Friday, August 23, 2013

Five!


My Candid View – Part 10



"Did you have a "simple yet profound" A-HA moment you wanted to discuss?"

Ah, yes… my aha moment.

Well, FOFOA, it may be an errant aha moment, but here it is:

I had thought that the paper gold market was tethered to the physical market, and, while it is, it is not tethered to it the way that I imagined it was. In posts I had asserted that the paper market needed physical, but not vice versa, I was right, but for the wrong reason. I was thinking that paper gold required physical to meet the occasional allocation requests that came along…from anyone asking for physical. But allocation requests from small fry, (even not so small fry) that aren't met, shall we say, in a timely way, are not of the sort that can leave the paper gold market in ruins.

When you wrote the following to XXX...

"Freegold is a top-down phase transition, IMO. The minute there is not enough physical gold flowing at the top level in which it flows, the phase transition will be complete. It will be instantaneous, and when it happens there will be no going back."

somehow the genuine picture came into view as it was intended to. The paper gold market will collapse when the top level doesn't get allocation, because, when the top level can't get the goods, a revaluation is what will be required in order to get gold in size to flow. But, by definition, the ice dam will be so thick that a massive charge will be required to break that dam up to a degree that will achieve the desired result.

The top tier not getting physical will require something like a Def Con 1 response. The bombers will have to be let loose and the world as we knew it can never be the same again.

The process of getting physical in that size to flow will require something so forceful, so monumental, that the paper market must be, as a part of the proceedings, annihilated. Paper gold will be reduced to ashes on a launch pad that will be propelling physical gold beyond the gravitational pull that holds it in lock step with all the other actual commodities. The moment the top tier cannot source physical, the paper market is a dead man walking because nothing less than paper gold's sacrifice will get gold flowing to the necessary degree. Let me know if I am on target or not.

Hello Edwardo,

Yes, I think you've nailed it! But let me try to walk you through a little more detail (i.e., add a little more resolution and color to your view)…

Have you ever noticed that sometimes your local dealer has a lot of old coins, and then at other times he has mostly (or only) the latest year Eagles and Maples? I have personally dealt with maybe a half dozen different dealers in person, and I have noticed this on a couple different occasions. Remember when I kept mentioning a flow chart while we were Skyping? It looks like a family tree, kind of like this:



In this chart, the "Me" at the top would be the top level where gold trades in the largest volume amongst Giants, CBs, SWFs, and large wholesalers. So the "Me" would be the LBMA (in combination with the assistance of the BIS) and the Mom and Dad would be the largest wholesalers as well as the CBs (because Giants and SWFs generally don't "on sell" their gold purchases. At least that's not their reason for purchasing). The Grandparents would be the lower level wholesalers. The Great Grandparents would be the dealers that you and I know, including thousands of small dealer you will only find at coin shows, and then there would be another level of Great Great Grandparents that would be us "shrimp end users".

When your dealer is mostly stocked with old coins, the gold is flowing right here within our own level. Some other shrimp has sold his gold to a dealer and now you are buying it from a dealer. But if there are more buyers than sellers at the paper price, then the dealer has to go up this flow chart to find sufficient supply. Perhaps the shortage you observed is just localized, confined to your area, but in some other areas there are more sellers than buyers. In that case, the "Grandparent" wholesaler will supply old coins acquired from another locality. If not, he'll have to go higher up the flow chart to the CB's mint, and that's when you'll see mostly new coins at your dealer. The first time I saw this was in early Oct., 2008, but I've noticed it lately as well. One dealer I called who doesn't use wholesalers was completely out of stock (more buyers than sellers), and another one I saw at a coin show last month had only brand new 2013 coins. He had bought them from his wholesaler who received them from the mint.

So that's how the physical market works. It is fractal in that different levels operate basically the same only on different scales. And the physical market uses the reference price from the paper market which means that the various states of flow around the physical market are disconnected from the price-discovery market rather than being an integral part of it.

As I just stated, I did call one dealer last month who had no inventory at all at today's low paper market price. But obviously my personal experience didn't leave the paper gold market in ruins. Another example is that, just today, Jim Rickards tweeted that his dealer (presumably on the east coast) is out of gold. Nickz immediately tweeted back that his dealer (on the west coast, who incidentally is also a wholesaler) has plenty. Then he tweeted that the "supposed tightness" in the physical market is "gold bug fiction"… tweet.

This is the same thing we hear from XXXXXX and XXXX, that if they aren't seeing it in their little corner of the physical market, then it doesn't exist. It therefore must be fiction created by gold bugs to sell their gold bug hype. The problem with that view is that there's no cohesive and coherent narrative to explain their view of plenitude. And it also leaves them with only the consensus view to explain the unusual draining of GLD. All three of them have professed, in no uncertain terms, their rejection of the coat-check room view, but I digress.

The point was that Jim Rickards' tweet didn't leave the paper gold market in ruins either. And as I said, when the flow is tight at our shrimp level, we tend to see more current-year coins directly (or indirectly through large wholesalers) from the mints. The CBs have large reserves of gold, and they regularly send small amounts to the mint which is generally enough to keep the shrimp demand supplied whenever the shrimp level of the physical market fails to supply itself with old coins. And the countries that don't have large reserves, like Canada and Australia, have sufficient flow coming out of their mines which is essentially the same thing as having a large reserve.

So, to some extent, our shrimp-level demand shocks are isolated from the top level supply chain by the CBs and their mints. As long as the paper market is still functioning, any physical shortages we are able to identify at our level will likely be localized and mostly immaterial to the timing of the inevitable collapse. These localized shortages are symptomatic of the overall tightness and the failure of the paper market to keep physical gold flowing properly, but their relevance to the timing will only be known in hindsight. As I said, I saw it happening back in 2008, so their value is not predictive in nature.

But here's the main thing… A properly functioning physical gold market is one in which each level of this flow chart pyramid more or less supplies its own demand, and any differential between supply and demand, meaning the margin of that particular level that must reach up to the next level of volume in order to satisfy demand or unload excess supply, transmits a price signal that makes its way up the pyramid. The transmitted price signal is a premium difference between localities that allows higher-volume arbitrageurs to move the gold to where it needs to go while making a profit from doing so, just like what I wrote above where the "Grandparent" wholesaler will supply old coins acquired from another locality. This is how the gold physically flows from one locale to another, and the higher up the pyramid, the larger the volumes and distances.

That's the way it should work. The more gold that flows at the bottom levels, the less that needs to flow at the top. Yet the top receives—through the dealer network—the aggregated price signals from the various "bottom" locales and so the "top level price" where gold is moving in the largest volumes becomes the reference price used at the bottom. If demand for gold is high in your locality (i.e., your area is running a trade surplus excluding gold), there will be a higher premium locally than elsewhere, and so someone higher up will bring in some physical gold from elsewhere. Simple as that!

Today, however, this natural system isn't even functioning. No gold price signals are transmitted from the lower levels to where the price is discovered because the price is discovered in the paper gold market. The CBs could potentially supply the bottom level for quite a while. So why don't they? Well, it must be much more than just the bottom level that matters, because what we learned from ANOTHER was that they were very worried about this flow as far back as 1979, so they formulated a temporary plan.

They could have run down their reserves by minting small coins forever to keep the shrimp gold bugs satisfied, but apparently there were larger interests who couldn't possibly be satisfied with mint tubes and monster boxes. So they tapped the mines. Annual mining supply in 1985 was 1,500 tonnes. If ANOTHER knew what he was talking about and the CBs were hoping for a 5-fold increase, that means the (temporarily) sustainable flow, as viewed from the top where we cannot see, must be around 7,500 tonnes per year at current ratios (notice I didn't say "prices" because, even though the POG has changed since 1985, the ratios with commodities haven't). With very little basic math, that leaves a huge shortfall pressure on the physical gold market today, in the range of some 100,000+ tonnes of physical that was expected or at least hoped-for (promised to someone?) but never delivered.

Think about that for a minute. Hmmm… How did FOFOA come up with that number? Hmmm… Is it meant to be sensationalistic hyperbole or a very conservative back-of-the-envelope calculation? Hmmm…

It's conservative.

So just think about how long the CBs could prolong the status quo ratios with their mere 30,000 tonnes if that was their goal. It's not their goal, so you can stop thinking now. ;D

The point is that the "marginal drain" from all levels combined has reached the very top of the pyramid and is now draining its reserves. This is not the way the physical gold market should work. The CBs announced in 1999 that they would no longer support this constricted flow under the current market structure. Today, as the CBs are increasing their physical gold reserves in aggregate, they are once again telegraphing the message that there is no support for the status quo from the CBs, even as they continue to mint shrimp coins due to tradition.

So once those reserves at the top are gone, what happens?

"The top tier not getting physical will require something like a Def Con 1 response. The bombers will have to be let loose and the world as we knew it can never be the same again."

Yes. But do you see how the Def Con 1 response has a lot of moving parts and detailed resolution? We can't know exactly what has transpired at the top, except for what ANOTHER alluded to. But just imagine that 100,000+ tonnes of promised or at least expected gold (that's marginal-flow-gold, not global-stock-gold, so a simple doubling of the price would never suffice) never flowed. Once the top stops supplying the top as well as all lower levels, what would it take to get physical moving again for those that apparently mattered even as far back as 1979?

Remember, at that top level you have a variety of different players, but they generally fall into two types. I would categorize the two types as "savers" and "dealers". The "savers" include the CBs, SWFs, Giants and oil producers, and the "dealers" are the bullion banks and the largest wholesalers—the "arbs" that will move gold in volume from the lower premium zones to the higher premium zones for profit. These dealers don't care about the price. They don't own the gold, they only move it for profit. The top-level "savers", on the other hand, do own the gold and do care about the price. But most importantly, they have no reason to sell any gold, and every reason to buy more.

These are the CBs who can print, the sovereign wealth funds that are tasked with spending surplus currency and the Super-Producers who, until they stop producing, have no reason to sell any gold. And there's no level above this top level for the top level dealers (the bullion banks) to reach up to for more supply. When the top-level dealer supply runs out, the only place to go for more supply is to the demand side, to those who want more and have no reason to sell what they already have.

Can you see the dilemma? The price of gold will still be the paper price, but the flow will have completely stopped at the top level. It will be a de facto failure of the paper gold market and a new price separate from the paper gold market will be required to get it moving again. It will be like gridlock in a big city. The lights keep changing from green to red to green again but nothing moves. The system has failed, and only a revaluation can get it moving again. My gridlock is your ice dam.

At a high-enough price (in real terms, meaning a revaluation), those with gold *IN SIZE* who have no reason to sell any and simply want to buy more will only have to sell a small percentage of their "savings" to unlock the gridlock (melt the ice) and get it all moving again which will, in short order, allow them to resume "saving" once again. But gridlocks don't just unlock themselves, so someone will have to act first. And here's where it gets interesting.

What is the price that will unlock the gridlock at the top level, convincing those who have no reason to sell and every reason to buy more to sell? Who can act first, and what would that action necessarily entail? Here's what I think. The first to act would have to not only understand what is happening, but also be willing and able to sell or buy any amount of gold. This eliminates the Giants, SWFs and oil states because, even though they have plenty of gold, they don't have the printing press the way the CBs do. And that's why I think the CBs will be the first to act, probably under the auspices of the BIS.

In order to break the gridlock, they will have to announce a very high spread, a bid price and an ask price, either of which can be voluntarily accepted by the other top "savers", the Giants, SWFs and oil states, or "arbed" by the top "dealers". It would look something like this: "We will buy any amount of your gold that you are willing to sell at a price of $55,000 per ounce, and we will sell you any amount of gold that you would like to buy at a price of $56,000 per ounce." How's that for a Def Con 1 response?

Here's the key. Which do you think you need to lend credibility to a really high revaluation price, a buyer or a seller? The answer is you need a buyer, and not just any buyer, an unlimited buyer. The physical gridlock requires a physical seller to unlock it, but the revaluation that will make that happen requires an unlimited buyer. So the "first to act" can't just be a willing seller at a high, revalued price, it must also be a willing buyer at that same price and in any quantity offered.

Remember this post from ANOTHER (THOUGHTS!)? This Def Con 1 response would be quite similar to the pre-euro potential oil-bid-for-gold scenario in that post. So I will rewrite a small part of it using simple word replacement to show you how it would work:

"The first few moments after the BIS's proposal to buy gold at the very steep price of $55,000/oz, there would be roars of laughter. One fast thinker after another would think "Hey. I buy some gold from APMEX at $1,300/oz, sell it to the BIS for $55K. Net profit is $55,000-$1,300=$53,700. Easy money."

Everyone at once turns to the shrimp and paper gold markets to buy, markets which promptly shut down. Now no one is laughing. Because everyone realizes that gold is now worth $55,000 per ounce and no one is prepared for that revaluation. Whoever has gold now has 42.3 times the purchasing power in that stockpile. What appeared to be a stupid offer has now become a complete revaluation of all gold stockpiles worldwide vs all currencies worldwide."


The point is that the credible bid alone is enough to shut down the paper markets and stop all shrimp transactions at the old price in their tracks. The top level price is now the reference price used worldwide. The first transactions will be sales to the BIS, but before you know it, cash4gold arbitrageurs all over the world will be buying any and all physical gold offered for, say, $54,000/ounce just to arb that $1,000/oz. spread. Before you know it, the new physical-only market will have emerged worldwide.

So there's your Def Con 1 response to gridlock at the top level in which physical gold flows.

I think the draining we see today at the top via daily GLD inventory updates is just buying enough time to divvy up the few remaining scraps. At some point you're giving away the scraps by buying more time to divvy up the scraps, so where's the point of diminishing returns? Is it now? Is it next week? Who knows? We can only guess at such "hypothetical" choices.

If I'm right about the meaning of the GLD drain, then we're already in that zone where someone is asking, "Now?" "Now?" "Now?" with a loaded pistol aimed at the suffering animal's head. The physical market is no longer functioning properly, nor is it being supported. It is instead like a body in the last stages of starvation, eating its own extremities while hoping for some kind of a merciful reprieve. Each bite out of GLD is like a crazed animal eating its own tail, or arm, or leg. ;D

Sincerely,
FOFOA

Hi FOFOA,

Thank you for that very illuminating added color and detail. The last few paragraphs of your epistle really hammered home the "state of play". The system has become cannibalistic.

The main coin and bullion dealer that I used to go through here in town, a dealer who had been in business in town for many years, closed down a little over a year ago. I never received a very satisfactory answer as to why he closed when he closed other than burnout. Now his nephew operates a shop on a substantially smaller scale, and for many months, whenever I have contacted him to find out what the cheapest premium coins are in stock, the only response I have received is the thin gruel of MLs, GEs and the occasional Kruggerand and 1 ounce bars.

Now for a mini-digression of my own. My sister and her family were visiting us this weekend and I showed her the RT interview. In the last few months, I have finally persuaded her to buy some physical, and, now, after this weekend-where we discussed matters related to the interview- she is acquiring more. Unfortunately, My father is pretty much intractable which is a shame, but C'est la vie.

