Sunday, December 15, 2013

An Eye for Gold


Real Things

"Investors and regular workers with a Western slant do not grasp what wealth is. Overwhelmingly they see their currency and paper investment portfolios on an equal footing in value with the same
"real things" that raise our living standards. Yet, in real life, they cannot be equal because these paper assets are only an exercise able future claim on our "real things in life".
FOA

The super wealthy pay way too much for some stuff, don't they? I mean, $490,000 for a used old card table? I can get a brand new card table for $40, but here's a much nicer one for $280.

I caught a few minutes of the Antiques Roadshow the other day. Mrs. FOFOA had it on and I was passing through the room, but somehow that show grabs you and you have to stay to find out what the item they're examining is worth. This one was an old, wooden card table, originally made in Pennsylvania, and long ago refinished. Some lady had brought it in to have it appraised on TV. It was pretty nice, mahogany wood, claw and ball feet, and it had a swing-out leg that supports a hinged extension of the table's surface. The appraiser told her it was worth $250,000 to $350,000, and if it hadn't unfortunately been refinished years ago, it could have been worth up to $500,000 today.

I tried to find that episode online while writing this, but I only found a similar one. It's another card table they appraised for $200,000 to $300,000 and, when it actually went to auction at Sotheby's, it sold for $490,000! You can see the original appraisal here and the actual auction here.


What makes a second-hand card table worth $490,000? It's certainly not the need for a surface on which to play cards. That need can be met for much less money. You know what it is? It's that the wealthy fill their lives with otherwise-common items that perpetually rise in value, while we do the same with similar items that lose half their value, never to be regained, the minute we take them out of the store.

Two tables. One is $280 and the other is $490,000. The difference between the two is that the price of the former comes from demand related only to the service it renders in its specific form, as a table, and the latter comes from demand related to two different services it renders, that of a table and also that of a store of value.

I have explored this concept in many posts. It's not a new concept in any way, shape or form. In fact, man was using real things as stores of value, often in preference over their other uses, long before any labels were applied to this specific utility or function.

Take the $490,000 card table for example. We could say that the buyer paid $280 for a table, a well-crafted and nice-looking flat surface with four legs, and another $489,720 for a store of value. When you look at it this way, it starts to make sense why the wealthy often buy such remarkable "real things" and then hide them away for decades, packed in unassuming wooden crates, in places like this—Über-warehouses for the ultra-rich—rather than "using" them in their homes.

Which would you say is a $490,000 table's primary function or utility? As a table, or as a store of value? Obviously it can function both ways, but if someone pays 1,750 times more for one function than for the other, I think it would be fair to say that is its primary function.

The high price of these items which function primarily as stores of value comes from the demand for that specific function. Such demand creates a market and, thereby, the high marketability of such items. This is the network effect. And the long history and past success of such markets engenders the confidence in those who possess (and seek) such unique items that, when needed, they will be able to find a buyer ready to pay the highest price which can possibly be attained. This is what I like to call the regression effect. And while past performance is certainly no guarantee of future performance, especially in unique, one-of-a-kind collectibles, our natural tendency to believe that what worked yesterday and still works today will work again tomorrow does create a very real effect with very real results.

I hear that Christie's is booming these days. Here are just a few of the auction-related articles I've collected over the past two months:

How many more $100 million 'pictures' can the art market absorb?
PBS

Digging Into Deep Pockets at Auction
The New York Times

The Man Who Sold the Art World
The New Yorker

Warhol paintings up for sale in New York could fetch $120 mn
France 24

Grisly Warhol Painting Fetches $104.5 Million, Auction High for Artist
The New York Times


On Equal Footing with Giants

"In this world we all need much; blessings from above,,,,, family,,,, home,,, friends and good health. But after all that, one must have currency and an enduring, tradable wealth asset that places our footing in life on equal ground with the giants around us,,,,,, gold!" -FOA

Here are a few snips from the article in The Economist which I mentioned above, titled Über-warehouses for the ultra-rich:

"The world’s rich are increasingly investing in expensive stuff, and “freeports” such as Luxembourg’s are becoming their repositories of choice…

Because of the confidentiality, the value of goods stashed in freeports is unknowable…

Collectibles have outperformed stocks over the past decade…

The goods they stash in the freeports range from paintings, fine wine and precious metals to tapestries and even classic cars…

These giant treasure chests were pioneered by the Swiss, who have half a dozen freeports, among them sites in Chiasso, Geneva and Zurich…

The wealthy are increasingly using freeports as a place where they can rub shoulders and trade fine objects with each other. It is not uncommon for a painting to be swapped for, say, a sculpture and some cases of wine, with all the goods remaining in the freeport after the deal and merely being shifted between the storage rooms of the buyer’s and seller’s handling agents…

Gold storage is part of Singapore’s strategy to become the Switzerland of the East… To spur this growth, it has removed a 7% sales tax on precious metals…

Switzerland remains the world’s leading gold repository. Its imports of the yellow metal have exceeded exports by some 13,000 tonnes…

Did you notice anything about the stuff the "ultra-rich" are stashing at those freeports? For one thing, most of that stuff is out of reach for the average saver. Most individual items that make their way to these storage facilities cost more than the average person makes in a year, and some cost more than he'll make in a lifetime.

Gold is the only "real thing" used by the wealthy, for this specific store-of-value function, that is also available to anyone. What's more, the gold of the everyman is the exact same quality gold that is held by the Giants. The same cannot be said about the paintings, sculptures, tapestries, cases of wine, classic cars or even the card tables held, and used, by people of average means.

I have everything on that list, except a classic car (although my car is 12 years old now, so I'm getting close). The difference is, I hold each of those items for the service it renders in its specific form only. My wine is for drinking and my art livens up my home. I have bought and sold an entire home-worth of expensive furniture, and I can tell you that, no matter how much I paid for each wonderful piece, in order to sell it when I needed to, I had to cut the price considerably.

Storage and moving expenses can greatly increase your cost basis in items that are only depreciating over time. This was why I decided to sell everything the second time I moved cross-country. It was a good decision, but what I learned was that, for the common man, household items, no matter how nice they are, are generally poor stores of value at our level.

That's not to say you can't do well with certain types of items, especially if you take your time selling them. I had a Dr. Who pinball machine which I sold for quite a bit more than I paid for it. But I took my time selling that item, and if I add the maintenance and expense of moving it cross-country to my cost basis, it was probably a wash, although I did get hours of enjoyment out of it. Then again, I didn't buy it as a store of value.

I do know a few people who buy fine wine by the case, numismatic coins, expensive paintings, pottery and even sculptures with the idea that these items will render the dual services of practical use and store-of-value. In some cases, a portion of their high price does indeed come from demand for the store-of-value function, but in most cases, at our level, the majority of the price comes simply from the demand for an exclusive level of quality. Exclusive items are sometimes called Veblen goods.

There's nothing wrong with enjoying an exclusive level of quality if you can afford it, but I want you to think about how these exclusive-quality items that may be within our reach actually compare to the ones used by the uber-wealthy. The difference really comes down to the magnitude of the proportion of their high price which was derived specifically from demand for the store-of-value function, as opposed to the item's practical use as a high-quality exclusive showpiece.

This store-of-value demand is the demand which creates a deep and liquid second-hand market for these "overpriced" items. Did you buy your collectibles from a store, or at an auction? If you bought at auction, how many others in the room also bid on your item? Is the maker of your precious item still alive? If you decided to sell your showpiece, how would you sell it? To a store? On consignment? On Craigslist or eBay? Is there a good auction house in your city? Do you have any idea how much commission auction houses charge? How long do you think it would take for you to find a buyer who would pay the highest price which can possibly be attained at any time? If you had to sell in a hurry, do you have confidence that you could attain the highest price?

These are all unique items we're talking about, so there is no standard that applies across the board. But over long stretches of time, some unique items climb a certain "store-of-value pyramid" while others don't. I like to call this the focal point effect. Take Andy Warhol for example. With one of his paintings selling for more than $100M, he has risen to become a kind of focal point among the various pop art painters of the 60s.


Does this mean that Warhols are in a bubble and a Rauschenberg at $10M would be a better investment? Perhaps, but I don't think so. And I'm sure that this view misses the point I'm trying to make. Since we're talking about unique, one-of-a-kind items, one can certainly pay too much for any single item. But in a proper auction setting, there will either be many bidders, or else you won't be bid up higher than you planned on paying. It is the focal point effect which adds the depth and liquidity to the highest-of-high-end auctions that gives the owners and seekers of such items the confidence that, if and when it comes time so sell their particular item, they will be able to attain the highest possible price at that time.

That focal-point-marketability is precisely what makes the very best-of-the-best stores of value. It is what drives some things to many multiples of the "intrinsic value" of their component parts, i.e., frame, canvas, paint and an aesthetically-pleasing image, while leaving others in their dust. So, in this case, a Warhol might be a marginally better store of value than a Rauschenberg, although you could have paid more for the latter in the 60s. In fact, you can still buy 60s pop art originals on eBay today for a few hundred bucks. Note that it's not the death of the artist that drives the focal point effect. There are plenty of dead artists. It's just that it takes time for the focal point effect to emerge and mature to this top level, usually longer than the normal human life span.


Surprisingly, however, that's not always the case. You might think that the anonymous telephone bidder who paid $58.4M for "Balloon Dog (Orange)" last month paid way too much, especially considering that, not only are there four more balloon dogs just like it, in arguably better colors than orange, but more importantly, the artist is still alive. And he's only 58 and still producing! But considering that there was a competing bidder willing to pay $57.3M ($51M + commission), how can anyone say he paid too much?

The seller of "Orange Dog" was Peter Brant, the 500-millionaire who is married to supermodel Stephanie Seymour. "Blue Dog" is owned by billionaire Eli Broad and is currently on display at the Los Angeles County Museum of Art.


