Tuesday, July 23, 2013

The Funeral



Over the weekend I attended a gathering of my whole extended family. It was a funeral. At dinner after the funeral, one relative whom I had gotten heavily into gold back in the $7 & $800s of late 2008/early 2009 cornered me and asked me what I thought of the recent gold price decline. He doesn't know that I have a blog. Actually, no one in my extended family does.

I assured him that I am not concerned about the price action as evidenced by a recent gold purchase and no sales of any of my gold. He told me that he hasn't sold any either and he's not that worried because it's still much higher than when he purchased it. I told him that I had a theory about the decline and he asked what it was. I told him it was a little too complicated to explain while whispering at the corner of a crowded dinner table. Then he explained to me that he thinks someone is manipulating the price.

He relayed a story that he has already told me a couple other times about how he used to invest in or trade commodity contracts back in the 70s or 80s (I'm not sure exactly when it was). In particular, he liked to play in sugar back then. He explained how he would buy "sugar contracts" and how the big players had many ways to manipulate the crops, the reporting of the crops, the supply lines etc… (reminded me of Trading Places). He had actually been quite lucky in sugar as it went his way and he made a big profit, but since then he has decided that he was just lucky for being on the right side of a manipulation meant to screw someone much bigger than him on the other side.

Then he asked me about my theory again. I don't have many opportunities to practice a simple, short explanation, so I took the bait the second time using his story as a launchpad. Here's what I told him.

I explained that the fundamental purpose of what he was doing back when he was buying sugar contracts, whether he understood it or not, was to be kind of a "shock absorber" between the producers and the users of the actual physical commodity. Anyone who invests in, trades or speculates in the paper proxies for these commodities, contracts in particular, is ensuring relative price and supply stability for those who deal in the real item, both the hard working producers and the hungry consumers.

This can be a little confusing because he probably thought that, by buying sugar contracts for profit, he was actually competing against the users of sugar and putting additional pressure on the producers. He probably imagined himself as a player in amongst those who create and use the real physical item. But what he was actually doing was joining a pool of traders and speculators who will take upon themselves any price shocks that occur, leaving the real users to their mostly-pleasant existence. Among that pool of speculators there will of course be winners and losers. Meanwhile, the real users are all winners in that they weren't interested in sugar for its profit potential from price and supply volatility, but for its usefulness as a food product.

Using my hands I showed him how we have the sugar growers and producers on one side, and we have the sugar consumers on the other side. And then in the middle we have the traders and speculators like he was doing who absorb any shocks in the supply line by claiming the profits and losses from volatility for themselves. These speculators deliver price stability to the producers on one side (by giving them a financial market in which to hedge their production income) and supply stability to the consumers on the other side (by keeping the price to the end user commensurate with the current supply flow).

There is also the warehouseman who adjusts which commodity and how much of the real, physical commodity he stores in his warehouse according to the basis—the changing level of the contango (and occasional backwardation) created by the speculators. The warehouseman is on the same side as the producers supplying the market rather than being in the middle with the traders and speculators because, like the producers, he avoids the price volatility by simply acting upon the immediate income guaranteed by the difference between present and future prices offered by the speculators. Whenever there is slack in the supply line, he takes up that slack by expanding the inventory in his warehouse while earning an income from the speculators that resembles a fee for storing the product for a period of time.

Likewise, when there is no slack in the supply line signaling demand that is greater than new production and which is reflected by a low or nonexistent contango (fee for storing the product paid by the speculators), the warehouseman drains his inventory by selling into the tight flow and relatively high demand. I say relatively high demand because, in the case of commodities like sugar, rather than being a sudden spike in demand, it is actually a drop in new supply often caused by normal seasonal changes, but sometimes caused by unexpected things like bad weather which can destroy a whole season's crop. But to the consumer, the shock of a sudden reduction in supply is absorbed by the warehouseman who is able to provide this service because of the financial basis provided by the traders and speculators in the contract market.

Once my relative had this picture in his mind and understood where he fit into the picture back when he was "trading sugar contracts," I switched to gold. I explained that gold doesn't need this pool of traders and speculators acting as a shock absorber in between those who deal in the real metal for its primary useful purpose. Because gold isn't consumed like other commodities, there is always plenty of supply at the right price and therefore no essential need for either producers of new gold or warehousemen reacting to a basis derived from paper proxy trading.

But even though gold is different from all of the other commodities, I explained, we still have this same basic structure today (using my hands again) with the producers and warehousemen (the bullion banks) on one side, the end users of the real metal on the other side, and the traders and speculators in the middle. Then I explained to him that "my theory" was that the recent price decline was actually just the death throes of this basic structure. Because this structure is not necessary for gold, and because it still exists today, what we are seeing in the price decline is this whole middle area (using my hands again) of paper proxy trading going down. But this, I explained, has little to do with the real item on either side, which I told him is why he bought physical gold coins instead of any kind of paper gold substitutes back in 2008.

There are something like 5 ½ billion ounces of already-mined gold in the world, so after this basic commodity structure disappears in the case of gold, the owners of that tremendous and overwhelming stock of gold will become the suppliers replacing what is more of a one-way commodity-like supply flow today. So, unlike with sugar where you need a constant new supply on one side because the real product is consumed on the other side, with gold this one-way flow is unnecessary since the real "end-use" of gold is to hold it and then, at some point later, to sell it to someone else.

So the "end users" of gold actually appreciate the relative tightness in new supply that tends to increase the price over time and ultimately turns them into suppliers sometime later. It is a virtuous loop that is not in need of a shock-absorbing pool of traders and speculators like the one-way flow of commodities that get consumed either by industry or consumers. And that, I explained, is my explanation for the declining price of these tradable paper proxies. This basic commodity market structure is not needed for gold and I interpret the recent dramatic price decline as a sign that the "market-organism" is in the process of phasing it out.

I explained that the dramatic price drop was kind of like "bad weather" to the gold mining companies and that, as you'd expect in this commodity-style market structure, there are indications that the warehousemen are now draining their inventories so that we, the end-users, don't feel the tightness in the supply flow. But far from this plunge in the price indicating the funeral for gold-the-metal, the evidence says that it's merely the funeral for the commodity-like structure of the outdated gold market.

Whoever is sitting on those 5 ½ billion ounces of already-mined gold, including the central banks, is apparently not casting it into the streets in disgust. It's apparently mainly the holders of paper gold promises doing the casting, and that's why the price crashed. So what we appear to be watching is the failure of a general market structure that was misprescribed in the first place.

I explained that my view of this is not based solely on gold theory and a narrow view on only the gold market, but instead it comes from a comprehensive thesis that also reveals many other "stress fractures" appearing right now that support the idea that a major change is unfolding. And that, I told him, is why I'm still buying physical gold even as others are selling their paper gold and mining shares in disgust.

I told him that what I expect is an almost-overnight revaluation in physical gold. He asked how high I thought it could go. I said that he would laugh if I told him, but that it was quite high. Then he brought up $10 per gallon gasoline. So I had to explain that I wasn't talking about $5,000 gold with $10 per gallon gas. I said that right now an ounce of gold could buy 12 or 13 barrels of oil but that I expect it to buy MUCH more after the revaluation.

So, in conclusion, I told him that the counterintuitive conclusion that kept me buying physical gold even as the price declined dramatically was that the price action reveals the rejection or phasing out of the current commodity market structure of the gold market which, in my view, will lead to this revaluation in the actual physical item which will reform the physical gold supply line from a one-way flow into a virtuous circular loop where the "end users" are also the majority suppliers, but at a much higher value relative to everything else. I can't say that his head exploded all over the dinner table, because it didn't, but he did change the subject at that point. ;D

Sincerely,
FOFOA

PS. It is tempting to think about the various indicators that we observe as the cause of what we expect to happen, but I don't think about them in that way. Instead, I think about them as being similar to the gravitational effects we can see that let us know that a black hole exists even though we can never see or fully understand the black hole itself. These things we watch are simply a few of the visible symptoms of a vastly more complex yet invisible black hole.

I came across a couple of paragraphs in a book last night that, to me, resonated with my view of the unknowable complexity that must underlie what we see happening today, and I wanted to share them with you:

"Not everything that happens during the day is an omen portending a good or evil development in the future, but everything has meaning to one degree or another, for the world is an ever-weaving tapestry from which no thread can be pulled without destroying the integrity of the cloth. The breadth of Creation makes it impossible for us to step back far enough to see the story that the tapestry tells; the intricacy of it, from the macro to the micro to the subatomic, makes it impossible for us to comprehend the megatrillions of connections between the threads in just one small fragment of the whole.

Yet there are uncanny moments when each of us recognizes that the surface of events is just what the word denotes, a
surface under which lie layers beyond counting, that what's really happening is always more than what appears to be happening, that the apparent meaning of an event is only the smallest part of its fullest meaning. In such moments, most people—wise or foolish, simple or smart—truly feel the wonder of the world and perceive poignantly but briefly that at the heart of our existence lie mysteries so supremely grand in character that we cannot comprehend them in this life. The tendency then is to treat this revelation as an aberration, to react with fear or pride, or both, and to attribute the experience to mere confusion, stress, one glass of wine too many, one glass of wine too few, or any of the innumerable unlikely causes."
–Dean Koontz

PPS. If the current commodity-like gold market structure is being "put down" by the market-organism as I think it is, would you view that as a natural death or as more of an execution?


657 comments:

1 – 200 of 657   Newer›   Newest»
Dante_Eu said...

All I know is, unusual times call for unusual assets. In its most primitive state. :-)

78Rubies said...

That's a very nice explanation. Very eloquently put and (judging from your context) very close to the other person's worldviews.

Truth be told, trying to get freegold across to the "uninitiated" is like teaching math to a golden retriever (or a 4 year old). Not that he's incapable of making progress; it's so far out from the ordinary experience of life they just can't relate.

I've resigned myself to the fact that either one finds his own way to this line of thinking or he's as good as inaccessible. Because conspiracy theories and goldbugdom seems to work way better on the surface. And gives you common enemy to whine about in the first place; hello GATA. ;)

JoyOfLearning said...

Beautifully said! I love how the point of view is quite different and new, and that would be a plus for me in probability as I often notice reality being like that: you can often tell the same (hi)story from different points of view, and yet they all tell the same story, just with a focus on different things, which may appear to contradict eachother, but in fact to me they reinforce eachother. A layered view of reality. Beautifully said and explained! Thank you for another great post!

罗臻 said...

I track the speculators positions from COTS. They certainly headed for the exits this year. Visualizing the Death of Paper Gold

Some Chinese think this is financial warfare though, with the West looking to acquire gold on the cheap. They think Bernanke is an evil genius.

Wil Martindale said...

Well said. Your explanation *as well as the Dean Koontz quote) truly emanate from the flower of understanding.

Even as some will try to understand the recent upward trend in the paper bullion market, looking back from the future, they will see a sea of calm as compared to the upward trend of physical yet to come.

Even the "meteoric rise" in the "great bull run" to $1900 will be seen as a minor blip on the radar screen.

For when physical gold is "priced" in true dollar (debt) terms, $300 price moves will be seen as "nothing".

You see, the gold "price grid" as in today's KITCO charts will be spaced at $1000 increments, not $10 dollar increments as today (has anyone noticed that the grid spacing has fluctuated between $5 and $20 this past few months).

A funeral is a time of reflection. The mind is more open to accept the wonder of things, incuding our own mortality. You picked a good time to offer your wisdom.

I'm surprised you got as far as you did, and not surprised at all that the topic was changed.

FEAR commands the follower. Wonder and humility in the face of the unknown command the leader.

Many are the followers in this world, few will lead. But you are a leader in this thought space, anonymously (as you have wisely chosen) and I salute you.

Happy Trail!

Wil Martindale said...

Elsewhere, even as ZH writes of Eurasion "ghost trains to nowhere" a vast military industrial complex awaits to be built, to match the enormity, ubiquity and occupation of the Empire ... as the light of Rome dims ...

ein anderer said...

Many thanks, FOFOA, for this beautiful, easy digastible, eupeptic food for thought!
So good that the head didn’t explode all over the table :D

@Dante_EU,
Yes! Let’s see all things becoming easy again!

@Will,
Kitco’s »grid spacing has fluctuated between $5 and $20«
Yes, this is normal. Depends how big are the fluctuations in the shown 48 hours. Waiting for a »zero«-line … but before this happens we’ll see a black hole … uups, screen, I think …

ampmfix said...
This comment has been removed by the author.
Phat Repat said...

If Au is seeing $300 movements in price, no chit that there will be price explosion (mostly up, but down too). Everyone will be jumping on THAT wagon. Talk about a self-reinforcing feedback-loop. Ah, Freegold evolution. Kinda like going from Global Warming to Climate Change; just in case. ;-)

byiamBYoung said...

Death by a thousand paper cuts.

Cheers

Wumpski Wumpski said...

"If the current commodity-like gold market structure is being "put down" by the market-organism as I think it is, would you view that as a natural death or as more of an execution?"

Perhaps a little of both ;)

*

Its good to acknowledge there's a limit to what we can know.

The pricing mechanism described is certainly as mortal a construct as I, in our respective current forms.

Nice post Fofoa. My condolences on the (extended?) family members loss.

Rgds

El Borak said...

Iron Maiden? Excellent!

Thanks for that and for your wisdom.

JR said...

If the current commodity-like gold market structure is being "put down" by the market-organism as I think it is, would you view that as a natural death or as more of an execution?

Ahh, the cycle of life. Both "natural death" and "execution" are excellent options, depending on your vantage point.

For example, one could say that it is a natural death, in that this step in our monetary evolution was a forgone conclusion, one foreseen by the early architects of the Euro system. To them, the creation of the paper gold market was a temporary facade to "buy time" until the inevitable transtion.

But equally, I think one could look to the latter stages of paper gold's timeline, seeing the continuation of offical support for the paper gold market until recently and see that as a concious decision, a termination or execution.

Robert said...

I believe the truth probably lies somewhere in between.

The stability of US$ is a national security issue for the US government. I do not doubt for a minute that the government will do anything it can to preserve US$ dominance. I do not doubt for a minute that there are agencies authorized to take top secret stealth actions to preserve US$ dominance. The dollar's chieft competitor is gold. When you add everything up, the US government has the means, the motivation, and the culture of secrecy to make currency interventions to protect the US$. Does that make me a conspiracy theorist? Or a realist?

On top of that we hear one news story after another about all sorts of schemes, some legal and some illegal, to influence all sorts of markets. Given the culture of fraud, does anyone doubt for a minute that there is some level of manipulation, or attempted manipulation, at some level?

On the other hand, I really do appreciate a big picture perspective and FOFOA's knack of looking at things from a completely different angle. I still enjoy driving gold bugs crazy by suggesting that the government and central banks (but which ones?) have been manipulating gold for years by supporting the price to ensure an orderly and stable upward rise. That really gets them scratching their heads.

JR said...

But most of all, I see it as a learning experience. I still remeber my first funerals, of my labrador and my grandmother. And I think of all that I have learned and the growth I have undergone since way back then. Death is pretty heavy and deep, but the one thing that stands out about it is the way it impacts you and forces you to confront things that one might not choose to dwell on or even ponder in their everyday experience.

And to me that is the biggest difference I see in myself - instead of the sense of being overhwelmed with this strange and unfamiliar experience, I've come to better understand death. And that understanding has allowed me, to some extent, to be more prepared, to be less caught off guard.

