Friday, August 16, 2013

My Candid View – Part 3

FOFOA,

I have something I hope you can clarify for me. I think I know the answer but I don’t like the low degree of confidence I have in my understanding. It is probably within your previous writings but a simple explanation has eluded me thus far although I think it might have been in “legs” and just went over my head.

I believe that only the BIS has the power to save the paper gold market. The $IMFS cannot. I believe a "gold deal" would be needed for this. I'm not sure where I got this from. Maybe one of your posts....maybe I imagined it.

So, can you tell me why a proxy for the United States or even just the IMF directly can’t support the “price” in the paper gold market by purchasing an unlimited amount of long paper gold. My understanding is that the crumbling paper gold market is bad for the dollar regime and I’m not completely sure I know why they can’t stop it like all the other financial issues they seem to be able to can kick. I used to think in order to go long paper gold you have to go short physical gold. But recently this doesn’t make complete sense to me because if I wanted to buy paper gold this afternoon couldn’t I just wire a broker cash and be the proud new owner of a paper gold certificate? (side note I've never bought paper gold if you can't tell). Is this a case of different rules for shrimps and Giants? Perhaps the broker I wired cash to must sell physical in order for this transaction to be legit?

This world of high finance hedging, derivatives, and trading is not boring to me but it is always in a state of loose understanding for me which I find frustrating at times. As soon as I grasp a concept I feel like other concepts float away since they aren't quiet tied down. Maybe I need to write this all down =D

Anyway if you have time to help me......I would sleep much better =)

-XXX

Hello XXX,

Supporting the status quo aka the $IMFS is a lot more complicated than just supporting the POG. It may seem like the US has kicked the can all this time, but it couldn't have done that without external support. As for the declining POG, I think it's better to view it as a symptom rather than the disease. For us, it is like the fire alarm more so than the fire itself.

Supporting the paper gold market requires supporting the physical flow of gold because that is what's required. One way to do that is by keeping certain parties that are only interested in physical away from the public markets. This can be done by supplying them with off-market gold, but at paper prices that is a losing battle. So then it requires deal-making.

Simply buying up the paper price of gold won't solve the fundamental problems. You'd also need to supply physical to the LBMA and the US could certainly do that, it did similar back in '68 with the London gold pool and in '76 with the Treasury auctions. Do you know how well those worked out?

Like I said, I view the declining POG and the declining GLD inventory as that part of the gravitational effect of the black hole that we can observe. Masking those signals will not make the black hole disappear. So when I point to the declining POG, I'm pointing to a symptom, not the disease. Can you see the flaw in then wondering "well why doesn't the USG or the Fed just buy paper gold?"

Sincerely,
FOFOA

To answer your question directly I would say yes I can. Turning off the fire alarm won't stop the fire. I think for me the main point I need to always remember so that I don't fall back into my old trap is "It may seem like the US has kicked the can all this time, but it couldn't have done that without external support." I seem to digest this point over and over and then it slips away. It's probably a symptom of being a 30 something American that has only seen the United States as a seemingly unstoppable great power in the world. Then when you start to sense cracks in the wall and that something is wrong with the stories coming from the mainstream media, the mainstream alternative is to think that while the finances of the US are in trouble this country can use its great powers to shut off fire alarms left and right and maintain confidence amongst the masses. It gives the impression that this confidence is what keeps things going and it feels like it is forever sustainable with so many people disengaged and with magical un-inflating fiat always a keystroke away.

So indulge me for a second. I believe the flaw in my thinking is that from outside noise and personal bias I start believing that the black hole has been in place and growing for a while but the current dollar faction has been turning off alarms so we are none the wiser. That somehow the black hole only has power if people know about it by hearing the alarms. Alarms are sounding and I keep looking for the US to shut them off and when they don't I'm confused. What if people hear the alarms! This gives the black hole power! If I understand the situation correctly however it is more like the black hole has always been there and the rest of the world has kept us from being sucked down at great expense and effort. A brilliant move that saved the global financial system, bought time for a new one, and set such a fantastic trap that we will now see a monetary transition without war. GLD is draining and the price of paper gold are falling because it seems the world is ready for change and they are no longer holding the dollar up.

Am I getting it?

Hello XXX,

I don't think people need to wake up in order for the phase transition to occur. I never have. So what if they're shutting off fire alarms and maintaining confidence? Maybe they are! It doesn't matter because that's not what prolonged the status quo.