"Magenta Dog" is owned by French billionaire François Pinault (but that's the artist Jeff Koons, not Pinault, in the photo):


"Red Dog" is owned by Greek billionaire Dakis Joannou:


And "Yellow Dog" (my favorite, although I would have called it "Gold Dog") belongs to billionaire hedge fund manager Steven A. Cohen:


Call it "Focal Point-Balloon Dog"! It doesn't have to make sense to you, it just "is". But does that mean that all of those balloon dogs are each worth $58.4M now? Of course not. With these kinds of items, we don't know their price until after they are sold at auction.

Here are some interesting statistics. According to Investopedia, experts estimate that only 0.5% of paintings bought are ever resold, and public auctions account for only a small portion of those resales, with private transactions accounting for the rest. At the high end, fine art auction houses are the best way to attain the highest possible price at any time, but they can cost you anywhere from 3% to 50% of the sale price in some cases. The commission on "Balloon Dog (Orange)" worked out to about 12.3%.

Tracking or indexing markets for unique, one-of-a-kind items, like art, is different from tracking stocks, bonds and commodities. It's more like residential real estate due to the infrequency of trades and the uniqueness of each item. To create a useful index comparable to stocks, bonds and commodities, you can't just track the average price of sales over a period of time, since each item sold is unique. Instead, you would want to create a database consisting only of repeat sales of the same exact objects.

Two New York University professors, Jianping Mei and Michael Moses, did just that. They created the Mei Moses Fine Art Index based on a database they built which now contains over 30,000 repeat sale pairs for approximately 20,000 individual works of art. They are constantly adding to the database using mainly the public results of auctions conducted by Sotheby's and Christie's from around the world.

What they found was that the compound annual return on fine art exceeded stock market returns on 5- and 10-year timelines, but that the stock market outperformed art over the last 25 years. However, for the last 50 years, the returns were very close, with fine art achieving a compound annual return of 9.23% compared with 9.73% for equities.

Now I should point out that the purpose of this index is to compare stores of value with investments to encourage investors to incorporate them into their investment portfolios. Such is the Western investor mindset. Like paper gold, there's even a kind of "paper art". According to Investopedia, fine art funds typically use leverage to buy art, have a minimum entry investment of $250,000, and for that you will receive a diversified portfolio of art, annual statements and appraisals for the artwork.

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." Enter the world of "paper gold."Another

If you buy into one of these art funds, you won't actually have pieces of art. You will, instead, have a securitized fractional interest in a stash of real art, kind of like owning a fractional interest in a real Giant's store of value. Only it won't be managed like a Giant would manage his stash, buying focal point winners and selling the losers until all he has left are the winners. Instead, a fund manager will decide which pieces of art will be purchased and sold, and his only concern will be the short term gains made from selling the best pieces so that he can make his 2+20. Another called this "a western way," to "cut the winners and let the losers run."

The thing about this focal point effect I'm trying to explain is that the winners rise to the top and just keep on rising, well out of reach for all but the Giants. What makes something one of the "best-of-the-best" is not its superior quality or age, but simply the focal point effect, which essentially means that Giants have already voted for it in the only way that matters, with their pocketbooks.

True Giants are extremely strong hands when it comes to stores of value. They generally have no financial need to sell anything, so when they do, it is often because they are "trading up". In this way, the very best-of-the-best items tend to make their way into the strongest hands where they just "lie still" for generations. And, of course, we cannot know the price of such best-of-the-best items except on the very rare occasions when they are put up for auction.

If we could, somehow, hypothetically, come up with an objective way to identify the best-of-the-best as a class, and also track their progressive appreciation, I think we'd probably find a lower but much more dependable (less risky and more homogeneous or uniform, especially over the long run) rate of appreciation than the Mei Moses index would otherwise lead us to believe. Of course, this is impossible to know, because the best-of-the-best focal point winners I'm talking about are the ones that never go up for sale, kind of like the Mona Lisa, so we will never know their price. All we can do is guess.

Here's where it might get a little bit difficult to follow because you'll need to think like a Giant. While these "best-of-the-best" items are perpetually appreciating, hypothetically at a remarkably dependable rate, and while that seems very appealing to us shrimps, it has nothing to do with the reason the Giants buy these things. Giants buy these things simply because of the regression, network and focal point effects that engender the confidence that, when needed, they will be able to find a buyer ready to pay the highest price which can possibly be attained at that time, whenever it may be.

It is, quite simply, the inherently-strong hands of the Giants that instill such remarkable dependability in the "best-of-the-best" focal point stores of value. If Giants suddenly had weak hands, and all such items were to hit the market at once, this would obviously no longer be the case. But that clearly doesn't happen, precisely because such items are only within reach of true Giants, who, by definition, have inherently strong hands.

We know this is true by the simple fact that these items I'm calling "the best of the best" so rarely come to market. Once they make their way into the strongest hands, they just sit there, lying still for generations. And this is why, on the very rare occasion that one hits the market, we see other Giants falling all over themselves to get it, bidding that item up to well above all "rational" expectations and, without fail, setting a new record. It's quite literally something that's only available to Giants, and you almost have to be one to even understand it. And because these items I'm talking about always sell for more than can "rationally" be expected or explained, they will never end up in one of those art funds. Only a true Giant can understand the "rationale" behind "paying way too much" for something.

And then there's gold. But I'm not talking about today's (quote-unquote) "Gold". I'm talking about physical gold, the singular item in that Economist article above which is not only hoarded by Giants, but is also available to anyone and everyone. If you can wrap your head around the concepts—the effects—that instill such remarkable store-of-value functionality in the best-of-the-best real things as I have explained them, then I am here to tell you that physical gold is even better!
ANOTHER: 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".

Now, on the other hand, this "modern day middle of the spectrum"! Well, they have read why we need gold, but they have never "Experienced" the need for gold! Until that day, when they gain "Experience", most of them will make "A Gamble That They Never Intended To Take". Yes, they do invest in all forms of paper and or leveraged gold and all the while, expounding from the roof tops the coming currency crashes and stock market declines. Even looking for bank closures and bank runs, as they cling dearly to comex options and gold stocks!

Anyone, from the outside looking in can clearly see that "westerners" do lack "experience".

There is a "flaw" in this modern market that many do not quite grasp. In time, they will! There have always been people and companies that make a living dealing in gold. It is an ages old business. Today, we see a phenomenon that is "as none before". It is mostly done by the investors at the middle of the spectrum. The "trading of gold" has grown to a level never seen in history! You read every day, that no one wants or needs gold! In a way those statements are very correct! No investor wants to hold gold, but everyone and his brother ( and sister ) wants to trade it! The volume of paper trading, worldwide, on and off market is beyond belief! It has created a type of "Parallel Paper Gold Universe", existing side by side with the physical. The major "flaw" in this system is found in the makeup of the "traders" of this "paper gold universe". Without fail, the majority is made up by those in the "middle of the spectrum", those without "loss of currency "Experience" ". Mostly, they are of "western thought".

I have tried to offer these thoughts as a way for many to understand why this modern gold market is not as before. Most of these letters apply to investors at the far two ends of the market ( see my last post ) . Many, from other places, do understand these "expressions" as given. For many here, I resist the replies to questions that offer results for "gold traders". The intents and reasons are for persons to "consider" and "see" this market in a true light for today. Not for paper trades that will lead to certain loss for the future. I now believe, that by way of other posters, these thoughts are "in grasp" by many traders of "western thought". One may not "accept" the conclusions, but they can, "mentally experience the outcome" of the future. For this end I will now offer real direction. That of Why, When and How Much! I do this for those of "Family and Country", and persons of Honor. Those that live to help, not take, in times of change! Some say this knowledge should not be in a "public way", but I say secrets are for fools.

We must grasp that all commerce is done, at least, in the US dollar concept of "valuations of real things". In this way, " the true value of the purchase of real money" is hidden from view! Persons will say in the future, "how could gold be $500 one day and $5,000 the next"? I tell you now, it is already past that level, as in "present reserve currency dealings" it is not seen! Consider, that in all that you do and think, your "western values" are of paper concepts. From your birth, real things are not used to cross value themselves! When the battle to keep gold from devaluing oil ( in direct gold for oil terms ) is lost, the dollar will find "no problem" with $30,000 gold, as it will be seen as a "benefit for all" and "why did noone see this sooner"?

Now when I say that physical gold is even better, I'm not talking about carrying it through the revaluation. I'm talking about after the revaluation. But to understand what I'm trying to say, I think you need to put your mind there, into the future, to "mentally experience the outcome" of the future, which is why I included that bit from Another. He lays it out quite clearly. Today's gold market consists of a "Parallel Paper Gold Universe" used by "investors with western thought," and real physical gold used by Giants and "third world no ones" for generations.

"Street Gold" and "Paper Gold" are going to part ways!FOA

Physical gold is the one real thing that puts Giants and "third world no ones" on equal footing. Third world no ones certainly don't buy $100M paintings, $50M balloon dogs, or spend half a million on small tables with their surplus income. But they do buy gold as a tradable wealth asset, that singular real thing (focal point effect) in which its perceived value comes from a very long history (regression effect) of broad demand (network effect) for its store-of-value function above and beyond any other services it renders as a shiny and malleable metal.