Edwardo
_____________________

And finally, here's one last bonus email for you. Unlike the others, this one is not from the last 30 days. I wrote this one back in February, a month and a half before the big gold price crash in April, while the PoG was still barely above $1,600:

Hello FOFOA - I started off this week-end feeling very gloomy. But then your Checkmate Post hit the streets - and boy did that cheer me up!! What a feast! Funnily enough I was going through some older posts again, trying to make sure I understood each and every one of your Catch-22 scenarios. I think I "get" them all now, and the Checkmate Post just put the icing on the cake.

So you "expect it soon" - and if you had to bet on the "what triggers it" question - what do you see as the "most likely" trigger? I'm sure you ponder this often, and I'm also sure you have already selected your most likely or most appealing "favourite". So how would you like to see the game end?

Cheers - XXXXXX

Hello XXXXXX,

I think the biggest threat to the system right now is price volatility. That is, prices of real things changing too quickly in either direction. Prices are where the rubber meets the road, where the monetary plane intersects the physical plane. And I view gold as the linchpin that ultimately holds the two planes together.

I think the "most likely trigger" is the price of gold falling too fast, simply because I can imagine that happening at any moment, with little or no warning. It could easily be accompanied by (and driven by) a general market collapse like we had in September of 2008, or it could happen on its own for lack of support from either of the two legs. By looking at the gradually falling price around Snapshot days, I am simply taking note of the apparent lack of levitation we've seen in the past, which could mean that official support has ended if it was ever present in the first place.

Of course technical support levels still come into play even if the bull run has ended, so I think it is most likely to be accompanied with some sort of a general market decline. If there's a general market crash that punches gold downward through some of those technical support levels, there may be nothing below to stop the fall. That's when the paper price separates from the physical price IMO.

So will it happen this year? What are the odds that we make it through the rest of the year without a "dramatic correction" in the markets?

If the bull run continues, a rising price is also a threat because the general price level of commodities (real things) is correlated with gold during a bull run. The USG's spending habit is another place where the rubber meets the road because the USG's addiction is in real terms but its spending is in nominal terms. If "gold" goes to Jim Sinclair's $3,500 and oil follows it up north of $200/bbl, that means some real "cost push" price inflation as Jim likes to say.

Take a look at the US national debt during the last decade's bull run. It was at about $6T when the bull run started. Today it's over $16T. I don't care about the absolute level of the debt (what I call the stock), I'm only interested in the nominal rate of deficit spending (the flow), which, because it is in real terms, must accelerate with inflation. In other words, if the price of oil doubles, so does the rate of USG deficit spending, and these days that will mean the rate of QE.

I believe this will have a feedback effect on commodity prices as the USG refuses to cut its rate of deficit intake in real terms which would otherwise be the natural response to a jump in prices. I think that part of the reason we made it through the last decade's bull run was that China, while running a trade surplus, absorbed (sterilized) a large part of the USG's accelerating dollar output. But as has been observed, that mostly ended a year and a half ago, about the same time as the bull run in paper gold peaked.

So once again we have two legs of support which could explain the last decade. Somehow the flow of physical gold was managed while the acceleration in the USG's rate of dollar output was absorbed by a net-producer. And now we find ourselves stuck between a rock and a hard place. The rock being a falling gold price and the hard place being a continued bull run.

While the feedback effect on commodity prices is merely an academic exercise to us now, I think that in reality it could happen a lot faster than you can imagine.

So there you have it. My "most likely trigger" is a falling gold price which leads to the separation of paper from physical. And my "back up trigger" is a rising gold price which leads to impending hyperinflation. Both ultimately cause the other to happen in short order, but which comes first remains a question.

Remarkably, the bull run has stalled out for a year and a half now, along with oil, silver and just about everything else. So it seems we have reached a new plateau of stability. Or not. And if not, just imagine the pressure that has been building during this so called "consolidation phase". What if we bust out of this slump to the upside like July and August of 2011? Do you think it will stick? Do you think the bull run can continue to $3,500? I don't.

Do you think the general markets can continue their upward trend without a sudden and dramatic correction at some point? I don't. Do you think that official support for paper gold as well as the paper gold bull run has ended? Looking at the evidence, I think it's possible. Remember, we had Paulson and Soros selling in December along with my bellwether ringing followed by a chorus of others. Today we hear talk of technical levels of support. So what? They have those in bear markets too. Do you think the East has lost its taste for physical? Do you think the East is instead prepared to soak up the USG's accelerating rate of dollar output indefinitely? I don't. Do you think it has already ended? I think that QE is the proof that it has.

So when I say soon, what I really mean is "overdue". Like the Big One. I use this only as an example of what overdue means. These "Big One" earthquakes have a certain historical geographical frequency of, say, 70 years. So once the 70 years has passed, we could say the next one is overdue. In the case of Freegold it's not about the historical frequency. It's about all of the identifiable elements being in place. Seems to me they are now in place, so that's what I mean by "soon". Unlike most people (apparently), I don't view the more time that passes as a sign that it's farther away than we thought. That someone has figured out a new and better way to delay the inevitable. Instead, I view each day that passes as another day the Big One didn't hit even though it's already overdue.

It's one thing to explain how we made it through the last 10 years. It's something entirely different to have a gut feeling (based on what??) that it can be repeated, even as we see clear evidence that the European gold sales have ended, QE has begun (meaning not enough net producers mopping up the dollar sewage) and paper gold languishing 16% below its high from 18 months ago. I mean, seriously, anything other than "soon" would be a disservice to everyone. I don't think the actual date of Freegold exists, even with theoretically perfect (godlike) knowledge it doesn't exist. What exists is a probability wave in which "soon" has the highest probability at present.

Sincerely,
FOFOA
_____________________

We are, today, at the very conclusion of a fiat architecture that is straining to cope with our changing world… Trained from birth, as all Western thinkers are, to read everything economic in dollar system terms; we, too, are all straining to understand the seemingly unexplainable dynamics that surround us today.

Western governments, the public and several schools of economic thought are attempting to define and explain what extent these changes will have within our financial and economic world. Most are all striving to see this as the next plateau of dollar integration, carrying us onto the next level; looking always higher for what this next level will bring in social, financial and lifestyle enhancements…

What if the last decade's efforts to prolong dollar use, both internally and worldwide, have inflated its worth to such an extent that it's now vastly overvalued? Asking more; what if the architects of a competing currency system and the major players that helped guide its internal construction, all took a hand in promoting the dollar's extended life, its overvaluation and its use; so as to buy time for this great transition in our money world?

The actual debt machine that built much of America's lifestyle is now going into reverse as it destroys its own currency; one built upon a stable debt system with locked down gold prices…

To compete in the new architecture of a Euro System currency, unrestrained trading of gold will (and has) advance its dollar and Euro price significantly…

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

-FOA

I (we) expect none of you to consider anything said here as credible. Everything is given as I understand it. If you came with a notion that I am someone who sees the future, grab the children and run far away. For these Thoughts, and my ongoing commentary, are meant to impact exactly as the "gentleman" said they would. People hear them, and whether believed or not, the words leave a mark. A mental mark on the trail, if you will. And later, after the world turns, our little "stacks of rocks" will be easier to understand next time you are passing this way. In fact, your ability to find your own way will forever be enhanced for having seen this path in a different light.
-FOA

_____________________

Moneyness

FOA: My friend, our message and our position is that we are in one of the most exciting times of all the history of gold! We have seen that during times with the most radical transitions, the majority are usually defending the wrong asset. This unfortunate situation need not impact everyone today. If better judgment is the result of a full understanding, then some who read here will be exposed to tools that could help them avoid the mistakes of our Western hard money majority.

For Western Gold Bugs today, their culture, their system and their recent knowledge is all ensconced within the last 30 years of paper wealth. Yet they are using a hard money defense, written by masters preceding our modern era. They struggle to use that logic out of context, as it is thought to apply to this gold market today. These two precedents are leading them to reflect their gold values in some form other than physical ownership in possession. This mistaken detour from gold's true purpose will once again prove, by reality, the value of owning real gold.

Standing aside this group is the Physical Gold Advocate. For them, for us, these times will contain the greatest gain in real wealth ever seen. For those who are falling behind, gold is still within your grasp.

TrailGuide


From Moneyness, here's How It Ends:



What is Freegold?

266 comments:

1 – 200 of 266   Newer›   Newest»
Michael dV said...

happy 5 fofoa

Bjorn said...

Happy 5th!

Dante_Eu said...

Happy 5th birthday FOFOA and may Event Horizon happen this year!

Motley Fool said...

Happy 5th blog-year. :D

Wil (from another account) said...

I guess everyone knows SWF = sovereign wealth fund and not single white female (but my mind did wander for a moment). Another brilliant post!

It eats its own tail, this gold market.

Happy Fifth!
-W

RJPadavona said...

FOFOA,

Congratulations on another important milestone. Drink a fifth on your 5th!

Five Long Years



Beer Holiday said...

Congrats on the 5th birthday FOFOA. You must be exhausted after ten posts in ten days, well done :-)

milamber said...

FOFOA,

Did you see that the LBMA has issued a video response to your 10 part series?

LBMA FOFOA Rebuttal

Happy 5th :-)

Donation coming post haste !

Milamber

Knotty Pine said...

Thanks for another great post Fofoa! Happy fifth! :<)

MatrixSentry said...

FOFOA,

5 years! Time really flies when you read the best blog out there. Thanks for the memories and the education.

I now consider myself the holder of a quality post graduate degree in monetary macro-economics (PhD in money). This blog has been the lecture hall where we participants have been challenged to simply follow a trail and observe, blazed by Another, Friend of Another, and then re-discovered by you, Friend of Friend of Another.

It has been a journey of a life time along a unexpected trail of self-discovery. I thought the trail was about gold when I started 5 years ago at the trail head. After unloading all that cumbersome and unnecessary baggage along the way, I came to realize it is about much more. As you have so aptly said, this is about crafting and polishing a lens to observe the world with. Yes, we can see gold through the lens, but we can also see everything else through that lens as well with a new found clarity and perspective. I call it my Master Decoder Ring!

It is impossible to hike this trail to the top of the mountain and see the same world that was seen at the trail head. If saying such a thing is considered "cultish", then so be it. I gladly accept that I belong to the Cult of Knowledge in general and the specific sect of Freegold.

Everyone knows where we have been these last 5 years, let's see where we are going these next 5! Congratulations on the 5th birthday of the best blog going!


Indenture said...

Happy 5th FOFOA!! A fine congratulations to you good sir.

MatrixSentry said...

The complete "My Candid View" series of posts are now compiled into a single PDF file and can be found at the Ron M's Air-Friendly PDFs link in the link menu.

Phil_O_Dendron said...

Congratulations on this 5th year of your blog. I just wish I had not missed the first 4.

Excellent post.

DASK said...

Awesome work FOFOA and happy birthday. Thank you once again for all you do.

Pat said...

What a series! Thanks to your e-mailers for great deep probing questions, and for your perfectly crafted answers. If you are not a teacher, you should be. The ability to distill very complex issues to easily digestible nuggets is a rare gift indeed. And "OVERDUE" is a great one word takeaway; handles the timing question/issue as succinctly as possible.
2013- The Year of OVERDUE Fahrenheit 451

Sherlock said...

Happy birthday fofoa.blogspot!

Biju said...

FOFOA : whooa , it never felt like 5 long years, though I first stumbled here in 2009. Time flies fast. Happy 5th. keep chugging..

Robert Mix said...

What a wonderful, wonderful post! And such a nice way to celebrate your blog's fifth birthday. Congratulations!

burningfiat said...

Excellent stuff! Thanks FOFOA and Edwardo!

Congrats on five... You've done amazingly well. This blog dwarfs all other contemporary in depth, length and importance. fofoa.blogspot.com will be looked back upon with amazement and awe. Legend!

Birthday present coming up!

/BF

victorthecleaner said...

FOFOA,

congratulations on your blog's fifth birthday!

Something about OBAgeddon and negative interest rates. From the recent FOMC Minutes:

[...] In support of the Committee's longer-run planning for improvements in the implementation of monetary policy, the Desk report also included a briefing on the potential for establishing a fixed-rate, full-allotment overnight reverse repurchase agreement facility as an additional tool for managing money market interest rates. The presentation suggested that such a facility would allow the Committee to offer an overnight, risk-free instrument directly to a relatively wide range of market participants, perhaps complementing the payment of interest on excess reserves held by banks and thereby improving the Committee's ability to keep short-term market rates at levels that it deems appropriate to achieve its macroeconomic objectives. [...]

IMO this is how they will prevent negative rates on short term bonds. If you can simply keep an excess reserve and deposit it at the Fed for a small but positive rate (nominally risk-free asset with positive interest rate), why bid up T-bills into negative interest rate territory?

You would just sell your favourite bonds to the Fed (QE), receive a CB reserve, and then deposit this reserve at the Fed for a positive interest rate and receive your bonds back as the "collateral" on that deposit (reverse repo). Even if you don't realize that base money is free of credit risk and the "collateral" is not even needed, this facility would simply guarantee a positive rate on every bond that's both (a) acceptable collateral in the reverse repo and (b) part of any QE programme.

Now this tells you something about the options left to the Fed/US government as sketeched here.

Victor

Robert said...

Wil, does BBW stand for bullion bank warehouse?

FOFOA, great series this month -- especially the last two days.

Phil_O_Dendron said...

I just traded most of my silver for gold at the LCS. I had considered trying to wait for a better GSR but after the reval it won't matter that much.

I hope the reval is sometime "soon" and in this case I hope "soon" is not in the geologic time sense. In any case I am not planning of selling at all.

Michael Haller said...

The posts from the last ten days has been very illuminating. However, it will be a serious mistake to not have any silver. FOA believed there would be a hyperinflation event prior to the arrival of free gold. FOFOA stated that it could last from three months to two years. During the German hyperinflation, silver tracked gold almost until the very end when eventually gold left everything in the dust. How will you survive for three months to two years without selling any gold? You will need some silver to "outlast" the hyperinflation. Am I wrong?

Phil_O_Dendron said...

Michael Haller - Note that I said "most" not all. I am keeping some silver just as a hedge. No one can be sure exactly how things will work out so it is always good to have a back up plan.

And besides - the PMs are not my only resources. A wise man once said that the 3 G's are really what you need. That would be GRUB, GUNS and GOLD.

The Dow Theorist said...

@Victor

the link you provided doesn't work. And I feel you are hinting something important...

The Dow Theorist said...

@Victor, and all readers:

I think this is the link that works:

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

Victor, correct me if I am wrong.

Edwardo said...

When it comes to avoiding some number of zeros being lopped off the dollar, the U.S. Government has no plausible options, zero, zilch, nada. With respect to the hinting of something important, as per VTC's FOMC minutes link, they have tactics to try and change the time frame of the day(s) of reckoning, but even if the U.S. Government did what no one from here to Alpha Centauri thinks they'll do, namely engage in self-imposed austerity, at this point, that too would crash the $IMFS for what should be obvious reasons.