Perhaps ironically (or not), its the experience of death that has helped me WAKE UP. And this notion of Waking Up in the context of the cycle of life and death that is embodied in a Funeral reminds me of
Deflation or Hyperinflation?
:

The only constant is change and adaptation…

[FOA]In our time and for the first time in the modern US dollar history, the US will embark into a classic hyperinflation for the sake of retaining its own lessened dollar for trade use. As destructive as that might be to players in this financial house, it is better than immediate total economic failure. It will evolve in a form much like the course of any other third world country, if its currency too was suddenly deprived of world reserve status. We will, like people the world over, learn to live with it and live in it. Truly, our dollar and economy will not go away, but its function, use and value will change dramatically.

[...]

Children, wake up
Hold your mistake up
Before they turn the summer into dust

If the children don't grow up
Our bodies get bigger but our hearts get torn up
We're just a million little gods causing rainstorms
Turning every good thing to rust

I guess we'll just have to adjust


That's life - once upon a time we were all innocent kids, and then life happened. Those kids must grow up, or face being torn up. So that's what we have to do - adjust.

As the French say, "plus ça change, plus c'est la même chose" (roughly translated as "the more things change, the more they stay the same).

Robert Mix said...

Nice story and compact way to describe to your relative what gold is and what it is likely to do. You should be good about having gotten him into gold and encouraging him to hang on.

Now, if he starts to aggressively read gold blogs? If he runs into a Freegold notion somewhere? Yikes! A relative finds out that one of his is one of the TOP gold analysts on the planet!

A really beautiful post. + $55,000!

RJPadavona said...

Anyone else notice FOFOA includes an excerpt from a Dean Koontz novel and 78 Rubies mentions "teaching math to a golden retriever"?

Here's the plot summary from "Watchers" which is probably Koontz's most well-known tale:

The story begins in Orange, California. Travis Cornell, a former Delta Force operative, feels that his life has grown pointless, and is exploring a canyon near his home when he encounters two genetically engineered creatures that have escaped from a top-secret government lab. One, a golden retriever with extraordinarily enhanced intelligence, befriends Travis; the other, a terrifying creature known as the Outsider, appears to be trying to kill the dog. After eluding the Outsider, Travis takes the dog home. Once discovering the dog's exceptional intelligence, he names him Einstein.

Later, he and Einstein find and rescue Nora Devon in a park, who was being pestered by a sexually offensive man named Arthur Streck. Together they form a trio, with Einstein as their great, priceless treasure.
Travis, Nora, and Einstein soon find themselves on the run not only from the Outsider, but from federal agents, determined to track down the lab escapees, and Vince Nasco, a ruthless professional assassin, hired by Soviets to kill several human targets to cover up the conspiracy of the two genetically engineered creatures. He wants the dog to trade for a great sum of cash, alone, without any knowledge from the Soviets or anybody.


Followers of this blog may not be genetically altered like that golden retriever, but I think we can definitely say we've been "enhanced" as a result of our exposure to this blog. 

The legs of support for this old gold market are getting more feeble every day. Thanks, FOFOA for helping us see things a little clearer.

Drop Dead Legs


RJ 

Sam said...

If unhooking the life support on a brain dead vegetable after decades of extreme life saving measures is considered a nature death...then I would go with natural death. Some may still look at it as an execution though.

Bright aurum said...

My condolences on your loss FOFOA.

ein anderer said...

FOFOA,

regarding your PPS-question:
I would say, both! :D

It’s nature which is responsible for the thirst of man for being able to save one’s earnings in a stable and liquide form. It’s natue which gave us this one element wich is rare, stable and »useless«*. It’s nature which restricted the amount of gold on the earth. And so it’s a natural death when these two forces come to meet each other: the overwhelming, worldwide need for a safe vault for our earnings, and the restriction of gold on earth, squeezing out all paper in between.

But it’s also an execution, insofar it’s a free decision of the owners of those »5 ½ billion ounces of already-mined gold« NOT to throw some of it on the market. Nobody is hindering them, or? It’s »natural« that they don’t (until now). But still it’s their free will not to do so, isn’t it?

So if »they« would have a big, lively interest to let the music play some more months (or even years? possible?) then they could act accordingly, don’t they? So in keeping their gold they are executing this system—in doing nothing.

If there is someone near-drowning and I would NOT help him or her: Wouldn’t it be a kind of execution too?

*The uselessness of Gold …
What would happen to us if the industry would get in need of Gold, like it does in the case of Silver? Never say »never«! From this perspective gold freed from its paper derivatives would be fine too: When the value of Gold is hundredfold, industry would not be able so easily to use it, wouldn’t it?

dojufitz said...

A guy I worked with recently passed away....he had a heart attack while sleeping....he was in his forties and always stressed.....everyone thought how tragic it was....I thought it quite natural.....I told someone 'dying is as natural as being born'.

ein anderer said...

But stress, dojufitz, is not »natural«, isn’t it? At least not if it comes in such a degree that it provokes a much too early death. Let’s take care.
Yes, and my condolences too, FOFOA. Glad to see that it was not some of your very dearest and nearest ones—otherwise you would not have converted this day into a funeral post on a blogspot, yes?

RJPadavona said...

dojufitz,

One of my favorite movie lines of all time comes from Hondo Lane. Hondo and a young boy see an Indian get shot in battle and the boy says "Vittorio's dead. No, he can't be."

Hondo replies "Everybody gets dead. It was just his turn."

S P said...

This blog convinced me to sell off my holdings of silver and platinum, which I have begun to do.

But I must say I don't necessarily feel good about it. Like amputating an extremity, or, apropos, saying goodbye to a loved one.

I still maintain that freegold aside, the best any of us can do is prepare, mentally and physically, and with careful consideration of one's skills, network, provisions, and property.

Who has what? will be the question. Yes we do enter a period of truth, a reckoning.

byiamBYoung said...

Yes, what is lost in all this online froth, is that we all are people with families.

I am sorry for your loss, FOFOA.

This gold hysteria can cloud some important life moments and relationships.

I have strained relationships with family because we don't see the world in a compatible way. That is a shame.

Sometimes a man knows perfectly well what is the best path, but chooses another to better include loved others. That is an act of nobility.

Life is compromise.

Cheers

M said...

Bat meets ball. Home run.

This post really did push me over as far as gold mining stocks go.





Sam said...

@M

Can you elaborate on that a bit. Is it that you see "bad weather" for the mining companies for the foreseeable future?

Reality Show said...

My condolences too Fofoa, and thanks for another quality post.

GLD divergence is back near its highs of the year. Either spot will have to fall, or inventory will have to increase else the problem will become visible to all. CHART
GOFO not moving much, higher prices yet to provide any relief. CHART

I must admit, it's all getting quite exciting, is the gold derivative market really dying, or are we headed for one final blast upward?

Reality Show said...

What's going on with Jim?
GOFO is not the difference between cash gold and future gold, backwardation is not negative GOFO and negative GOFO is not future gold exceeding spot gold price.
Perhaps Bo can devise a chart explaining it.

Sam said...

@Robert

I would say to you that the US government does not have the means to protect the US dollar. The support for the US dollar has been coming from the very people that will benefit the most from freegold. This was hard for me to grasp for many years. It always seems like the power sits with the US. Fact is it was put into checkmate many years ago and is not in a position to be saved with any imaginable drastic measures. Its uninhibited growth represents a hyper-inflation that simply hasn’t been allowed to flow into the physical plane yet. Propping it up in its current state has come at great expense and was done to simply buy time. They can try and manipulate markets but those indicators are like alarms in a burning building and their manipulations would be about as useful as turning off the alarms.

Bright aurum said...

@Reality Show
''Either spot will have to fall, or inventory will have to increase else the problem will become visible to all.''...
I guess that is the matter at hand to the $IMS faction at the moment. If the past is any guide to the future GLD stagnating and GOFO around 0 while the POG is rising(/instead of exploding which will be a sign that control is completely lost) will be the best outcome for them.
It was the EUR-POG that had stopped them from gradually rising the $POG (the gold market in euros being superior and the one that actually matters of course) because once they tried to razed it the EUR strengthened and the EUR-POG fell.
Stronger EUR is unintended consequence of course so the $IMS faction couldn`t turn its guns around ;-) and face the physical gold leak problem. Until now. 1 euro will trade for 1,6 USD around Christmas I think.Reason: this is stating to moderate.

Bright aurum said...

@Reality Show
My bad
....tried to raise... instead of razed of course.
an do please see this article

Philip Biggins said...

GREAT reading! As countries back away from (smart to do so) US T-Bills, Bonds, etc. and opt for other than US$ for trade, etc. The US must either revalue gold so that it's price covers the amount of US dollars they have out in the world and give the $ some ACTUAL VALUE or the US $ will be in much more serious trouble rapidly, not that it isn't already. ALL markets are MANIPULATED and that is the TRUTH! As long as we have the Fed and other Central banks(PRIVATE BANKS printing unlimited amounts of currency out of thin air, basically) and running the markets, literally, we will be in trouble globally. Seeing them get out of their short positions and take the long side of the market overall is encouraging, to a degree. I see silver as far surpassing gold's pending meteoric rise when Precious Metals are finally free to rise according to actual market demand, for many reasons. The primary one is the wide use of silver in Industry, causing the global stockpile to deplete while gold's stockpile (actual gold "available" )rises with every ounce that is produced since it has basically no Industrial uses of any significance. Oh yes! WHAT do you think that the Rothchilds and Rockafellers(not sure of the spelling and don't think enough of them to bother) use as a store of their wealth? I can guarantee you it is NOT the US$!!!!

Unknown said...

GATA performs a valuable service; I don't call it "whining"...quoting Dean Koontz' wonderful paragraphs is laudable as we mere mortals who have no influence save our infinitesimally small contribution to the market would like to think it free of the mendacity GATA is confronting; the best recent example of which may be Bernanke's statement last week "I don't really understand gold".

Sam said...

PhillIp welcome.

If you enjoyed this article I recommend the next one you read the December 2010 article titled "focal point gold."

ein anderer said...

@S P
»This blog convinced me to sell off my holdings of silver and platinum, which I have begun to do. But I must say I don't necessarily feel good about it. Like amputating an extremity, or, apropos, saying goodbye to a loved one.«
Yes. I know this feeling too. The very masses, volume and weight! And look now to this small corner of some little yellow coins …
But then, after a while, I felt relief. No pressure anymore of quite a few giant industries bidding and offering for »my« precious! And this will go on as long industry is in need of silver, sometimes less, sometimes more.
Now I really have put something aside. Took it aside of those fields where the industries are eager to consume.
The only »danger« which is existing now for my new little precious is the »danger« that other giants would give out huge masses of gold for free (or for almost free, say 1340 US-$?)! Yes, in this case the value of gold would decline, worldwide.
May be this time will come one day. Never say »never«! But will we live to see it? I don’t think so :D
So everything feels settled now, and the beloved white shiny went into other hands, in the midst of the working fields of industrial forces …

Bright aurum said...

@Philip Biggins
Silverites are not welcomed here!
I hope others provide you with the links (or you can browse this blog for hornet nest and silver surfer) and put you out of this misery.
I`m glad that I sold all 50kg. of my company`s silver before I got hernia for I couldn`t lift it and I used to drag it on the floor. Foolishly I didn`t sold my wife`s silver jewellery and now I am having hard time getting what I think is a fair value for it.
Cheers

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

@Philipp Biggins,

WHAT do you think that the Rothchilds and Rockafellers(not sure of the spelling and don't think enough of them to bother) use as a store of their wealth? I can guarantee you it is NOT the US$!!!!

Yes, you’re right. They don’t use US$ as SoV of their wealth. They’re using Gold. Since many generations. Just because it is NOT used by the industries. Therefore stable in value (that’s sthg else as price).

But there are also some practical reasons for it: If you calculate properly you’ll find out that from the perspective of gold’s and silver’s PRICE during the last 100 years or so (but why not take the present) you need round about 100x bigger vaults if you are storing silver.
Now: R & R are thinking and acting in economic terms, yes? Therefore: As long they have the choice they would never store in silver in large amounts. May be from time to time out of speculative reasons some small amounts—but never as SoV.

But you’re welcomed to use these blog posts(!) here for learning. Google »fofoa silver«. You’ll find a lot of material. And well designed arguments.

Robert said...

@Sam

Are we saying different things? I know the US government cannot save the dollar in the long run, but that will not stop them from trying as long as they possible can -- especially because they see the dollar as key to national security (which justifies practically any type of intervention imaginable, financial or otherwise, legal or illegal), and especially now that Wall Street exerts so much influence. They can drag this out as long as they can deploy Treasury gold or foreign gold holdings held in the US to backstop a run on the bullion banks. Would they ever do that??? I will go a step further and say that this government will not hesitate for a New York minute to go to war to seize gold to keep the gold flowing to support the dollar.

Franek said...

I'm a little rusty on the inner workings of that "shock absorber" mechanism..., would anybody care to elaborate a little more on that subject, or perhaps point to a good source?

Aaron said...

Another one smashed out of the park. Excellent work FOFOA. I must admit I was a bit shocked to see it posted on GATA's website.

http://gata.org/node/12831

Good for them!

spaul67 said...

S P said...
“This blog convinced me to sell off my holdings of silver and platinum, which I have begun to do.”

In other words your plan is to sell gold ‘before’ Freegold if you need necessities?

That is if it’s still legal to sell or even own pre-Freegold? Regardless, I really can’t think of a worst time to sell gold than just before Freegold. So close and yet so far.

Some on this board believe that we’ll go to bed one day and wake up in Freegold land. I’m not one of them. FOFOA puts the transition time at no more than 6 months BTW. I think Another said he had 1% in silver vs. gold but not knowing how much total wealth he had, having 1% in silver for multi-millionaire could have been more than sufficient to protect his gold through the transition.

I think the transition to the next monetary system, which I believe/hope is Freegold, will be a very difficult time for the common man as the production and employment systems of the ‘entire’ world realign to the new reality.
While I fully acknowledge that silver ‘may’ fail to reach monetary orbit like gold it will still be useful in keeping ahead of the flurry of paper that leads up to Freegold. Other scenarios indicate a compression of the GSR ratio in the lead up to Freegold as well. Though this is more speculative it none the less is clearly shown if you plot the GSR vs. the Price of Gold. Still other scenarios drives gold out of the system of exchange temporarily due to a combination of government stupidity and/or strong hands thereby leaving the monetary field briefly to the metal ‘most’ used in human history as ‘money’ because it and not gold in this modern age ‘must’ flow for critical items like electronics.

Paying a few more bucks for an I-Pod will be the least of the world’s worries. India’s recent moves against gold is also a good example of government stupidity. Not to be out done, I’m sure the level of stupidity in store from the US government will put all past efforts to suppress gold to shame. After all it’s those evil gold hoarders that did this to us don’t’ you know, those criminals, get them. Though if silver starts to causes the same problems for them it would just as easily come under attack as well. But then unlike gold we need silver to flow precisely because it’s not worthless and yet it still has all the same attributes of gold as money just at lower SoV density. I’ll say it again gold’s greatest strengths are also its greatest weaknesses. The same could be said for silver, so you should hold both.

In the end I do believe that gold is the king of SoV and must flow in order to reestablish trade post petrodollar and will demand a much higher price in order to facilitate that. But I also believe that something as epic as the collapse of the largest debt based money system mankind has ever known that at present the foundation of global trade…………..let that soak in for minute………….will not be as quick or smooth as some on this board may hope. My time frame is at least six months and perhaps more than a year. It really depends upon how stupid and greedy TPTB are.