But what about those "investors with western thought"? If "Street Gold" and "Paper Gold" are going to part ways, does that mean gold will play no future role in the West? Of course not. The fact of the matter is that a large slice of today's "investors with western thought" are not true investors at all. They are conservative savers, which means they are inherently more like the Giants and "third world no ones" in terms of how they prefer to deploy their surplus income. Investor money is called "hot money" because it's always on the move, looking for the next great yield, which requires a certain amount of expertise and focus on the specific activity of investing. Saver money, on the other hand, is "cold money" as it lies very still, which requires a focal point store of value. Gold is for savers:

"[Another's] message and proposition was never for a trader's mindset or time frame. Indeed, his direction was for simple savers, like you and me… As I hold my gold for the money it is, traders will work all these markets as they must… most "physical gold" savers will find themselves "many steps" ahead of the "Western trading community" as this plays out… gold money was/is but a representation of the real tradable wealth you saved over a lifetime of work… This "long term gold accumulation" proposition was given some time ago, to induce conservative people to begin saving gold "now"… You see, there is a world of difference between saving real money as a "wealth of ages" and trying to trade this world's "paper derivatives"… These years be right for ones who save gold."FOA

FOA called this function or utility "wealth money", which denotes both the physicality of the item (wealth) such that it represents true settlement—an exit from the monetary plane—as well as the primary source of its demand, which is above and beyond any other physical services it renders (money). But gold doesn't quite fulfill this "equal footing" promise yet today, as anyone who first purchased gold in August or September of 2011 can attest. It will, but not until "Street Gold" and "Paper Gold" part ways.

Of course, the time preference of non-giant savers is higher (shorter) than it is for true Giants. So for gold to be on equal footing with the likes of "Balloon Dog (Orange)" and "Silver Car Crash (Double Disaster)", it will need to have a few differences that make it much more amenable to turnover on a shorter time frame. And it will. It already does!

For one thing, the transaction cost is, and will be, much smaller than the 12% to 25% commission that top auction houses charge for selling high-end items. For gold it's around 5% today, and will probably be much lower at a higher price. Low transaction costs are important because they must be overcome and recouped through appreciation within the minimum preferred time frame. Likewise, the cost of storage and security must be recouped through appreciation. It costs a lot more to securely store a 12 foot-tall balloon dog than it does to store 1,000 ounces of gold.

These costs, round-trip transaction cost plus secure storage, compared with gold's real appreciation (appreciation in real, not nominal, terms), will naturally match the time preference of savers for settling physical plane imbalances versus carrying a monetary plane balance. In other words, the cost of carrying a cash balance will be compared to the cost of buying "wealth money" over a short time frame.

How short of a time frame, you ask? I can only guess, but I can easily imagine a round-trip transaction cost of 2% and an annual insured storage cost of around 0.1%, with a real appreciation of 1%++ per year. So that would put the minimum time frame for settling a monetary plane surplus at about 2 years, which is a good time horizon for known and expected expenses for which you'd want to carry a cash balance.

It is remarkable that gold and the physical part of the market are already so well-suited for this role and function. Large volume gold dealers make millions today even with a margin as slim as 1% or less, and large volume insured storage can be attained for just a fraction of a percent per year, even with today's price of gold. At a higher gold price, those same margins will be profitable for smaller operations. But even more remarkable, when you think about it in the proper future context, is how gold is perfectly geared to appreciate at just the right rate. Let's call it the Goldilocks principle. Fast enough to give us "an enduring, tradable wealth asset that places our footing in life on equal ground with the giants around us,", but not too fast, so that it will never attract the "hot money" flow of the investors.


Perpetual Appreciation (The Focal Point Effect)

"Truly, as gold is once more used as "wealth money", this action will again impart an unlimited value for gold in use. The more we built and created, the greater the gold value must always be in the future. …In this context, its demand will remain, as always, infinite."FOA

Back in 2009, in Gold: The Ultimate Un-Bubble, I wrote that the price of gold is arbitrary:

"Furthermore, the price of gold is arbitrary. This means that gold can go as high as the people of Earth want to take it without EVER exceeding objective valuations by common metrics like earnings, interest or the sum value of its component elements... One of the most common criticisms of gold's use as an investment is that it cannot be valued the way stocks, bonds and real estate can… But if we invert this argument then gold can never be OVERvalued either, whilst those other things can..."

I want to discuss this concept a little more, because my use of the word "arbitrary" confused certain people. In this context, "arbitrary" does not mean random or irrational, but rather more like seemingly random or seemingly irrational, kind of like the price of "Balloon Dog (Orange)". It refers to the price being more subjective than objective, determined by individual preference and demand rather than by "rational metrics" or comparison to the price of other things.

Arbitrary

1: depending on individual discretion (as of a judge) and not fixed by law

3a : based on or determined by individual preference or convenience rather than by necessity or the intrinsic nature of something

b : existing or coming about seemingly at random…

This is precisely what sets gold apart from the world of investments and puts it more in league with high-end collectibles as a store of value. All things other than gold (and other stores of value) have relative values which are tied to each other by common metrics which cannot be applied to gold. The price of gold is "arbitrary" relative to the common metrics which price everything else, therefore when gold's function changes in Freegold, its new price (priced in other goods and services) will shock and awe anyone who didn't understand the "arbitrary" nature of the price of gold.

The price of anything is actually its relative value compared to everything else. That's what price is. It is relative value. FOA wrote, "Money in its purest form is a mental association of values in trade… the value is in your association abilities." This is where gold is distinct, disconnected from everything else. Not today. Today gold trades as if it is a commodity like oil or other metals, with a price driven by that association. But this commodity association is only in the minds of Another's "modern day middle of the spectrum". When "Street Gold" and "Paper Gold" part ways, "the dollar will find "no problem" with $30,000 gold", and people will say "why did noone see this sooner"?

Well, you can see it sooner, and that's why I'm discussing the concept of "arbitrary" pricing, from a $490,000 card table to a $58,405,000 12-foot-tall metal balloon dog, to a $104,500,000 Andy Warhol painting. But what about after gold is revalued and functioning as a true store of value? Can we expect it to continue appreciating into perpetuity? Yes, of course we can!

Now, I need to briefly mention the concepts of marginal utility and substitution since I used the terms subjective and objective above. All prices (relative values) are essentially subjective in that they are derived from demand related to the primary utility of the item. Think buggy whips versus umbrellas. An umbrella still has a use, and therefore demand, while a buggy whip does not. But the prices of gold and other stores of value are more subjective than other things, and the prices of other things are more objective than stores of value. And this relative measure of "objectivity" (as I'm calling it) comes from the concepts of marginal utility and substitution.

Marginal utility means that, for things in which their primary utility is the service they render in their specific form, like a table, the value derived from demand for this utility declines at the margin. How many tables does one man need? At some point he will have enough tables, and at that point, his demand for another well-crafted and nice-looking flat surface with four legs will decline. In economics, this is called the law of diminishing marginal utility, and it applies nearly all utility functions except the store-of-value function. Shoes, in Imelda Marcos' case, might be an exception to the rule.

The substitution effect is the idea that as the price (relative value) of something rises, it will eventually be replaced by a less costly alternative that renders the same or similar service. These two concepts are essentially limiting factors in the relative values of everything other than the very best store-of-value collectibles.

I'm getting into some heavily-conceptual territory here, so please bear with me. I want you to think about the regression (historical effectiveness), network and focal point effects as they relate to the very best artworks in the world. Being one of the very "best of the best" is an emergent property, one that can only be identified in hindsight. In fact, picking unique individual pieces of art is indeed a bit of a gamble. Who's to say that "Balloon Dog (Orange)" (or any of the colors for that matter) will turn out to be a good store of value 40 years from now? Will it stand the test of time? I have no idea, but I wouldn't bet my own money on it!

What would it mean for "Balloon Dog (Orange)" to stand the test of time, or not? Is it about price appreciation? As I said above, you really have to think like a Giant to see that it is not about price appreciation. I realize this is a difficult concept for a Shrimp to even consider, but as I said, Giants seek and hold these kinds of items because of the confidence engendered by the regression, network and focal point effects that, when needed, they will be able to find a buyer ready to pay the highest price which can possibly be attained in the market at that time.

They don't hold it because it appreciates. It appreciates because they hold it. Cause and effect. Perpetual appreciation is the effect, not the cause. The cause can be traced to the regression, network and focal point effects.

Of course not every piece of artwork that sells for $10, $50 or $100 million will be able to be resold years later for a profit. Only the "best of the best" will, and we'll only know for sure which ones those are in hindsight, after the fact, after they go to auction. And yet, even though we can't know for sure, we can have a high degree of confidence about some of them. How much do you think the Mona Lisa is worth?
___________

What do you think? Is low but steady perpetual appreciation in real terms even possible? Someone asked me recently: "FOFOA, I've heard many people say that interest is evil, and then they use the old "if you deposited $100 earning interest over the last 2000 years it would be enough money to buy the world. So to play devil's advocate if gold rises in purchasing power over time wouldn't it create a similar problem to compound interest. Theoretically 5000 years from now one ounce of gold could buy the whole world and whatnot?"

This is a good question, because for Westerners raised from birth to think of value in terms of nominal digits, compounding appreciation does seem to raise a red flag. But in digital terms, even theoretically, there's a difference between nominal interest and interest in real terms, or real interest. In order to "own the world" you'd have to earn a compounding interest rate in real terms, and what time has revealed is that such nominal appreciation is always offset by a depreciating denominator.

Imagine you had a 2% inflation rate and you also earned 2% in compounding interest giving you perfectly stable purchasing power. As your compounding interest turns exponential, so too does your denominator (the numéraire) lose purchasing power. You can try an exercise on a simple Excel spread sheet.

Start with $100 in two columns. In the first column, depreciate the base unit by 2% per year. So 100*0.98 and reiterate that for 100 years. That will show you the decline in purchasing power of the base unit. Then in the second column, give yourself 2% interest for 100 years. 100*1.02. This will show you the compounding principle. After 100 years, your base unit will only be worth 13.26% of what it was the first year, and your compound interest savings account will have $724.46 in it. You can run iterations to infinity if you want, but as your nominal balance approaches infinity, your base unit value will approach zero.

If you take away the depreciating denominator, then yes, your purchasing power will eventually approach infinity. This doesn't happen in the real world, but, amazingly, perpetual appreciation in real terms is still possible with a true focal point store of value.