As the great Joe Louis said about the less great Billy Conn, who, it must be said almost beat Louis, "He can run, but he can't hide." What Victor is referring to, essentially, amounts to a bit of the Texas two step to avoid one of the numerous ways that the system could fall down in a way that precludes it getting back up. But now that rates, all along the curve, are, like the proverbial genie, out of the bottle, the only way the monetary authorities have a prayer of keeping them from reaching a state of Fukushima like criticality is for said monetary authorities to shut the fuck up about tapering, and, probably, increase QE, which, at that point, might as well be renamed "the wages of sin."

Phat Repat said...

Yeah, but what COULD happen is the game goes on much longer than you think or are even prepared for. So, can you deal with that? I have stated that many here today won't be for the transition. I will have achieved a major milestone with my stack before too long and am grateful for the additional time.

The only reason I would want for an earlier transition is to prevent my fellow citizens from being further harmed by the current system and from what looms on the horizon (and it ain't HI that concerns me)...

The Dow Theorist said...

@Phat Repat

This is why I'd appreciate if Victor could further elaborate. Could this imply indirect support for the ailing paper gold? Just to win some time.

Michael dV said...

Michael H
In HI any asset that can yield the currency (really the items neede to survive) will do, why pick silver?
If there is a downturn in industry at the onset of HI we could see the silver price dip below the price of other assets such a equities.
We have a couple of folks here with first hand HI experience and goods still require the local currency right up to the end.
So one will want to have access to that currency (or have enough food for survival) but silver is not my plan.
In the Weimar, as told in When Money Dies, equities went 'to da moon' in currency terms even as they fell relative to necessities.
We have been told that silver has not come up (in HI events) in the experiences of our members.

byiamBYoung said...

FOFOA,

A tour de force series; brilliant in its clarity. Thank you.

I'm sure you need to go towel off after all these posts, but I hope the next one is not long away.

The funny thing about aha moments is that once you have one, you spend a while thinking you are so clarified that you know everything. Then another aha lands.

I am now confident that I now know everything. Thank you for optimizing me, FOFOA. Payday is the 31st. Donation incoming!

One parting question for the group. Look at the big bump in GLD today! What explains this? Sheep piling in?

Explanations welcome!

Cheers

Edwardo said...

A lot of things "could" happen, but what is possible- in this case, a decrepit system somehow managing to have its life extended for some inordinate amount of time- isn't, by my lights, probable. As for your query, as it happens, my preparations, whatever they may consist of, have nothing to do with the ultimate disposition of the global monetary and financial system.

Polly Metallic said...

Happy 5th anniversary of the blog, FOFOA. These last ten posts provided a wealth of excellent material. They clarified a few issues for me and made me realize how grateful I am for the Freegold lens. Thanks so much!

I bet as you reflect on the last five years, nostalgia over your evolution of knowledge must make you smile. What a journey from your discovery of the Gold Trail to these most recent posts. We are grateful that you made that journey and allowed us to follow along.

Phat Repat said...

"A lot of things "could" happen, but what is possible- in this case, a decrepit system somehow managing to have its life extended for some inordinate amount of time- isn't, by my lights, probable."

And yet, it marches on with all evidence to the contrary. Could it be sudden? Sure, why not. And one should be prepared, to whatever their comfort level is, but also recognizing that this thing can be drawn out for much longer; kinda like a real bull market. Are you a technician or a fundamentalist? Hmmm...

As to your other statement, what query?

Sam said...

@Phil

You are a quick study. Congrats on getting "mostly" into Gold. The 3 G's will do very well for you. Keep a little silver if you want. I think it won't do you any good but if you are mostly in gold it won't matter if i'm right or your right on that one.

@Phat

Would you agree that people should prepare like it IS going to happen tomorrow or risk being unprepared in order to become MORE prepared in the future? I think I know your answer to that question but you don't always articulate that in your comments. Your a smart guy and a good writer so I just hope you don''t steer anyone away from what is best for them.

Winters said...

Many happy returns FOFOA.

Hopefully us evil gold hoarders, jerks, time misallocators and brainwashed cult members won't have to wait another 5 years for time to prove all things!

Phat Repat said...

@Sam
"...so I just hope you don''t steer anyone away from what is best for them."

I hope not either as that certainly isn't my intent. In fact, I stated, "And one should be prepared, to whatever their comfort level is..."

I hope it is generally understood that one shouldn't delay in their acquisition of physical, to their comfort level, since the time of the event truly isn't known, especially by shrimps like me. At the same time, I want them to steel themselves for the long haul (as most of us long-timers already have). It would be a pity to miss the reval, whenever it arrives.

sean said...

I second all that Matrix Sentry said.

I hope everyone will consider offering a small donation to support our host. :)

Wumpski Wumpski said...

Ditto all of the above ;)

John said...

I don't read all of FOFOA's posts I must admit, due to shortage of time. But I read this one and boy oh boy was it good. FOFOA you are one intelligent man. Thank you!

John 2

Knotty Pine said...

Phat Repat said: "The only reason I would want for an earlier transition is to prevent my fellow citizens from being further harmed by the current system and from what looms on the horizon (and it ain't HI that concerns me)..."

What about all the people that have just stumbled on the gold trail described in this blog? The transition will happen when it happens. Every day that physical gold is available at these ridiculously low prices is an opportunity to prepare.

I have a close Italian (hardheaded as hell) friend who has been debating me almost daily about economics, investing, gold , silver etc. for the last 3 years. He could not understand my reasons for owning PG. Yesterday he took delivery of 15oz. of gold. He says he feels a lot better for it. He is lucky the transition has not already happened. Unfortunately he has also started sending me Robert Kiyosaki videos so I guess my work is not done. :D

BTW you were Phat Expat now Phat Repat? Back in the States now?

Attitude_Check said...

I think this recent rise in gold price is the last attempt to pry more gold out of folks hands and slow down the transfer to china. One last rise until the other commodity price pain is too high. Then we will get the final (?) Crash. Thats why JPM has cornered the paper gold market.

victorthecleaner said...

The correct link is this.

What I am trying to say is that the preparations of the Fed relating to the reverse repo facility suggest that they will try to
a) keep interest rates positive and
b) protect the bond market
for as long as possible. The purchasing power of the dollar would be the first thing that gets sacrificed.

Victor

ein anderer said...

Happy 5th FOFOA!
Your work is outstanding.
A glas of beer for you and your wife, with some fine music of Arizona’s Denise Allen Band, playing tonight in a cafĂ© just the next block from our door.
Thinking of all the brave Americans struggling for a new world. You belong to them …

Phil_O_Dendron said...

An interesting article about Indian gold buyers that I just came across.


“Gold Is Now Trading At $1800oz.—Small Factories And Workshops Are Shutting Down”

"On the street level, I’ve see many of the small factories and workshops becoming non-operative over the last two weeks because they don’t have [any] gold to process."


http://bullmarketthinking.com/indian-gold-dealer-gold-is-now-trading-at-1800oz-small-factories-and-workshops-are-shutting-down/

FoNoah said...

Hello FOFOA and many happy returns of your Blogday. May you and your Blog continue well beyond the Transition.

In your First Post five Years ago you wrote:-

Another and Friend Of Another wrote about the changing gold market starting more than ten years ago and ending seven years ago. Many of their predictions came true then, but their boldest predictions are unfolding right now.

I dream of the day when you will write the Final Post of the current series which will end something like:-

And thus ends my Tribute to Another and his Friend. Their THOUGHTS! have turned into reality, and what better gift could that be to me from two of the best friends I never met...

PS. I believe “The Complete Works of FOFOA” (Everything between the First Post and the yet to be written Final Post) should be preserved for posterity in the Library of Congress.

PPS: Suggest your new series starting after that could be:-

FOFOA: A Chronicle of the THOUGHTS! Of Fofoa and his Flock.

Long May You Run

S P said...

Congrats FOFOA on your 5th year! We all owe you a debt of gratitude for continuing the gold trail that was started by Another and FOA all those years ago. Sadly they are not around or have chosen not to comment on our brave new world.

But somebody had to continue the trail and I'm glad you did.

ein anderer said...

FOFOA,

The first to act would have to not only understand what is happening, but also be willing and able to sell or buy any amount of gold. This eliminates the Giants, SWFs and oil states because, even though they have plenty of gold, they don't have the printing press the way the CBs do. And that's why I think the CBs will be the first to act, probably under the auspices of the BIS.

How is the »willing and able to sell or buy any amount of gold« connected to the possession of a printing press?

"The first few moments after the BIS's proposal to buy gold at the very steep price of $55,000/oz, there would be roars of laughter.

How do you think would the BIS (or any other CB acting like this) justify its revaluation step in public? What would be the wording of their press release? Do they have a chance to explain their move in such a way that the public (news agencies, papers, TV stations, journalists, consumers) would understand it?

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

ea asked:

How do you think would the BIS (or any other CB acting like this) justify its revaluation step in public?

This will be enacted amidst a severe bout of economic/financial turmoil that will be invoked as the justification for rolling out a new monetary regime. And while there are likely myriad scenarios, imagine something like this:

Physical gold has gone into hiding, and in the wake of that occurrence, and some other interesting developments, the U.S. dollar experiences an overnight devaluation of 20 to 25 percent. However, Uncle Sam, unfazed by such a dramatic turn of events, continues, via its longstanding Executive Order 13603 to buy what it needs to keep itself functioning, more or less, as it did before the overnight loss of purchasing power.

A month to six weeks later, as the government's actions have begun to set off the feed back loop of ever higher prices, the worst effects of what had heretofore been a mere currency devaluation morph into a full on currency collapse as folks realize that the incessant higher prices aren't going to, somehow, magically stop at a painful, but manageable level. Within approximately two month's time, the idea that the dollar can hold its purchasing power for anything more than brief periods of time ceases to be a reality. Business activity has been severely effected, and there are all sorts of disruptions in the just in time delivery system such that the misery index is off the charts.

Not long after these developments, pressure, of a sort that dwarfs what was seen at the height of the Vietnam war, is brought to bear on the halls of Congress. It just so happens that around this time the national debt has been substantially reduced in real terms, and, so, some number of weeks later, it is announced that a new currency is being issued at ______ to 1 of the old (recalled) currency). In tandem with this edict, the Treasury's gold stock will being revalued to_______ as part of a global monetary effort "to end, once and for all, the untenable condition of the international monetary and financial system"

Edwardo said...

If we were to tweak the above scenario just a bit, imagine the initial currency devaluation being spun as the result of some national security emergency necessitating the activation of EO 13603 which ultimately causes a full on run on the dollar.

Here is a relevant section of the aforesaid EO.

PART II - PRIORITIES AND ALLOCATIONS

Sec. 201. Priorities and Allocations Authorities. (a) The authority of the President conferred by section 101 of the Act, 50 U.S.C. App. 2071, to require acceptance and priority performance of contracts or orders (other than contracts of employment) to promote the national defense over performance of any other contracts or orders, and to allocate materials, services, and facilities as deemed necessary or appropriate to promote the national defense, is delegated to the following agency heads:

(1) the Secretary of Agriculture with respect to food resources, food resource facilities, livestock resources, veterinary resources, plant health resources, and the domestic distribution of farm equipment and commercial fertilizer;

(2) the Secretary of Energy with respect to all forms of energy;

(3) the Secretary of Health and Human Services with respect to health resources;

(4) the Secretary of Transportation with respect to all forms of civil transportation;

(5) the Secretary of Defense with respect to water resources; and

(6) the Secretary of Commerce with respect to all other materials, services, and facilities, including construction materials.

(b) The Secretary of each agency delegated authority under subsection (a) of this section (resource departments) shall plan for and issue regulations to prioritize and allocate resources and establish standards and procedures by which the authority shall be used to promote the national defense, under both emergency and non-emergency conditions. Each Secretary shall authorize the heads of other agencies, as appropriate, to place priority ratings on contracts and orders for materials, services, and facilities needed in support of programs approved under section 202 of this order.

(c) Each resource department shall act, as necessary and appropriate, upon requests for special priorities assistance, as defined by section 801(l) of this order, in a time frame consistent with the urgency of the need at hand. In situations where there are competing program requirements for limited resources, the resource department shall consult with the Secretary who made the required determination under section 202 of this order. Such Secretary shall coordinate with and identify for the resource department which program requirements to prioritize on the basis of operational urgency. In situations involving more than one Secretary making such a required determination under section 202 of this order, the Secretaries shall coordinate with and identify for the resource department which program requirements should receive priority on the basis of operational urgency.

(d) If agreement cannot be reached between two such Secretaries, then the issue shall be referred to the President through the Assistant to the President and National Security Advisor and the Assistant to the President for Homeland Security and Counterterrorism.

Wil (from another account) said...

Edwardo,
In reality, you're exactly correct, but the truth is never transmitted to the public unless that truth serves the dual purpose of positioning the messenger as a "shining light of truth, liberty and justice for all".

Even the BIS knows the systemic value of cooperation (through interdependence) among the key stakeholders in this transition.

This is why I have always posited that, since we have derivatives available to transmit massive signals of debt failure, why not just allow them to function as designed?

They will collapse (IMHO) before any need to "construct a solution" is upon us, and then we are reacting, rather than planning, always such a more noble and blameless posture for the Beacons of Liberty to shine down upon.

Sorry to be such a cynic, but the systemic stakeholders have had plenty of time to rehearse all possible outcomes. As Mr. Rogers would say, "Can you say Chain Reaction?"

2008 worked, and therefore it can serve as a template for 2013-14, only this time the derivative losses in dollar terms for interest rate swaps will be so massive it will "call in the credibility" of this debt-based system.

Sovereign debt, btw, will be so ingloriously shitting its pants by this time that no one will care whether it is this chicken or that egg that came first.

Then a funny little man with an Italian last name will make a speech from the podium of the BIS, and it will be the CB's acting of behalf of the BIS who will decide to "revalue gold" as a novel, yet time-tested solution re-collateralize dollar denominated debt in a "fair and balanced way".

This we grasp from the flower of understanding.

Wil (from another account) said...

And yes, the President of the US is the ultimate "insider" as he is entrusted to execute these orders through "the will of the system".

The players have changed but the bloodlines remain the same.

Wil (from another account) said...

He will speak after the little Italian man, with words like, "If we were to bail out this debt, it would mean that every man, woman and child in the United States, for generations to come, will have the burden of ...."

You all know the rest.

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

(Typo)

Edwardo, Wil,

so in your scenario a debt problem runs first, afterwards the revaluation.
As far as I understood FOFOA he is speculating in a different direction:
First the top flow of gold stops because the reserves are all used up.
This stop of the flow could arise independently of any debt or political emergency issue.
Since »gold must flow« the BIS offers gold and asks for gold with prices powerfull enough to unlock the gridlock.
From this scenario (as far I understood it correctly) came my question:
How would a BIS explain its move to the public? Because up to today the flow of gold is hidden to the public. Most of the people do not even know that there is something like a top flow of gold.
Now the BIS would have to teach the public not only that there was something like a massive gold flow behind the curtains, but that

- this flow is very important,
- this flow got into a gridlock,
- this flow had to get unlocked again,
- therefore they (the BIS) had to bid and offer with a much higher price.

I don’t think that the BIS would publish a press relase with similar length of a FOFOA post :D
So how would they explain the indescribable?