What prolonged the status quo was support for the system. It came in many forms. It came in the form of European CBs supporting USG debt and then China after 2001. It came in the form of private deals and CB gold being expended to keep big interests out of the commodity gold market. It came in the form of a paper gold market which has grown since the early 80s into an uncontrollable monstrosity. It came in many forms. But while you might think it was the all-powerful USG exercising its power to kick the can, reality doesn't care what you think!

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. We will have crossed the event horizon of the black hole.

It is my view that it will happen behind closed doors where no one can see it coming. Think of it like the managers at MF Global discussing pulling the plug in the moments before they came out of the conference room and told everyone in the office to stop all redemptions and freeze all accounts. At some point it must become clear to the insiders that actually trade physical at that top level that the game is over. And at that point there is great value in conserving the determination of who gets the few remaining reserves. Consider also that central bankers at the BIS are probably involved in the bullion banks at that level insofar as they have assisted in the past in keeping certain "giant" interests out of the public market.

So it's just like ANOTHER said, the BIS will probably have a significant say in the matter. After all, they are the ones who can get physical gold flowing once again at that top level with a really high bid and ask price.

Also, if you noticed, I referred to the paper gold market as an "uncontrollable monstrosity". This sets me apart from almost all other gold analysts who think the paper market makes gold more controllable by those who need to manage the flow of physical. What the paper market did for gold was to disconnect the price from the physical flow, and hand the price discovery function over to world full of paper traders. Sometimes the price trend works to the advantage of those managing the physical flow, and sometimes it works against them. But they don't have control over the price other than meeting new paper demand from paper traders by expanding the paper supply.

Today gold is chained to both commodities and foreign currencies like the AUD through the paper markets. This is why we see gold moving in lockstep with either other commodities or as the inverse of the dollar. And what this means is that it would be virtually impossible to control the price of gold in isolation. If you even attempted such a feat, you'd have a world full of paper traders working against you no matter which direction you were trying to move the POG.

The physical portion of the gold market, however, needs the POG to move in isolation. It needs gold to be priced higher in the very things to which the paper market keeps it chained. It needs gold to be revalued, and that cannot happen as long as the paper gold market is functioning because a world full of paper traders will not let it happen. So when the physical runs out at the top level in which it trades, physical gold will be revalued in isolation, without any of the other commodities or currencies coming along for the ride.

In a physical-only market, the price of gold will be established wherever real physical trades in the largest volumes, and the price elsewhere will refer back to that "top level" price. Today, the opposite is true. Today, the price of gold is established where no physical even changes hands, and the place where physical trades in the largest volumes today is at the mercy of those trading imaginary gold for imaginary everything else.

If this view seems logically consistent to you, then please reconsider the amount of control you think TPTB have over what we are watching unfold.

Sincerely,
FOFOA
_____________________

…It's my opinion we can't have a FG reval until most of the miners are dead. Ditto for most of the coin dealers. So I think we may have time. We go back to that 'least volatile' transition thing...

Hello XXXX,

I've seen you mention this before, but why do you think we can't have a reval until after the miners are dead and most of the coin dealers are out of business? Do you think they'll flood the market with physical?

First of all, miners don't sit on above-ground physical. They can only flood the market to the extent that they can pull it out of the ground, refine it and then sell it. If they are locked into hedging contracts, they can be forced to continue mining at that low price as Another said. If not, they will be blocked from the windfall profit from newly-mined gold by the hungry collective.

I personally think mining will decline quite a bit in Freegold, but at the same time, I think that smart governments will encourage some mining just to keep the equipment well-oiled and operational. There's no problem in a flow coming from the mines because that in-ground gold is essentially already a reserve asset for that zone anyway, just like its above-ground reserves. It can be converted from in-ground reserve asset to above-ground reserve asset without ever entering the physical market. It will only enter the flow (the market) if that zone is running a trade deficit excluding gold. So the process of mining, in Freegold, simply becomes a reserve management operation for the government of that zone. Not unlike moving the gold from Fort Knox to Denver or West Point, or a currency management operation if it is allowed to be sold to the public from the mines.

As for the dealers, I think the exiting dealer network will likely become a functional transmission mechanism for price in the physical-only market. There are a ton of small dealers out there. Many more than most people realize, but a lot of them are in it mainly for the numismatic trade. Bullion is just a side business for many of them. From what I've seen, a lot of small dealers tend to own their numismatic inventory outright while their bullion inventory is either borrowed (financed) or hedged.