Thus you should still retain ‘some’ silver in order to protect your gold because obviously even piles of physical cash won’t help you in a hyperinflationary environment. How much really depends upon your expenses, self-sufficiency level, and estimated duration of the switch over.

Nothing would make me happier than to have a quick and peacefully transition to Freegold as some on this board are planning for. I would then just view my silver the same way I look at all the gold I could have bought but instead purchased life and fire insurance. Was that wasted because I didn’t die or my house didn’t burn down? No. Same is true with whatever ‘excess’ silver I still have upon arrival at Freegold. It was a means to that end, nothing more, nothing less. Arriving at Freegold with ‘all’ the gold I started with.

jojo said...

http://www.youtube.com/watch?v=Z-1sxLE0Zis

Robert said...

SP, buy a year's worth of supplies now and you won't need to sell any gold, any silver, anything else before Freegold. Become independent. Nobody is going to be interested in buying silver during the transition.

Sam said...

We shall see Robert. If you were playing a game of monopoly and grabbed all of the money out of the bank would that change the value/usefulness of the money as a medium of exchange? Would the other players keep playing the game with you? How useful is gold as a store of value if all the trading partners and super producers are stealing and killing each other for it. Why trade at all lets just steal and plunder and take what we want from the Rest of the World.

No I don't think the world works that way as much as it seems like it does at times. Exorbitant privilege is GIVEN not TAKEN. We cannot lie, steal, cheat, or fight our way out of this one.

M said...

@ Sam

If you look at all other "asset" prices in the world it is very clear that there is only one sector that is not being supported by the money printers. That is the gold mining industry. Despite Detroits bankruptcy, all other munis are way beyond fundamentals, tons of ALT mortgages are resetting this year ect yet we see no carnage except for gold mining. That along with this post is enough for me.

Gold miners are going under. I got an email this morning.

"It is rare that we send email alerts to you, but in this case it is more than warranted. Due to new developments with International Tower Hill (THM, T.ITH), we urge you to IMMEDIATELY sell all your shares of the company. "

It was already dash 55 before I logged in. I'd rather have all the money go to money heaven then cash in $225 bucks.

Luke said...

M

Wow, you are finally throwing in the towel on the miners? I have not given up yet though it has been a while since I have put any money into them. I sold a lot and put the money into GTU. The rest I am holding to the transition I believe. I can sell on the morning of the revaluation day, right? Hah. I won't be so lucky.

Watching the occasional silver guy come along reminds me so much of myself a year ago. Glad I see what is actually important these days.

burningfiat said...

Excellent article! Always good practice for your own understanding when you have to explain aspects of FG in realtime to another person. Persons who almost always comes with a lot of baggage...

The only question I have after reading this is... Does FOFOA have three hands?


Using my hands I showed him how we have the sugar growers and producers on one side, and we have the sugar consumers on the other side. And then in the middle we have the traders and speculators like he was doing who absorb any shocks in the supply line by claiming the profits and losses from volatility for themselves.



But even though gold is different from all of the other commodities, I explained, we still have this same basic structure today (using my hands again) with the producers and warehousemen (the bullion banks) on one side, the end users of the real metal on the other side, and the traders and speculators in the middle.

burningfiat said...

I don't have three hands... I would have had to put my slong on the table to symbolize the traders. :P

jojo said...

"I don't have three hands... I would have had to put my slong on the table to symbolize the traders. :P"

Haha...you beat me to the dick joke (hehe, he said beat)

db said...

Hi Franek .... I just went trough it while RRTFB

http://fofoa.blogspot.com.es/2012/07/fallacies-1-paper-gold-is-just-like.html

Wil Martindale said...

What is important to some is meaningless to others. Lilewise, what is a "shining beacon of freedom" to some is a "dark, evil cloud of tyranny" to others.

The world has always been this way. For example look at this article from the Heritage Foundation.

Years ago, I would have read this and probably agreed with the spin. But today, understanding the motives of privately funded think tanks, and the academic paradigm they breed, not quite.

But it's not the spin that matters, as you can read between that. What matters is that it was one of the few pieces of corroborating evidence I could find that validates some of what Jim Willie has said recently, regarding the nuts and bolts of a replacement system (re: the article twice refenced in the prior post).

We might not like Jim Willie, and after reading this article, we nmight not warm up to Ariel Cohen either, simply because there's a single element (or several) in their world view we do not agree with, and we tend to throw the baby out with the bath water, and discredit the messenger, rather than choosing the pieces of the message that make sense.

But people like Rob Kirby, Jim Willie, Robert Mundell, even Harvey Organ and dare I say even crazy old Lyndon, all have something of value to offer.

Those lifetimes of experience cannot be of no value at all. Perhaps it is best to take the bits and pieces that fit the larger view, and place them where they fit to see the completed puzzle as a whole, what we call the "higher view".

Regarding silver, it's been kicked to death here, but suffiuce to say that in a dollar HI any and all commodities will "do well".

If you're holding a sack of bacon, or a bushel of corn before they both hyperinflate in terms of your wages and savings, you "did well".

Silver is slighty different because it is small, recognizable, and has had a history as a monetary MoE.

It could very well be an excellent secondary asset behind gold, though I think way behind it. Baseball cards and silver ... neither will be a focal point. Neither is held by central banks as a official non-paper asset.

spaul67 said...

Robert said...
“SP, buy a year's worth of supplies now and you won't need to sell any gold, any silver, anything else before Freegold. Become independent. Nobody is going to be interested in buying silver during the transition.”

I would agree with you to a degree, but a storing a year’s worth of some items might be a bit of a challenge don’t you think? How does one store a year’s worth of gasoline or electricity exactly? How about replacing a dishwasher that goes on the fritz, books for school, shoes, car tires etc, should we have year’s supply of those as well? How about remaining current on debt payments as your income buys less and less or worse you lose your job altogether?

In short how do you survive until Freegold arrives beyond just having something to eat as important as that is?

Look at the typical list of stuff you buy in year and then remove those items you could do without in an emergency. Next break this list of simply must have stuff into two groups of what you can reasonable store way and that which you can’t. What you can’t store or self-produce you’ll need to buy in the future by definition, but buy with what, piles of cash you put aside? your gold before Freegold?

As to ‘silver’ being worthless in a hyper-inflationary world;

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

When I buy gold I have receive any number of mint years, for silver it has always been the year I buy it in. Strong hands?

Regardless, silver will ‘never’ be worthless now or ever just like any other ‘commodity’ won’t be worthless in a hyper-inflation environment. As such silver should at a minimum maintain a degree of purchasing power, unlike cash, but is significantly more liquid as money than all other ‘commodities’. The king of commodities if you will.

That is what is interesting about silver it acts as both a commodity and yet throughout human history has actually been the dominate form of money as well. The fact that in our modern world we can’t function without silver is not mark against it but for it in under certain circumstances, especially ones that tend to drive gold out of shrimp’s monetary realm. Circumstance that will likely be in full bloom before we hopefully transition to Freegold.

You could store and sell gold instead of silver, but then why sell gold prior to Freegold? Isn’t the whole objective to ‘hold’ onto gold until Freegold and not be forced to sell early let alone be labeled a criminal for doing so?

I would suggest that the strongest hands with regards to gold ‘also’ have ‘some’ silver. Ironically the week hands only have gold because I would guess that most gold only holders don’t live in a bunker completely cut off and independent from mankind? Now that I think of it, this would actually explain a lot of the negative feedback I have received for the gold only crowd on here. Bunkers and open minds don’t tend to go together.

Dante_Eu said...

Personally, it would not be catastrophe if I sell some gold before or during transition. That's the whole point, if I really have to, it will flow. I just hope that I do not need to sell most of my gold, or even worst, all of it.

Besides, I'm first in my familiy to have any gold at all. My ancesters have survived both war and hyperinflation. In recent times. With 0 gold. Just sayin'.

Having said that, I have some silver and a small food stash. A bunch of canned food. Which I consume anyway, so no worries here. Life's good. :-)

Knotty Pine said...

Spaul "India’s recent moves against gold is also a good example of government stupidity."

All the gold imports to meet demand are (were) creating big problems with trade deficits for the Reserve Bank of India. The Indian people have an obsession with gold that will certainly pay off post transition but in the meantime the RBI is concerned about excessive gold imports making the growing trade deficits worse. The trade deficit numbers were improved for June.

spaul67 said...

Knotty Pine said...
Spaul "India’s recent moves against gold is also a good example of government stupidity."

“All the gold imports to meet demand are (were) creating big problems with trade deficits for the Reserve Bank of India.”

If the Indian government understood Freegold do you think they would be discouraging their people from acquiring as much physical gold as the paper Ponzi scheme allows at present? Stupid is as stupid does.

In the good ol USA I’m sure the government will attempt to get the gold it think it needs in order to maintain the trade balance via less than constitutional and counterproductive means ‘at’ first. After all it’s a national emergency which is more important than you yellow rock hoarders, now fork it over. Even now gas goes up 50 cents and congress has a hearing threaten to nationalize the oil industry. What do you think will become of the gold ‘still’ in the ground.

Imagine for just a minute the level of irrational behavior that can happen with $10/gallon gas even with the government attempting to take every oz of gold it can get in vain attempt to keep that from going even higher. It’s a negative feedback loop was well described by FOFOA for sure, but that doesn’t seem to stop stupid behavior on the part of governments or a lot of individuals for that matter. It seems to me this behavior like a forest fire or the finances of Detroit tend to burn themselves out rather than reverse mid-course even after the futility of the behavior is on full display.

I just don’t think people appreciate the dynamics of being the 1 out of 1000 somewhat prepared for the worst all the while being surrounded by 999 that aren’t. All kinds of false rationalizations will be used to justify the unjustifiable and futile actions that result.

Come to think of it, I would gladly lose every single oz of silver in a boating accident and receive zero value from it if in exchange the transition to Freegold was a one day stroll in the park affair. I dream of this just like a GSR of 500 or more in a Freegold world. 1oz of gold per silver mint case? Where do I sign?

One Bad Adder said...

There are three ways to look at Silver - the first (which seems to be how MOST here do) is in comparison with Gold ($PoG-v-$PoS)...which is IMHO the "price-centric" viewpoint.
The second is as a wealth asset (Physical Ag-V-Physical Au)
...whilst the third is a combination of the first two (which is my outlook) and is Ratio-dependent...and sees Ag being held as a proxy for Au in anticipation that the Ratio (sooner or later) will return to the Mean (c 16:1)
Do I rue the day(s) in '11 when I didn't "cash-out" at 32ish and acquire Physical Au in it's stead? ...perhaps a little. Will those days again return? Probably.

Good Lines FoFoA.

Indenture said...

I didn't know The Great Silver Myth is "if everyone in the United States bought just a little silver, two ounces, it would consume the entire yearly supply from mines and since industry would still need silver the price would increase" and this gem, "There are a lot more people than there is silver for investment".

Focal Point, Get You Some

One Bad Adder said...

The thing we need to be remember is that GOLD can essentially be "freed" from the Financial System du-jour ...whereas Silver plays far too important a role in "things" ...and as such is far less likely to be.

Bright aurum said...

@spaul67, Indenture, One Bad Adder,
Deja vu, as always, here it comes a lost guy and suddenly the blog goes all silver all over again. It is so distasteful. Bliah

@spaul67,
Last time I checked it was oil that is the king of the commodities. So if you REALLY want to have your hyper-printing phase protection (and you dislike the euro currency) get a few empty motor oil drums fill them up with diesel fuel and don`t throw away any useful plastic bottles until you have more or less the same volume; in that way you will actually have sth. the people NEED during the FG transition (the US industry that utilizes silver will be f_cked up for quite a few months then and the shrimps that you can peddle silver into /silver bullets anyone/ will be as lost as you will be) and you will not go hungry.
Ah, And one more thing. Going into great lengths to justify this silver commodity, well, it just shows your mental impediment to not just let go. FWIW.

gary said...

@spaul67

As to ‘silver’ being worthless in a hyper-inflationary world;

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


Goodness, David Morgan?!? David "Silver will never go below $30" Morgan?

The gist is IF everyone bought Silver then... .

Let's get the real goods from a guy who's been there (HI):

HERE

No one wanted, no one asked for Silver...

In 1923 (Wiemar) in one week the SGR went from 15:1 to 160:1 / From 1929 to 1930 SGR rose from 29:1 to 63:1 in one year, in 1932 it was 81:1. Depths of the 1991 recession it peaked at 100:1. SGR rises in a recession but shrinks in a Bull market. It may not be correct that it is shrinking from here to FG.... but that seems the way to bet. I'm for prepping with food, shelter, firewood etc.... rather than Silver.

Jeff said...

Indenture,

It's a myth because it never seems to happen, does it? Silverbugs always waiting for a bottom up transition to crush JPM, bring back 'honest money' and enrich them all at the same time. Why stop there? If everyone in the US would just buy a gallon of fudge ripple ice cream, my freezer stash will explode in value, and the ice cream cabal would be brought to its chubby knees once and for all. America, F*** yeah.

Kinda reminds me of something FOFOA once said.

FOFOA: First, let me ask you a question. Which of these two scenarios should be more instrumental in the transition to Freegold?

1.) A bottom-up shift in value perception as millions and even billions of small savers use their meager dollars all at once to bid up the price of gold.

2.) A top-down shift in risk perception as the very few physical gold holders of size in the world all at once withdraw their physical from the marketplace.

Just think about this question. That is its only purpose. And one more; Would either of these events be exclusive of the other?

gary said...

It may not be correct that it is expanding from here to FG.... but that seems the way to bet.
Not shrinking, dumbass.

Jo Duaner said...

I see the gold market structure as an execution because there was nothing natural about that price discovery mechanism to begin with. All that market structure did was allow gold o be manipulated rather than discovered.

Polly Metallic said...

Great post, FOFOA, particularly for people familiar with trading contracts. It reminds me of a favorite post that made a big impression on me regarding the "gold market." I think this scenario posted by "Trail Guide" back in 2000 is still a superb example for gold traders today!


Let's talk:

In it's most basic form, this presentation has been that;
----in the worldwide modern paper markets, contract trading has taken over the roll of setting gold prices at a tremendously understated level.----
Years ago hard physical trading once did that job and did it at a correct level relative to the physical product that was changing hands.

For us to follow and grasp this concept change correctly, we must start at the very beginning of simple economic principal.

When someone buys a product and takes possession of that product he impacts the value of that item as it relates to the next person in line waiting to buy. Like this:

----------
When Joe buys one of five apple from the table of a vendor, he leaves only four apples left on the table to be bid on by the next buyer. This ages old act of "hard trading" demonstrates the whole human interaction with supply, demand, need and emotions. When the next buyer sees that only four apples are left, where there were once five, whether he likes it or not his mind will consider the above supply and demand possibilities. All the while personal need and emotions mix in his brain.

The result may or may not be a different bid from the first buyer of an apple. But it will be a true value assessment based on actual, hard, real time circumstances known at that moment.

When Joe brought that apple, he impacted real supply and forced the market,,,,,,, that's everyone trading behind him,,,,,, to form "hard opinions" about "real demand" and "real supply". In this dynamic, the next trade is not priced by "soft opinions" based on conjecture of "will Joe really take delivery".

