in speculation, but that is required by the nature of how these things are now...

One thing I am sure of is that this is not your father's market correction in the metals, or rally in the stock market for that matter. This has semi-official hands all over it, and something significant happened late last year, and it is behind what is going on.

There is also not much doubt that China and Russia could shed more light on this, as well as the other central banks, and a few of the bullion banks, but they will not be talking until it is in their own good time.

No one I have read or spoken to really knows what the heck is going on. They don't. They might wish you to believe that they are somehow 'connected'...

But even the guys who would ordinarily be in the know at least to some extent do not know what is going on. And they are getting concerned. And that bothers me. There is something out of the ordinary going on."

All right. That's enough carnage and confusion. I have to sleep too you know. Well, okay there's more.
Have a look while I step out for a minute...

"That is what is tipping me over to think that this is something fairly significant. When I see water running up hill, it doesn't take a whole lot of effort to realize that something is not quite right with the contextual backdrop being presented.

I think the shit hit the fan late last year, and everything that has happened since then has been a reaction to that. I do think there will be a bank/market holiday, of perhaps three days, and I am looking for any little things that suggest when that might be. Then we can work back from there..."

ampmfix said...
This comment has been removed by the author.
GrumpsLabastard said...

There only so many gold miners. The sector is tiny. You don't have to worry about which ones to hold if you do it through a mutual fund. All the gold funds own the same companies in varying proportions. Notice FOA didn't say they would go to zero, just near zero and not staying there.

Let's do the math and weigh risk vs. benefit. A = a mutual fund's portfolio. The 30X revaluation in gold is a 2900% gain. The formula

(percentage of A not expropiated)X(2900%)X(leverage factor)= gain in portfolio A

First let's assume there is no leverage in the shares in that they merely match bullion's appreciation so leverage factor is one.

If half of portfolio is lost then
(0.5)(2900%)(1.0)= 1450% still a 15 bagger, not as good as bullion but you will be getting mofo dividends.

If 90% of A is lost, a worst case scenario then
(0.1)(2900%)(1.0)=290% even if 9/10 of portfolio is nuked you still have a 4 bagger.

Now set the leverage factor to a weak 1.5, barely any leverage.

(0.5)(2900%)(1.5)= 2175% nearly a 23 bagger very close to bullion, but you have a dividend stream possibly in gold. Hercules, Hercules, Hercules!

The above are pessimistic projections. Now for the realistic ones. The leverage factor is normally between 2-3 to be conservative. Let's use 2.5 and crunch the numbers.

If A is 90% nuked (0.1)(2900%)(2.5)=725% an 8 bagger.
If A is 50% nuked (0.5)(2900%)(2.5)=3625% outperforms bullion & get sweet dividends so the precious can be left alone in savings.
If A is only 10% nuked ( this is really the worst case scenario) then (0.9)(2900)(2.5)=6525% a friggin 66 bagger bitchez.

If you have enough bullion where a 30 fold reval will be life-changing, why not put a small wager on the miners for the chance of ending up with more money than God. What if gold is only set to 5-12K intially by the BRICS and the full reval is put off by a decade? You'll be stuck with non-yielding bullion in the meantime. Currency wars can last awhile.

anand srivastava said...


I would expect that they all will go bankrupt and will require assistance from the govt, and then govt will fix their revenue as public utilities.

They can only survive if gold stays above production costs. But that is not at all likely. Notice that the price is already below where they are profitable, most will lose money at this price. Expect it to go lower within the month, and then all will start losing money. This will continue till they close shop. That is the whole point. They all have to close shop and the weak hands have been shaken off before gold will not be available in the market.

The revaluation will happen only after the gold is not available in the market.

GrumpsLabastard said...

Who says they'll sell at the comex price? It's a global market.

Motley Fool said...

"First let's assume there is no leverage in the shares in that they merely match bullion's appreciation so leverage factor is one."

There is your flawed assumption....then you compound it.

"What if gold is only set to 5-12K intially by the BRICS and the full reval is put off by a decade?"