The Mona Lisa is quite possibly the most valued painting in the world, even though it has never been on the market in the 500 years since it was painted, and probably never will be. (Notice I used the subjective word "valued" rather than the more objective word "valuable", because value is a subjective attribute, especially in items whose primary purpose is the retention of said subjective attribute over time. Which is kind of the whole point of this post, but I digress.) It is certainly the best known, most visited and most written about piece of art in the world, great focal point features. It is considered a national treasure in France, although in 1911 an Italian tried to steal it back for Italy. How much the Mona Lisa would fetch on the open market is impossible to know, but we can probably guess the bare minimum.

The most expensive painting ever sold was a Cézanne painted in 1893 which sold to the State of Qatar in 2011 for around $300 million. While the Mona Lisa has never been on the market, it did go on tour in 1962 at which time it was assessed for insurance purposes at $100 million. According to Wikipedia, $100M in 1962 would be $760M today, "making it, in practice, by far the most valued painting in the world."

In order to calculate its real rate of appreciation, compounded annually, we must guess at a starting value for the painting. As I have said, the focal point effect is an emergent property revealed over time. So while Leonardo da Vinci was very famous in his day, we shouldn't assume an overly-high initial valuation. The Mona Lisa is believed to have been a commissioned portrait which was never delivered, went unfinished for more than a decade, and remained in da Vinci's possession until his death in 1519.

If it had been worth millions (in today's dollars) on the art market of the time, you would think he might have sold it, or at least finished it earlier. An amount was supposedly paid for the painting by the King of France after da Vinci's death, but it is unclear what the modern equivalent of that payment would be. It might have been the equivalent of $100,000 or more. So let's err on the high side and say that the Mona Lisa might have sold for as much as $500,000 in modern terms had it been auctioned off upon completion. That's probably too high, but it will suffice for our purpose.

We can use a compound interest calculator to figure out the rate of appreciation for something that appreciated in value from $500,000 to $760,000,000 over 500 years, and that rate is 1.47% per year, compounded annually. That's real, not nominal, appreciation. And that's the low but steady perpetual appreciation in real terms that I'm talking about. It comes from the focal point effect. Obviously not everything can appreciate in that way, but the focal point can. (BTW, if we start the Mona Lisa at $50K and appreciate it up to $1B over 500 years, which is probably more realistic, that's still only 2% annual appreciation.)

Like I said, I'm deep in conceptual territory here, so, again, please bear with me. I want you to think about all of the gold in the world as a single unit or mass. And as God is to Leonardo da Vinci, so gold is to the Mona Lisa. Gold is God's "Mona Lisa". And as you'd expect, coming from God, gold has many features which make it almost infinitely better than the Mona Lisa.

To begin with, while the Mona Lisa has 500 years of emergent focal point effect under her belt, gold has at least 5,000 years. Gold is divisible without losing value. If we cut up the Mona Lisa into 760,000 pieces, do you think we could sell each piece for a thousand dollars? And even if we could, would they retain that value over the long run? Gold is much more durable than the Mona Lisa, and therefore much more economical to store and transport. The transaction cost of gold is also much more economical. If you could buy the Mona Lisa through Christie's today, their commission would be $91M, but you could buy $760M in gold for a transaction cost of less than $8M.

Get the point yet? Gold has better fundamentals for fulfilling demand related to the service it renders as a "real thing store of value" than anything else. Those fundamentals are the regression effect (a longer history than anything else), the network effect (more Giants and "third world no ones" than anything else) and the focal point effect (only real gold is "as good as gold"). That doesn't mean it should appreciate at a higher rate than the Mona Lisa, however, because remember that appreciation is an effect of these fundamentals, not the cause.

The cause is the confidence in those who possess (and seek) physical gold, confidence engendered by the fundamentals, that, when needed, they will be able to find a buyer ready to pay the highest price which can possibly be attained on the market at that time. That confidence is the cause, and perpetual appreciation is the effect. But I think you'll need to think like a Giant in order for that to really sink in.

Giants, who think this way, indeed, are the foundational base of gold's value. Like the very best-of-the-best works of art, Giants have every reason to accumulate more, keep what they already have, and no reason to ever sell. It is quite simply the divisibility of gold that will "place our footing in life on equal ground with the giants around us."

There are several simpler arguments for perpetual appreciation that I could have made much more easily, like FOA's quote at the top of this section: "The more we built and created, the greater the gold value must always be in the future." This is physical plane appreciation we're talking about. That's what "real" means: gold appreciating against other real things. I could have discussed the changes in gold mining that revaluation will induce, and how public sector gold actions, including mining, will essentially be monetary plane operations with minimal effect on physical plane appreciation.

I could have discussed growth rates, stock to flow ratio and how revaluation in real terms eliminates prior volatility in real terms because it increases relative "mass", and therefore inertia, in both currency and relative value terms. I could have discussed the wide variety of investment options that will keep "hot money" away from gold, delineating, once and for all, savers from investors, traders and speculators. But I wanted to tackle the most difficult argument I could think of—the "infinitely divisible God's Mona Lisa" concept. So how did I do? Does it work for you?
___________

Even with all of the towel-throwing we've seen over the last two years since the bull run ended, it's important to remember that for every seller there must be a buyer. Every last piece of gold on this planet is equitably owned by someone, even if it feels like no one wants gold anymore.

"Do you think that value has been lost by holding physical gold all these years?

If the answer is yes, you are wrong! I tell you now, it's all in your perception of what is value and what is real. Gold has been increasing in value since the early 90s and doing it at a rate much higher than any other investment. Cannot see this? Hear me now, what the wealthy and powerful know: "real value does not have to always be stated or converted thruout time. It need only be priced once during the experience of life, that will be much more than enough!"
ANOTHER


Revaluation is a one-off event. The reason for seeking and holding gold after the revaluation will not be the anticipation of another revaluation. For the very strongest hands which form the foundation of gold's high value, the reason won't even be perpetual appreciation. The fundamental reason for seeking and holding gold after the revaluation will be the confidence that, when needed, anyone anywhere will be able to find a buyer ready to pay the highest price that can possibly be attained on the market at that time. Of course, some people, who are today holding gold only for a revaluation windfall, will immediately cash in that lottery ticket. One such person just wrote this in the comments under the last post:

"To wake up one morning and find that I’m freegold multi-millionaire would be like a kid waking up Christmas morning, I can’t wait."

But I wonder how many weak-handed Western shrimps with this mindset will actually be among the strong-handed Giants and "third world no ones" that constitute the vast majority of equitable owners when the time comes. I know a lot of people who have already thrown in the towel, so I suppose it depends on when it happens, at $1,000, at $800, or at $250. I suspect there could be a lot fewer than we might think.

What we see right now is the last bits of physical gold gradually working their way into stronger and stronger hands as the price declines, just like the best-of-the-best artworks which, once they reach the strongest hands, never hit the market again. Just something to think about as you hear more and more Western investors throwing in the towel on physical gold. Wow, what timing!


Revaluation

"Yet, through it all, the revaluation must come as gold will return as money to represent all of this wealth many times over. For truly, all modern wealth will be directly or indirectly denominated in gold as our dollar reserve fails. To this end, the physical gold holder will stand "one step in wealth" ahead of every worldly paper trader."FOA

"The removal of the political "world dollar settlement" price of gold will revalue this asset in terms that noone of "western thinking" can understand."ANOTHER

"A poster on Kitco (I think his handle was AllenUSA) once did a superb job of explaining the dynamics of oil pricing during a currency collapse and gold revaluation."FOA

"Both gold and currencies are traded with perceived future value in mind. Especially gold that is known to be revalued later."FOA

"Later, gold will be revalued upward..."FOA

"I fully well expect my wealth holdings to not grow one bit over the next twenty years!!!!!! But, I do expect the world markets to evolve and revalue my assets, showing their true worth. No, not near gold, not almost gold, not poor man's gold, not gold in the ground or other paper gold,,,,,,,,,,,, just plain old gold in the hand. An asset that will out perform every other holding in the times to come.

--------- The wealth of ages; a lifetime of work kept in a savings from our past. --------"
FOA

"Yet few considered the true ramifications if countries suddenly revalue gold not as money, but as a world reserve asset! We approach this dynamic today as world dollar debt has reached its limit. Exciting times for those that "walk in the footsteps of giants", awful times for those that have invested in the gold industry. It's not too late to change course and sail with the wind. With the direction of someone that understands, I have done just that! With the wind...........we are on the road now!!!"FOA

"From this stance we can understand why many have viewed gold as a riskless holding that will be revalued. If it was part of your mix, the transition would always make up for any return lost from not holding other assets. Indeed, it is the very ultimate in a super leveraged investment. No other currency today could expect a 1,000% to 10,000% rise in value against the dollar, none."FOA

"The current "paper gold market" is not a physical gold trading arena, as many here have observed and discussed. Truly, in every sense, it is a "currency market" as contracts are settled in the prevailing "currency values" of gold. It is through this process, that gold is purchased "as a stated value in currency terms", not in physical terms. It is known, that a switch to trading of gold to "physical terms" of the same volume as today, would not only bring a huge revaluation in price, it would also destroy the market."ANOTHER

"If all the gold held by earth were placed in the hands as money, it would be used to revalue every "real thing" at a fair price. A tiny fraction of gold would buy much production of goods and services, on a basis equal for all men, not as a debt for later settlement, as currencies are now!"ANOTHER

"Once fully understood, I think most would then agree with its inevitable outcome. Indeed, a "free gold market", based only on physical holdings would impact the world economic system unlike anything seen before it. And Yes, it's impact on the relative value of gold will make that metal the monetary wealth investment for the next thousand years!"FOA



An Eye for Gold

FOA (12/2/99; 18:06:06 #20082)
An eye for gold!