You see,,,,,, in real life,,,,,,, in real trading,,,,, Joe taking delivery now, hard down, undisputed,,,, and this forms a different "mind set to bid" by the next in line. This mind set is what creates a "real value bid" instead of a "possible value bid". These "hard bids" based on "hard opinions" overshadow and usually bid higher for product than "soft opinions". In times of "Hard Trading",,,,"Soft opinion" bids even fail to materialize mostly because "Joe has shown that he does take delivery"! ========

continued. . . .

Polly Metallic said...

continued 2/3

Now,
I had today asked 10,000 Kansas investors to line up along their border with Colorado. This nice straight border is very long and allows room for everyone to have some space. I asked half of then (that's 5,000 (smile)) to stand on the Western side of the border (Colorado for you non Americans) and the other half of them to stand directly opposite on the Eastern side (Kansas). All of these people did this in a hurry and they remembered to bring the very last $50,000 in cash they had to their name along with a pen and paper.

This was quite a mess to organize, so I hope everyone will appreciate this effort! (smile)

So,today, while the Comex was still open and trading,,,, and the US dealer markets were open,,,,, I instructed all 10,000 of these people to enter into a REAL LEGAL PRIVATE OFF MARKET CONTRACT with each other for "1,000 ounces of gold". In effect, I asked that 5,000 of these investors contract to buy from the other 5,000 the equivalent of "ten 100 ounce gold contracts" that would expire in one hour. That's one hour before the gold markets closed today.

Yes, that's 50,000 contracts for five million ounces of gold that existed during trading today.

Further, not only did the sellers not have any physical gold, their last $50,000 in margin cash could not possibly buy the 1,000 ounces to deliver. Nor could the 5,000 long traders hope to use the last $50,000 the had to their name to buy that same 1,000 ounces. But their margin deposits did seem to make the deal real.

So, while this trade took place and the contracts were in force (they were legal and binding),,,, I called several bullion dealers to ask if the gold market was being impacted. I also watched the computer screen intently to see if anything would happen.

Surely, with five million extra ounces of gold being traded, it would have changed the price of gold.

"Just think, five thousand rich Americans contracting for five million ounces of gold should have done something!"

Well, it didn't. So all 10,000 Kansas investors canceled their contracts by buying each others commitments and went home a little smarter.==========

Polly Metallic said...

continued 3/3

OK,The reason this little trade didn't impact the "real value" of physical gold was because they didn't trade any real gold. As big as the numbers seem, the real physical supply of gold was never touched. All they traded with each other was their "soft opinion" about the future price of gold. Again, I say soft because they only traded bluffs that were for far more metal than their real financial assets could cover.

Their trading, like so much paper trading today creates and expands a soft paper market that not only overstates demand, but more importantly allows sellers to "vastly overstate supply without DRAWING FROM THE APPLE TRAY.

Further, the worldwide paper markets our margin money has helped sustain, continues to trade an outstanding interest that is far in excess of real available bullion. ------"""" Yet this outstanding interest is the supply gauge that so understates what physical gold would trade at as it's used to price the much smaller dealer gold demand""" ----.
===========

Oh,,,, I'm sure 5% or 10% of my Kansas traders actually did make and receive delivery while I wasn't looking. They most likely had some gold and extra cash to make the deal. But with the size of the world gold market it didn't really notice.

By far, the majority of these investors were playing out my observed typical "Western Style". They trade the price of gold while waiting for someone else to buy enough physical gold to impact supply. All the while helping support a system that dealers use to price bullion at an understated price. Again, a price that's not created by taking real bullion off the market in a volume equal to contracts traded.

=======
My reply to one investor heard saying, "why does anyone have to take delivery at all?".

My good man, then you would end up just like my Kansas traders as they wade in our modern mess. Always settling up and trading nothing, and doing it at a lower price. Because the paper price of bullion will continue to fall from a continued increase in paper supply. No different than the way our governments lower the value of money by supplying more of it. The correlation between the two concepts is indeed staggering.

M said...


A year or so ago I brought up double entry accounting. I just wanted to revisit it again...

When a Chinese exporter sells something to an American, the Americans money goes to the CB of China and the Chinese CB prints the equivalent of Yuan and gives it to the exporter. Then the Chinese CB takes the US dollars and buys treasuries with it.

^Doesn't that mean that there is 2 of the same amounts of purchasing power out there ? The Chinese exporter spends his Yuan and the US government spends the treasuries that the CB of China bought. This is only possible under double entry accounting. There is some black magic in it because it is what perpetuates the ponzi.

How does it work with a German exporter and a Greek consumer ?

Indenture said...

Jeff: I can remember when I wanted to crush JPM and one of the ways to appreciate FOFOA is to be able to look back, from here, now in the journey and say, 'Holy shit what was I thinking, oh that's right, I was looking at the world through the wrong lens with an improper premise as a foundation'. As for 'Top Down' I like to keep reminding myself about the BIS and how Another described it as 'Old World Money' mixed in with some FOFOA 'flow'.

Wil Martindale said...

Polly,
A good quote from FOA. I would only emphasize that since the paper "price" discovery methodology has nothing to do with supply and demand of physical, nor recognize the utility of gold in the least, it is tragically flawed.

Perhaps that is what is so irksome - that the "price" of gold we arrive at is set in the paper terms we live by, so it IS of course "the true price" in those terms.

It's our own doing that we arrive at this price by betting outcomes on what future paper gains "the thoughts of others" will bring. Nothing more.

Gold deserves better, I think. But its time is coming.

M,
I believe you have just described fractional reserve accounting of a sort.

markbc.net said...

That is an interesting question: how many barrels of oil will an ounce of gold buy, after the gold revaluation? I would tend to think that oil will generally be going up along with gold and the ratio won't change too too much, though they will probably not move upwards along the same path. There are two main points to consider:

1) The recent respectable oil "production" increases from the light tight oil fields in the US (the "shale oils" -- even they aren't actually from shale --) have really only been made possible by the very easy money policies (low interest rates) from Wall Street. Insiders to this industry point out how difficult it is to actually make a legitimate profit in these plays, and that financing a lot of them just comes from Wall Street ponzi schemes that would not be possible with 10% interest rates. Furthermore, the decline rates from these wells are extremely high, in the order of 50% a year. So when the times of easy money die, so will all this ephemeral oil production. There will still be the established production sources like oil sands and the stripper wells, so production would not drop too close to zero; the capital for these kinds of projects has already been invested and therefore production costs for the next barrel are quite low.

Essentially, the last 10 years of easy money policy have basically hidden the fact that the world would be beyond Peak Oil right now if it weren't for the unsustainable low interest rates stimulating this oil "production". Even with the "shale oils", global oil production still has not increased in 8 years, despite price almost tripling. What's happened is that future oil production has been brought back in time; without these insane monetary policies that oil would have been extracted more slowly, over the future, legitimately stimulated by even higher oil prices than today. So, I think that along with a sharp repricing of gold upwards, we will see the same for oil, and along with this a "shark fin" shape to the peak of the oil Hubbert Curve.

2) Why would anyone sell oil in the future, for profit, in exchange for money? In a world that will soon be beyond Peak Oil, and therefore along with this will vanish any opportunities for a real return on investment through general market instruments (bonds, stocks, etc.), outside of some lucky shots in the stock market that hit a particular niche -- in other words, the world's economy will be finished growing and will begin declining, if it hasn't already -- then what would anyone sell their oil for that would provide a better return than what you'd get by keeping the oil in the ground and watching it go up in value every year due to worsening Peak Oil? Gold presumably will hit its high price and remain there; it can't go up indefinitely; but oil certainly can. Any new currency's bonds will not be providing a positive real return, less real inflation. For this reason, oil production is going to tank after we hit Peak Oil / Freegold / whatever you'd like to call it. This will cause its price, in terms of what an hour of human labour can buy, to skyrocket.

Another factor to contemplate is that most of the world's oil is owned by governments, and they may try to keep the spigots open regardless to appease a populace that doesn't understand what Peak Oil is all about. Only North America has significant privately owned oil resources.

As the saying we hear all too often goes: you can't eat gold. That's very true. But we do eat oil, and coal, and natural gas. We need oil to survive; we do not need gold.

I think a better question to ask is: how many hours of human labour will an ounce of gold buy? How many barrels (or maybe ounces will be a better unit?) of oil will an hour of labour buy? Those are the ratios that will be dramatically shifting.

SatyaPranava said...

My how far we've come in just 4 years or so. I remember calling up Chris Powell and Bill Murphy on a radio show to ask about FOFOA and freegold I believe in 2009, sometime, and they sounded as if they either didn't know much about it, or were hesitant to discuss for some reason.

But they seem to get it now. Congrats...it's been an interesting almost 5 years!

I just went and found the link to the interview I called into some 3.5 years ago: http://fofoa.blogspot.com/2010/01/gold-ultimate-hedge-fund.html?showComment=1264541459095#c4679575439155921119

Keep up the good work...

Satya

Woland said...

Polly; Thanks for unearthing a little gem I had never seen before!

JR said...


Inspired by the thoughts of the 17th Karampa (or at least "one of them", depending on how you view the Karmapa controversy), here is my mediation from this morning:

Do not let anyone tell you how you must look or act just because you are [gold]. You have boundless potential that can only be limited when you believe that your social identity is really who you are. Who you are is not a perfectly measured object. There is tremendous elasticity in who you can be. It is up to you to decide the shape you give yourself.



Yes, I anthropomorphize our cats too.

Wil Martindale said...

As Bill Fleckenstein noted, "...when I contemplate the amount of damage that will be done by four years (and counting) of QE, I really just shudder in wonder at how big the disaster might be, though there is no doubt it will be a disaster... Either it is going to continue to buy bonds forever, which is impossible, or there is going to be a massive dislocation at some moment in time because someone else is going to have to buy that debt when the Fed ultimately stops."

Buy that debt? Not going to happen Bill. The only thing left to do is absorb it with revalued reserves.

Light bulbs WILL go off ...

Happy Trail!
;0)

Kid Salami said...

"Buy that debt? Not going to happen Bill. The only thing left to do is absorb it with revalued reserves."

Yes, I'm pretty sure he gets that and knows that no'one will buy them. He's not a moron. Maybe someone else is the moron?

**

I used to read this blog regularly, especially when disagreements and discussions were allowed.

Now I come back occassionally and scan for some good titbits and links, but ignore most of the comments. You have all become utterly INSUFFERABLE - a big circle jerk waiting for "the transition" that you are CERTAIN will happen - and you all collectively ganging up on anyone who isn't 100% certain of the future (and telling him to RTFB) is SOOOOOOO boring. Seriously it reminds me of when I am occasionally forced to go church.

Biju said...

Kid salami : may the correct analogy would be - you may not enter the church of freegold if you do not beleive in these ideals. For each his/her own.

MatrixSentry said...

Hey Salami,

You demonstrate well that your maturity level is insufficient for this type of blog. Exactly what do you think you accomplish by writing such drivel? Do you really think any of us here says "well, maybe..."? There are plenty of other blogs out there where you will fit in and be appreciated. Move along now.

JR said...

because someone else is going to ""have to **buy that debt when the Fed ultimately stops.


"Have to" - things must continue as they have?

Change is disorienting and scary for many. "Taking a new step, uttering a new word, is what people fear most."

Despite Dostoyevsky's observation, adjusting to change is inevietable. One cannot go back in time and become simpler. The past is gone.

We will, like people the world over, learn to live with it and live in it.

JC said...

Hi markbc.net,

In a manner you are correct, a declining global economy means a declining value for gold. However we tend to value things not by how much work went into them but by what they can do for us. A functioning global economy is very valuable indeed to just about everyone, especially at a time of transition in how we use our physical resources. It's this value that we are talking about relative to gold, the utility of monetary store of value and wealth reserve par excellence. A value so important that one ounce of freely traded physical gold can have a purchasing power in the many hundreds of barrels. Peak oil means some big changes in the physical economy, but perhaps not a decline down to basic survival as you seem to be referring to.

jojo said...

Hey Kid,

Where'd you hide that salami?

spaul67 said...

gary said...
“@spaul67

As to ‘silver’ being worthless in a hyper-inflationary world;

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

Goodness, David Morgan?!? David "Silver will never go below $30" Morgan?”

I haven’t seen that steady/inevitable rise in gold price chart by FOFOA recently, have you? The fact is that ‘both’ metals track each other. The more gold looks like it’s about to become money again the lower the GSR ratio becomes, fact. Food for thought?

The key question in my mind is will silver ultimately be allowed or even forced by the super organism to operate outside the capital gains laws like gold obviously must in a freegold world? If yes, then silver will also become money once again along side gold with a GSR as determined by the market. If no, then silver will not achieve monetary orbit like gold. My guess is that it will depend upon what the international net producers are happy with for satisfying a trade imbalance.

If they will ‘also’ take silver then it is logical to assume that capital gains will be eliminated to allow that metal to flow from net consumers as money along the side of gold ‘at’ market prices.

The fact that each oz of silver can ‘also’ be used to produce energy in the form of solar power should not be overlooked. After all it’s ultimately energy that prices all other things is it not? Gold may be useless but energy is not. As long as the sun shines (4 billion years) and silver is the best conductor (forever) it will have value in the energy it can produce and manage in electronics.

Come to think of it, under the Freegold theory energy will be priced in gold, fair enough. Why not price current energy in terms of metal that can 'also' generate 4 billion years worth of future energy from the sun? Again food for thought.

JR said...

Huma Abedin, I mean Kid Salami,

"I used to read this blog regularly, especially when disagreements and discussions were allowed.

Now I come back occassionally
"

You reap what you sow, Huma.



BTW, I prefer Johnny Kovak's efforts to get that "push" for post Rocky pieces - oh the range he showed :)

Ashley said...

@Little Sausage:

"Seriously it reminds me of when I am occasionally forced to go church."

What an interesting statement. Who "forces" you to go to church? Are you 12 years old and your parents make you go? Are you married and your wife wears the pants? Do you mean compelled by social convention (i.e. your friends and/or extended family expects attendance on religious holidays and you don't have the guts to refuse)? Are you a non-religious employee of an official state church who doesn't want to terminate his sinecure? A member of a violent cult or religious sect that will kill you if you drop out?

So many fascinating possibilities. Please enlighten us.

ampmfix said...

The wife wears the salami

JR said...

"Ms. Salalmi furiously straponed..."


Phat Repat said...

You may not agree with the Kid, and I personally don't, but those are some classless remarks.

gary said...

@spaul67

Firstly, you cited a David Moragn interview to refute that Silver won't be used in Hyperinflation.
I noted that he is not the best source you want to use:
1) He has never lived through a Hyperinflation. I posted a video of a regular here who HAS lived through HI - and his direct experience with Silver in that situation. Nobody used it.
2) Morgan predicted "I don't see Silver going below $30" HERE if you need a source.
As I say, not the best source as someone who knows what is reallygoing on in the PM market, IMO.

Now you say:
I haven’t seen that steady/inevitable rise in gold price chart by FOFOA recently, have you?
Seriously, you must be reading a different Blog that I am. Sprott through Kaiser, KWN, Sinclair - ad naseum - these are the guys who have predicted a "steady/inevitable" rise in the price of Gold.
Surely, you see that FoFoA is THE ONLY ONE who has successfully predicted a decline in the paper price. Revaluation - Yes. Decline - Yes! Steady rise? NO!

As for further points - I refer you to something someone said (can't recall - apologies) "The thing we need to be remember is that GOLD can essentially be "freed" from the Financial System du-jour ...whereas Silver plays far too important a role in "things" ...and as such is far less likely to be."