One big difference I foresee in Freegold as far as the bullion dealers are concerned is that they will no longer have the paper gold markets in which to hedge their inventory. So, instead, I foresee that they will finance their inventory, but they will finance it in fiat currency. They will have a dollar-denominated line of credit which they will draw from as they restock their inventory. As long as they are moving inventory, they will just keep rolling it over as the spread they make covers the carrying cost of the currency loan plus their profit. This will be possible because in a physical-only market the POG will always be stable to rising just like all other traditional physical stores of value used by the wealthy, so there will be little to no price-exposure risk for holding financed gold without an ounce-denominated hedge.

So while I foresee great change for both the miners and the dealers, and while it makes perfect sense that some of the miners will die and some of the dealers will quit in the final stretch, I don't understand why you're imagining their demise would be a prerequisite to a revaluation.

Sincerely,
FOFOA
_____________________

… My question for you is do you have any input or advice on questions/wording of the email?

Based on the emails you shared with me, you've fine tuned your ability to talk about freegold without coming off as a tinfoiler to the nth degree. And while it might be difficult to believe, XXXXX is no doubt an old money giant, so I think his perspective could be immense if he is willing to share.

Regards,
XXXX

Hello XXXX,

[…]

I don't know if you get this part about old money Giants, but they will not try to profit from Freegold. It's simply too risky for them. Assuming he already has a traditional gold reserve, even if Freegold was on his radar, he might not buy any more. This is a hard point for us shrimps to digest, but the point of view of a Giant is quite different from ours.

True Giants know the value of keeping a low profile. They already have intergenerational wealth, and the goal for them is more to keep what they already have than to increase it. Keeping a low profile is the best way to do that. At some level, they even give wealth away in order to ensure that they get to keep the majority of it, kind of like the Rothschild family gives a castle away to charity every once in a while (see my post Think Like a Giant).

The Giants do feel a sense of responsibility regarding their wealth, which is why they often own multiple businesses, just like XXXXX. It's not so much that they are trying to increase their wealth, but more that they are trying to be responsible with it. In many cases it is the wife's job to give money away almost as fast as the husband is earning it. Even lavish spending and conspicuous consumption is a charity of sorts as they are seen supporting the businesses in their community.

In general I imagine the true Giants having less than 5% of their investable wealth in physical gold, and they probably think about that gold portion rarely. To try and double or triple what they already have through the Freegold transition exposes them twice. Once when they buy, because they have such a big footprint that it's difficult to hide. And then after the revaluation it will become clear to everyone how much they profited. Might as well wear a shirt with a target on it.

That's why, as ANOTHER told us, true Giants buy slowly over time, putting a small portion of their surplus income into gold on a regular basis.

So just be aware that he may not have the same perspective as you regarding the windfall potential of a gold revaluation when formulating your questions. ;D

Sincerely,
FOFOA
_____________________

…under RPG it's in their best interest to demonstrate to the world that the gold is there and it's real…

Admittedly, my view of the central banks has changed over the years, but I'm not sure I even agree with this statement in the end. "Under RPG" (meaning "in Freegold" or "after the revaluation and transition") I think that, counterintuitively, we'll know much less about who has how much gold than we do today. And I think that's the way it should be. All that matters is the flow, not the stock. This obsession with the stock is very $IMFSish and it engenders one of the greatest forces against which the Giants have to constantly defend themselves: envy. To eliminate some of that destructive force would be a great step forward for mankind, because for the truest superproducers to have an "invisible" SOV, as opposed to eg. opulent castles, would allow them to continue net-producing in perpetuity without worry. That's good for everyone!

This idea that the gold might not be real, or that it's not really there, is pretty much limited to the conspiratorial Western goldbug shrimp arena. It's not nearly as big as it might seem. Of course the (vast majority of) the gold is real. I quite feel for these central bankers having to deal with all the crap put out by the goldbug sphere of (very limited) influence.

Sincerely,
FOFOA
_____________________

Checkmate

From Checkmate, here's the view of the Rocket Man:



Think like a Giant 2

And from Think like a Giant 2, here's another Elton John classic with an important message:


35 comments:

A PIIG said...

From your other post, Nassim Taleb also agrees hyperinflation can be a solution.

http://fofoa.blogspot.com/2010/05/hair-of-dog.html

DP said...

http://www.youtube.com/watch?v=B1A8kfwhD_c

dieuwer said...