This question is not only curiosity. By envisioning details of the possible future I manage it more easily to fit the theory into reality.

Edwardo said...

Ea, what I proposed was a chronology where gold stopped flowing at the outset which set off a cascade of events that culminated in a vast loss of purchasing power for ye olde buck. I think you'll find that even though FOFOA postulates that the paper gold market coming a cropper can act on its own to catalyze a reset that, equally, he doesn't envision the whole shebang playing out without something akin to Weimar America taking place.

Franco said...

Y'all have seen the Hemingway quote "Two ways. Gradually, then suddenly". Is anybody else getting a tingly feeling on the back of their neck that we are now in the lull between "gradually" and "suddenly"?

Franco said...

Oh, by the way, congratulations to FOFOA on the fifth anniversary of his fantastic blog.

Indenture said...

Edwardo said, "an overnight devaluation of 20 to 25 percent".
This is a devaluation against what? Everything else in the physical plane except gold (which isn't bidding for dollars)?

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

FOFOA

A belated "Happy 5th birthday!" and to many more I hope.

I have only found the site in mid 2010, but the amount of learning I have done since then has been incredible.

Speaking for myself only, what I found the most interesting in the thoughts of FOA and Another through your posts here has been the understanding of the true concept of money and wealth, along with the societal pressures on money both during good and crisis times.

To me those became the building blocks for understanding everything else, including the item that's talked about the most here: gold and its role and function: past, present and future. But also the dollar, the euro, the debt markets, etc, etc...

I cannot thank you enough for bringing all those ideas to light in a format that is accessible to anyone willing to consider them.

And last, but not least, over these past few years, it has been great to interact with fellow readers that put in the time to understand the ideas presented here and examine many new facets of them that always seem to always appear - I think of it as a fractal pattern, each one spawning another set.

Here's to many more years,

Aquilus

Phat Repat said...

@Knotty Pine
"What about all the people that have just stumbled on the gold trail described in this blog? The transition will happen when it happens. Every day that physical gold is available at these ridiculously low prices is an opportunity to prepare."

For those people, run don't walk. Of course to their own comfort level. And they should put it away and not think about the purchase price of their stack; because I know, too many are tied to the paper price and their moods will be impacted by each wiggle and squiggle of the paper price and that is NOT conducive for the long-term. I have been buying, and continue to buy, on a scheduled and opportunistic basis; and I couldn't tell you what my average purchase price is. I would hope that is the case for most FG adherents.

Yes, I am back in the states, but I am getting that wanderlust again, and since I haven't cut ties, that would likely put me back in the Far East. My handle will change if that comes to pass.

Aquilus said...

FOFOA

A belated "Happy 5th birthday!" and to many more I hope.

I have only found the site in mid 2010, but the amount of learning I have done since then has been incredible.

Speaking for myself only, what I found the most interesting in the thoughts of FOA and Another through your posts here has been the understanding of the true concept of money and wealth, along with the societal pressures on money both during good and crisis times.

To me those became the building blocks for understanding everything else, including the item that's talked about the most here: gold and its role and function: past, present and future. But also the dollar, the euro, the debt markets, etc, etc...

I cannot thank you enough for bringing all those ideas to light in a format that is accessible to anyone willing to consider them.

And last, but not least, over these past few years, it has been great to interact with fellow readers that put in the time to understand the ideas presented here and examine many new facets of them that always seem to always appear - I think of it as a fractal pattern, each one spawning another set.

Here's to many more years,

Aquilus

Indenture said...

Edwardo: The reason I ask about the dollar devaluing against the physical plane is because I would think that the moment this occurred the algorithms tracking dollar to commodity relationships would blow up and the cascade effect would be so great it couldn't be slowed at just 20%-25%. Wouldn't a self sustaining loop be breached at say 10% or lower? I very much enjoyed your synopsis of the basically 'three month period of gold not bidding for dollars' as the government prints for every last drop of physical stuff. So towards the end of this 'three months' is Walmart the corporation that finally says 'no more dollars'?

Edwardo said...

Hi Indenture,

Yes, it's a devaluation against goods in the physical plane. Regarding your question about Wal-Mart, I expect that corporate America, writ large, specifically businesses that have most of their operations on U.S. soil, will be making it painfully clear to members of the Federal Government, particularly elected officialdom, just how displeased they are with "conditions on the ground". If you are asking if Wal-Mart, for example, will be able to refuse the coin of the realm for goods and services, I doubt it, but this is a big country, so we may see some anomalous activity from time to time and from region to region.

Sam said...

@ea

I'll speculate a little. I think that 55k gold, as news worthy as that sounds, won't be the big story in the news. There will be many more big things happening to the global financial world taking the front page. The real story in gold will be how most gold investors lost money as most gold investors are not physical gold investors. "A few lucky souls got a big pay off with their jewelry and such" will be the extent of the coverage. In the end the BIS probably won't even have to say much. There will be plenty of scape goats to blame for the need for monetary change coming from all political angles. What will be interesting is how many people in the days, weeks, and years after a reval will find the truth on this little obscure blog.

Edwardo said...

I agree with Sam. What happens with gold will of little to no interest to the vast majority.

Victory said...

FOFOA, aka FOFdOAg, aka Sherlock 'FOFOAing' Holmes,

My goodness man you've done it again. I don't know how you do it but you keep on doing it.

What a treat this 10-part series was. Is there a plural for Magnum opus? Mangnum opus'/ opi?

Congratulation on 5 years of extra prolific (sic) edification you 21st century Paul Revere you.

sincerely,

v

ampmfix said...

Congratulations FOFOA, and thanks for this 10 part series which helped a lot.

S P said...

I agree with Sam and Edwardo. Most people aren't going to care because most people aren't involved! Their eyes are on stocks and bonds and real estate and nothing can change that. I cannot convince my family and friends, upper middle class Americans, to even buy one ounce of gold, despite everything that's happened so far. That's the diabolical brilliance of the system.

Like all else in life, one time is enough, and there are winners and losers. Some people are born into it, some people happen to sit on the right land, some people win the lottery, some people invest smartly.

What did Mark Zuckerberg do for humanity but create a program that allows us to waste time thinking that our contacts and acquiantances are "friends"? But, there it is.

It's the same with freegold. It's a small lottery for holders of physical gold. We really don't need to concern ourselves with what the others are doing, which is in fact the whole point isn't it.

Polly Metallic said...

I have a different persoective regarding the idea that people won't care that gold was revalued. A vast number of people have sold gold jewelry and a few have sold coins in the last five years in particular. We've met people whose gold jewelry we bought back when gold was under $1,000, and at the time we ran into them again gold was $1600-1800. Not that they faulted us, but they wished they had waited for those higher prices. If gold goes to 55K their old herringbone chain from the 80s would have bought them a car. Yes they will care. And they will be hopping mad at the government who hatched this plan after they got rid of their valuables.

ampmfix said...

I am with you Polly M.

In fact, since the risk/reward ratio will implode dramatically, I believe that hordes of seasoned and "new" criminals will be assaulting jewelers, gold dealers, churches and any other place/person known to host at least a few ounces. It is just mind boggling that it will not happen, when you can retire to a cheap country with as little as 5-10 oz, untraceable, liquid and universal, no exchange rates involved, just a pocketful and off you go into the sunset.

Now put yourself into the shoes of people that have nothing to loose...

Can't help looking at the dark side of all of this balmy dream.

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

Right, so the cash for gold crowd will be upset, but, for my own part, and for a variety of reasons, I don't foresee much of anything coming from that cohort's putative (misplaced) anger. They will have made an unfortunate choice-to trade confetti paper for their gold- but it will have been a choice made of their own volition, not one brought on by coercion or trickery. At worst you could call their condition the result of bad luck, but I don't even think that accurately characterizes matters.

As for the newly (dare I say it) minted criminals, yes, I suppose, like copper pipe thieves on steroids, they will rear their ugly heads when there seems to be an outsized opportunity, but consider that those with physical will likely be better positioned to protect the precious than those who would like to steal it.

Phil_O_Dendron said...

Poly M and Eduardo,
In my post above I listed the 3 G's (grub, guns, gold) as being important. I think the order of the list is also important.

Grub - generic term for all the supplies you need to exist (food water etc)
Guns - generic term for defense material to protect what you have.
Gold - generic for .... well coins, bars, jewelry, nuggets, dust....
Molon Labe

Wil Martindale said...

Ein Anderer,
Gold at the top level, as described (Giants, CB's, Sovereign Wealth Funds, Large Wholesalers) I take to mean "gold which flows in size".

It has been flowing in size for quite some time, at a price we're really not sure of, but we do see it flow at an accelerated pace toward the East, in sizes of hundreds of tons per month, at a paper gold price (presumably) of still between 200 and 2000 dollars, quite a tight spread over time relative to a 55 - 550K range.

We have asked ourselves what will cause the flow to become constricted at this level, and the answer has ranged from "lack of supply" to "Giants will withold gold at ANY (presumably dollar) price".

And yet, there IS a price that will "get gold at the level flowing again". Some say 55K. Therefore, "Giants will withold gold at ANY price" cannot be true, that leaves us with, "lack of supply". Ah, but if there is no supply, 55K will not "move it".

Is there another reason I missed as to why gold will stop flowing at the highest level?

In all fairness to Eduardo, I do not think he is necessarily in this "debt problem comes first" camp by my agreement with the egg.

As I merely say the chicken comes first.

As long as there is credibility in paper, gold will flow. But as long as gold flows, will there still be credibility in paper?

Or said another way, what will cause Giants, SWF's, CB's, large wholesalers etc., to stop accepting paper under the current alternating (yet range bound) status quo? We know it cannot be a supply issue if a certain price can get it moving again, it is a credibility issue in what is being offfered for it in exchange.

How did that credibility fail?

Now we come to your problem of a complicated explanation for the dumbed-down sheople in the headlights.

Don't they already know that evil bankers tried to blow up the world with derivatives already - to make obscene bonuses they were already paid?

So whenever you can kill two birds with one stone, come out a hero, and NOT waste a perfectly good crisis, why not blame the Chicken for dropping the egg?

We can't always tell causality from correlation. Perhaps it was the chicken farmer who came first after all.

Sam said...

@Wil

Add a little milk and sugar to your chicken, (flower), and eggs and you will have a nice chicken and waffles breakfast

Attitude_Check said...

At a sufficiently high price only a small physical flow of gold is needed. Price is set at the margin, and the final price will be whatever it takes to balance trade with the available flow.

Michael dV said...

3/25/2011 Reference Point Revolution
We meet the standard for the kilogram, a physical cylinder locked in a French basement providing a reference...a definition...for the mass unit.
Here is an update...a challenge to the reference point itself.
It seems reference points can sometimes change.
https://www.youtube.com/watch?v=ZMByI4s-D-Y

Wil (from another account) said...

Ahh such a tasty breakfast! But lunchtime is already here in the afternoon of the last supper. So many predictions already in the past.

The repatriation of Bunde was made public for all to see, and it DID represent the "flow" of at least the lower range of physical in size being prevented, by the Giant maker of the world's betting chips (who know's well its chips have a credibility problem).

But alas, the Giant on the other end of the ocean has a betting problem, one that costs 7 years times the risk rate of 50 tons of something worth 55K/oz. (or something like that).

It's a small matter for the sheople. Ask any one of them thier opinion of Germany's stalled attempt to repatriate it's gold and the look of their eyes in the headlights will tell you they have NO IDEA what the Hell you're talking about.

Every last one of them, especially those you tried to "talk into" buying their first ounce.

Happy Trail!

Edwardo said...

There it is:

You have to remember that we are a legal creature of Congress and that we only have a mandate to concern ourselves with the interest of the United States,” Dennis Lockhart, president of the Atlanta Fed, told Bloomberg Television’s Michael McKee. “Other countries simply have to take that as a reality and adjust to us if that’s something important for their economies

Memo to Dennis and the rest of the Fed heads the times they is a changin'



Edwardo said...

Try this link.

/SleepingVillage/ said...

A wise man once said there was a " way to move from US$ without war"

Can we please make this happen before it's too late? Bad things are about to happen.

I have just come back from the land beyond the mountain
There a man with wounds I did see
Said: I do not want to escape from reality
I want reality to escape from me


Sail Away


If the crown is for sale, I'll give you some nails
But you can only use them on friends



Pearls Before Swine

:-(

DASK said...

I echo that; the situation in Syria seems to me to have some bad juju. I wonder precisely how much pressure Russia could put on the US/Europe economically..? What is their final angle here? with China's tacit support? Saudi seems to want to sit this one out, and reportedly even offered Russia serious coin/cooperation to abandon Syria.

The whole thing seems to hinge around various economics coming unglued. Is it a coincidence that it is happening a few months after foreign treasuries started selling? A bit before Germany's election? I am torn most days between popcorn and beer and fearing for the world that my coming child will inherit. May we have peace.

Biju said...

GSR dropped all the way from 65 to 57. What the hell is going on ? another re-inflation of paper ??

It would be good if Gold price stays here.

Phil_O_Dendron said...

biju - 1400 seems to be an important price to hold since comex options expiration is tomorrow. Don't want too many people standing for delivery now do we? I am glad I don't play that game. The only gold I would buy is what I can hold.

Attitude_Check said...

Russia's leverage over Europe is energy, particularly gas. Without Russian gas europe will freeze this winter. Imagine they also embargo oil and instead sell to china. Rotterdam spot will spike. If Russia and China think it is time to end the $IMF then they could jointly buy gold and sell Treasuries, with both countries insulated from the short term effects of rapid currency FX gyrations with bilateral trade agreements. Russia sells oil to China and China sells products that would have gone to Europe or the USA to Russia.

sean said...

AEP has an interesting new article on the Russian/Saudi/Syrian story

sean said...

Like Sam and Edwardo above, I've been starting to wonder if "the common man" will even be aware of anything to do with freegold/RPG - or even that there's a name for it. There will be a period of crazy inflation that will most likely be blamed on "foreigners", with a series of apparently inexplicable and ineffective responses by the USG, followed by the slowly dawning realisation that the economic situation has calmed again, but XXXX are being used instead of dollars, and everything now seems to be a lot more expensive than before. That's it.
Also there are a lot of investment bankers looking for work.

anand srivastava said...

Thanks FOFOA. Took a long time to read and understand those 10 articles.

Now I have lost faith in Indian Rupee. Your message that any country that cannot get rid of its deficit will go down with USD. Indian Govt will not clear deficit, on the contrary next year is election year, they are going to make is even worse, to win the election.

Had been preparing for normal Crisis. Have to start preparing for HI :-(.

Thanks a lot.

Edwardo said...

sean wrote:

There will be a period of crazy inflation that will most likely be blamed on "foreigners", with a series of apparently inexplicable and ineffective responses by the USG

Perhaps the situation in Syria will be just what the doctored ordered. If not, I'm sure they'll manufacture, um, find something else.

Phat Repat said...

Or perhaps, as is the most probable scenario, the US/world just bought additional time. IF a strike happens, and it is becoming ever more likely, it is no doubt being done with strings attached.

Looks like world events still have significant influence on the paper price of gold; who'd a thunk it? ;-) Prior targets will be met and exceeded. But TA has no value and understanding the Bull/market mentality has no play in FG.