After all these days,,, did Another "time" the gold market correctly? No, not for traders he didn't! But, then again, his whole message and proposition was never for a trader's mindset or time frame. Indeed, his direction was for simple savers, like you and me. As a conservative group, our holdings represent the most long lasting, stable assets that presently exist. Such assets collected over a lifetime should not be lost to a world gone mad! Truly, Another's thoughts represent the values held in the old world. For many these are in competition for our hearts against the current façade of economic reality.

We now understand how short-lived the current misconception of money must be. Other fast paced modern investors have accepted that "money was never wealth" and paper currencies need not be real things to represent their savings. Lost on these "educated of the Western world" is the knowledge that "wealth in the form of real things" was the first thing humans traded. It was only later that someone labelled these things as money. As a people, we once knew the special value of gold and held it beside our other tradable property. We held this gold more dearly because it made the best form of "tradable" wealth. In this context, its demand will remain, as always, infinite. It mattered not if one had one ounce or one million ounces, as gold money was/is but a representation of the real tradable wealth you saved over a lifetime of work. How far must modern gold now climb as it is reintroduced to the world as a new "tradable money wealth"? As far as the unlimited efforts of humanity!

Truly, as gold is once more used as "wealth money", this action will again impart an unlimited value for gold in use. The more we built and created, the greater the gold value must always be in the future. Neither time or new ideas have changed human nature as it seeks to run from the modern uses and valuations of "IOU" wealth. A wealth that was never as great as the dollar said it was. As a system it could never represent a lasting "wealth of nations" as held in the account of "common man". Gold will come pouring in to fill this void.

This coming new level of value for gold is the "proposition" Another presents. A concept that is now being embraced as "something new" for a failing economic system now based upon an over leveraged world reserve currency! Truly, the old ways will not fail those that see through our modern money fog. Another once put it somewhat this way; Nothing has changed our need for real things as tradable items. And this earth is still round my friends. As I hold my gold for the money it is, traders will work all these markets as they must. With the speed of light they now circle the earth, only to find their future as but one step behind me!

Yes, Another once said that. Differently of course, but an incredible bit of insight it remains. I also accept that most "physical gold" savers will find themselves "many steps" ahead of the "Western trading community" as this plays out. This "long term gold accumulation" proposition was given some time ago, to induce conservative people to begin saving gold "now". At any dollar price, be it $600 or $10! Such direction was given in the face of unprecedented choices from where someone could make fortunes using our modern vehicles. Yet, through it all, the revaluation must come as gold will return as money to represent all of this wealth many times over. For truly, all modern wealth will be directly or indirectly denominated in gold as our dollar reserve fails. To this end, the physical gold holder will stand "one step in wealth" ahead of every worldly paper trader. Whether they trade paper gold stocks or dow stocks, real estate deeds or CDs, in the end their paper winnings will compete with the spoils of all others of "Western thought". These "non physical owners" will seek to buy what gold they can at a price many will refuse to understand. If one made a million by paper investing, he will buy no more than a million in gold. Still, for every new buyer that wishes to escape the old paper world there will be the lowly physical buyer from the past who will already possess two million in gold.

You see, there is a world of difference between saving real money as a "wealth of ages" and trying to trade this world's "paper derivatives". The lasting wealth of physical gold does not have to be "converted" into real things prior to a currencies destruction. It already represents the new holding everyone will want. The coming "Western" economic dislocation will devastate all forms of assets that are held in "contract ownership". Be they stocks (most gold stocks included), bonds, businesses or savings accounts, etc.; the loss of a major currency will consume most of the equity these paper items represent. It has happened with every currency ever created and will happen again with our dollars.

So, the next time you read that someone lost their "bet on gold", remember, they lost because they made the wrong bet. Only a "bet" of "buying physical" over time represents the FOA/A true position.

Another recently said:

"The time? These years be right for ones who save gold. One good ear knows meaning of wind in trees. The leaves come down as seasons change. Fools see falling price of gold as "death of tree", they chase its price as leaves on the ground. Know you all, it is the season that has died.

Time will prove all things. Ones of simple thought, such as I will save the wood, not the leaf as they buy the gold, not the price! Thank You Another

I will be posting and replying this weekend.

Thanks
FOA



Freegold

What is coming isn't merely a simple correction of imbalances that may, on the surface, appear to be the result of perceived monetary "sins" of the last hundred years, like the creation of the Fed in 1913, the 1922 Genoa Conference, FDR's 1933 gold confiscation and the 1971 Nixon shock. No, it's much deeper, much more mind-blowing, and totally inevitable.

Freegold is the emergence of a new monetary paradigm that has no precedent, certainly not in modernity, and probably not in all of recorded monetary history. It's a brand new idea, ironically with its roots in ancient history, whose time has simply come.

So, while it is true, as gold bugs would have it, that gold never really left the monetary realm, despite its official change in status, one needs to understand that physical gold's role going forward will, in effect, be the result of a shift in consciousness that, without engaging in hyperbole, might be likened to the evolution in understanding about what the universe consisted of that transpired after Einstein introduced the world to The Theory of Relativity. Money's functions will, like the atom, be split, and the world will not be the same afterwards. (Hat tip Edwardo ;)


Seasons Change, Leaves Die… and so do Systems

"These years be right for ones who save gold. One good ear knows meaning of wind in trees. The leaves come down as seasons change. Fools see falling price of gold as "death of tree", they chase its price as leaves on the ground. Know you all, it is the season that has died."


Merry Christmas!

Sincerely,
FOFOA


308 comments:

1 – 200 of 308   Newer›   Newest»
Polly Metallic said...

Yea! A new post. I am looking forward to enjoying this early Christmas present.

Blake said...

Can't wait to devour this feast of a post! Thank you and merry Christmas, FOFOA.

Indenture said...

In this season of giving please consider a small donation for our host FOFOA.

Lisa said...

Or a large donation

Indenture said...

From FOFOA’s First Post, “First on the value of gold. When we get “there”, I believe that gold will be a world class store of personal wealth unlike anything else. I believe that governments and central banks around the world will welcome the high price of gold because it will bring a newfound stability to the world. I believe the future value of gold will be north of $30,000 per ounce based on the current amount of paper currency in existence. I believe a value north of $50,000 is likely. And I believe that between here and “there” we will see massive creation of new paper money so the future value of gold will likely be much, much higher. If “there” is one year from now, add 30% to 100% to that value. If it is four years from now, who knows.” August 2008

It has been five years.

Edwardo said...

Here's to some metaphorical atom splitting coming to a theater near you. Thanks for the thoughtful new post, FOFOA.

Franco said...

Great article!

By the way, I can see myself on the world map below! I am the ONE flashing dot in South America. Ha!

fnord88 said...

" Indeed, it is the very ultimate in a super leveraged investment. No other currency today could expect a 1,000% to 10,000% rise in value against the dollar, none." –FOA "

LOL. Does not matter how high my gold goes, it will never equal the return I made on my bitcoins.

Wonder what else FOA was 100% wrong about?

Luke said...

fnord

Nor the returns I made on my 15 team parlay this weekend.

Cheers!

Sam said...

"They don't hold it because it appreciates. It appreciates because they hold it."

summed up well in one line

Luke said...

Sam

I thought the exact same thing when I read that. Its a good one liner to give to people to ponder on.

Nickelsaver said...

I once wrote in comments that I believed that the value of gold was constant. A poor choice of words to be sure, and which were met with justifiable criticism by those that knew better. For as we know, VALUE is subjective.

Yet even as the words of this post are fresh in my mind, I find myself wanting to reassert the notion of gold's constancy, if not of value, then something else. Perhaps it is just easier to say that gold IS a constant and leave it at that. But I would rather not.

For as I consider the 5000+ years of gold's unique focal point status within humanity, I cannot help but juxtapose that against the dollar and the monetary system of today. In doing so, I see irony in the fact that the dollar too is a focal point, its network effect or infection, spread throughout the whole earth. And I don't just mean that dollars are held as reserves as "the stars in heaven". It is more than that.

It is the irony that those immersed in the system; those who have been born into it; those that drink, eat and breath it - live it, cannot see beyond it or outside it. I speak of what Another, FOA, and FOFOA refer to as the western mind or mindset. It views the dollar and this system as a constant, not of value (quite the contrary) but as an entity. They simply cannot see that the system will ever change. Which is why many of them simply can never be reasoned with.

And if that isn't absurd enough, they think that gold has changed; that gold doesn't matter anymore. They cannot see that gold's network effect is still intact. They think that it is dead.

How sad it will be for many when their $IMFS network connection is severed, and they are left only with the memory of the opportunity to get out of the monetary plane before its value vanished like so many 1's and 0's in cyberspace.

The physical plane always has and always will be where value meets its conclusion. For we as human beings are the ultimate thing of value, the top of the pyramid. And if there was only one thing I did not quite agree with within this post, it is the idea that gold is God's Mona Lisa. It is not. We are!

For I doubt very much that God places any value on gold. But on us, I think He views as priceless.

Nevertheless, He did create gold. And this gold He created (I believe) to be a constant for us.

Great post FOFOA!!!

Thanks,

Nickelsaver

Zebedee said...

And there was little ole me thinking of putting my furniture in storage.

Many thanks for this FOFOA and Merry Christmas to you and yours!

Phil_O_Dendron said...

fnord88 - lets see the current Megamillions lottery is about $500,000,000. If I buy a $1 ticket and win then my return is how big?

Oh wait - that has nothing to do with saving in gold now does it Never mind.

Jim Tooler said...

Thank you FOFOA. This is somewhat enlightening for a newcomer to gold.

InowB4 said...

Merry Christmas, Mrs & Mr Fofoa :-) and to our FG community as well.
Thx for an outstanding blog!

Delusional Investing said...

Another cracker FOFOA.