If you want to buy Silver - no one is stopping you. I don't think you are going to get too far changing convincing people citing David Morgan as opposed to our host.
Best of luck though,

Wil (from another account) said...

Hi Kid,
No, I don't think Fleckenstein is a moron, but I don't think he's brilliant either. The point of the reference is that the world is run by people who are not morons, but not always so brilliant either.

What he doesn't appear to "get" is what I said, and few others at his level of understanding appear to get it either.

So while I don't agree with your attitude, I do understand it. This blog is a bit closed to the world of unlimited possibilities and we are at times a little bit less agnostic toward various points of view than a blog less focused on FREEGOLD where popular rants and raves can go on ad nauseum.

For myself, I like to throw things out there which challenge the central arguments a bit (even though I haven't been able to conjur up a worthy challenge in years).

And this is why I have been alluding to the Eurasian Monetary Union and it's plan to be fully functioning by 2014.

I think that in Another's time it was prescient to think in terms that NO PAPER WILL SURVIVE THE COMING INFERNO, and yet, in the iterim, some unforseen changes have taken place which may challenge some of those statements to a degree.

For example, the Euro is paper, but we do not expect it to burn like dollar denominated paper. So there is perhaps a bit of contradiction there?

In the end if we're not your brand of dogma, no sense stopping by to take a crap in the comments section, unless you have some inner masochistic desire to be flagellated by the Friars of Freegold.

DP said...

The euro is not "just paper". It is, to my mind, a credible guarantee of gold, at some €price, if/when you find you really want it.

How about that dollar?

Bright aurum said...

@spaul67
Wake up!
Gold is too important to become money (currency) again, ever!
It is the sword of Damocles hanging above the heads of the money (currency) issuing authorities.
In the hyper-printing feast that follows, every value collapses into the here and the now. If sth. is not helpful in the desperate situation people find themselves in but holds promises for future gains in an uncertain time frame it still gets discarded no matter what. If silver disallows easy access to the international markets (capital controls plus too bulky to be smuggled) and if too many people try to exchange it for the necessities of life silver will plunge in value and it will not become a bargaining item.

spaul67 said...

gary said... “If you want to buy Silver - no one is stopping you.”

Given the level of manipulation, nobody loses credibility in my eyes if various predictions in time don’t come true. It’s really anyone’s guess as to when the paper system breaks down, though the draining of GLD seems to be a logical ‘clock’ at this point. FOFOA is wise in not making predictions of time or even intermediate prices that lead up to freegold though.

Again I buy and hold both, and silver takes 6 weeks for delivery, gold only 2 weeks and comes in various mint years, while silver is ‘always’ the mint year of purchase. I’m sure given the recent reduction in the price of gold I maybe adding a few 199x years to my collection this time around as well.

My guess is this is because any silver that is sold is promptly consumed by industry, only a 3 month supply you know with nothing but ever lower ore grades and ever higher energy prices in the future.

As for my part I occasionally exchange silver for gold when the GSR is half what I purchased the silver for. Basically doubling the rate at which I can accumulate gold via silver for a given amount of dollars using the naturally fluctuations in the GSR. Buy low sell high right? If Freegold happens and the gold only bugs prediction of an explosion in the GSR comes true, fingers crossed (i.e. silver is trash in a freegold world) then I’ll be putting in my order for 100 monster boxes of silver just to get back to a 50/50 ratio thank you very much. Let’s see a cube of monster boxes 5x5x4? Yah I have room. Might pick up few monster boxes of that cheap in terms of gold platinum as well (25 times rarer than gold) while I’m at it.

Later on I may start up a solar power company and live happily in retirement off the ‘energy’ revenue produced using solar power enabled by silver. Less energy in, in terms of gold, more energy out, in terms of silver, sounds like a good business case. One based on physics and not the uncertainty that is always present in politics and the human emotions of fear and greed. Point of fact is that social order has and will likely continue to oscillate between the hard and easy monetary systems driven by a perpetual battle between the debtors and savers, but the need for energy will be ever present regardless of what monetary system we have and in whatever ‘monetary’ terms that energy production is priced in.

Dante_Eu said...

Hi FOFOA,

And other smart guys and girls here. Here's appropriate Keiser Report from Jul 25, 2013 about the same subject, ie commodity market structure. In this case it is about Aluminium (Yes, it sound better then Aluminum :-)):

Keiser Report: Market making, or fraud? (25July13)

So, to my question: Is Goldman Sachs, in this case, a warehouseman as described above by FOFOA?

Why I ask? Well, without reading "The funeral", and after watching the latest Keiser Report, I would immediately assume Goldman Sachs to be the bad guys here. But, "The funeral" got me thinking, maybe Goldman Sachs are a part of a shock absorbing system, ie. they are doing a good thing with Aluminium?

Anyway, hope someone can clear things up here. :-)

PS Here's also the second part with Mitch Feierstein, author of the book Planet Ponzi:

Keiser Report: Guest Mitch Feierstein (25July13)

Wil (from another account) said...

DP,
I did double check and stand corrected. He said IF the Euro fails ...

"If the Euro does fail, gold will become the "world oil currency". We do know this full well, "the Central Banks will horde all gold and buy any offered if this new European currency does not work" and "debt currencies fail". If this does comes, no paper asset of world economic system will survive, nothing! Not a good thought, no? Thank You.

I always knew where he stood on the dollar, but in another passage he talks of the linkage of all modern currencies and their fate being tied inextricably together. As well as the idea that when debt defaults it is over for FIAT (all Fiat). So there are some waves of thought here that do collide.
And so, that leads us to the second consideration. Will it be so much that the Euro alone will survive, or will other currencies "strong in gold" aid in this transition?
He spoke of the eastern physical trading markets being complete in 2000, but did he suppose that the current IMF$ would chug so far along, long enough that Eastern currency blocs would be in development before the transition?

And finally, after all, isn't it the construct of the Euro which this new eastern bloc takes it's lead from, and perhaps joins with?

The ultimate objective is after all, a single ... no, better not say that again.

Happy Trail!

burningfiat said...

spaul67,

then I’ll be putting in my order for 100 monster boxes of silver just to get back to a 50/50 ratio thank you very much

The best of luck to you!
From your prior comments I just thought that silver would be a play for you in the lead-up to Freegold. Something real to sell to guard your gold (I could kinda follow you, even though I don't think the play will be that good), but now I see the true silverheart shining through with this latest comment of yours!
Why not 10,000 monsterboxes of copper while you're at it?

jojo said...

Spaul-
Ever since last August when you arrived (or at least posted) you have been trying to tell us how freegold is/will be. You don't seem to read the blog much. You don't seem to read the comments much either. WTF man??

Remember when you said this?

"The Euro was a nice try but it’s clear that a monetary union ‘without’ a political union is not workable at a practical level. At this point either Germany will break from the Euro or the Euro will break from Germany, there is no third way."

ORLY??

I like this one:

"All I’m trying to do is get answers to other completely rational and logical questions having read through all the source material + comments at least once over the course of a couple years. What I have found is if there is something I don’t yet understand there is deeper meaning I have yet to eternalize."

Methinks you need to read things more than once before you become immortalized on this blog.




Wil (from another account) said...

I'm sure that the questions above were somehow answered by either FOA or our host, somewhere. Things do change in the passage of time, which is why they (we) continue writing.

I just don't know where.

Bet JR does.

DP said...

Wil,

I always knew where he stood on the dollar, but in another passage he talks of the linkage of all modern currencies and their fate being tied inextricably together. As well as the idea that when debt defaults it is over for FIAT (all Fiat).

Didn't he write all of that pre-euro?



The ultimate objective is after all, a single standard, counterparty-free, reserve asset for risk-averse savers the world over? #CompletedYourPost?

Wil (from another account) said...

Again here, we have words like "pegging" and "backing".

No, that is not the construct of the Euro.

It is merely the limitation of the Western mind's perception of it.

Like I said, not morons ... but not exactly brilliant either.

Wil (from another account) said...

DP,
LOL. I think it was all written concurrent with the construct, 97,98,99 ...

#complete refers to the F-word.

;o)

Wil (from another account) said...

(also 4 letters)

Bright aurum said...

@ Wil
All the CB currencies a.k.a. balance sheet liabilities who do not cover the general debt levels in the system as they find their counterweight in gold revalued will get weighed measured and found wanting. Puff!
Other currencies in countries that get their trade balanced quickly enough and that get supported by oil for developing a viable gold exchanges will stand a chance of survival.
Cheers

spaul67 said...

Bright aurum said...

“and if too many people try to exchange it for the necessities of life silver will plunge in value and it will not become a bargaining item.”

All the people who hold silver that I know of ‘also’ hold a ton of food and are much more self-sufficient than the average Joe six-pack. Gold only people, not so much. Of coarse gold and silver holders as a group are rare altogether and certainly more prepared than most.

So I’m curious as to where all these desperate silver holders will come from that simply must unload their silver into what will most likely will be ton of paper released by various paper giants looking for anything that has a chance of holding some purchasing power value. Now gold would be their first choice obviously but this tends to dry up rather quickly in any ramp up to freegold leaving silver as the lone choice until it drys up as well. Because as a useful commodity silver is always in very short supply, remember only three months above ground. Not exactly a first choice in terms of stock to flow for money is it, but this is my point? Gold is far superior but then it’s hiding away waiting for freegold.

Again I think the key blind spot of most gold-only holders is that transition to freegold will be very rapid. While I hope it is, I’m also preparing for if its not.

Again, I’m not suggesting you buy anything either, nor is FOFOA, nor should anyone for that matter, all we are debating, and thus advancing our collective understanding in, are various individual view points, some likely false of which mine may be among them but then again maybe not, of what sure looks like to a epic event in human history. Likely a point we can all agree upon at least?

The shift of the present monetary order to whatever comes next should be epic.

May you live in interesting times.

jojo said...

Repost of an answer JR gave SPaul last summer:

So if the gold in private hands in the US doesn't flow in sufficient amounts, given that US debt has been discredited through the Freegold phase transition, the government will have no choice but to continue printing money in its vain attempt to support the US trade deficit and its own status quo as Uncle Sugar to the people. And in a last-ditch effort to support its own failing currency, it will have to ship Fort Knox gold overseas. FOA mentioned something about this: "…the US will find itself shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates."

In this scenario, the need to continue printing in the face of an ongoing currency collapse will obliterate any miniscule gain that comes from the few shrimps who actually decide to sell their gold in an untimely way and pay the tax. The US has precious little gold in private hands as it is. And it will need that private gold to flow. It needs you to sell your gold to your dealer so your dealer can export it to our trading partners. That's how trade flows will resume under the new paradigm, with savers choosing to let their gold flow because of the amazing purchasing power it delivers.

And with international trade flowing again, the government will have much more economic activity to tax than it did when it tried to tax real capital in its purest form based on the silly notion that the hungry collective deserves a windfall nine times greater than the gold investors who kept gold inside the zone through a turbulent transition. The bottom line here is that I do not know if the USG will try to tax the windfall profit that comes from Freegold. What I do know is that, if they do, it won't last very long.

Wil (from another account) said...

Bright,
Well said, I do agree with this.

jojo said...

" ...some likely false of which mine may be among them but then again maybe not, of what sure looks like to a epic event in human history. Likely a point we can all agree upon at least?"

Then why don't you read all the appropriate FOFOA posts and conversation regarding silver before you bring up the topic?? Due Diligence and all.

spaul67 said...

burningfiat said...
“Why not 10,000 monsterboxes of copper while you're at it?”

Sorry, don’t have the space for that :)

JR said...

Hi Will,

"I always knew where he stood on the dollar, but in another passage he talks of the linkage of all modern currencies and their fate being tied inextricably together"

My take is its important to understand it is meant **as SOVs.**

[Another] All currencies and most treasury debt are little more than digital units of perceived value. You don't own them, your account is "credited" with this value. Foreign governments, such as Japan are no better off than American citizens, they don't own anything either! What is really owned is "the right to offer what is credited to you, to a bidder in exchange for real things or other credits". It is a strange way to hold wealth. One might say "my net worth is the intention of others to pay me a credit from someone else". This thinking has worked well until the late 80s. It was at this time that a few wealthy and very smart people started to see the end of this. They understood that the US$ was not going to crash, it already had. It, along with all major currencies would lose all sense of value and become only trading digits of account. The treasury debts were little more than the same thing.

You see, all currencies now compete with each other, not for value of wealth but for "USAGE". The game has now become "whose currency gets used the most for trading" not for value against goods! It was easy to know the currency that got used for oil would win this game. Today, all currencies are traded against the dollar for it's usage as a medium of oil exchange! Take away that link and the entire currency/ debt exchange system, as we know it will collapse!The US$ must be maintained as the "most used" if the other currencies are to have a chance to survive.


http://www.usagold.com/goldtrail/archives/another1.html

[FOA] Then there is the Euro question. Many American Gold Bugs say it's just another fiat currency. But, in the same context I ask them "if that's so important to you , how did you just pay to fill up your car"? Others ask how I can trust the Euro. Well, I don't trust it any more than the dollar, or any other major world fiat. I just use it for the life function we all enjoy. Further, I ask back, how can you not trust the fiat you use?

The whole Another thrust about the EMU was to delineate the political shift that had been in progress for some 20 years. And how this ongoing shift would effect the currency valuations of everything we use. The price inflations that are coming that no one has ever deemed possible!

This shift revolved around the major world political players and their use of international trade vehicles to forward their own agenda. The very vehicles that impacted economies, and therefore our lives the most. Dollars, oil, gold the EMU, etc.. The discussion was much deeper and long-term in nature than many could grasp. It's focus was especially attuned to the coming change in the value of gold. A change so real, so profound that it's dynamic just couldn't be believed. We will indeed have to see it to believe it!

Even more so, it's all about the illusion of wealth that manifests itself so well at the very end times of major currency failures. Perhaps this is also a fear hidden in the Euro skeptics. The possibility that they will one day lose the wealth and lifestyle their dollar valuations afford them. Once again, the simple are warned from wise words, "your wealth, it not what your dollar say it be"!


http://www.usagold.com/goldtrail/archives/goldtrailthree.html


gary said...

@spaul67

Again I buy and hold both, and silver takes 6 weeks for delivery, gold only 2 weeks and comes in various mint years, while silver is ‘always’ the mint year of purchase.

Irrelevant statements like this make me question how much you have truly read of this blog. You are basing all your logic on a supply/demand market. Have you read THIS.

JR said...

cont.

"As well as the idea that when debt defaults it is over for FIAT (all Fiat)."

Yes, as a SOV.

[Another]What is really owned is "the right to offer what is credited to you, to a bidder in exchange for real things or other credits". It is a strange way to hold wealth. One might say "my net worth is the intention of others to pay me a credit from someone else". This thinking has worked well until the late 80s. It was at this time that a few wealthy and very smart people started to see the end of this. They understood that the US$ was not going to crash, it already had. It, along with all major currencies would lose all sense of value and become only trading digits of account.

http://www.usagold.com/goldtrail/archives/another1.html

[FOA]--- My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed.

http://www.usagold.com/goldtrail/archives/goldtrailthree.html

[FOFOA] As FOA said, "As debt defaults, fiat is destroyed." Or another way to say is, "As debt defaults, fiat savings are destroyed."

http://fofoa.blogspot.com/2010/09/just-another-hyperinflation-post.html

Bright aurum said...