Jeff said...

Sean,

That's why Freegold works; you revalue gold without revaluing economically necessary commodities like peas or industrial metals. Targeted devaluation FTW.

FOFOA: Here is an important question: Is it theoretically possible for a fiat currency to devalue, or more precisely, to hyper-depreciate against only one single asset without affecting the price of a can of peas?

Of course it is! Just look at any number of investments that have appreciated quickly by an order of magnitude or two. Look at GOOG! Or how about AAPL? When an asset appreciates against a currency can we not also view it as the currency depreciating against that one asset? Or more precisely, can we not say that the asset was awaiting massive revaluation based on market recognition of its value?

Edwardo said...

Or perhaps, as is the most probable scenario, the US/world just bought additional time.

Really? How would you know this was probable as opposed to possible?

Looks like world events still have significant influence on the paper price of gold; who'd a thunk it?

Of course they do. Paper gold and paper everything else.

Phat Repat said...

"Really? How would you know this was probable as opposed to possible?"

Uh, because that's how the world works. Quid pro quo; no?

"Of course they do. Paper gold and paper everything else."

So, is it still a bull market? Targets?

Daniel Yu said...

Just testing if I can post.....

Although the rest of the world might not be aware of Freegold, FG as it is conceived is easily understood by Chinese and other Asians, who have always looked at (and understood) Gold as a High Store of Value, hence the term - Precious Metal.

Jeff said...

Targets? How about 2333?

FOFOA: Fair warning to all gold bugs who don't understand Freegold

I'll make a prediction right now. As we approach and surpass $2,333, other high price predictions notwithstanding, you'll read articles from all of your favorite gold bug writers making the comparison with the 1980 peak. And if the ascent is anywhere as vertical as it was back in July and August, that comparison won't be lost on a single gold bug. No one wants to miss the top like so many did back then.

So when it starts to fall after a vertical rise, and it will fall, no one will be thinking about those other high price predictions. Instead, they'll be thinking "get out now, just in case. I can buy back in later and make a profit." This group will include all paper gold traders as well as a good portion of the "physical" gold bug community. And because of the "specialness" of that number, $2,333, there won't be any paper gold buyers trying to catch the knife, so it will fall hard. Possibly too hard. No one wants to be that guy who bought on the way down in 1980.

This could potentially be the final shakeout of weak physical hands, because there will be plenty of strong hands catching that physical even though physical buying won't stop the price from falling. Unfortunately for a few long-time gold bugs, the lack of a fundamental and foundational understanding of a much higher value could see them liquidating at the worst possible time in all of history.

Phat Repat said...

Let's put something to bed quickly; the ROW, including China, have no special understanding or mystical powers when it comes to investing, and especially wrt understanding FG. If they had, they wouldn't be scrambling to acquire sufficient quantities now. ;-)

The Chinese, through a sundry of Western short-sighted follies (and the Chinese ex-priv), achieved 'wealth' and, more importantly, technical gain, that would not have been possible otherwise. Period.

Phat Repat said...

"Targets? How about 2333?"

Great. But the point about falling, as if the fall from $1900 to $1200 wasn't 'scary' enough, leads me to believe the next leg will exceed your target by quite a bit. And, if this comes to pass, aren't we pushing the possibility of FG out for a year or more? Another reason why it IS important to pay attention to market technicals (and for those so inclined, fundamentals).

Jeff said...

What will be the price of oil on your next spike, then?

FOFOA: Bear in mind that a reval to $5K is quite different from a rally, a bull run, or an inflationary spike to $5K which would take all of the correlated commodities and currencies along for the nominal ride as well. Hell, even an overnight reval to $2K from here would probably kill the shorts and leave the paper longs with no counterparty to make good on their sudden "windfall".

Phat Repat said...

I'm too lazy; what is the historical GOR? Though I know the significance of Oil in FG, I don't really keep track, except at the pump, where I tend to curse from time to time.

Aside from that, there are many moving pieces in the Oil game; anything is possible.

Edwardo said...

Uh, because that's how the world works. Quid pro quo; no?

What are you talking about? Quid pro quo for what? We are talking about the condition of the $IMFs? How does this business in Syria/ME probably buy more time? Tossing off comments like that's how the world works don't substitute for an argument.

Edwardo said...

The last sentence in my most recent post should read:

Tossing off comments like that's how the world works doesn't substitute for an argument.

Biju said...

Phat Repat said :
Let's put something to bed quickly; the ROW, including China, have no special understanding or mystical powers when it comes to investing, and especially wrt understanding FG. If they had, they wouldn't be scrambling to acquire sufficient quantities now. ;-)


I think you are displaying superficial knowledge on the thinking of people of East.

- I have no idea whu China is now importing a lot more Gold compared to past. perhaps Govt mandate about owning GOld changed in 2003.

- The other East and Middle East have always considered Gold as a wealth Asset unlike the West.

- In India , they buy more when price is low and less when price is high. Also they try to put more of their excess saving( especially the poor rural farmers) in Gold along wiht Land. ie paper for spending and Gold for saving. you will not find this in West.

- India/Thailand/Turkey etc.. hhave always been a black hold for Gold , if you look at it from historical documents.

- These are the things that prompted ANOTHER to quote :


Thoughts of "Another" - 1998


"The gold market is made up of a very broad spectrum of investors. At the very farthest ends of this spectrum lie the persons with the largest influence on the physical bullion. The super wealthy at one end and the "third world no ones" at the other. The middle is occupied, mostly, by the "investors with western thought". The far ends buy bullion. And they don't buy it as a gamble or a game! It is a way of life that has worked, through thick and thin, even before the West was "The West""


"One of the great money troubles facing the western currency system today is that many third world people are starting to put a "mind value" on real money, gold. These people don't know the true value of gold money but they know its worth a whole lot more than the world paper currency price now placed on it."

Knotty Pine said...

What about the almighty dollar?

Michael dV said...

Syria seems to be ready to join Iran and the Afgans on the list of American 'conquest.
According to a Youtube vid (Lamar Alexander?) these assaults have been planned for decades. Why Obama continues to pursue these policies is a mystery. Do not know what power is really pulling the strings. It seems likely that the war will unfold and who knows what horrible outcome we Americans will have to deal with. It is obvious that current data (Sarin use) has nothing to do with the planned attack. The US has refused to look at info on the ground that twice in the past was proven to be false (2 prior sarin attacks were actually attributed to 'rebels' and no video of the attacks has emerged.)
There seems to be no will in Congress to briddle the president. It seems they are all brain dead or compromised. It is clear they have become useless appendages to the federal system.
How this will impact our expected outcome here at fofoa can't be known but the potential that a major change in world power is about to unfold must be recognized.
I suppose the US will 'win' but the cost may be much higher as the government alienates not only Russia and China but goes against the will of a large part of theAmerican population.
At this point it seems useless to protest. This has been planned for a long time. Perhaps much later we will learn the real twisted reason for this next American misadventure.

KnallGold said...

"Let's put something to bed quickly; the ROW, including China, have no special understanding or mystical powers when it comes to investing, and especially wrt understanding FG. If they had, they wouldn't be scrambling to acquire sufficient quantities now. ;-)"

Oh, mystical powers can create physical? Thank you, and I thought it was the market not delivering such quantities :-(
Just because you don't like them doesn't mean they're not smart.

Syria being a plot to expand exprivee? Think again. All I've seen is look away, reluctance and indecisiveness in all parts of the world. Gesture and look from Obama is also more like sick and tired, exhausted, what shall we do, we neither like war - send the Brits instead? Just to not lose face on the red line drawing.

Helmut Schmidt recently: "Obama doesn't want to be world police anymore, look at the electorate which is soon Hispanic and Black, he will rather care on how to feed its children".

I'm wondering what can be gained anyway in Syria, AT THIS STAGE. Look at all the pictures, its almost surreal, a fight on who controls which row of the ruins. Revenge societies simply don't work.

Hmm, lets create a conspiracy story, Putin wanted to end $IMS in Petersburg and then the USA starts a war a couple of days before etc..Is that really possible?

So far the Gold market does the classical fall pattern, mid aug up, Indian wedding season etc.. Bull trap like someone suggested? Listened to a fund manager recently who bought at 1200, says he would start to worry strongly at 1500, ie starting to go short again at 1400-1500. Selling the rallies, that would be classical bear market action.

Surely a perfect setup for the Goldpaperbulls, let's see what they can deliver (doing magical movements with hands, 2333! 2333! 2333! )

I'd like to add, I never bought into this feardriven(!) flight to safety because of war, the safety being paperGold. Its not rational, just a self-feeding specs bet. Ok, some say WW3 starts here (seen on yahoo finance), what would you buy then? Not coins?

We live in a new paradigm, after all. This expriv goldwar (HMS?) talk here feels more like a ghost from the past. Like looking a black and white movie when having a color TV. Btw, the war in Syria is real, since years. And the world is multipolar. And paperGold discredited, like many other financial products.

Lisa said...

FOFOA

Thanks for taking the comments off of "Monitor" It is really nice to read a real time discussion, especially with all that is going on in the world these days.

Edwardo said...

As bear market rallies go, this one hasn't yet managed a .382 retrace of the decline from the September '11 high. So far, it doesn't make much sense to characterize this rally as anything but a counter trend move. In the meantime, if we compare like to like, consider that a great deal more physical left GLD from, say 1550 down to 1310, then has come back into GLD on the rise from 1178 to 1420.

Wil (from another account) said...

Mr. Obama is a character in a play, and his script comes from the world's systemic stake-holders.

Mr. Schmidt in Germany does have a feel for the overview, but it's more like "the little people's Hope and Change guy, who keeps them at bay as we rape them from afar".

It's a little bit less ostentatious than the vaudevillian machinations of a World Wide Wrestling Federation grudge match ... but not by much.

When I was young, every rock band worth listening to was raging over Vietnam in song after song. Today they sing about suicide (then commit it).

We don't personally know the sinister characters behind the military industrial complex(es), and the heads of groups in league with them - but the bloodlines generally trace back to the same generational wealth dynasties.

Where there is wealth, there is power ... and power corrupts ... and absolute power corrupts absolutely.

The point? Gold is wealth EARNED, not WON. It is not AWARDED by DECREE, nor is it DISPENSED according to need.

In a world where wealth is thus properly redefined (and finally revalued) the power that accompanies it naturally becomes more responsible.

REJOICE, for the day approaches when the great advancements of our present day meet the "values of the past" and a new Renaissance can "blossom".

Until that day comes, we can simply expect "more of the same" to which our disgust has sadly become desensitized.

Phat Repat said...

It's not about like or dislike (a simpletons view); it's about making sure one doesn't allow the perpetuation of myth. Most people spouting such nonsense have never set foot in the country they are idealizing. Until you been there, and I ain't talkin "The Ritz" or other such fine establishments, you ain't been there.

"As bear market rallies go, this one hasn't yet managed a .382 retrace of the decline from the September '11 high. So far, it doesn't make much sense to characterize this rally as anything but a counter trend move. In the meantime, if we compare like to like, consider that a great deal more physical left GLD from, say 1550 down to 1310, then has come back into GLD on the rise from 1178 to 1420."

Yeah, but did you play it?

Lisa said...

Apparently I jinxed us and the "monitor" status will likely be put back on. Sorry all. It's too bad we can't have nice things because some people can't behave.

Sam said...

great post ______

Quote number 1: Glad to see that's an "exact" quote from FOFOA. Are the others not exact? Those that think FOFOA might be a little more thoughtful than ____ should search the blog to find out why he thinks silver is a losing bet. Might save you a lot of scratch.

Quote number 2) Oh no!!! So that's how economics works? I thought that If you tried to buy all of something the price would go up while supply went into hiding. Someone should warn the silver industry! Lots of people have enough money to do that right now without waiting for gold to revalue! So logical I can't believe I didn't see it before

Quote number 3) FOFOA is correct in 2012.

Quote number 4) JP Morgan was correct in 1912.

Was 3 and 4 supposed to point out a contradiction?

Quotes number 5 and 6) I learned something here. I thought you were banned because you were an intellectual midget who's points have been made and found wanting

Quote number 7) The key is not to question freegold it is to comprehend the answers you are given and then either ask deeper questions or state your agreement or disagreement. If you don't agree with the answers you should state, "I have no more questions for freegold but I do not agree with it!" and then promptly move on with your life. To constantly linger, to me, shows a lack of comprehension, not disagreement.

Wil (from another account) said...

ART is systemic ...

Wil (from another account) said...

Derivatives: the world of thoughts, future expectations, sentiment, perception, confidence ...

Underlying collateral: The "real thing" in the physical plane ...

I suppose the current price action in paper gold could be partly the result of petrodollar risk fear, pursuant to the Mid-East crisis du jour.

There does not need to be a finding of fact, causation, nor even correlation. For we are in our systemic world here, a derivative world, where its most notable player endows inflation EXPECTATIONS with MUCH more power and influence than any actual, real world inflation.

Therefore, that player's mere utterance of the word "taper" has its measurable systemic, derivative effect long before it is ever actually done.

Perhaps this is our nature, to live in a world controlled by perceptions, where HFT algos amplify the front end change in sentiment, and paper proxies for reality amplify the magnitude of the herd.

Gold today is truly a slave to this world, having been transformed into a derivative in the minds of so many, valued only by future expectations, thoughts, sentiments, perceptions and confidence.

If it ever breaks free from this fantasy realm, reality may be upon us all.

Just a thought for the trail ahead.

Joe Vanderbilt said...

Interesting speech by a German central banker about the Eurozone crisis...

http://www.bis.org/review/r130827a.pdf?ql=1

A very sober description of where the problems come from and what they are trying to accomplish.
He finishes off by mentioning Jacques Rueff.


Phat Repat said...

"REJOICE, for the day approaches when the great advancements of our present day meet the "values of the past" and a new Renaissance can "blossom"."

How welcome that would be! Man has been warring since the beginning of time. Is that going to change because of FG? I'm sure many have that wish, and I would like to believe it, but... let's go back to that quote "if you didn't like the last system, then you're really going to hate the next..." Or words to that effect. Hmmm... What sayeth the flower?

Edwardo said...

Paper gold, in the form of mining shares, got taken to the woodshed today, and I don't think it was mostly just a matter of being part of the general stock market rout. After all, on 8/15, for example, stocks were crushed but GDXJ was up big. As some of you no doubt know, the WGC, for example, estimates that the range of profitability for miners to be around $1400 to $1500 dollars based on "all in" costs. However, that price range, courtesy of the WGC was certainly calculated when oil was trading well below present prices. Today $WTIC busted out of a consolidation to the upside to the not so comfy for miner's level of $107 and change.

Suffice it to say, and putting it mildly, the present condition presents a real impediment to mining operations.

Michael dV said...

Joe V
That was a lot of article and not that much Rueff. It did go a ways in explaining how the European might get sorted out.

MatrixSentry said...

The fArt has dissipated, like it always does when FOFOA gets around to opening the window. Thanks FOFOA!

Biju said...