Looks like a classic case of Gresham's Law in action in India: "Bad money (rupee) drives out good money (gold)".
I think we will see rupee hyperinflation in a year.
And thereafter the second part of Gresham's Law: "Good money drives out bad money".

Pat said...

This is like the 10 days of Christmas. On the third day of Christmas, FOFOA gave to us, ...
I am loving these posts, as they get to the heart of many questions that I'm sure not just the e-mailer has, but lots of us. They not only redirect us to re-read past posts, but FOFOA is pointing out even newer perspectives/language for deeper understanding.
I think by the end we will have the Grand Unified Theory of Freegold, wrapped up in a nice pretty bow. And perhaps just in time...; well, one can hope anyway. I patiently wait as we all do, but the sooner the better. We cannot begin the "first new turning" until we get thru the Fourth. I would like to see some positive change for my children before I myself enter the black hole.

sean said...

The observation that under FG, the distribution of gold savings may be opaque without affecting the system, is very interesting, and quite counter-intuitive if you're thinking about things from a Western monetary system point of view. Currently, since the roles of fiat and savings overlap, we need to know the total of both (ie: M2) in order to calculate the money supply and hence the value of money. Under FG, the functions of fiat and savings (gold) are separated, and the amount - and value - of money is unaffected by the stock of gold (just the flow).

spaul67 said...

FOFOA
“They will have a dollar-denominated line of credit which they will draw from as they restock their inventory.”

Actually I see something more along the lines of consignment and/or auction in which the dealer just takes a spread between seller and buyer for being the market maker and assay services. Then again in a world in which gold moderates currency, changes in relative value should be more gradual, so you may also be right as the freegold price in terms of currency settles down.

Ironically it’s the stabilizing effect that gold has on currency that renews the ‘false’ confidence in the currency; inevitably leading to a debt based monetary system and the next collapse.

Robert Mix said...

Clap, clap, clap, clap! Three for three FOFOA, I really don't see how you can do it. Unless, of course, you've been saving up topics!

:)

Knotty Pine said...

Where is Tyrone?
FWIW I am 2 for 3 with the "my candid view series". Parts 1&3 +10. Part 2 WTF??

I have had a hard time understanding all this GOFO nonsense and only take consolation in this paragraph towards the end of the post:

"FWIW, this GOFO/backwardation issue is only worth discussing because everyone else is talking about it, and also because others like you have been asking me for my take on it. So there you go. Now you have my take on it. As you probably noticed, I still haven't commented on it publicly because, to me, it wasn't as OMG as it apparently was to other people. I have been watching the draining for some time now."

Thank you (as always) Fofoa!

Sam said...

Loved it! The freegold lens is so clear! This is today's problem and the solution all in a nut shell isn't it:

"Today gold is chained to both commodities and foreign currencies like the AUD through the paper markets. This is why we see gold moving in lockstep with either other commodities or as the inverse of the dollar. And what this means is that it would be virtually impossible to control the price of gold in isolation. If you even attempted such a feat, you'd have a world full of paper traders working against you no matter which direction you were trying to move the POG.

The physical portion of the gold market, however, needs the POG to move in isolation. It needs gold to be priced higher in the very things to which the paper market keeps it chained. It needs gold to be revalued, and that cannot happen as long as the paper gold market is functioning because a world full of paper traders will not let it happen. So when the physical runs out at the top level in which it trades, physical gold will be revalued in isolation, without any of the other commodities or currencies coming along for the ride."

Alex in Montana said...

Gold goes to $55,000 an ounce and no one mines gold? Got it.

Analogy

Oil goes to $200 a barrel, totally removing all incentives for oil companies to drill for oil. Go that one too.

In addition, 30% of all gold comes from the mining of base metals: copper, zinc, lead and other metals. That will stop also?

This makes no sense.

Peter Pan's Dad said...

So the issue for me, as a producer, is how do I get through transition with my SOV intact so it can be invisible instead of absent. Do I have enough to avoid struggling to meet other skyrocketing expenses like property taxes and, uh, food? I mean, if wages won't keep up, prices won't keep up. Reading When Money Dies indicates that producers hated selling goods (today's pastries) because they weren't sure they could cover the cost of producing the next batch (price of flour tomorrow). Since I can't perfectly time my exit from the production cycle - and since I'm a shrimp - all I can do is divert some portion of my production now into a store of value and hope my hands (or my children's hands) are strong enough.