@spaul67
So the silverites will be well fed and feeding is what completes them in the new Dark Ages right. They will just have to wait 3 months and the hole f_cked up country will start begging them to release a little bit of silver so the i-pods start rolling from the production lines once again. Come on give me a break!
Would be king silverites rule over us, oh enlightened hoarders of THE METAL!

Wil (from another account) said...

Well.

Now that all that is settled.

Here I was hoping to nab an ounce or 2 when paper gold peters down to a about a grand per ... and now I'm thinking ... by the time that happens, there won't be an ounce of gold left!

No matter really, if traders want to bet paper on price moves only, that game can go on forever, as long as it's understood and agreed upon that NO GOLD is a deliverable option.

It's 99% that way today, trying desperately for 100. Yessiree, you got a bullion market that's 99% derivative, and 1% physical and (precipitously) falling.

All the "deciders" need to do is change their little disclaimers and all the BBs are ABN AMRO now (and that other one that just went paper settlement only).

After all, no one expects delivery of a shiny new interest rate in the swap markets.

Happy Trail!

JR said...

cont.

The dollar will not go away, but its "function, use and value will change dramatically."

[FOA]In our time and for the first time in the modern US dollar history, the US will embark into a classic hyperinflation for the sake of retaining it's own lessened dollar for trade use. As destructive as that might be to players in this financial house, it is better than immediate total economic failure. It will evolve in a form much like the course of any other third world country, if it's currency too was suddenly deprived of world reserve status. We will, like people the world over, learn to live with it and live in it. Truly, our dollar and economy will not go away, but it's function, use and value will change dramatically.

http://www.usagold.com/goldtrail/archives/goldtrailtwo.html

Wil (from another account) said...

JR,
Yes, you came through again with the perfect quotes, just the exact one's I was feebly grasping for.

In a sense though, the distinction between store of value and currency and their separate failings is one of timing and transition.

Debt can die rendering one currency dead as a store of value, because it holds debt as its primary reserve ... while another currency holds value because it holds gold as its primary store of value.

As Bright Aurum has succinctly harmonized above.

And this is a subtle concept to grasp. But yes, I think it is a good interpretation.

Motley Fool said...

3 month silver supply?

Not so much. Try 20 billion ounces as per STF.

Polly Metallic said...

While gold has continued to drain from GLD, silver holdings in SLV have round tripped since I started watching in April. We went from around 10,400 tonnes down to 9800ish and now back to 10,400.

JR said...

Yes Wil,

Wealth is not valuation relative to the dollar.

Once again, the simple are warned from wise words, "your wealth, it not what your dollar say it be"!

Yet modern currencies are held for value, and that value measured this way - in relation to the dollar. Take away the dollar, and the "perceived value" of modern currencies defined in relation to the dollar fades away.

It was easy to know the currency that got used for oil would win this game. Today, all currencies are traded against the dollar for it's usage as a medium of oil exchange! Take away that link and the entire currency/ debt exchange system, as we know it will collapse!The US$ must be maintained as the "most used" if the other currencies are to have a chance to survive.

What Another wrote about was how the thrust of the Euro (MTMed gold reserves > CB liabilites in reserve) would "effect the currency valuations of everything we use" as currency is valued not in reference to another currency (the dollar) but to another reference point, gold:

The whole Another thrust about the EMU was to delineate the political shift that had been in progress for some 20 years. And how this ongoing shift would effect the currency valuations of everything we use.

[...]

It's focus was especially attuned to the coming change in the value of gold.


As Bright Arum notes, currencies will still compete for use value in oil but will be valued relative to a different reference point, gold.

Sure the dollar has gold, but it also has the dollar paper gold market. The Euro's MTMed golden reserves, unentangled in the collapsing dollar gold market, will allow the Euro to become stronger in gold (or when valued in reference to gold).

Sam said...

Let’s play devil’s advocate for a minute with something that has a 1 in a million chance of happening. That's the notion that in the 21st century we are all bunkered up growing our own food with our AR-15's because even after decades of preparation our modern civilization couldn't manage a PLANNED monetary transition with the most inter-connected and educated civilization the world has ever seen without driving us all back into the dark ages. However…If that happens I can't think of a single possession I would trade for a silver coin. I just wouldn't need one. It has a very low value as tradable wealth to me and unless I’m making silverware no usefulness. If I had everything I needed and was somehow producing and trading and in need of a store of value I would use gold. Otherwise I would barter. If I needed a medium of exchange I would use "credit" also known as "money." We may all be in our bunkers but we don’t have to all simultaneously forget all monetary advances. Society would fairly quickly think of something to use as money and since we won’t forget our history we won't use “a metal.” A credit is a credit no matter what it is stamped on my friends. May as well be paper and if the lights are still on digital is even better. So build your bunker and hoard your silver. This gold only investor will be just fine and more prepared than the lot of ya.

spaul67 said...

Motley Fool said...
“3 month silver supply?

Not so much. Try 20 billion ounces as per STF.”

Exactly, now measure the stock to flow ‘minus’ the flow that ‘only’ exists due to industrial consumption. Investment silver will flow as well……………..at the right price…………..just like gold.

All the industrial consumption does is mask this reality while bringing the natural GSR ratio closer and closer together every year.

The fact that silver has a significant ‘industrial’ flow blinds many gold bugs to this silver reality vs gold which has a very limited industrial component.

See you can’t have it both ways. You have just acknowledged that silver ‘also’ has a significant above ground stock pile. In fact its 4x that of gold’s and significantly above annual consumption a sure sign of giffen good is it not. How else do you explain the huge above ground stockpile?

Why mine silver at all, there is plenty above ground, just like gold and unlike ‘any’ other commodity except gold.

Maybe just maybe gold and silver aren’t all that unlike? Well accept for the fact that you can make energy with silver, gold not so much. What again will price gold again in freegold? I seem to remember it’s black and sticky?

And he puzzled and puzzed, till his puzzler was sore. Then the Fool thought of something he hadn't before! "Maybe Silver", he thought, "doesn't come from a store.
Maybe Silver… perhaps… means a little bit more."

victorthecleaner said...


With the comments on GOFO a few days ago, I had sketched what might turn out to be the US Treasury's monetary trilemma, i.e. they may not be able to save all three the paper gold market, the bond market and the domestic value of the dollar at the same time.

You also know that I believe that the ECB has often been remarkably open about their future actions (although Wall-Street often misunderstands them - I am sure truly interested observers such as Asian CBs will understand them much better). I have also argued that the US Fed/Treasury has been similarly frank.

Now you wonder which one of the three will the US sacrifice first: the paper gold market, the bond market, or the domestic purchasing power of the dollar.

John Hussman quotes from the most recent Fed minutes:

While Bernanke’s words last week were taken as a promise of virtually unlimited QE and the abandonment of “tapering” plans by the Fed, his point was actually much the same as the one expressed three separate times in the latest Fed minutes: “decisions concerning the pace of purchases are distinct from decisions concerning the federal funds rate.” No kidding.

We learn that Decisions concerning the pace of purchases are distinct from decisions concerning the federal funds rate. This points to (c): disregard the domestic purchasing power of the dollar.

Victor

victorthecleaner said...


Apologies, the link to the comments on GOFO again:

http://fofoa.blogspot.com/2013/06/snapshot-day.html?commentPage=3#c2005370016537181459

Victor

Motley Fool said...

spaul

Bring your own wheelbarrow eh?

Natural GSR? Lol. Arguing Marx LTV eh?

Gold has limited industrial use? You don't say.

Giffen good? Among silverbugs perhaps. Not amongst any with real money. They dislike wheelbarrows afaik.

A lot of that silver stock is in currently uneconomical to refine form, such as tableware.

Maybe gold and silver weren't all that unalike, say 3000 years ago. Sure you can make energy with gold, it's just to bloody expensive to be economical. You can make solar energy with copper too with new technologies.

So the people with the black and sticky should invest in wheelbarrows too eh?

All I am puzzled about is why I am wasting my time responding.





Polly Metallic said...

The difference. between gold and silver stock/flow is profoundly different. Gold is being accumulated by central banks and families of intergenerational wealth. Relatively little will be dishoarded even at higher prices. If silver sees a triple from here, the legions of middle class Silverites will rejoice in their sudden "wealth" and will cash in their bars, rounds, and coins to enjoy a slightly better lifestyle than they currently enjoy.

spaul67 said...

Sam said... “However…If that happens I can't think of a single possession I would trade for a silver coin.”

I would be surprised if you did because you are prepared with gold unlike all the paper giants and shrimps. In fact I wouldn’t either. But we are not the buyers and sellers here. Neither are all the paper shrimps who won’t have one ‘excess’ dollar for gold or silver either. It’s all the paper giants looking for something, anything that will protect their purchasing power. Gold is king in that regard but this very fact will drive it from the market until the price is much higher relative to all other things. Remember as the price rises the flow of gold goes to zero. Leaving the field to silver, for a time, until it may also dry up until freegold; which by definition will occur only when the gold price is sufficient to enable flow from people such as you and me that will want a possession ‘more’ than gold. For example I want 500 oz of silver for my gold coin. The same gold coin I received for at a GSR of 20. Do the math it works really well if this happens.

It’s also important to state that you would sell gold, before freegold, for stuff you need? See that’s where I come in and buy your gold prior to freegold. So it’s all good, thanks in advance. At some point the GSR may crash in some freegold scenarios, at which point, I ‘also’ have a lot of gold. In fact a lot more for a given amount of starting cash thanks to silver. See I win in the GSR upswing and win in the GSR downswing. And if per chance silver attains monetary orbit as well, boy that’s even better, but I’m in know way counting on that.

Motley Fool said...

spaul

http://fofoa.blogspot.com/2012/12/debriefed-10-motley-fool.html?commentPage=2#c3158601888539962116

spaul67 said...

Polly Metallic said...
“If silver sees a triple from here, the legions of middle class Silverites will rejoice in their sudden "wealth" and will cash in their bars, rounds, and coins to enjoy a slightly better lifestyle than they currently enjoy.”

Cash? Seriously, in a hyper-inflation that is the last thing you’ll want. A trip to the Bahamas for some R&R, I think not.

The only silver that will flow will be for necessities and most silver holders have that covered better than most gold is all you need types. Not to say that some gold only types are prepared in other regards just that they have no source of funds except gold. Which by definition will force some to sell well below its freegold price because they don’t have any other source of liquid funds in order to protect it.

As I said in prior posts it’s difficult to stock or anticipate everything you may need over what could be a longer transition time than some are planning for. Gold will work but frankly is just too precious to spend IMHO. Save your gold and use silver.

Motley Fool said...

paul

People don't just go sit in a corner to die when HI hits, not even those with no silver or gold.

The drive for survival is strong.

I have spoken to quite a few people who has lived through HI, and what they say is that people adapt, they figure out how to survive.

That said, those who won only gold are ill prepared. Gold is actually only for those who have already covered all their other bases and have no problems even in HI, ie. the very rich.

We just happen to be along for the ride.

TF

Indenture said...

" See that’s where I come in and buy your gold prior to freegold."
What do you buy this gold with? What are you exchanging for this gold?

Polly Metallic said...

Spaul,
You were talking about a price increase prior to Freegold. In which case the Silverites will cash in their winnings before Freegold and pay off their car loan or buy a new flat screen TV and new living room furniture. As for during hyperinflation it is the things that people actually need that increase most in value because they themselves need it or they know a dozen other people who will buy the items from them. I don't see silver falling into that category. I think you'd be better off selling the silver now for extra items that people actually need in their daily lives. I own some silver but it's more as a collectible than something I'd plan to sell during times of hardship.

michael3c2000 said...

@spaul
The "transition time" is not going to last more than a few days I'd say. Maybe a few weeks at most, because rioting could be at risk of having started. TPTB do not want their lives destroyed by cascading damage to critical infrastructure such as roads, bridges, computers, trucking facilities, railways, water distribution, sewage and energy transmission, communications facilities, banks etc.
This is completely unnecessary and not a means to a new monetary system of any kind except Mad Max's varieties.

byiamBYoung said...

It sure seems that what would happen in a dollar HI scenario is much like what Aquilus described in that interview linked upstream in these comments.

In his example, prices were tracked in stable dollars, and the currency conversion rates were posted EVERYWHERE. Pick an item, get the dollar price, convert, pay.

In dollar HI, items would be priced in a stable currency, (say Euros?) , then converted to dollars and purchased.

Makes sense to me. No silver required.

Cheers

Wil (from another account) said...

Victor,
All three could go simultaneously, but why choose between 3 disastrous outcomes, when the ROW can make that choice for you.

We do live in interesting times. There have never been so many precedents. Technology, speed of execution, debt levels, QE, derivative values, systemic shocks.

But the one precedent that seems evident, yet escapes us is the power of central banks.

Yes, in the past they have backed "winners and losers". Now they are in a position to choose.

Giants can look at their current holdings and trade a huge systemic gaming advantage for an equally huge windfall in wealth.

The BIS could truly take a leadership role and the next Wetton Broods could be a success. Yes they wuld call it a gold standard, but we would understand it as FREEGOLD.

ALAS, there is no one willing to politically accept defeat. So there must be a crisis. An epic one, to prepare the superorganism for what it knows it must accept.

Yes JR, the U.S. will have another currency alongside its dollar as all other countries have the dollar alongside their local currency today.

Yes, it will be a shock to that western organ of the superorganism.A rude awakenung ... as Johnny comes marching home.

I'm not sure we can expect anyone to decide anything.

I think we can expect support to gradually end, and the superorganism will decide from there.

Wil (from another account) said...

Of course, how we get to, "Oh Kyle, we're just going to kill the dollar." could be interesting. Time to stock up on the Orville Reddebacher extra butter version ....

Aquilus said...

@byiamBYoung

Just one minor clarification: the prices are still in local currency, just indexed to the stable foreign currency.

Pricing in foreign currency directly would be frowned upon as long as the local currency still functions. So depending on the speed of depreciation of the local currency, prices might be changed, once a week, once a day, etc

But, yes, the idea remains: the merchant has the price in the stable currency (in mind, written someplace, etc) and multiplies it by the current exchange rate and adds a "buffer" - a guess future depreciation between then and the next time he thinks he'll change prices - and the buffer usually errs on the high side ;D )

Aquilus

Aquilus said...

Oh, and no, they did not take silver, gold, IBM stocks, bottles of rum, cans of soda or anything other than cash for payment at the stores (smile).

All assets must be transformed into acceptable cash. Think of all the stores you go to. Do you really see the grocery store clerk trying to figure out how many silver eagles it will take to complete your purchase? Really?

There's always your local pawn store who will gladly give you LESS than market value for your assets if you need cash. So during HI, selling assets is a bad idea.

Why? Because locally people don't want your assets unless they already have all the cash needed to buy their necessities and only then would they look at buying assets.

Everyone will be dumping assets for cash, except for, you guessed it: gold in quantity. Why?

Because the people/entities that hold gold in quantity (not talking coins here) have no need to sell it during HI or any other time. They only sell it because they WANT TO, not because they HAVE TO.

Unlike most people holding other assets from silver to TVs, iPads, pianos, apartments and cars: they all go on the market if necessities are needed.

Does that clarify how things work in HI a bit?

Aquilus

Michael dV said...

Wil
I suspect that the CBs have figured a way to keep inflation under control as they attempt to recapitalize the banks. If they are successful in doing this then the 'pressure' building up may find another way out. Perhaps instead of a period of HI it alls goes bang! one day and the dollar dies suddenly. Maybe the mechanism is the gold market and we get FG and HI all in a flash. In this case the US would need to bring out the new and improved dollar in a hurray. That would look different that a typical HI event.

markbc.net said...