Wil - sorry to say. Enough with the bilderberg bullshit etc. and other conspiracy theories. We dont need these comments to be clogges with those ideas

Michael dV said...

my bad
I said Lamar Alexander...it was Wesley Clark..this old vid is now on top of the page at ZH...
http://www.zerohedge.com/news/2013-08-27/7-countries-5-years

Edwardo said...

I can't vouch for the source or quality of this information, but it sounds more plausible than anything I've heard so far.

Wil Martindale said...

Yes Edwardo, "In the end, these conflicts in the Middle East are all about controlling the flow of energy resources."

It almost sounds like a conspiracy, but there's no "Bilderberg bullshit" here, it's just so Americans can enjoy their way of life.

Luke said...

Phone test

Luke said...

I wish FOFOA would clarify his stance on the relationship between gold not flowing at the highest level and gold being the "debt release value" to global balance sheets. Both are seperate events but both would require a revaluation. The former is more tin foil hat material whereas the latter is clearly coming in my mind.

Also I assume gold not flowing at the highest level is related to bullion bank fractional reserved banking almost exclusively? i dont see any other way there could be anyother suprise cease of flow at the highest level. FOFOA rarely talks about the bullion banking fractional reserve system though.

Wil (from another account) said...

Phat,
I think I can answer your question about the "new boss" being the same as the "old boss" (didn't like last system, won't like the next).

While gold being re-monetized does bring us back from a debt-based to a (more equitable) equity based system, we will still have inflationary fiat and taxation.

Most of the little people will never be able to afford gold, though a few of us who were attentive may be able to extinguish some debt as we carry it through the transition. Maybe.

While some have been convinced that they are "at par" with Giants merely because they "walk in their footsteps", this does not mean that their system of privately issued, interest-bearing, sovereign backed currency is any less "inimical to their interests".

In this system, as it reaches the end of its timeline, the great advantage that capital derived warranted the gradual demonitization of gold, such that the little people would hold debt as their life savings, rather than the traditional wealth asset of times past.

Some here have posited that nothing much will be noticed about gold through the reset, as most have no understanding of gold today.

But they will understand the value of their 401K's, many holding a lifetime of savings in paper, "their retirement" as it evaporates in a hyperinflationary inferno.

And yes those "executive orders" do have a provision for that as well.

The little people will never enjoy the international mobility freedoms, tax freedoms and diplomatic immunities of the ruling class.

If you were a willing slave to debt in this system, you will more than likely be one in the next, though you may have the lens to see it for what it truly is, rather than the illusion of wealth ...

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

Luke, I'm not clear what you want answered

You state:

I wish FOFOA would clarify his stance on the relationship between gold not flowing at the highest level and gold being the "debt release value" to global balance sheets. Both are seperate events but both would require a revaluation. The former is more tin foil hat material whereas the latter is clearly coming in my mind.

Temporally speaking, gold not flowing at the highest level will closely precede physical gold performing the function of balancing the ledgers of CBs across the planet. When the flow dries up for giants, i.e. gold has gone into hiding, it will necessitate a major effort to get the gold to flow/come out of hiding. After all we aren't talking about just a few tons now.

A revaluation of physical, even a modest one compared to the orders of magnitude envisioned here, for example, would upend the apple cart of the present established order that is now defined by sovereign debt, particularly U.S. Sovereign debt, functioning as the world's chief wealth reserve asset. A revaluation sunders that by definition. After all, what will be left of the perception of bonds as a wealth storage asset if, (along with everything else) they lose the footrace to physical gold by a country mile? This is how a small revaluation is forced to become a very large revaluation. In for a penny, in for a pound.

As for the former being tin foil hat, perhaps, but I posit that the fact that this business involves arcane information, and that the flow of gold at the upper level is opaque to all but a few insiders, are the only reasons that some, presumably you, view it as tin foil hat material.

I assume gold not flowing at the highest level is related to bullion bank fractional reserved banking almost exclusively? i dont see any other way there could be anyother suprise cease of flow at the highest level. FOFOA rarely talks about the bullion banking fractional reserve system though.

What exactly do you want expounded on regarding the role of bullion banks in the flow at the highest level? The fractional system is involved, but recall that the paper (fractional) gold system was devised to keep interest in gold on the part of non giants mostly relegated to paper proxies for gold. But, of late, of late being defined as 2013, due to myriad factors, it seems that the balance of interest has shifted such that paper offerings are not an adequate choice at any level to satisfy interest in the thing called gold. This, by definition, stresses the fractional paper gold system. And even though the phase transition is not a bottom up affair, stress in one level of the market, especially if it becomes chronic, effects the health of the other levels. It becomes more and more difficult for the upper level to wall itself off if other levels of the market are themselves stressed, and stress can be defined very simply as difficulty in sourcing physical. But it is only the upper level's failure to source physical that acts as the immediate catalyst towards the transition to a new monetary and financial system. I hope this helps.

CharlieBravo said...

Even its source, where I found it, the USAGold forum, had banned such discussions at least two years earlier and they even deleted my new "FOFOA" posting account when I tried to bring it up.

Any thoughts on why freegold was banned on their forum?

Wil Martindale said...

I think I understand Luke's issue, but cannot clearly answer it myself, other than to say that paper claims upon gold at the SWF and CB level are also a "derivative" of physical "possession".

A "good name on paper" may be challenged.

I do continually refer back to the "location does not equal possession" gambit, as in the repatriation of Germany's gold.

This is not a bullion bank issue, but it does represent a physical constriction of flow at the BB level that has already occurred, which we know of because it has been made public.

What other types of physical flow constriction at this level are we not aware of, and what exactly constitutes restriction? A seven year wait? Certain other conditionalities? Paper-based concessions? Extended coat check guarantees?

I do not know, but expect that these are in play to some extent already.

Knotty Pine said...

Wil said :
"Most of the little people will never be able to afford gold, though a few of us who were attentive may be able to extinguish some debt as we carry it through the transition. Maybe."

Yes Wil, haterz gonna hate, debtorz gonna debt, and saverz still gonna save. I am sure the world will be full of pompous assholes post transition just like it is now. I don't understand what you mean regarding little people not being able to afford gold post transition. The whole point is that there will be an epic paradigm shift in the way the little people view savings. They will save long term in gold, not fiat.

byiamBYoung said...

CharlieBravo,

Just a guess, but USAGold also sells silver, and offers storage too. Maybe the "physical gold, in your possession" mantra ruffled some feathers?

Dunno.

DP said...

But won't the little people only be able to afford silver - the people's money? ;D #HotItem

DP said...

As I said many times; Europe it looking to bring gold back into use as a very tradable asset. Perhaps "the most very tradable asset" but still outside the fiat money context. They want to keep the government's and socialist's hands off gold and its market function so it will serve everyone as a savings medium. But, they also want it to gain as a trading medium so the combination of the two will create immense demand.

To gain in the "use department" I suspect we will see some push to drop all gains taxes on gold used in official coin (Euroland) form. In place of that, there will be some form of excise tax charged on payments / trades done using these gold coins. Most likely, you will have a choice of paying completely in gold or Euros but not a combination of both. Probably, gold will be used for large purchases because gold will carry a very high price by then. And too, 1 gram coins will be the norm; being the size of our one ounce now, but with alloys. I doubt gold will ever be used in regular store / retail sales. In other words, I could go into my bank and use 50 Eurolands containing, say one ounce fine gold each, and pay off my $200,000 mortgage; minus some 15% excise tax on the deal? I could probably do the same thing with regular bullion, too, but would pay a somewhat higher gains tax rate; instead of the lower excise tax.

Anyway, this is all in the "for what it's worth area". Go ahead and take your hike,,,, I will be here giving the car a tune-up and changing the oil when you return.


FOA - get you some!

Sir Tagio said...

@Wil, I enjoyed your response to Phat, particularly the Meet the New Boss, Same As the Old Boss discussion. And re: Knotty Pine's response, I hope he is right and there will be a paradigm shift and even shrimp and microshimp savers will save in physical gold (which post-transition will probably rapidly become available in gram sizes), because we know that if savers just plow their surplus back into the financial system, massive fraud, speculation, boom and bust are inevitable. I just hope the premium comes down. I think the 5 - 7% premiums on bullion discourage a lot of people.

The FG transition is all about preserving the wealth, status and position of Giants, which depends on their superproducer status by virtue of international trade. So yes, Shrimps Like Us will not like the new system any more than this one. I think your point, "The little people will never enjoy the international mobility freedoms, tax freedoms and diplomatic immunities of the ruling class", is well noted.

In particular, I don't think FG will in and of itself change the world economic neo-con model that is based on perpetual growth and extraction/exploitation of an infinite resource base, in which the fact of diminishing availability of resources and the cost of damage to the eco system and people (labor), like disposal of nuclear waste and health care, are treated as externalities, permitting companies to make profits because they can exclude these costs and leave them with "society." I expect the superproducers to pursue financial accumulation and a rentier-based economy until the Earth just doesn't permit it any more, i.e., until the resources are plundered and there is nowhere left to take them from. Personally, as a shrimp, I view FG as an opportunity to try to position me and my family for the world-to-come, on the hopeful assumption that there will be some room left for some remanant of humanity.

I know this if off topic for this blog, but we all have our personal motivations that drive us to understand the world-as-it-is, and FG is indeed a "lens" to see that world. I am eternally grateful to FOFOA for his work. I hope that, come the transition, he will publish all of this blog, including the comments, in a book, so that it available for everyone in the future, to understand what really happened, and why.

Luke said...

Edwardo

Thanks for the reply. My question is which event does FOFOA believe will cause the revaluation. Either could happen independent of one another though as you stated one can cause the other.

An issue of gold not flowing at the top would not appear to cause a 30x reval. I understand the whole idea is that there would not be a 30x reval at that level since it is already trading at a level many multiples of what we see in the paper markets. I still don't follow how it would cause a collapse of the paper markets since what is happening at that level could easily be fixed as quietly as it is currently taking place. We don't know what is happening between giants.

Now gold being revalued to be the global debt release valve would cause the paper markets to collapse as people panic into allocated metals as it once again becomes the global monetary standard. Paper markets would be see as buyers who can't buy and sellers who can't sell.

Edwardo said...

Luke wrote:

An issue of gold not flowing at the top would not appear to cause a 30x reval.

It's not simply gold in size going into hiding that necessitates a dramatic revaluation, it's what the revaluation makes manifest that necessitates (in for a penny in for a pound) a 20x/30x or greater revaluation as bond portfolios are revealed as the proverbial Emperor who wears no clothes.

I understand the whole idea is that there would not be a 30x reval at that level since it is already trading at a level many multiples of what we see in the paper markets. I still don't follow how it would cause a collapse of the paper markets

It doesn't cause a collapse of the paper markets, it's the result of the collapse of the paper markets. The paper gold market isn't functioning. It is no longer ensuring that the top level gets its physical.

...gold being revalued to act be the global debt release valve would cause the paper markets to collapse as people panic into allocated metals

Unallocated will have already become allocated prior to a revaluation.

Grumps LaBastard said...

CharlieBravo,

During the first four year years of this blog, the concepts purported ran in parallel with Sinclair's Modernized Gold Certificate Ratio in which gold would serve to settle trade balances. But then the true agenda of this FG premise was revealed. It fits hand-in-glove with the Theosophist New Age Communist vision. I would guess that Another was a follower of Blavatsky or Alice Bailey.

michael3c2000 said...

http://www.youtube.com/watch?v=gHVgRgYdCsQ&feature=c4-overview&list=UUG-G8LLr38fQUNZU8K0t-EA
Greg Hunter interviews Karen Hudes
Time is running out...

michael3c2000 said...

@DP
Your FOA quote is a good find. IMO there will be more "new" applications and uses of gold and silver and other tangibles. The new, "creative" laws for gold and silver tender and coinage in some US states and countries are adaptations of historic traditions and time tested economic principles. This informed flexibility and solid commitment seems to embrace a fuller spectrum of human ingenuity like our ancestors found increases the good life of all lives and preserves life on earth.

raptor said...

Could this be the trigger...

http://www.zerohedge.com/news/2013-08-28/india-central-bank-scrambles-currency-collapse-fallout-gives-usd-oil-companies-every

it is big enough economy to start the scramble for dollars... cash..as it signals the Fed to print ever more

Michael dV said...

Charlie B
I'm sure you can think for yourself but you may not know Grumps has stated publicly in another forum that he rejects what he reads here and is considered a pariah...which is true.
This is the first mention I have seem him make about this new theory but from my perspective it is just another bizarre comment by a guy who either disagrees or doesn't understand what he reads here.
Engage him at your pleasure but I'm not wasting my time on that effort.

Motley Fool said...

Hey Mud

It's sensible to take your meds every day.

The zeitgeist commy stuff is stupid. Thanks for the insult though.

Wil Martindale said...
This comment has been removed by the author.
Wil Martindale said...
This comment has been removed by the author.
Alan Hayes said...

Hi FOFOA, and everyone else, :-)

This is my first post to your wonderful blog.

I've been following it since late 2011. I must admit, it took me a long time to get a grasp of everything. From Freegold, and the logical reasoning behind it, to the Oil/Gold/Dollar relationship (that one was particularly tough to wrap my head around), to the flow of gold and its various levels, etc, etc!...... but I came back again and again. Like everyone else, I sensed the unmistakable whiff of something that permeates the writings of Another and FOA and also every article on this blog. The Truth!

I believe your writing style has, for many of us, opened the door to a world we never thought we would walk through. Non-confrontational, eloquent, a (growing) gift for the simple example, and a keenness to receive counter arguments. It's clear that from the very start your goal was to simply present the material as simply as possible and further your own understanding of it through nurturing an active community.

Bravo sir, I look forward to the next post.

Alan

Aaron said...

Welcome, Alan. ;)

byiamBYoung said...

Ugh,

I reload to see if there's more intelligent discourse... and all there is is this tool.

Back in an hour...

Knotty Pine said...

Good to have you here Alan! Welcome

@Wil

Karen Hudes is actually a member of the blog. Eighth over on the top row of the evil gold hoarders, etc. Cut her some slack... Not everyone can be as rational and well rooted as the flower! :<)

Wil Martindale said...

WOW KP,

And here I thought I was the most "Zion-bilder-luminatti" among us.

Suddenly, I feel so ... Reaganesque.

Help me BIMBY, I've fallen, and I can't get up.

CharlieBravo said...

BBY, thank you for your thoughts.

Michaeldv, long time lurker. Well aware of gramps. Not sure why he commented. His "answer" had nothing to do with my question.

Archer said...

Charlie Bravo said,

His "answer" had nothing to do with my question.

That's a time honored way to tell someone's (mud's) true agenda, when they (mud) answer the question they wanted you to ask not the one you did ask. Of course it can also mean that they (mud) exist in an alternate reality as well or they (mud) struggle with reading comprehension.

michael3c2000 said...

http://www.4-traders.com/news/The-President-of-Russia--Address-by-Vladimir-Putin-on-the-occasion-of-the-G20-Leaders-Summit-in-St--17223884/

http://www.moneycontrol.com/news/commodities/rbi-should-consider-monetising-gold-trade-minister_942147.html

KnallGold said...