Not really shopping for a magic cure...I guess I'm just venting. Pimpin' ain't easy.

ore said...

Keep on writing Fofoa!
I guess the silence here confirms your thoughts.
Kind regards,

M said...

Is Eric Sprott a big shrimp or a little giant?

I really don't have any idea what the net worth of a giant is...

MatrixSentry said...

From Jesse:

"I am loosely forecasting gold to hit $2500 over the next 12 months, but that depends on such large exogenous variables that the forecast is highly tentative for now."

That is a butt load of support for paper gold. Where oh where will it come from?

Sam said...

@Alex

I think FOFOA's speculation in regard to mining fits well with human nature and the governments they put in power. Anything "in the ground" belongs to the people does it not? In fact almost all land belongs to the government, you do pay yearly property taxes don't you? Subject to eminent domain? And I'm just talking about the land of the free. There is no question what will happen in other countries. Currently the government just lets you work the land (after paying applicable fees) and then sell the materials (after paying applicable taxes). If Gold revalues and becomes the worlds premier wealth reserve I think history teaches us how such a windfall will be dealt with.

The speculation that it will stay in the ground in many areas also makes sense to me. The ground is a very safe vault and many gold holdings will lie very still.

Sam said...

@Matrix

I wouldn't know when or how to time it, but I think a very profitable bull trap is being set up and allowed to fester. Imagine the shock when every fundamental points to gold rising and rising in a nice orderly bull run only to plummet below every conceivable floor, even the cost of production. Just a thought who knows what will happen. It's a total casino in my opinion perhaps now completely disconnected from the actions of physical gold

Sam said...

@M

I still like to think of Giants as Super Producers. People who's production is so profitable that they have no need to earn more profits. They experience marginal utility in all things. They have so much that they aren't trying to grow their wealth just maintain it. Even lose some of it for stabilities sake. Spending their money moves markets and damages balance. Hoarding the money causes even more problems. Slowing production or shutting down businesses would be the worst of all. Giants are people that desperately need a place to park their profits without hurting society. A rare, timeless, private, and recognizable wealth asset that is virtually unused in industry would do the trick. Something that could be theoretically be worth a million dollars an ounce and not damage the collective.

Grumps LaBastard said...

Alex,

Indeed magical thinking and naivete abound in the FG thesis. It could easily have been in the original cut of Zeitgeist: Addendum, asserted as an emergent system of the Venus Project, but ended up on the cutting room floor.

Another friend said...

Speaking of support for paper gold, WTF zup with GLD?

Why would it go UP, given the trend lately?

My guesses:

-Truly disconnected people jumping in because gold is supposed to rise.

-Some kind of covering move to confuse the totally obvious pattern of the drain

In my mind, I have to think it's just dumb money jumping in at a really, really poor time.

Thoughts? Educated thoughts earn bonus points!

Cheers

byiamBYoung said...

Grumpy,

Searching through your comment for something that merits a response...

Nope. Guess not.

Cheers

Michael dV said...

Alex in MT
if that is the way you are reading things here I suggest having your comprehension check....it's that thingy next to the carburetor...

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



That "forecast" from Jessie, wishy washy as it is, exemplifies, for me, why he is not worth reading.

Even if we one is apt to think that paper gold will find that butt load of support, who can take a forecast seriously that is so equivocated? It's just the sort of crap that one can just as easily disavow as take credit for. Why bother?

Alex in Montana, your analogy is rubbish because the stock to flow profile of gold is nothing like that of oil. You have some reading to do.

Ashley said...

@Alex in Montana: A better analogy would be oil at $5,000 per barrel. At $200 per barrel in "normal" economic times the politicians would be screaming for excess profit taxes or nationalization of the oil industry (either for "fairness" or national security). Can you imagine the response at $5,000 per barrel? This has been discussed here many times. I see you still haven't taken my advice.

JC said...

Alex in Montana, your analogy makes no sense because this is about a functional change of the physical item. Oil's function is not changing. What about gold's best and highest use? For a country to leave gold reserves in the ground is all part of this changing function to a securely storable wealth reserve.

Grumps LaBastard said...

Did anybody ever reconcile why a saver would be overweight gold if a REAL positive rate could be had on a currency?

Why a saver would chose to eat principal(dishoarding gold over time), rather than make the principal work for him in a positive real rate world?