This too was priceless. I suppose you think someone can be half-pregnant too?

Aquilus said...


If you're still interested in Freegold definitions, I changed mine around a little bit to be more accessible:


A monetary system in which long-term savings (transaction settlement) self-focuses in a medium that is not essential to the real economy.

Large scale demand for this settlement medium, from international trading all the way down to personal savings, does not affect consumer prices (and the price transmission mechanism) because this medium not used in industry or as a raw material.

To work, this medium cannot be debt based, and must already be a focal point of the global super-organism: gold."


GrumpsLabastard said...

When Another and FOA were writing miners were hedged. That was the rationale for miners failing. It's a different world now. No one is hedged. Since 2008 the minions of the ESF have been shorting the shares as well as gold/silver to discourage people seeking the natural K-wave winter refuge. Great fortunes will be made in the shares. You guys are just scaring yourselves away from the greatest opportunity of many lifetimes. If you are psychologically prepared to see bullion prices nosedive before a windfall reval, why can't you do the same for the shares? I left plenty of dry powder around just for mispricing opportunities if the boogeyman of expropiation is used as a final trump card. The threat if made would be merely the opening negotiating stance to be countered by real world market forces. This happens all the time when govt's try to jack up a royalty fee. The miners counter threat with lack of production/jobs/no revenue. Govt becomes reasonable, proposes a better deal for all.

There is leverage in the shares. If gold is $7000/oz all of a sudden the cutoff for grades is much lower. Companies can count as economic reserves parts of a property they couldn't before. The mining life of a property can be extended.

If there is any windfall tax it will likely be a temporary one-off expense like in other industries. Govt will realize it can get more revenue by letting the gains trickle down as dividend income out into the economy. What better way to fix the pension crisis for public & private sector than to let gold miner dividends flow unimpeded.

What do you think the boyz at Goldman's Ballsack and the Morgue as well as the pedophiles in Congress and the Knights of Malta in the Pentagon are invested in? They are in the mining shares. That's why there will be no expropiation at the end of the day.

Motley Fool said...


Why do you feel the need to convince us? Go buy mining shares if it makes sense to you. You even get to say "I told you so." if you are right. To me, it makes not sense, and none of what you have said has changed my mind.


ampmfix said...
This comment has been removed by the author.
gary said...


Your comments are frequently couched in 'If's and 'likely's. If you believe in the Freegold thesis - there is only one outcome. Trying to exceed that tremendous windfall, on something you don't sound particularly sure of yourself (hence you aren't trying to convince us as much as you are yourself) seems beyond greedy. Not dissimilar to all those GoldBugs who 'bet' on the mining shares not content in believing the price will rise. It's betting the longshot instead of the favorite - which, strangely, is human nature. People like to gamble.

I left plenty of dry powder around....

Well I haven't. I am all-in physical Gold. If you believe in FG and aren't 'all-in' you are trying to time the market (that's okay - hope you get it right) or in your case, improve upon, what will probably be the best investment of any lifetime.

It reminds me of when I hear Sprott talking - he has tunnel-vision on the paper price rising. He never even mentions the possibility of it crashing.

If gold is $7000/oz all of a sudden

Why would this happen? This sounds like something Jim Sinclair will eventually say.... it isn't Freegold. 7K Gold means the paper market isn't dead.

MF is right - believe in the courage of your convictions - buy a whole whack of mining shares and come back and flaunt it to us. Honestly, I won't feel bad in the slightest if you do. I will congratulate your decision.


Motley Fool said...


If I can make a semi serious suggestion...with prices down this much the premiums on physical silver are higher as there are manufacturing bottlenecks. I have seen quit ea few over on TFmetals ask if anyone is selling silver. You might make use of such opportunity. They are likely to give you more than market pricer and be happy to do so.


ampmfix said...

Thanks a lot MF, but the silver is in ETF form.

In fact half of it is still above water, so I should get moving asap.