The New-Age-Commie-Cult, at least it has a nice rhythm to it :-)
I could even do a nice rap around it, "welcome to the the new age, this is the new age, age of tha brainwashed commie jerk Gold cult" YEAH, aha ...

Last Thursday, in "Kulturzeit" on a German TV channel they had a report about Snowden and Manning, concluded that a Matrix indeed DOES exist. I can only say wow! For reference, time to post again the Steven Yates article about The Real Matrix:

http://www.newswithviews.com/Yates/steven.htm

Dante_Eu said...

@KnallGold:

There is no spoon. :-)

Agent98! said...

http://www.pursuitofhappiness.com.au/index.php/opportunity/war-the-reason-to-own-gold/5979/

"Besides, a letter to the Financial Times from a Mr K N Al-Sabah shows just how futile it is to get involved:


‘Sir, Iran is backing Assad. Gulf states are against Assad!

‘Assad is against Muslim Brotherhood. Muslim Brotherhood and Obama are against General Sisi.

‘But Gulf states are pro Sisi! Which means they are against Muslim Brotherhood!

‘Obama is backing Muslim Brotherhood, yet Hamas is against the US!

‘Gulf states are pro US. But Turkey is with Gulf states against Assad; yet Turkey is pro Muslim Brotherhood against General Sisi. And General Sisi is being backed by the Gulf States.

‘Welcome to the Middle East and have a nice day.‘"

Phil_O_Dendron said...

Article on Reuters about India buying citizens gold.

http://www.reuters.com/article/2013/08/29/us-india-economy-gold-idUSBRE97S0IW20130829

this sounds suspiciously like a central bank offering to buy/sell gold on the open market.

Wil Martindale said...

Well, I allowed plenty of time to be trounced for a fellow member character assult b4 deleting my related comments.

However ... there was perfect opportunity to extol at least some aspect of Freegold when Greg Hunter asked the relevant question ... and I did not get a sense of "understanding" with that response.

Carry on ...

Wil Martindale said...

"What will trigger this reckoning? Perhaps some large owner or even a central bank will not accept that their gold is missing as readily as the Bundesbank has done, with their gold apparently having been rehypothecated away for the profit of the private bullion banks."

So sayeth Jesse at the Cafe ...

Edwardo said...

Wil,

Jessie, is not remotely a free gold adherent, despite his linking to this site from time to time. He is, for all intents and purposes, a KWN/Mr. Combover/etc. etc. proponent of gold rising to untold heights as a result of a rather energetic short squeeze.

Sir Tagio said...

Today China REPEATED its warning to the U.S. yesterday that there would be "dire consequences" to a U.S. attack of Syria. Threat of financial retaliation? Or just trying to drive home Russia's message?

France and Germany are supporting the U.S. position on Syria, presumably because they don't want Russian control of all natural gas sources that flow to Europe, and don't want to be held hostage to Russian interests. (Of course, that's not the stated reason, we have to play this game of responding to the use of chemical weapons, which is just not "civilized." The bigwigs with the billion dollar war toys always hate the cheap weapons, which amazingly always correlates to the fact that they are moral outrages. Blowing people into smithereens with "smart" bombs, however, is perfectly fine.)

However, I am very concerned that the coming battle may finally reveal, for all the world to see, that the U.S. Navy has finally been neutered by an advancing technology, namely, the Russian Yakhont anti-ship missile. Warren E. Pollack has discussed this point several times, to emphasize the point that we are living in a dream world when it comes to U.S. "superpower" status. It seems to me that Obama thinks Russia won't let Syrian forces use the missiles and risk provoking a world war but will cave and let Obama support his anti-Hassad Al Quaeda rebels by destroying some of Assad's military assets. Meanwhile, Russia keeps telling the U.S. there are going to be serious consequences. One hell of a game of chicken is being played right now, IMO.

http://thedaleygator.wordpress.com/2013/08/27/russia-sends-syria-their-most-advanced-anti-ship-missile-system-to-destroy-u-s-ships-videos/

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

KnallGold said...

Remember that "Whats the color of money" song from 1986? How actual this is...

http://www.youtube.com/watch?v=7aKC44sZSik

spaul67 said...

Excellent series. I think the primary disconnect I have is this whole notion of ‘backing’ a currency entirely via an inflated price of gold. In my mind this is just a throwback to the gold standard in which a unit of currency was a claim check for physical gold held in bank vault. The fact that this backing is allowed to float and reconciled in the private market even if the printer hums away is an important distinction from the classical gold standard but not satisfying in the end.

What ‘backs’ a currency in my mind are all the goods and services of the currency zone, both accumulated and those close to coming into being (i.e. near term productive capacity). Thus gold need not bear the burden of ‘backing’ the entire currency base.

I think we can all agree that the amount of currency or equivalents issued by all the nations of the world far outstrip the available goods and services at present prices, both now and well into the future. While it is indeed true that a sufficiently high enough price of gold can by definition absorb all these accumulated excesses how could this possibly be forced upon the public without a bleed over into all other things of value that aren’t gold? Let’s assume that gold is 55K/oz and 1oz can purchase a modest starter home. If this is the case why wouldn’t someone just by pass gold and purchase the house directly? Thus the ‘above’ ground house stock and the ‘above’ ground gold stock would proportionately share the ‘backing’ of the currency, would they not? Now extend this concept to all other goods and services.

Another concept is that say ‘only’ gold is allowed to be capital gains free thus forcing it alone to be a SoV focal point. If savers are provided just one asset that is allowed to reside outside the inflation tax; the ability of governments to steal wealth from savers via the printing press is effectively shutdown as well. Thus ‘all’ other assets would not inflate as rapidly as they do now making them better able to store value through time even ‘if’ capital gains taxes remained on them but not gold. Ironically the stabilizing force of gold would even make paper a store of value again.

In short if we do return to an asset based monetary system then all assets need to be free of capital gains tax so that the ‘backing’ of the currency is based on the entire stock of capital and near term goods and services of a currency zone. The primary mechanism of government funding will be from transaction taxes and the ability to increase the currency supply if a nation’s asset base and productive capacity is ‘also’ increasing (i.e. good stewardship). This in turn solves the problem of where the new currency comes from in order to pay interest on loans. The new currency is issued debt and inflation free as the asset base grows not unlike selling new shares of common stock of a growing private business.

So while gold may be the most liquid/transportable form of capital both domestically and internationally it need not ‘back’ the entire currency base. In fact gold at say 2K/oz may be more than sufficient to lubricate exchange and provide a spur and brake to any asset backed currency system.

Now along the road to this new monetary system I could easily see wild swings in the price of gold relatively to hyper-inflating fiat (a primary benefit to those that have fixed debt held on real assets) and even in terms of assets prices support by easy credit (i.e. real estate) but it’s another thing altogether to believe that 55K/oz gold or a GSR 1000 will be a permanent state of affairs for all time. Even freegold can peak in relative value to all things especially after the dust settles and the transition has occurred from a debt based monetary system to an asset based one. At which the price of gold will come down as all other assets rise to fill in the void it leaves behind.

Archer said...

Oh, dear, a ceRTAin someone seems to be at it AGAIN! I do hate to see TOURETTES go untreated.

Ender said...

There is a feeling of transition in the air…

I’m not sure if it’s been discussed here much, but one of the safeguards built into the Freegold Concept is oil bidding for gold – real flowing physical gold for real useful physical oil. This action is the key safeguard against military brutality and political manipulation. I would love for the local historian to look up in the records of Another to find where he talked about this so it can be revisited.

Keep in mind that the design is that there will not be another world war.

Together we watch. Who is oil and why would they bid for gold?

Ender

Aquilus said...

Time for a re-post: here's some advice from Alan Greenspan on to where can an investor put their money outside of Treasuries (the first minute is most interesting)

Aquilus

Motley Fool said...

spaul

I can see you spent some time on that comment.

"Let’s assume that gold is 55K/oz and 1oz can purchase a modest starter home. If this is the case why wouldn’t someone just by pass gold and purchase the house directly?"

The answer is time. I have yet to meet someone who shits gold, or 55k fiat for that matter. Still, in this sphere we are likely to still see homeloans to address the problem/opportunity of the time value of money. Things such as retirement savings would be in gold, where sadly nobody can accumulate it overnight and one needs to consider inflation over the savings period.

"Thus the ‘above’ ground house stock and the ‘above’ ground gold stock would proportionately share the ‘backing’ of the currency, would they not?"

Go reread Moldbug on the levitation effect of savings ( focal point gold post, if I recall). Now, it could, and it is currently doing so, but the fact of the matter is that it is inefficient and unsustainable for the overvaluation given to housing part. The backing of value in houses is what lead to the housing bust of 2008. So sure, if you feel like repeating such every now and then.

"Now extend this concept to all other goods and services."

Yeah, not so much. Levitation effect overvaluation in the current system( and future one you seem to prefer) is cyclical in nature, so boom bust shifting saving preference over different goods and services is your preference? That's what we have now. I don't like it much.

"Another concept is that say ‘only’ gold is allowed to be capital gains free thus forcing it alone to be a SoV focal point. If savers are provided just one asset that is allowed to reside outside the inflation tax; the ability of governments to steal wealth from savers via the printing press is effectively shutdown as well. Thus ‘all’ other assets would not inflate as rapidly as they do now making them better able to store value through time even ‘if’ capital gains taxes remained on them but not gold. Ironically the stabilizing force of gold would even make paper a store of value again."

Yup. Now. Why is this a bad thing?

Sadly if there is no such asset then what you say doesn't hold. Like today.

(continued)

Motley Fool said...

(continued)


"In short if we do return to an asset based monetary system then all assets need to be free of capital gains tax so that the ‘backing’ of the currency is based on the entire stock of capital and near term goods and services of a currency zone."

Actually, if you think through your statement above, then they will be, as inflation will be low. You see the reason CGT works out so nicely for governments is precisely because there is inflation. Of course their original 'motivation' presented was to deter needless speculation in say housing, and ofc to take their cut.

"This in turn solves the problem of where the new currency comes from in order to pay interest on loans."

This is not actually a problem in the current system, despite hard money advocates saying so, and me believing them for a while, based on the simplistic argument that total monetary stock is by definition less than future monetary stock due to interest due. The reality of monetary flows is more complex, and the 'lack of existence funds for repayment' argument doesn't hold water.

"So while gold may be the most liquid/transportable form of capital both domestically and internationally it need not ‘back’ the entire currency base. In fact gold at say 2K/oz may be more than sufficient to lubricate exchange and provide a spur and brake to any asset backed currency system."

It seems to me your focus overall in this comment of yours is wrong. You see our saying gold must back up the system and nothing else should( which is in fact different from what we are saying, that it will do so), without considering the reasons behind excess value storage, being savings, and mankinds' absolute need for savings medium.

I hope you find my comment of value. I certainly did like the reasonable tone of yours, which in my mind promotes civil discussion. It makes for a nice change.

Peace

TF


Phil_O_Dendron said...

Motley Fool Said: "based on the simplistic argument that total monetary stock is by definition less than future monetary stock due to interest due."

It may be simplistic and it certainly seems straight forward to me.

In a debt based monetary system where all new money is borrowed into existence how is it that there can be enough money to pay back the debt including interest if the money for the interest had to be borrowed into existence also?

I am trying to understand your argument that future monetary stock will be sufficient. Perhaps you can give additional details.


Wil Martindale said...

SPaul,
You say,"The fact that this backing is allowed to float and reconciled in the private market even if the printer hums away is an important distinction from the classical gold standard but not satisfying in the end."

Since that is very nearly the point, why is it not satisfying? The goods and services you say back the currency are not universally accepted as a fungible wealth asset and cannot be counted upon to spur and brake said printing.

Ender,
We should probably calculate also the cliff edge decline in demand for oil, as Another noted (the price will rise rapidly even as demand falls sharply).
Even the emerging economies appear overdeveloped through the 30 plus year exponential growth demands of a debt based system - empty malls in China and such.

I think that perhaps now the systemic need for gold (by certain entities) outweighs the physical need for oil in a way that even A / FOA would not have accounted for.

Because I can't "see" them, I'm not sure where everyone's pile of chips will be when the MAN comes around (the REVAL-u-Ation MAN) but if the flow gets choked somebody could come up WAY short.


That's a systemic need that outweighs deisel to build more ghost cities and empty skyscrapers right now. Heck, at a certain price we won't even have 22 wheelers delivering brussel sprouts to Walmart.

http://www.youtube.com/watch?v=U0WfKTJDk-Y

MatrixSentry said...

Damn, SRV at Jesse's! Live at Montreux, 1985. WOW! Have heard the music but never saw the video.

Undoubtedly the greatest guitar player of all time. God rest his soul.

MatrixSentry said...

Voodoo Chile at 52:10. Jimi is smilin'.

byiamBYoung said...

@Matrix,

Wow! The perfect end to a hot Carolina day, with the windows open taking in a cool breeze and Stevie Ray Vaughn on max cutting it to pieces.

Thanks for the idea.

Cheers

Knotty Pine said...

@ MS you have sent me down an enjoyable bunny trail as my wife is yelling at me to turn the volume down! So many great guitarists, so little time. SRV is also one of my favorites as was Duane Allman who died about 8 months after recording that tune (he was in the process of learning how to play the slide guitar!).

Totally different style but this is an amazing acoustic display!

Michael dV said...

Matrix
he's old, he is fat and a long way from his Pentangle days. After much respect to Jimmy and Eric and Knoffler, (and after watching a few of the '50 greatest guitarists that ever lived compilations)..... I submit this....John Renbourn, the greatest guitarist that ever lived....it does not all come out in this clip but he has had the good luck to out live many of his competitors and his body of work is therefore...amazing....
https://www.youtube.com/watch?v=ca9Gd-SUDRg

Biju said...

A good article about exiting indian RBI govrrnors stab at finance ministry regarding Rupee fall.

http://m.timesofindia.com/business/india-business/Outgoing-RBI-governor-Subbarao-blames-govt-for-sinking-rupee/articleshow/22150285.cms

sean said...

Ender, here are some quotes from Another related to oil bidding for gold:

Date: Sat Jan 17 1998 20:45
ANOTHER (THOUGHTS!) ID#60253:
Consider the amount of oil that is used daily. Consider the future value that this consumption places on reserves in the ground. Compare this to the amount of gold consumed daily. Notice I said "consumed daily", not "traded daily". Clearly, the consumption of oil compared to the consumption of gold places a much higher value on oil reserves than gold reserves. With no replacement for the use of oil ( at present to lower prices ) and no "needed" use for gold in today's thought, we have the ingredients for a mismatch in value of epic proportions!

The supply of oil was a problem in the 70s. Several nations actually cut off the supply to make a political point. Many thought that the "embargo" was an attempt at "cornering" the oil market. We may never know the true reasons for the large increase in the price of oil, but one thing is clear. The value of oil in today's economy is of far greater importance to maintaining present "asset values" than at any time in the past. Today, the future value of all commerce is "well bid" into every asset value! Without oil in good supply , at a currency price that allows a reasonable lifestyle, all assets would lose much relative value.