...might be likened to the evolution in understanding about what the universe consisted of that transpired after Einstein introduced the world to The Theory of Relativity. Money's functions will, like the atom, be split, and the world will not be the same afterwards.

Before: Flat
After: Bubbles

Cheers, DI.

Roacheforque said...

For those who hide away precious and rare objects of art, or of a lost craftsmanship of the past, I consider them pikers of a sort, for it is the daily appreciation of such things, always accessible, always enriching the mind and spirit in their display which truly enriches the daily life and brings wealth to each passing moment.

The owner of "orange dog" will never understand such things simply because there is no appreciation of "taste".

Gold, while the design of coins is indeed beautiful, does fill the more utilitarian function of "wealth storage" and at times I do view the coins, but they do not feed my soul in the manner of those antiquities, and the people who created them, which add majesty to the humble Roacheforque estate.

Happy Holidays!
-Roache

Phat Expat said...

Balloon Dog? Man, talk about more dollars than sense. Art truly is in the eye of the beholder. In Zurich now and would like to buy some gold (pref is 50g combis). Any recs?

Roacheforque said...

And here I thought Christmas was a purely "Western" Holiday (or did I miss the Chinese equivalent here this year?).

In case there was ever any doubt that the values of conspicuous consumption, Gold, AND the corporate target for mass consumerism is already well entrenched in the East, this should settle all bets.

Indenture said...

Date: Thu Nov 13 1997 10:08 
ANOTHER (THOUGHTS!) ID#60253:
Mr. BillD, 
Who can know the thoughts of the "Big Traders" of the world? If they press the physical market, it will end tomorrow. They are by no means dumb as they sometimes show! Most would like to keep their gold at todays price and allow the economies to continue in prosperity! In time and with luck it could all be worked out. But, it is the equity/debt/currency markets in general that are a problem! If only a small, very small very few " western people" begin to buy?? Remember, the other world no ones have gold in their hand. They care not about YOUR debts, these small people have won a great deal and know it not.

One Bad Adder said...

A well-constructed compendium of "Thoughts" Sire ...and yes, a very Merry X'mas and Happy New Year to the FoFoA tribe ...both at home (Family) and here in the blog-o-sphere.

Sam said...

@Luke

Cause and effect is great concept to contemplate isn't it. It's sort of like the line I have been telling some of my friends lately. "Gold isn't down in price because people are don't want gold, people don't want gold because it is down in price." It makes your average trader stop and think. To me it's laughable that all the economic conditions people gave as fundamental reasons to buy gold yesterday, are still in place today, except for the year over year increases in price. By people, of course, I mean western paper traders. Physical gold advocates, Giants, third world no-ones, and those that understand freegold appreciate the discount. I think I'll follow in the footsteps of Giants. How mind bending it is to contemplate how important these entities are. Gold's qualities are obvious but this post and its "balloon dogs" remind us that Giants are so influential with their actions that they don't necessarily need to find things of value to buy and hold, but instead have the power to buy and hold things and in turn give them great value. Im so glad this blog came around to give me a heads up on where these influential chaps are logically headed next.

Bron Suchecki said...

FOFOA,

I posted this comment on Nov 11 http://fofoa.blogspot.com/2013/10/gold-as-forex-currency.html?showComment=1384243164628#c5093729230753764907, no response as yet, maybe you missed it?

Michael dV said...

Perhaps this will end the silly talk about china moving to a gold backed Yuan.
http://www.zerohedge.com/contributed/2013-12-16/exaggerating-rise-yuan
I assume folks mean a gold standard type Yuan and not an ECB type Yuan (I could see that.)

Alex Hillock said...

FOFOA, another great write up. Thank you.

On another note, how will we finally know when the 'true' FG process is implemented. There are people like Willie and Rickards talking about a new monetary system being backed by gold at $7,000 which seems a little low. If that did take place, would that just be the first wave to get the weak hands before they raise it up to $50,000 or whatever it would end up being? Would the first stage be a 'fake out?'

Sam said...

@Alex

Going back to a gold standard would be a step backwards. Let's pretend for a second it wasn't though! just for fun. Who would believe for a second that our new and improved currency would be "as good as gold" when we broke our promise last time around and just kept all our gold and defaulted just 40 years ago. Fiat and digital currencies work great for trade. We just need a new system for storing long term purchasing power and settling perpetual imbalances with something real.

gull_mann said...

The rumors of China and their aspirations, is it really going back to a true good standard? If they are making a play for world reserve currency, what role will that gold play in terms of backing the yuan?

Aquilus said...

Gull Mann,

This blog is not about gold backing any currency. No gold standard. Nothing like that. If that answer is unacceptable, then this is not the blog you're looking for.

If you are willing to entertain that there's more to money and currency than backing or "Da Bernank" then try this post: Synthesis (eventually it gets to the yuan, but don't just skip to it, read the whole thing please)

If you read it, and you think there are some ideas that are worth considering, please post back, and I'll be happy to direct you to the next logical post.

If it doesn't resonate, that's ok, it just means it's not the right blog for you. No problem.

Thanks,
Aquilus

Aquilus said...

Hello Alex Hillock,

I would suggest reading the FOFOA posts in this PDF Aquilus & Matrix Freegold 101: An Introduction in that order and see if that helps you answer the question all by yourself after the first few posts.

Because in the end, it does not matter what this and that guys say, it matters that you understand enough to make your own calls, at least in my opinion.

Aquilus

Michael dV said...

Gull man
I hope I did not cause confusion. when most gold bugs talk about a 'gold backed currency' they mean that the currency is redeemable in gold. What I mean when I say 'OK with me' is the way the Euro is styled with gold on the balance sheet marked to market. This is a very important distinction. Gold on the balance sheet allows the Central bank in question to defend it's currency by buying or selling gold as needed.
In the gold standard of yore the banks would declare their currency to be worth a certain weight in gold. This effectively fixed the price of gold and gold was not allowed to move in price to reflect the over printing of the currency.
The Euro is ready to hold up very well if gold rises in dollar price. Even as the dollar price sinks the whole world can assess the value of the Euro as they know the combined CBs of the EZ have 10,800 ton of gold.
Most currencies have value from the fact that you can use them to buy things in the currency zone so the real value of the Euro's style is it's ability to defend the value of the currency if needed.

KnallGold said...

Phat Expat: try Münzen Dietrich, Werdmühleplatz 4 in Zurich.

UBS (or CS) has also lots of stuff in their PM department, usually I buy in Basel. The Valcambi Comibar btw I got at Raiffeisen bank, they are spread over the whole country (a classical S+L bank).

Below 25'000sFr., no forms to be filled.

The left side of the Lake of Zurich is called "Gold coast" because many wealthy people live there, nice villas, wonderful views. Rapperswil is a nice little city with castle, restaurants on the lake-and if you're into smoking cigars/whisky, the LaCorona is legendary...

Remember your questions on where to go, the Kanton Graubünden is recommended, particularly the Engadin, where St. Moritz lies. If you like snow :-). Btw they make the "Bündner Röteli", a liquor made from dried mountain cherries, vanille, cinnamon, clove etc. My Grandma made the best but took the recipe into grave...

The french part of Switzerland has also wonderful places, part. that valley (Val de Travers) where they make that Absinthe. Very countryside... In Avenches is a roman amphitheater.

Will you go to Basel? It has nice but often hidden places, charming little city, maybe the BIS will make some day a tour in their vaults for us...

DP said...

Contemplating whether it is Freegold, or goods/services/currencies, that fluctuate in future… is a personal matter.

Bifi said...

@Sam No system is perfect. Life isn't perfect. It entails risks. Someone has to pay for that risk if it doesn't turn out well. Banks involve risk. Who will pay if a debtor can't full his promise? fiat, 10% gold backed standard, 20%? 50? 100? SIlver standard? Iron standard? Does it really matter? What I do know is that if you take risk (largely) away for 10 decades using fiat and papering over every problem, you create 1 big risk: loosing the system.

spaul67 said...

Part 1 of 2

@ DASK (follow up from last FOFOA post but I will also tie this into the current one as well)

Excellent analysis, but we also need to go beyond direct energy consumption used in benefaction and refining. For example the energy in manufacturing the mining equipment or the energy needed to sustain the life of the workers (food, transportation, heating, raising kids, taking vacations etc); numbers that are difficult if not impossible to figure out with any degree of precision.

I think the I-Pencil move below should give you a sense of what I’m talking about.

http://www.youtube.com/watch?v=IYO3tOqDISE

This also proves in my mind why centralize power in politics and economics always ends in disaster. Nobody is as smart as everybody.

I have complete faith that a free market which is itself just a very complex compilation of trillions of individual decisions every day will figure it out for us as the EROI goes lower and lower provided we are free of these monetary distortions. In fact one economic theory is that all cost structures eventually reduce down to EROI. Life exists at the nexus of energy and water. Even fresh water is direct result of energy from the sun.

Regardless, the price of energy and more importantly the EROI will be a defining parameter of the 21st century and beyond IMHO. That is assuming mankind doesn’t invent an entirely new form of energy; think Star Trek. Let’s just hope it can’t be turned into a weapon somehow. We are still living with a Sword of Damocles over our head from the last energy breakthrough.

Anyway back to our present reality; the energy balance vs. gold found at say a GSR of say 50 is entirely different than a GSR of 10,000 wouldn’t you say? A ratio that is implied if gold becomes the next monetary systems foundation/focal point and therefore like debt based money is now, will be completely untethered from the energy required to produce it and thus all commodities by extension. So while the price of gold may be uncoupled from commodities, energy will not be decoupled from commodities. So those that hold gold prior to transition may be in a position to capitalize on this difference?