I would tend to agree with what spaul says. I notice that this is about the only place where people spend as much time bashing silver as they do worshipping gold; nowhere else do you see this.

I think the silver bashers are a bit detached from the realities of how the mechanics of the economy work, and have a very narrow focus. Many seem to be suggesting that the world, once it gets through HI, will put itself back together and continue moving forward with a different monetary regime. And while there will be a few adjustments, like the US not being able to run a trade deficit anymore, overall, things will continue on and gold will be significantly revalued upwards as the central monetary asset once again. That I don’t disagree with.

And they also suggest that silver will not fit into this picture. Really? In a world that’s running out of resources, one so highly useful as silver will have no significant role to play? Possibly – but who knows? I just can't take seriously anyone who suggests that owning silver in the future will be not much better than a lump of coal -- it's absurd.

This peak we're seeing right now is THE peak, the peak of humanity. It's not going to be a nice world after HI, and it will unfortunately only get worse and worse. China knows very well how rapidly the world is running out of oil, and they are moving ahead with huge solar and wind energy projects. Soon there won't be any oil exporting nations left, except Canada, and all that slow oil will merely be hopping across the “border” into the US. Unlike the US which is stuck in denial mode, China generally "gets" our energy predicament, and they're doing something about it.

The silver required for this huge solar energy development will greatly overhwelm supplies. There is nowhere near enough to satisfy this demand, even current demand. The above ground stores have been largely drained (according to the best estimates I’ve seen from industry analysts compiling this stuff), and obviously silver is being manipulated lower just like gold is. It baffles me how anyone could suggest that silver is going to get cheaper once the price manipulation ends, and all this industrial demand increases exponentially.

Now, what happens during HI to silver? Who knows, maybe it will act as local currency, maybe it won't. But I'm not in it for any quick bucks I can make during HI. Silver investment is a medium to long term one, and it will only get better as the world runs out of oil (and silver). It won’t be running out of gold. The idea that we can just substitute silver with copper for PV, well maybe someone will figure out how to do that, but bringing out new technologies, that don’t even exist yet, takes a lot of time, and we just don't have it.

Luke said...

"The only silver that will flow will be for necessities and most silver holders have that covered better than most gold is all you need types."

Spoken like a try shrimp(don't be mad, we all are). Trust me you don't know any gold giants. You think the Fed or the ECB will be forced to sell gold to cover their necessities? They establish what society calls money. What about the oil princes or the Chinese? These guys are the producers. They have what we need. The silverites you probably know are mostly on youtube who might tout how they have some food and ammo and you now think that they are more prepared than people who hold gold. These are the guys who will have no vote in what is involved in the next monetary system.

The 50%+ that is used for industry will die off as businesses fail and capital becomes reallocated. You really think the silver stackaz buying their Lunar Series Dragons will pick up the slack? Certainly not during HI. Will the central bankers respect and even encourage a gold price 10 or 20x higher than it is today in order to balance their books? Certainly. Gold is "useless", so price is irrelevant.

As soon as I see silver as a line item on a central bank balance sheet, I will lean your way.

/SleepingVillage/ said...

Great post, I love the Maiden touch.

How cool is it that the real Mr Gold rocks out to Maiden :-)


I'm still waiting for the silvertards to Run to the Hills

Same old boring, unpersuasive arguments... for the durrzillionth time. It gets old, guys. Please read the fucking blog and comments.


Can I Get an Amen?




Bright aurum said...

@markbc.net
Say U R right K. Lets have the FG and the HI sorted out first and then will think about managing the new peak humanity circumstances.

michael3c2000 said...

@Michael dV
Yes it's true things WOULD look very different. You're right too in saying they'd need the new currency without delay. On the other hand,, how cool would it be to be able to drive as fast as you want, police having been without pay, given there's no boulders or wrecks littering your path, the cameras won't bat an eyelash, provided they're powered up, and the petrol had been delivered, paid for, and flowing without any hitches or hitchhikers, and traffic signal algorithms haven't grown beards that could snarl traffic, and the stray dogs have found new owners who haven't skinned them to keep warm...

M said...

@mark.bc

I agree on your points about cheap money financing crazy oil projects. But you delve too much into peak oil after that. When rates rise, the rich oil companies will shut cut supply until the weak companies go broke. And at some point there will be equilibrium.

The caveman era didn't end because they ran out of rocks. Oil will be obsolete one day.

If oil is too expensive for it to be viable then another energy source will take its place. That is nuclear. Nuclear energy solves the peak oil theory and the climate change theory at the same time.

Nickelsaver said...

http://youtu.be/vWxoLMl37rU

One Bad Adder said...

Someone has obviously alluded to "cheap-money" up yonder.
This issue goes far beyond the bounds of dodgy Oil exploration, as we're seeing a "Gordon Ghecco on Steroids" style of operation playing out "as-we-speak".
These so-called "private-equity" structures etc. are acquiring income-producing assets (both public and private) across-the-board for what amounts to Pennies in the Dollar in this virtual Zero-interest environment ...and one gets the impression this is all very well-orchestrated ...not to mention uber-sinister! FWIW.
This example (for those with eyes to see)

mark.bc: - rational thinking IMHO.

jeb said...

Peak oil? It's political. Let the Gold flow and the oil will too. Cheaply!

Wil (from another account) said...

I think we all here can appreciate the incredible resiliency of complex, interconnected and mature systems.

Would could have moved away from oil long ago if not for the mature, complex, interconnected and money-powered interests in oil.

Even Another accepted it as a given. Yet the Sheikhs have worried over hydrogen for years.

No worries, house of Saud. There is no hydrogen lobby or movement powerful enough to threaten this complex "oil system".

Likewise, we could have moved from the dollar 30 years ago. BTW, it's simply amazing to review the videos on YT from the 80's and hear a youthful Ron Paul talking as though its 2012.

But there is a growing movement to challenge the dollar system. I'm not sure it's quite as simple as the original Euro construct. I think it is (and needs to be) much larger to challenge the dollar.

After all, the ultimate objective is ... oh, never mind.

Happy Trail!

S P said...

Let us talk further on silver and oil.

First, these are both industrial commodities. Oil is the most important as it is the liquid energy source for human civilization, worldwide.

But the price of commodities is limited to the downside (too cheap and they won't be produced) and to the upside (too expensive and there's no demand).

As such, it never makes sense to acquire commodities for the long term. It makes to use them the way they were intended to use.

Having said that, "peak oil" or "peak cheap oil" or "peak conventional crude," however you want to define it, is a big problem. Our society runs on power, and without the fast flow of oil, we have no power.

Therefore expect significant worldwide political and economic disruptions as peak oil continues to make itself felt.

If anything, however, this is freegold positive, as the lack of power from cheap oil ensures that the debts will never be paid back. The only route out is for fiat is devalued against gold to balance the books. This impacts the fewest people and will be politically expedient.

"Who cares about the gold people" will be the idea. Let them have their little lottery.

Well, we'll take it.

enough said...

Ok Vic,

so the bearded one is saying, save the bond (treasury) mkt with as much QE as it takes at the expense of PP of the $$.......I think?

So does that save or kill paper gold?

My thought would be, moar QE would break the physical/paper structure as increased demand for physical and with drawl of supply (absent official releases) would cause paper mkt to seize up?

best, E

byiamBYoung said...

Aquilus,

Thank you for the clarification.

Cheers

jojo said...

@SV Amen.

JR said...

Hi michael3c2000,

"On the other hand,, how cool would it be to be able to drive as fast as you want, police having been without pay..."

Have you seen The Purge? Not that its a great movie, but it (sensationlizes) a similar motif.

JR said...



Golden opportunity for Floyd as WBC launch sparkling 24-carat belt for Alvarez war

Floyd Mayweather Jnr and Saul 'Canelo' Alvarez have been handed an added incentive ahead of their mouthwatering world title showdown after the WBC proposed to create a 24-carat gold belt for the Las Vegas clash...


Just sayin' the WBC chose gold, not silver

DP said...

The WGC know, silver is saved for the best loser.

Brady said...

JR, happened to catch a bit of the home run derby on July 15th, first time in a few years.

"The 24-karat "money ball" made its debut during the 2011 State Farm Home Run Derby in Phoenix last July, marking the first time a league-standard baseball made with 24-karat leather was featured as the official gold ball for the competition."


http://www.rawlings.com/newsdetaillanding.aspx?id=1307

Bright aurum said...

@enough
...''My thought would be, moar QE would break the physical/paper structure as increased demand for physical and with drawl of supply (absent official releases) would cause paper mkt to seize up?''...
or it might just happen the way I have put it in one of my earlier
responses to Victor. Cheers

JR said...

Hi B_a,

I think the link above is amiss, but I think this one works.

JR said...

Oh look RJP already posted about the 24 carat belt. Hopefully those that missed it (silverites!?!) the first time see it on the soocnd go round.

enough said...

"Chinese GPS-

"As used in the title, "GPS" refers to the Gold Positioning System."......RPG?



Chinese GPS: Payback in Full with Benefits

Copyright 2013 - Reginald H. Howe

http://www.goldensextant.com/ChineseGPS.html#anchor29599

"Gold: Money for Savings. Given the rate at which their real purchasing power depreciates, fiat currencies do not provide a good long term store of value. Supported by legal tender laws, they are useful primarily as transactional currencies. But while the monetary metals--gold and silver--provide effective stores of wealth over long time horizons"

One of the more interesting statements...

"The well-informed will immediately recognize that this idea is borrowed from and an adaptation of the proposal that Hugo Salinas Price has made for Mexico, but with two key modifications: (1) it is based on gold, not silver"

Bright aurum said...

Thank you JR
The way you accomplish all these kind of searches always amazes me :-)
What I was trying to write is that Victor (no offence) sees things pretty straight forward either this or that...
In this world of half measures, opportunities are seen and some are taken. Decisions are adapted according to the situation etc..
We could see deterioration in all 3 fronts, a retreating fight on some or an all out rout if the black swans attack. An there is a great chance indeed that the gold 'market'(POG) gets sacrificed first but make no mistake this 'chicken' can run at the speed of 10000$/ounce even with its head severed.
Cheers

spaul67 said...

Gold coming under the eye of Sauron perhaps?

http://www.zerohedge.com/news/2013-07-26/gold-smuggling-soars-india

Can anyone find a time in human history where it was illegal to buy, trade or transport silver? Not saying it hasn’t happen I just can’t find it?

And yet we sure seem to have a lot of silver above ground as well. In fact 4x as much.

http://www.zerohedge.com/news/2013-03-01/visualizing-all-silver-world

That’s no way for ‘commodity’ to behave is it? Doesn’t silver know that since 1912 it’s now just a commodity; 5000 years of human history notwithstanding.

In fact its stock is so high we have a 44 year supply above ground for silver vs. gold at 63 years, at a 75% vs. 5% industrial consumption vs. mining rate respectively. Not so different and significantly higher than all other commodities.

Now when you multiply the current prices of gold and silver by their respective above ground stocks; gold has about 14x the total dollar ‘absorption’ potential of silver at the present GSR of 60. But if silver where to move back to the historical mean of a GSR of 15 gold would only be 3x. Again not so different but the advantage still clearly goes to gold.

But wait one minute a decreasing GSR drives more silver to be stored above ground and alters the industrial consumption percent which a higher price will most definitely do. At which point the above ground cube of silver starts to grow from 4 to 1 to is more historic 15 to 1.

Let see a historic 15/1 GSR and historic 15/1 above ground ratio ……carry the one…….makes gold and silver ‘equal’ in its fiat absorption ability……….of………………. dare I say it………………gulp…………………….gold. Queue the shocked crowd audio.

Unfortunately I-Pods may need to go up a few bucks because silver is now priced once again as a precious metal along the side of gold at historic ratios, oh the humanity.

The fact is that even at today’s prices silver has ‘more’ in common with gold than it has with every other commodity on the face of the earth. Perhaps this is why silver has been used across time and cultures as money right alongside of gold’s?

Let’s all sing together; Silver and Gold……….. Silver and Gold…………

http://www.youtube.com/watch?v=8wgosPXVWUM

Polly Metallic said...

The gold/silver ratio is 67 and getting worse by the month. The five year high is 83 and we are headed there shortly unless Freegold comes first, in which case you don't want to see the ratio.

Polly Metallic said...

I sometimes wonder when the copper stackers will show up here singing the praises of the other metal that has been used as a monetary metal for centuries. Sigh.

jeb said...

Greetings to the SLA
http://www.ecb.int/press/pr/date/2009/html/pr090807.en.html
1. Gold remains an important element of global monetary reserves.
So the Gold Standard was abandoned but Gold wasn't; that is a fact.
Anything to do with silver is just speculation, betting, trading or gambling. At this blog we're not gamblers, we're savers who use the same reserve as Central Banks.

Aquilus said...

Look,

Enough with the silver! Sure, anything can store value: silver, painting, collectibles, real estate, copper, etc. Will they all have some value that is non-zero in the future: YES - no one denies that.

However, if the dollar monetary system collapses (as the purchasing power of the dollar collapses) there is ONLY ONE OTHER asset that is ALREADY possessed by both central banks and "giants" that can recapitalize their balance sheet. That's right: the choice is already made: gold.

Central banks don't hold oil, copper, silver or Renoirs! They hold the one industrially "useless" metal that is the focal point of savers WITHOUT an international conference.

And they hold this "useless" metal because when needed they can revalue it to (compared to today) astronomical numbers in order to make up the lost purchasing power of the dollar. Without hurting the economy in the process!!

So you want silver? Have at it. It will have value of course. But it will not have gold's behavior because:

1. Gold is already the focal point of the revaluation (see above) SO THERE'S NO NEED TO REVALUE ANYTHING ELSE (they already re-capitalized their balance sheet using gold!).

2. Being used industrially, silver cannot be revalued astronomically without hurting the economy (less important than point #1 but still... )


Summary for the slower ones:

1.There is only need for ONE THING to be revalued in order to recapitalize the balance sheets of different sovereigns and "giants".

2.That "thing" must already be in their possesion at the time when the reval happens.

3.This "one thing" when revalued cannot continue to trade as a commodity, and must by function become a monetary reserve ONLY.

4.Point 3 means that gold's current/past ratio to ANYTHING ELSE is MEANINGLESS because its FUNCTION WILL CHANGE FROM THAT OF A COMMODITY TO MONETARY RESERVES ONLY! All else in the world(silver included) will float together in price at ratios similar to today (and yes they will have value that is not zero). So my guess would be that the silver/cheese ratio will be similar to today unless there's a temporary shortage in either (smile)

If this is not enough for you then you're commenting on the wrong blog.

Aquilus

Bright aurum said...

Aquilus, mulțumesc.

Motley Fool said...

spaul

"Can anyone find a time in human history where it was illegal to buy, trade or transport silver?"

So you are trying to say silver has never been important enough to make trade illegal. Curious.

Yeah silver and gold industrial uses seem very similar. >.>

"But if silver where to move back to the historical mean of a GSR of 15 gold would only be 3x."

Historical. Time tends to move forward. That is a superlative if.

"But wait one minute a decreasing GSR drives more silver to be stored above ground and alters the industrial consumption percent which a higher price will most definitely do."

Sure, if things happen as you daydream. Wake up, buddy.

"Queue the shocked crowd audio."

Really theatric daydreams at that.