Why a young person, who actuarially can't save enough for retirement, would chose to save in a non-yielding asset as opposed to options that would grow the nest egg?

JC said...

Grumps, because the year would be 1980, not the present.

Sam said...

@Grumps

Like most of your questions they have been answered within the blog and in the comment section.

The same reason a person would not hold gold if they could earn a 20% ROI on a business venture. Gold will be a timeless wealth reserve for those looking to save over generations. You seem to think it needs to outperform short term lending of your capital to banks or markets. Your investment preferences are of no interest to those on the top of the food chain that simply need a place to store wealth

anand srivastava said...

Grumps:
Let me ask you a question. All through 2011 to 2013 Gold has been going down in Rupee. Why still people are buying more and more gold, When Interest rates given by Banks are around 10% per annum.

If you can explain that, you will be able to understand your question if you can understand the above situation.

We do not have faith in our currency, as a tradition.

Yes building traditions is like evolution. In stable times, they just continue, which in hard times, new ones are built.

The crisis will be a hard time, and new traditions will be built. People will not believe in currency again, or the ability of banks to keep your money safe.

Bright aurum said...

@ Grumps LaBastard
From a shrimps` perspective.
I save in gold because its easy. Putting 5% an year in gold will not hurt my main business where I can earn my 15+% capital gains. This way I can stay focused and not spend much time trying to protect my wealth from the whims of the market/currency/tax situation. Besides when I grow old I can let go the reins of business more easily. Not impending the younger generation in their strive to take control over the means of production real estate etc.
And last but not least, it feels good to relieve a well-deserved person out of her/his savings (in gold) in order for she/he to consume the fruits of her/his previous labour because he/she did the same thing to another such person when supperproducing for the next generation and for old age.

Biju said...

In India now. Talked to a medium sized jeweller during buying some items.

Previously they used to book using scotia Bank and pay only after taking delivery at the prevous booked price. But now due to Indian govt regulation, they have to pay full at booking and if price changes, they pay the difference also during taking delivery. So they have now started using smuggled gold from dubai.

The Official Indian import figures may no longer be relevant anymore.

FOFOA said...

Part 4 is up!

panduranghari said...

Nice post FOF. OA.

Biju, we will soon see another Varadrajan Mudaliar or Haji Mastaan or Dawood Ibrahim if it carries on this way.

Dimitri said...

My dear FOFOA:

Love the blog and the energy and regret joining in here just to carp.

Was intrigued by your scenario for the revaluation of gold (see postscript). Still pondering same.

Another posited a different scenario: all paper will burn when the oil-gold-dollar nexus breaks. Your picture of scarcity at the top might constitute such a break. Is that what you had in mind?

When you say "physical gold will be revalued in isolation, without any of the other commodities or currencies coming along for the ride," might we not better say that in the ashes of the total destruction of the commodity markets, it will be impossible to value gold which will not be available (lots of bids, no asks)?

Another had proposed an apocalyptic vision for the ultimate revaluation of gold and one hates to lose that in a more general discussion about the final stage in pricing.

Yes, the revaluation cannot take place with paper markets plodding along, as you point out to your correspondent. The dynamic is as you say.

But once paper burns, then gold is revalued.

Simple enough for the newest newbies!

---- p.s. you had said ---

"Today gold is chained to both commodities and foreign currencies like the AUD through the paper markets. This is why we see gold moving in lockstep with either other commodities or as the inverse of the dollar. And what this means is that it would be virtually impossible to control the price of gold in isolation. If you even attempted such a feat, you'd have a world full of paper traders working against you no matter which direction you were trying to move the POG.

The physical portion of the gold market, however, needs the POG to move in isolation. It needs gold to be priced higher in the very things to which the paper market keeps it chained. It needs gold to be revalued, and that cannot happen as long as the paper gold market is functioning because a world full of paper traders will not let it happen. So when the physical runs out at the top level in which it trades, physical gold will be revalued in isolation, without any of the other commodities or currencies coming along for the ride.

In a physical-only market, the price of gold will be established wherever real physical trades in the largest volumes, and the price elsewhere will refer back to that 'top level' price."

Motley Fool said...

Dimitri

From my understanding Another proposed two possibilities for the endgame. Either the euro experiment works, or everything breaks and we lose our Misean regression linkage. You seem to be talking about the latter, whilst the former is in play.

Yet, all paper, it will still burn.

TF

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