The other thing I don’t understand from your numbers is if this is for new metal or for a mix of new and recycled? For example if this is for new aluminum then I think the numbers need to be adjusted for the portion of recycled content. Let say that 90% of the aluminum supply comes from recycling then the energy number you found needs to divided by 10. The same would be true for silver as well as any other energy intensive commodity. Basically two energy streams for new vs. recycled with the recycling rate and consumption rate not being independent of price.

spaul67 said...

Part 2 of 2
Now connecting all the above more directly into the topic of this new excellent post.

I obviously agree with FOFOA regarding the superior attributes of physical gold as a way toward resolving and stabilize the world monetary system; the fact that I also dabble in GSR trades notwithstanding; perhaps picking up pennies in the front of a steamroller in some of your eyes. In short I want gold so much that I’m willing to even lower myself and buy silver in order to buy more gold later. I also believe that in order for gold to perform this future function the price per oz will need to be significantly higher ‘especially’ in terms of energy, the king of which at present is oil. So while I’m not a Freegold purist marching in lock step down the same trail as some on this board I’m still traveling in the same general direction.

My central point is that if gold prices energy (which I believe is a key axiom of Freegold) and energy prices everything else (which is reality) then by extension everything else will have a related price with gold via energy. Why would one purchase energy with gold and then proceed to produce a commodity that has a lower value in terms of gold? The answer is they wouldn’t, at least not for long, causing the price and demand to adjust to that focal point relation. This view is entirely consistent with gold as the focal point (another axiom of Freegold). In fact I could easily see gold becoming the proxy for the remaining EROI going forward on a continually basis. In which case I could almost buy the “this time its different” and gold won’t be demonetized again after Freegold regardless whatever nefarious designs I may ascribe to the Kleptocracy running the various paper scams now.

In addition, we are counseled to follow in the footsteps of giants and yet even giants don’t hold 100% of their savings in gold or even balloon dogs for that matter. Regardless of how much in love you are with a particular savings vehicle or investment it’s never advisable to have 100% of your savings in one vehicle ever. Even giants don’t do this, neither should shrimps.

So for us pre-Freegold physical gold holders; diversification post Freegold just makes good sense based on this simple principle alone. As our other assets crash and burn and gold performs like it should even someone with 10% gold to other assets ratio will quickly find themselves in the 90% or above category. It doesn’t mean that we are weak hands or turning our backs on gold any more than Bill Gates is turning is back on Microsoft when he diversified either. Unfortunately even after freegold I’ll still be a few dollars short of being able to buy even one balloon dog, but I’m sure other things of lower unit cost relative to gold will be available. Fortunately, unlike giants, my hoarding of a particular energy dense commodity will have almost zero impact on its price. It might be the inner shrimp in me but I’ll have a hard time paying 400K for a 40 dollar table vs. something governed by the 2nd law of Thermodynamics.

I’ll be looking for diversifications post Freegold and durable compact assets /commodities backed by physics have my eye at present.

About the only thing that could mess up this trade would be Star Trek energy breakthrough as far as I can determine. At which point the EROI relationship will be completely reset if not abandoned altogether and thereby taking everything including gold with it. So that is another tail risk for Freegold or any EROI based strategy. With nearly unlimited energy there is more than enough gold in the universe. If you don’t want to travel then just fire up the old port replicators, either way.

Roacheforque said...

I think the crux of the matter is whether or not FREEGOLD is an unstoppable, inevitable and foregone conclusive event (Euro or not) vs. an ideal solution that we all hope will transpire.
I do wholeheartedly vote (with my fiat) for the latter, but also do see the incredibly screwed up variations upon those themes being wrongly implemented, time and again, by much lesser bodies of thought than represented by A / FOA / FOFOA.

We must never underestimate the fallibility of power and wealth, they do in fact wear their pants in the manner of the common man.

As for the YUAN, if it was reserved by a larger amount of gold than the combined holdings of the European Union and central banks, AND if in typical feign and deceit fashion, those Chinese monetary authorities are reading A / FOA and FOFOA (and seriously taking notes) what is to prevent the YUAN faction and/or the Eurasion union from taking a page out of that book and either spendidly botching the whole thing, or embracing the freegold concept in TOTO?

Despite all likelihoods, preparations and intents, there are always surprises ahead in store.

I doubt that any of us can say with certainty how the future will unfold, to the extent that we can confidently point at another and simply say RTFB.

Though again, I truly do hope for WHAT I BELIEVE IN!
And likewise, what I believe in appears to me our only hope.

Diabolitio283 said...

Any input on secure storage of or insuring your holdings?

I tend to lean toward 'if you don't hold it you don't own it' but what say YOU, dear readers?

Phat Expat said...

@KnallGold

Thanks for the recs! I will take a look at the Raiffeisen bank since I am looking at the combi primarily. And with no forms, that's even better (though I wonder about requirements for a foreigner purchasing there). Let's see how the Fed will impact the price. ;-)

Ah, the Gold Coast; definitely my kinda place. Have been wandering the area already and especially around the lake. The scenery is nice, the food is excellent (though pricey), and the people are generally nice (it does help being fluent in German). Took the train from the Hauptbahnhof to Uetliberg and wandered around for a good 3-4 hours having a snack in the restaurant and taking in the amazing views from the top of the observation tower.

Since Basel is about an hour away I would appreciate your suggestions. I am trying to head towards Luzern tomorrow and if you have any places of note there, I would be happy to hear about them.

In case I can't make the trip to the Kanton you mentioned, I will look for the Buendner Roeteli; maybe there is some in the Gold Coast area. The little market close to me seems to have a pretty good assortment of liquors so that will be my first stop before the trip.

Overall I have had a positive experience so far. The only thing that surprised me was the cost of food relative to Konstanz and The Netherlands (Sluis area); significantly higher in Zurich. I have heard quite a few Swiss make the trip to Germany to shop.

Thanks again and I will share some more details, especially my experience in trying to purchase gold.

Phil_O_Dendron said...

Roacheforque ... I agree with your analysis/sentiments. It looks like Freegold is a likely event is some form or other but when humans are involved one never knows for sure what kind of stupid things they may do. Some of the people in higher positions today must have come from the shallow end of the gene pool I leave you this example for a good laugh
http://www.youtube.com/watch?v=0eTkv_DoR00

DiverCity said...

In other news, Harold Camping, the notorious Evangelical prophet who posited that the world would end in May 2011, died very recently. I suppose I'm a freegolder. I've been here since the beginning. But I do feel like a Camping acolyte at times. Even so come Freegold!

Alfabeck Lauder said...

Since apparently no-one else wants to respond, to your question, FOFOA, the task falls on an otherwise silent freegolder. You did well: yes your description of the DIVISIBILITY of gold "works" wonderfully for me. But although this might be the most difficult argument in favour of gold relative to balloon dogs and the Mona Lisa (I bet the Mona Lisa's eyes would command the highest price!), in my opinion other arguments are just as important. For example,

UNIFORMITY: A gram of gold is a gram of gold in whatever form, location and context and, because of its high value density, the cost of transforming it from one form to another is relatively insignificant. Transforming all other stores-of-value destroys them, as the Mona-Lisa example shows. Unfortunately it's the uniformity which has also allowed gold to be confused with commodities and given rise to the paper markets.

BEST-DEFINED FOCAL POINT: There are many different art periods and artists, many different precious stones, many different wines and vintages etc., all changing with time, but only one precious metal of significance with zero possibility of this changing in the future.

EASE OF STORAGE AND TRANSPORTATION: Although its value-per-size is not as high as, say, diamonds, gold is the easiest store-of-value object to store, transport and swap. (Although I sometimes wonder why gold (and tungsten) had to be so heavy!) And if this is true for the Giant, it's even more so for the shrimp who, presumably, already has sock drawers. And try putting a balloon dog in your carry-on luggage!

EASE OF BUYING AND SELLING: The depth of the physical gold market overwhelms that of other stores of value. And it's global, with regional variations being relatively insignificant. No valuations, auctions, agents and expensive transportation are necessary when buying and selling, with the possible exception of testing for purity.

PRICE TRANSPARENCY: After the transition to Freegold, its market price will presumably be public knowledge and, due to the possibilities of arbitrage, almost the same world-wide. This will be no different from today's "price of gold" except that it will no longer be fixed by bullion banks and dealers in paper but by buyers and sellers of physical metal. (How strange that the buying and selling of gold could affect the price of gold!) This is not true of any other store-of-value objects because they don't have uniformity.

LOW VISIBILITY: If he or she so wishes, the owner of physical gold can remain relatively inconspicuous to the prying eyes of envious busybodies, agents of the State, potential thieves and the press. Because of its uniformity and ability to be transformed, as well as the mass production of gold products, it can't be tracked. Admittedly, a Giant might wish for the very opposite of low visibility.

Concerning your card table example, you distinguish between utility value and store-of-value value of an object. I'm wondering if there might not be a third component which, for want of a better term, might be called a "feel-good" value. I'd certainly feel good (as well as highly nervous) if I had the Mona Lisa hanging over the stove in the kitchen and I doubt that any reproduction could look as good and give me the same feeling. But maybe this feeling just derives from the store-of-value value. I don't know and, in any case, it's no big deal. The important thing is that it's becoming increasingly easy for me to think like a Giant! As for the question of what the Mona Lisa is worth, did you want the answer in ounces or dollars?

Biju said...

Thank you FOFOA.
I just made a small donation.

Hope everyone reading these posts which will help the weak hands especially during fall of paper gold support - please make a small donation to continue this.

simpleminded said...

Here, just take a look look how the EZ institutions work!
Even Leap 2020 mentions the pure fact that some European govs have long sold out to the merican hegemon.
See you long. Banking UNION! Only the ECB could help.... maybe....:(

http://blogs.ft.com/brusselsblog/2013/12/coming-banking-union-storm-leaked-points-of-friction/

Poor Europe!