I have failed miserably 3 times in my life because of not recognizing an "unjustifiable" fast move up: 1st, NASDAQ in August 2000, 2nd, housing in July 2007, 3rd, silver in March 2011.
That has taught me the big lesson, do not invest, but SAVE! and what better than phys Au...
Once all the conversions done, hopefully within a short time frame, I will start sleeping well, and not caring if FG comes this year or in 20. Enough playing the game of the "elite"!

Motley Fool said...

Ahh, well if it is paper then as long as you are willing to write it off as a complete loss, you can gamble I suppose, that when the shit starts hitting the fan silver will rise more than gold, and that you can still get gold at that point, if you like gambling that is.

Seems you have been burned a few times. :(

ampmfix said...

I used to like the silver story, not so much anymore, it is only an industrial asset and I am not a commodity trader (even though it is a very interesting metal; it might shoot up one day, when the mines are empty at any mining cost, maybe in 200 years?).

Cheers and good luck to you.

Motley Fool said...

"believe in the courage of your convictions - buy a whole whack of mining shares and come back and flaunt it to us. Honestly, I won't feel bad in the slightest if you do. I will congratulate your decision."



GrumpsLabastard said...

MF and gary,

My intent is to offer a different POV and some help. The forum needs a contrarian. Too much confirmation bias. I'm always sounding out for an anti-gold, anti-miner thesis to challenge my view, but alas no one can muster a good argument. I find the FOA quotes actually make the case for holding miners. By the "right" ones he meant unhedged producers. That's why you had two indices for the sector: XAU for hedged miners and the HUI for unhedged. Now they are all unhedged. What FOA inferred was that you would need an iron stomach for the volatility in the shares. He didn't mean they would go extinct. A low stock price does not mean a miner is going under. Even if the POG goes below production cost on the Comex, a miner could continue to function by stockpiling ore, keeping the unprocessed ore as an asset on the balance sheet, pay employees & suppliers in the metal ( remember they mine money), find other exchanges in Asia that deliver the metal ( I guess big fish would come to them to strike deals for way above spot, just like the deals Another talked about).
Gary, I've already established a big position with my 3 gold mutual funds and I am taking advantage of this beatdown to lower my cost basis. I don't believe in the FG thesis. I see nothing on the horizon to suggest it's coming. The CB's will simply reboot the system by delevering it with a higher gold price, probably much lower than 55K. I like to be conservative and keep expectations low, say, about 5,000 to 17,000. We'll just get a new and improved Bretton Woods but on the BRICS terms.


Hang in there brother. When I decided in 2008 to buy miners I had alot of angst about selecting individual stocks. The volatility and risk was too great. I chose the no-load mutual fund route to distribute the risk. This is a megatrend of megatrends so I bought the whole sector. That way if a mine collapses I only take a 0.1-0.5% hit. The picks you have will be ok. Now is just a time of max pessimism. Those silver stocks will fly to great heights.

P.S. Gary, I won't gloat. I'll pull a Gore Burnelli and financially go post-physical.

ampmfix said...

Thanks Grumps, good luck.

gary said...


Hey, I appreciate your take. That is why they have horse races - because people disagree. We Freegolders (if I may) believe we have Secretariat, and for you to be even close - some of your miners are going to have to be juiced.

Personally, I think the mining sector is dead for at least a decade. Look what happened in the past ten years - Gold goes up and miners stay flat.

I am taking advantage of this beatdown to lower my cost basis

What if the ones you picked go lower - or to zero? or is that impossible?

I don't believe in the FG thesis.

I gathered that. My only advice in that regard is RTFB, or RRTFB.

I see nothing on the horizon to suggest it's coming.

Me neither... except the crashing paper price, the draining of GLD, QE2 (was enough, or how about Global QE) aka the US directly monetizing their own debt and some countries openly trading Oil for Gold. Other than that not much to suggest FG is on the horizon. No, no, I am not the brain specialist. No, no, I am not... --pause-- Yes! Yes I am!

Hope you get three jackpots LambBartGastronomy - or at least two cherries.


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