This "need" for supply is not lost to governments or their Central Banks. No single asset class or segment of the economy, by itself is more valuable than the supply of oil. This brings us back full circle, to the problem of "digital currencies" and the "mind set" of much of the simple ( and rich ) third world persons. To many of these people, wealth is the surplus of life's work that you pass on after death. Currency is something you, spend, trade or hold for a few years. It isn't wealth. Gold ( and silver ) is "on the list", so to speak.

This same mindset creates a worry in the back of many a mind in the oil states. It is clear to most, that even a small amount of gold in the asset mix, makes one appear "less western" and therefore "less foolish" when the concept of value and currency are discussed. But, the problem has always been that oil is "so large" in relation to gold that any attempt to convert, even a portion of ones assets creates a distortion in the markets. Of further concern is that; everyone knows that western minds don't like or want gold, but if they think you like it they will trade it up in price for the sake of "sticking it to you".

sean said...

Enter the world of "paper gold".

Yes, gold just like currencies has been "digitized". If you brought gasoline, made from oil sold under $20/bl, you are part of this system! For just as the "digital currencies" are created for trading only, paper gold was created for the trade of oil. In a very broad sense, it was created as an "extra" or "kicker" to allow the purchase of small amounts of cheap gold in return for a full supply of oil. In reality, this gold paper represents the future production of gold ( from the ground ) to balance the reserves of oil ( also in the ground ) . The huge amount of "paper gold" traded and outstanding today is now in excess of all the gold in existence above ground! In essence, it is of the same value as the currencies, "the thoughts of nations, blowing in the wind". The Central Banks gave value to this paper by selling and lending some of their gold stocks. But, as economies became hooked on cheap oil, and demanded more of the same, these same CBs had no choice but to use fractional reserve gold lending" to pump [ed: "inflate"] the gold market.

Now we approach the final act.

There is one oil state that no one will play for a fool. The CBs will sell all of their gold or the nations will nationalize all mines and operate them at a loss. One way or another, most of the paper gold market will be honored. Why? Because oil will bid for gold if they do not! We are not talking about an oil embargo or rising oil prices. Indeed, oil will become very cheap for those that can supply physical gold. This deal will not require the agreement of all oil states. Only one can start this, the others will gladly follow.

A large oil producer, with plenty of reserves and unused capacity, can say: We now value gold at $10, $20 or $30,000/oz.. That is the rate we will use to sell oil. We will go to "full" production and offer at $10.00us/bl.. Pay us in physical gold and USD ( or EUROs ) as a 50% mix to the above rate to equal $10/bl.. [ed: so $5 cash plus say 1/55000oz, per barrel]

It would be a deal like none other! Oil, worldwide, would drop to $10.00/bl and every economy would do very well, IF they had gold. All gold would immediately be arbitraged to the above prices thereby creating a "world oil currency" large enough to handle oil. This creating of a new "specialized currency" will be the result of the first "commodity corner" that ever succeeded!

But what of the current currency/debt structure? We will cover that in a later article.

sean said...

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

REPLYS:

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

" up front and personal"??

RBA's 167 tonnes ? No comment.

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

sean said...

Date: Sun Jan 11 1998 00:39
ANOTHER (THOUGHTS!) ID#60253:

Mr. A. Goose:
The BIS is not a broker or trading house. They do not move with chart patterns or wall street directives. If gold drifts under 280 for any period of time, they must act to forstall a much worse outcome. That being; Oil will not allow Lbma to drive gold so low as to make the CBs the only suppliers. Oil will bid for gold and in doing so create an "oil currency" out of it. That outcome would make the current "currency debts" ( bonds ) next to worthless and turn the financial system upside down.

Date: Sun Jan 11 1998 01:16
ANOTHER (THOUGHTS!) ID#60253:

CMAX:
I can not oppose your long term view. But, I can change the contents. Oil went from appx. 1.50/bbl./+/- to $20.00/+/- and the world changed. Many 3rd world countries ( mexico, exp. ) have been using the same currencies for many years, even as they were destroyed. The people only adjusted by adding the US$ as a value/mix. The same will happen when/if oil bids for gold. All nations will use the same digital currencies for all trade, but will also add gold to the value. The world will not end, it will change! As some say "not enough gold to use as a currency", I say "gold not valued high enough to use as currency". At a high enough value ( price ) it is an excellent currency! Oil now backs the US$ as a "digital world reserve trading currency". When oil backs gold as an "additional value to digital currencies" your view will be different.

Motley Fool said...

Phil

Here is a comment on my blog that covers your question : http://foolishperspective.blogspot.com/2012/04/spend-now-for-rainy-day.html?showComment=1377844816045#c3255117074301708318

TF

Wil Martindale said...

I'm not sure (as Edwardo infers) that Cafe Americain is the quinessential paper goldbug concern that Sinclairists or Rickardians tend to represent. Lets just say he doesn't give me the "Willies" like Dave in Denver.

But on reflection, each commentator on the gold market seems to have a rich dimension of more or less complex personality and attitude which may change over time, and which help to shape that market from the perspective of those who read them all.

Even Michael Kosares, a man who has conversed directly with A and FOA seems a bit off key these days from the original tune.

DASK said...

Phil O

I used to think that too; while there is some truth to that, it is a bit 'simplistic'. The issue is that looking at it that way makes two mistakes: 1, it confuses stocks with flows and, 2, it ignores the facts that money can be created ex nihilo and that assets can be created from labour.

Imagine A owes B (who created it out of thin air) $100 which A spent on something else from C. Total currency stock $100, in C's hands. B has an asset (say $110 in total repayments) and a $100 liability, A has a liability (same). It is true is that there is not enough money stock to pay the debt off all at once. But is this a problem?

In the very simplest case, A could simply work for B (e.g. farming), and B could reduce the claim against A. Over time, the debt would be repaid, even though there was not 'enough' currency stock to do it at once. No currency is even required for this; A has simply over time created an asset worth $110 from labour.

Debt does not command a stock of currency, what it demands is a certain amount of flow of services. Check out Steve Keen who has teaching models of stable debt based economies.

The key is that as long as the lending goes to enabling productive capacity (that can amortize the loan), there is no problem. Where it goes off the rails is when the lending enables nonproductive spending; then, the debt cannot be repaid without cannibilizing other currency flows. This is the kernel of truth in your view and where we are today; the debt that exists cannot credibly be repaid with 'real' productivity at current prices; e.g. Minsky's specualtive/ponzi finance stages. The solution: revalue some existing asset against currency denominated flows demanded by debt ;)

FoNoah said...

@Matrix and MdV - I grew up with the Pentangle and loved them. John Renbourn is goooood.

But Stanley Jordan is by far the GREATEST guitarist who ever lived (by a country mile).

http://www.youtube.com/watch?v=NeooHiX4oH0

http://www.youtube.com/watch?v=vPQKmvZHR0o

Phil_O_Dendron said...

MF - Thanks for the link to your blog and the comment about interest. I read it (several times). I have included some quotes from the blog/comment with my replies. I am only trying to make sure that I understand the issue.


"interest is merely a flow. So it doesn't increase the money stock."

I agree that the interest does not increase the money supply but the interest still must be paid from the existing money supply.

"Now let's speak to the allegation that a debt based monetary system like this requires ever increasing amounts of debt in order to service interest and debt. This can occur if policy permits it"

So you agree that this can occur. As for policy permitting it; In order for it not to occur some new money must enter the system that is not borrowed.

"A currency issuer can inflate the currency by increasing the supply of circulating currency if none of the other circuits are increasing the stock."

Indeed the Treasury could issue money directly by spending it into circulation without borrowing it. This would increase the money supply. However, if the FED creates money do they not have to loan it into existence? So it would seem to me that unless the money comes directly from the Treasury without being loaned into existence by the FED this interest payment problem would exist. Is this not correct?

Motley Fool said...

Phil

Dask above also explains it nicely. The trick is not to confuse stocks with flows.

"I agree that the interest does not increase the money supply but the interest still must be paid from the existing money supply."

Sure, though the same base money can repay many many debts as flows occur.

Dask above also qualifies what ciscumstances would force/allow policy to do this. In simple terms productive vs unproductive loans.

"this interest payment problem would exist. Is this not correct?"

Nope, stocks and flows my friend.

TF

Ps. Damn Dask, you covered everything..and in such nice wording. :)

Dr. Octagon said...

Hi Phil_O_Dendron - I believe this the source of your confusion: "I agree that the interest does not increase the money supply but the interest still must be paid from the existing money supply."

That's simply not true. If I take out a loan for $100, and pay back $110 over the course of 11 months, then only $10 of available stock is required each month. There is "extra" currency floating around the economy for the first 9 months of the loan, before the original $100 is paid back. $100 extra the first month, $90 the second, and so on. This loan in isolation has created the currency necessary to cover the payments for the first 10 months of the loan. That last $10 of interest is not needed until the 11th month.

Because there are constantly new loans getting created, there is constantly "extra" currency floating around the economy, which provides the $10 for the last month. So you have to look at this as a flow over time, not as a snapshot of currency available vs currency owed at some single point in time.

Michael dV said...

Wil MK's comments don't do much for me.
Anyone who looks to compare the activity in the gold markets from a time when gold trading was mostly physically settled to now, when it is mostly paper needs to explain themselves.
In the 1980 gold bull market we saw physical being removed from the market place and the price shooting up. Now we see such demand met with paper promises of gold in the future.
I just do not see how one can compare the two periods of time.
It is like those who compare prices expressed in gold from a time when gold was fixed in dollar value to a time when it was not. You get some interesting figures but they don't mean much and you can't make (safe) decisions based on these types of analyses.

Sam said...

Does anyone know if most miners are still having trouble operating or shut down altogether? This recent rise in paper gold has been accompanied by a large increase in crude prices and interest rates. I am assuming fuel and borrowing costs are a large portion of the costs associated with mining. Do any of you see the recent rise in papergold as a delay? I personally don't. I'm assuming supply is still struggling with demand and the recent increase would only cause western gold investors to hoard in hopes of a renewed bull run.

/SleepingVillage/ said...

Don't forget Robin Trower! - one of the best.


Bridge of Sighs

Jimmy Dewar on vocals - also one of the best! RIP.


Phil_O_Dendron said...

Motley Fool and Dr. Octogon

Thanks for the replies.

"So you have to look at this as a flow over time, not as a snapshot of currency available vs currency owed at some single point in time. " I see the idea.


So it appears that as long as new loans continue to be made this system can continue to stagger along. I need to do some thinking on this. Thanks for the help.

DP said...

Nobody needs more money in the system to be able to repay debts with interest.

Velocity can have the same exact effect as printing.

victorthecleaner said...

Ender,

over the previous weeks, I posted a couple of comments that relate to your question.

on who will move first

on the options of the US Treasury and Fed

on what may be their choice of one option

If this guess is right, we have
(1) Europe dropping support for paper gold
(2) U.S. choosing to protect the bond market and the paper gold market (at least protect it from negative short term interest rates)

This puts the ball into the square of the oil exporters. As I wrote, I think they will try to avoid being seen as those who kill the dollar. How about

(3?) Europe actively break the paper gold market, e.g. large allocation requests, short paper gold here (commercial bank) and long allocated gold elsewhere (some CB) and then let the commercial bank fail, etc.

(4?) There will be some excuse for oil to abandon the dollar without them taking the blame for the dollar failure. How? Is the foreign exchange value of the dollar going to collapse and then, immediately, oil switches currency?

From Europe's point of view, how do you make sure that oil does switch (rather than charging a higher and higher dollar price for oil and still buy a little gold with it)? From the U.S. point of view, how do you prevent oil from switching currency even if the dollar collapses?

Victor

Biju said...

One interesting development in Indian market. I am seeing that the physical market is quoting 22K Gold in grams at a price less than the MCX Commodity exchange.

I saw this in internet and TV news, but yet to confirm it in person. I may have someone check physically at a local Jeweller.

The following article also corroborates. One explanation could be that the Govt duty is being nullified by Gold smuggling.. don't know exact reason.

http://articles.timesofindia.indiatimes.com/2013-08-29/nagpur/41580318_1_multi-commodity-exchange-mcx-jewellery-federation

Biju said...

Cont...

I have never seen this happen before.
The opinion about demand shown in the article can be ignored, but the facts like right.

http://articles.timesofindia.indiatimes.com/2013-08-29/nagpur/41580318_1_multi-commodity-exchange-mcx-jewellery-federation


NAGPUR: The falling rupee has led to all equations going haywire. In a development that baffles even veteran analysts, gold in physical markets is being quoted at lower rate than in the commodity exchanges. Gold being an imported commodity gets dearer in India if the dollar rises against the rupee. So cashing in on the boom due to the current exchange rates, investors are out selling huge quantities in physical market throughout the country, say sources.

In a bourse like Multi Commodity Exchange (MCX), gold can be traded without actually having the commodity in hand. In normal course, MCX rates, which give a future outlook of price trends, are lower than that of the physical market. Now so much is the selling pressure in local markets that MCX no longer holds any validity. Gold is available at a price much lower than even the benchmark.

The jewellers use MCX to provide base rate, on which other components such as local taxes and margin of profit is loaded to determine the price for physical market. In other words, if a consumer goes to buy gold at a jeweller's counter, the rates are usually higher than what is quoted in the exchange by a hundred odd rupees per 10 gms.

However, when gold crossed Rs 34,000 per 10 grams mark in commodity exchange on Wednesday, it was being quoted at Rs 32,200 in Nagpur. In Mumbai, it was further down by a couple of hundred rupees. When the MCX rates touched Rs 33,700 in the evening, the rates in markets at Nagpur and Mumbai were in the range of Rs 32,000-31,500, said Nitin Khandelwal, a director in Gems and Jewellery Federation (GJF).

Navin Mathur, associate director (commodities and currency) at Mumbai-based Angel Broking, said it was surprising indeed that the rate in physical markets was less in the MCX by as much as Rs 1,000. "We have been observing the trend since last two-three, trading sessions. This needs to be investigated," he said.

Only explanation being offered is excessive quantity of gold being up for sale in markets throughout the country. The investors want to capitalize on the situation. Thinking that rupee may regain from this level, the investors are offloading their gold stock, said sources. There is another theory of a large amount of smuggled gold having entered the market and an oversupply due to it has led to rates falling. "The recent imposition of customs duty on yellow metal may have led to spurt in smuggling," said a trade source.

Despite gold being available at a discount in physical market against MCX price, there is hardly any demand from consumers which is further bringing down the rates, traders said.

Biju said...

I wrote an small write up about Indian market some time ago that if the import duty on Gold by Indian Govt increases, and if smuggling becomes profitable, the Govt will lose control of the foreign exchange market and dollar coming to India will be directly diverted to smugglers.

The jewellers have started to source from smugglers, which I know personally. so this could be a bad omen for Indian Rupees.

ampmfix said...

Some never heard of freegold, some never heard about Allan, freak out:

http://www.youtube.com/watch?v=as4Dg9jgN10

Another friend said...

Huh?

Goldman pouring into GLD?

Could someone with a larger brain please explain why this is happening?

Are they just riding a wave? Does this tell us something about timing?

Why is Goldman not afraid of GLD?

(wringing hands with great intensity)

Cheers

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