"The fact is that even at today’s prices silver has ‘more’ in common with gold than it has with every other commodity on the face of the earth. Perhaps this is why silver has been used across time and cultures as money right alongside of gold’s?"

This is true. Again not though, the tide of history and its direction.

ein anderer said...

@spaul67,
… 75% vs. 5% industrial consumption vs. mining rate respectively. Not so different
Hahahaha! Good joke this!

… Perhaps this is why silver has been used across time and cultures as money right alongside of gold’s? …
Right! As money! Because paper was not yet invented! Ever heard the words »history«? »Evolution«?
Today (2013 A.D.) we don’t need metal money anymore. We have paper, e-paper, digits. Instant from here to there! No need of silver anymore.
But we still are in need of a Store of Value, right?
And therefore we prefer a SoV which is independent of all these ups and downs of industry = economic cycles. We prefer independency.
»75% vs. 5%«. Exactly.

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

@Spaul67

Can anyone find a time in human history where it was illegal to buy, trade or transport

Or can anyone find a time in human history where pork bellies were illegal to buy/trade? How about corn? soybeans? wheat? Hmmm.. only Gold eh? Maybe that should tell you of its importance.

have a 44 year supply above ground for silver vs. gold at 63 years

supply/demand again. Irrelevant. Soooo...

15/1 above ground ratio

If this is your argument - shouldn't you be buying Platinum?

We're just addressing the same things over and over - most are discussed by these two cartoon characters HERE. Every time you feel the urge to make an argument for the validity of Silver in the coming monetary system - watch that - save us the trouble.

ein anderer said...

@markbc.net,
wrong door this. In this room no traders are gathering (what they do may be fine yet!), no speculators (great buffer between supply and demand!), no whatsoever »We want to make some more money«-folks! Nothing like these.
We are interested in only two or three or four words:

LONG term
store of
VALUE

That the only asset which can provide something like this must go through a revaluation soon—well, that is a nice side effect. But that’s NOT the main motivation for owning gold. The main motivation is, as I said before: independency from money.

You see, the blog would become quite confusing and unclear if everybody would start here claiming what is his or hers preferred source of income, right?
I am sure that there are some who are earning their money by using water, earth, wind and fire!
Gold is something else. Not meant for earning. It’s meant for the time after.

byiamBYoung said...

Aquilus,

Well said.

I'm waiting for the cheese/silver ratio to drop to 1000 and then I'm unloading all of my cheddar. Fingers crossed.

Cheers

Sam said...

I am collecting steel nickels. Steel will out perform gold because it has so many industrial uses and everyone needs steel. Plus with new science inventions and stuff you can eat steel too. Ever herd of Andrew Carnegie! Dude was super rich! Plus I can melt some of my steel down and make a sword when HI hits. You losers with your soft gold will be cut to bits by my home made saber! Ok I have to go read 17 other precious metals blogs with conflicting information so I never really understand anything. Those guys are always right except when they aren't then it's total manipulation man! I usually just skim the titles and start commenting wildly to anyone that will listen. You guys with all your reading and studying are boring. Later!

enough said...

London Bullion Market Association
1-2 Royal Exchange Buildings, Royal Exchange, London EC3V 3LF
Tel: +44 (0)20 7796 3067 Fax: +44 (0)20 7283 0030 www.lbma.org.uk

Thursday 25 July 2013

PRESS NOTICE

Stewart Murray LBMA Chief Executive to Retire.

The LBMA has announced that Stewart Murray will retire in the fourth quarter of 2013 after having served as its Chief Executive for the past 14 years.

and.....

JP. MORGAN TO EXPLORE STRATEGIC ALTERNATIVES FOR ITS PHYSICAL COMMODITIES BUSINESS

coincidence?

Nickelsaver said...

Aquilus,

Very nice. So simple a silverbug can understand it. Question is, do they want to?

Sam,

Got a chuckle outta that, thanks.

RJPadavona said...

Silver regaining its moneyness again is just an apparition in the minds of folks who are delusional enough to think us proles are gonna seize control of the monetary system and usher in something "fair and equitable". Sorry, ain't gonna happen. 

Don't believe in spooks. They're not real.

Silver Ghost


RJ 

spaul67 said...

Aquilus said...

“Look,

Enough with the silver! Sure, anything can store value: silver, painting, collectibles, real estate, copper, etc. Will they all have some value that is non-zero in the future: YES - no one denies that…………………..”

Aquilus, I don’t disagree with anything you said. Gold is clearly the focal point, amen. I have gold and keep adding to it, perhaps more gold than some gold only people on this board, thanks in large part to using the GSR as an exchange trigger.

The basic rule is to rotate from silver to gold when the GSR of the original purchase is half and likewise trade gold for silver when it doubles. So the silver I’m buying at 60 is exchange for gold at 30. The gold acquired at 30 is exchange at 60 for silver, 2x2=4. A couple cycles of this and you end up with 8x the gold per dollar possible under a steady accumulation of ‘only’ gold. If at some point the musical chairs stops you’ll still have ‘more’ gold even if the remaining silver is now worthless. Not very hard really. So if you’re not interested in holding more physical gold than go right ahead and just keep ignoring silver and the GSR.

Anyway my concern, as a large gold holder thanks to silver, is that just like India the governments the world over ‘may’ for a time do some really stupid things with regards to shrimp gold ownership. That’s all. Could be an important safety tip, maybe not, only time will tell.

I would also suggest that with gold sitting at say 50K it will draw the price of silver up just like a magnet even a Freegold world. Let see I can store my excess 50K of fiat in 1 oz of gold or get 1,000 oz of silver, both storing 50K? Knowing this trend would allow a gold holder to front run this levitation even in Freegold world.

Again we are told to think like, giants but I think in a Freegold world it might be good to think like shrimp as well? See shrimp aren’t trying to protect billions of dollars like the giants but a 1000 times less than that even among the jumbo shrimp. See the thing is that the shrimp far outweigh the giants. What we lack in means we make up for in numbers. In a Freegold world shrimp are finally free of the theft enable by the paper ponzi scheme they are forced into now. As a result they will have a lot more excess paper to store away. Now if only gold is allowed to operate outside of capital gains then silver will not form a SoV, but if silver is allowed, then it will become part of the monetary metal system. All it takes is the stroke of the pen.

Even now, when the price of gold goes up, silver goes up ‘even’ faster. The same is true in the reverse in the down swing. It’s basically the tail of the dog, where the dog goes it goes as well happily wagging away. In fact this relationship has a stronger correlation than data collected on physical processes in natural.

Now I’m sorry if my alternate variations on the Freegold theory upset your tender cult like feelings but any idea worth entertain should be open to scrutiny, including the one I’m proposing.

I actually enjoy the debate, it’s the best way with the right people to understand both sides more deeply and perhaps arrive at a hybrid that is better than what either side entered into the ring with.

milamber said...

RIP George Mitchell

http://www.dallasnews.com/news/local-news/20130726-texas-billionaire-george-p.-mitchell-the-father-of-fracking-dies-at-94.ece

Milamber

Knotty Pine said...

Sam, you have inspired me:

You have helped me realize I am sitting on a freaking gold mine. I may quit my job. I have 2 SOV's that work day and night keeping the lawn mowed and then shit pure gold!

jojo said...

"I would also suggest that with gold sitting at say 50K it will draw the price of silver up just like a magnet even a Freegold world. Let see I can store my excess 50K of fiat in 1 oz of gold or get 1,000 oz of silver, both storing 50K? Knowing this trend would allow a gold holder to front run this levitation even in Freegold world."

Huh?

Polly Metallic said...

That was my reaction, too, Jojo. There is absolutely zero reason why Freegold priced gold will "draw up" silver. Not at all. In fact, I expect it to work the other way around. Once all the people holding silver realize there is no "gold AND silver in the new monetary architecture they will be dumping millions of ounces of silver on the market. There will be enough for windmills and solar cells if no more silver is mined for a decade.

Phat Repat said...

Very interesting... Under siege, JPMorgan to quit physical commodities

So silver will be free at last? j/k.

Beer Holiday said...

@Enough

Stewart Murray LBMA Chief Executive to Retire.

The LBMA has announced that Stewart Murray will retire in the fourth quarter of 2013 after having served as its Chief Executive for the past 14 years.

and.....

JP. MORGAN TO EXPLORE STRATEGIC ALTERNATIVES FOR ITS PHYSICAL COMMODITIES BUSINESS


What do the alchemists know that the rest of us don't?

Do you think Stewart Murray will get a golden handshake. It's OK, I'll show myself out.

JR said...

Hi Bright aurum,

As RJP knows, it is not me. Call me Ryan Braun if you will, but it is all due to the Black coffee!

Black coffee
That's what I mean
Black coffee
Ooh! You've got to feel it in your hand


Who knows, but It's Hard otherwise. Some folks just need an Eminence Front!

Come on join the party
Dress to
Come on join the party
Dress to
Come on join the party
Dress to
Come on join the party
Dress to kill
Dress yourself, dressed to kill.

JR said...

"It's a put on"

Motley Fool said...

Drawn upward like this?

http://www.youtube.com/watch?v=Gq_bjaI0NTo

sean said...

spaul67, presumably your argument for the magnetic qualities of silver is based on the GSR. I suggest you think carefully about what this derivative means,and why it should remain "constant" when paper gold no longer exists, but paper silver does.

spaul67 said...

Jojo here is how it works.

Say you purchase 60 silver eagles (SE) when the Gold to Silver Ratio (GSR) is 60, ie you ‘could’ have purchased one gold eagle (GE) instead. You then hold those 60 SE until the GSR is 30 and ‘exchange’ those 60 SE for ‘2’ GE. Once the GSR dips down to 60 you exchange those 2 GE for 120 SE. Then GSR goes down to 30 again and you exchange those 120 SE for 4 GE.

So using the same amount of fiat in the front end you receive 4x the Gold after just two GSR cycles. The more cycles the more doublings , 2,4,8,16,32,64 etc.

Just tell two friends

http://www.youtube.com/watch?v=TgDxWNV4wWY

Having more gold is better than have less gold, is it not?

Aaron said...

OMG spaul67 please STAHP!!

What is this, a GSR math lesson for the mentally challenged? Everyone here understands how to work the GSR. The point is silver speculation will work until it doesn't and then it's all over. If you want to go play in traffic that's your business, but this blog is intended to help inform savers, not speculators out on a suicide mission.

Look, I have silver, plenty of it, but if you know anything about me you know my reserve holdings are <5% silver and even then it's mostly for nostalgia to remind me of the days when I was a silverbug just like you. I am fully prepared to hold physical silver and watch it go to 5 bucks per ounce in real terms. You? I have no idea what you’re hoping for, but good luck with whatever it is.

For everyone else reading along, scroll on up and read Aquilus's commments again.

Aquilus has left a new comment on the post "The Funeral"

Look,

Enough with the silver!

Beer Holiday said...

@spaul

I counter your shampoo ad evidence with my own freegold revaluation shampoo ad

burningfiat said...

spaul,

Sorry but that has got to be the lamest scheme ever!

You have left out probabilities for these GSR-cycles. Try to calculate the pot-odds on your scheme again using 25% chance (for instance) for each round-about happening.
Also according to you we're now in a place in the GSR-cycle where we should all be in silver, right? Are you all in silver?
Most importantly if Freegold happens _before_ GSR goes to 30 (100% gold again), you'll lose everything (except a big pile of silver). Just saying...

Why do I get the feeling you're messing with us?

Motley Fool said...

Spaul

Sounds like an excellent plan. >.>

Tell me the duration (in years) of the last 2 cycles, so I have some idea how long it would take me to quadruple my gold?

TF

Motley Fool said...

Ps. http://www.mineweb.com/mineweb/media_stream/mineweb/1/187387/images/130424williams.jpg

Robert Mix said...

Actually I truly appreciate seeing defenders of silver stating their case(s). I take the opportunity to learn whenever I can.

NO ONE knows the future. I remain a Freegolder, but I do not subscribe to the logic that Freegold is 100% inevitable. There are too many factors and imponderables in knowing what the future holds. "Black Swans", by definition, are things that come out of left field, low probability & unpredictable events with a high impact.

Do we really know that gold will rise to $55,000? My best guess is yes, but...

***

One way to help mitigate the effects of unusual and unpredictable scenarios (should they come to pass) is to diversify. As my wife and I are getting old, we are not in a position to live in a bunker or take up farming, so that kind of diversification is out for us.

It is wise, however, to consider that the future may play out differently than what anyone plans. "Green energy" may require huge amounts of silver, depending on how all of this shakes out. Platinum has its own dynamics (fundamentals) as well, it is easy to conjure "an optimistic scenario" (though unlikely) in which China decides to both allow their people to get rich (buy cars) and clean up their environment (mandate catalytic converters using Pt). Will this optimistic scenario happen? Probably not, but who knows? Not I...

I have no problem at all with anyone keeping a reasonable percentage of their wealth in silver (or even platinum). I have both. Silver is a metal that I do not understand, however. For me, the bulk of my PM holdings is in gold.

Please also note that I do not play the GSR, except for once when I was lucky to catch the GSR at +/- 35 when I lowered the amount of silver I keep to beef up my gold holdings. My silver, like for some FOFOA followers here, is mostly a way of protecting the precious should FIAT$ become worthless.

And platinum? It is rare, hard and heavy (wiki it!). But a little easier to work than tungsten. Maybe Pt would make fine armor-piercing rounds (by talented reloaders) should gold be the only metal that remains truly precious... Wow, platinum bullets...

Finally, I am gravely vexed and disappointed not to see any discussion of fine highly engineered products made of 52100 steel, the "other PM" that is a family favorite...

spaul67 said...

Motley Fool said...
Spaul

Sounds like an excellent plan. >.>

Tell me the duration (in years) of the last 2 cycles, so I have some idea how long it would take me to quadruple my gold?

TF


About 8x in about 8 years time. Keep in mind I’m not dumping all the gold in each cycle either just about half plus I’m still converting excess fiat to gold and/or silver continuously trying to keep the ratio between 30/70 or 70/30.

Look results may vary and it’s anyone’s guess as to how long this current state of affairs will last. The best period my already be behind us. All I know is not being zealot that believes that silver is just trash has its rewards, that’s all. I also suspect I can play the other side once freegold happens, but that is pure speculation. Just keep your minds open.

Now, if you want to receive less gold ‘now’ for your hard earned fiat that’s your own business. Go right ahead I can’t stop you nor frankly do I want to really as the more people like me out there the more difficult it will be to do this. Consider this friendly public service announcement.

But in deference to the fragile emotional sensitivities of some on this board I’ll keep quite regarding silver from now on; but it’s difficult when I see amateur comments regarding silver that my own direct experience says are 100% dead metaphysically wrong.

If/When events unfold, I’ll just type “I told you so” and won’t need to mention the evil world silver again. The Silver is trash crowd will understand what I mean. Deal?

We are here to pump you up, Hear me now and believe me later.

http://vimeo.com/7595897

Polly Metallic said...

The only particularly advantageous time period I have seen since the 1980s to trade silver for gold was the brief spike when silver rose to nearly $50 a couple years ago. When you consider the transaction costs to trade, the benefits are typically not very impressive.

Knotty Pine said...

spaul,

Good luck with your silver trading. Hopefully you won't end up like this guy!

Bright aurum said...

JR,
I personally prefer this version of Black Coffee ,

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

RIP JJ Cale

https://www.youtube.com/watch?v=wpattprHieA

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