Robert said...

gull_mann, it is understandable why China would want to break free from the current system and the USD as the world's reserve currency. But it does not necessarily follow that China therefore wants the RMB to become the world's new reserve currency. Why would they want that? And why in the world would they ever want to implement a fixed exchange standard? The Chinese have been hoarding gold, and a fixed exchange standard would obligate them to potentially sell off the gold they have been accumulating. The U.S. did not want to do that in 1971. Why would the Chinese want to do that now? Besides, a fixed exchange standard would strengthen the Won and hurt the export sector. Again, why would the Chinese ever want to do that?

I am afraid all of this talk about the Chinese implementing a gold exchange standard is just a bunch of KWN goldbug wishful thinking nonsense. They can see the end of the USD coming, but they have no imagination to see the new system that is coming. Yes, gold will be the center of gravity in the new monetary system, but not under any fixed exchange standard. Governments and central banks may try to establish a price floor for gold in an interim revaluation, but I cannot see any of them committing to sell at the revalued level.

Wil Martindale said...

Robert (and Gull man),
With the information we are fed about China,and the misinformation China feeds those who feed us theirs, it is difficult to understand exactly what they are doing, if in fact they do understand it themselves,

One day a man jumps to his death over his girlfriends exorbitant Christmas shopping and the next day the government is attempting to discoutage exorbitant consumption.

Someone wrote earlier about cause and effect. A VERY deep point to be taken there.

The many thoughts flying about offer much despair, frustration and anxiety, but there is very little offering of solution.
Just read ZERO HEDGE and all the related doom and gloomism of the Fabers, Rogers, Roberts and etc...

At least FREEGOLD offers an EQUITABLE SOLUTION floating in a massive ocean of dischord.

If China could (and would) "see it this way" then they are surely holding enough gold to see the advantage they have.

And yet there are always opportunists, standing ready to exploit a changing culture with much gold to accumulate in the recycling of a "saver to consumer" transition.

All we can do it seems is "wait and see" ...

KnallGold said...

Don't know much about Lucerne, aside from the obvious. We often went to the Verkehrshaus when younger, the cars, exhibitions and movie theater.

Yes Zurich is very expensive, housing bubble included...on the countryside here one can still get a lunch for about 16sFr. though.

The Kindschi Bündner Röteli can be found in many stores "in the lowland" as they'd say.

Basel: the red Münster and its place, freshly restored, including the colorful patterned roof, is the must. Marktplatz with the also red Rathaus (gov. building) is a good starting point to go into the narrow streets (vis-a-vis Rathaus), most of the historic Zünfte (now Restaurants) are there.

St. Alban quartier is also special with the ancient buidlings, river walk. Dare to walk into the narrowest back/inside yards and you'll discover surprises like art exhibitions, pharmacy museum, fountains etc.

We could meet in Basel if you want as I live nearby!?
But you don't think the fed will drastically increase the Gold price for you ;-) btw I've seen many foreigners at UBS buying coins. Cash above 10'000 euros can provoke questions.

On older buying receipts for coins it said "declare on customs when leaving country" but that is no more there.

John said...

@ Knallgold

I am curious to know if you tell me what the typical premiums charged for purchasing the 20 SF Helvetias/Vrenellis....and since they would be considered legal tender in CH....would they not qualify as money at their face value for the purpose of crossing borders?

Robert said...

John, I can partially answer your question, at least with respect to Europe in general. The premium for Vrenelis is minimal here. I have found coins offered right at spot. When the market has been tight I have paid as high as 5 Euro per coin. If you walk into a coin shop as an uninformed buyer you might end up paying more, but if you ask "What is the cheapest you have?" they will typically offer Vrenelis, Roosters, Leopolds, Sovereigns, etc.

Regarding border crossings and legal tender gold coins, you might be interested in Directive (EC) No 1998/80EC. This addresses the issue of VAT tax in the EU. In my own personal experience VAT tax is the trickiest issue and the trap for the unwary when it comes to border crossings. I once tried to take legal tender gold coins into a certain Asian country, and in advance I got written confirmation that there was no customs tax and that I would only need to fill out a declaration. When I arrived and filled out the declaration they announced, surprise surprise, that I would need to pay VAT tax to take the coins into the country. I refused to do so, so the coins were held in custody until I left the country.

The EC Directive handles this issue by saying that there is a VAT tax exemption on coins that meet the following four criteria: (1) at least 90% gold; (2) minted after 1800; (3) are OR have been legal tender in the country of origin; and (4) normally sold at a price which does not exceed the open market value of the gold contained in the coins by more than 80%.

Franco said...

Update: the "taper" of structural support of the US dollar by foreign central banks continued in the month of October. They were net sellers of US Treasury bonds, notes, and agency bonds by $0.9B.

Foreign taper = no Fed taper

Polly Metallic said...

I enjoyed this post. I have been reading some of the older posts recently and see this important theme about real things discussed in various ways. It is a sobering thought to realize that if everyone who stored their excess productivity in "future exchanges for real things" decided that NOW would be a very good time to make that exchange, very little could actually be purchased as it would gun the price of all real things worth having.

As for the Giants' wisdom in buying the best-of-the-best because it is a store of wealth, and because they derive pleasure from owning rare and wonderful things, even wise Shrimp do this on a lesser scale. Being in the antiques business, my husband and I have often discussed that when the economy is poor, the lower and middle tier antiques and collectibles don't sell well and prices fall because the general public is not buying as much. The higher end, rare pieces, however, always have a market because wealthy people still have disposable income, and there is always more demand than supply when it comes to the best items.

One of the current "hot sectors" is vintage U.S. tube audio equipment from the 1950s and 60s. A great deal of the demand is from the Asians who prize these pieces for their quality sound as well as for their history. Who knows what items will be "hot" a decade or two from now. Many of the collectibles from our parentts' generation generate little interest at all, as young people prize completely different items. And therein is the benefit in owning gold. It never loses favor and is relegated to the back corner of the basement or attic. I believe people should continue to collect the Real Things that appeal to them, not so much with an eye for its future value, but because it brings them pleasure. For me, gold works as a wealth asset and also as a collectible for its own sake, because I enjoy the beauty and the history of old coins, the artistic forms of modern coins, and wearable-art property of gold jewelry.

KnallGold said...

@John

The Vrenelies are traded here without the premium on spot in mind, just buy/sell. But lets make a snapshot now: at 1230$/oz, a kilo is 35124sFr. which makes the 5.807g pure Gold content worth 204sFr.. The broadly used coin dealer price gives a bid/ask of 201/223sFr.

Buying from a bank costs a couple of sFr.'s more, better prices can be had though, for lots of 20 or 50 pieces. But its still higher if you compare what a private will ask, one reason might be that these coins are mostly in private hands. Had it once or twice that a bank seemed to be low on stock...but liquidity in 20Fr. Vrenelies is high so one can press for low premiums.

The 10Fr. Vrenelies are rarer and the they appear to trend again for higher premiums. 108/139 on same site.

My local coin dealer btw says he takes a margin of 2-3% only, on Gold. And sells 10'ers for simply half of the 20'ers!

Theoretically Vrenelies are still legal tender, although redeemability was cut 1936 and in the new constitution from 1999, the Gold backing clause was removed, fulfilling the separation of money and Gold.

I'd say on crossing borders the true value will be taken though, from the few smuggling stories I've heard. But you could make your case, respectively ask for the precise law to be shown to you! Just have the receipt with you. What's your's is you'rs.

The last years I have never had troubles again with importing Gold, it has gotten through, the free trading Gold. But yes, early millennium some dared to charge a VAT, which I always got back.

tcelfer said...

Greetings!

The other day, I was pondering FG, as I find myself doing with increasing frequency, and I wanted to pose a question to you folks. I know that predictions of 'WHEN' have been talked to death and are generally stayed away from -- so while this question has elements of 'WHEN', that's not really the point behind it.

What I'm looking for is a min and max timeline from everyone. Basically, what is the least amount of time until you, personally, believe that FG will arrive? (Tomorrow?) And conversely, what is the maximum amount of time from now that, you believe, FG _could_ hold off until.

For the max projection is it a 'perfect storm' kind of scenario? Is it your belief that if all of the stars are in aliment it could be delayed indefinitely? Or, if your prediction takes into account only current and 'likely' conditions, that's fine too -- just be sure to specify for clarity.

If nothing else, I figured it would be interesting to see the responses -- and it's something to bide time while we all wait.

Happy Holidays to all of you and thank you for fostering an online community so great as this.

Rob said...

Hi All/FOFOA,

I hope someone can help me?

I’m relatively new to Freegold, but not to gold.
I’m just your average blue collar, middle aged man of average intelligence, right in the middle of the bell curve.

I’ve been reading Another’s ‘Thoughts’, FOA’s ‘Trail’ and the FOFOA blog here.
It all makes perfect sense to me, but there is one issue that I can’t reconcile in my mind and that is the TIMING of all of this.

If I have missed it somewhere or anyone can direct me to this topic, then please do.

Another was writing in 97/98, saying that things were underway and major change was imminent.
What happened ? That was 15 years ago ?

Why do we think things are going to change anytime soon ?
FOFOA started his blog 5 years ago ?

Is there a time that anyone is willing to put on the Freegold concept occurring ?
And if that time then lapses, does it mean that the concept is wrong ?

Every employer and all the religion I grew up with promised ‘Jam Tomorrow’.
I never got any Jam from an employer and I don’t believe much in religion.

I’ve probably not got much more than 20 years left in me.

Could some of the belief from Freegolders be worthy of a cult ?
Are we waiting for the Freegold revaluation or for that asteroid to come around take us to the utopian planet ?

As I said, I’m just a nobody and no-one I know ( in the real world) has ever heard or Freegold and no-one is interested in Gold itself.

I myself have bought gold out of the fear of collapsing currencies and war, not because I’m trying to make a killing from revaluation.

Also, can some one please explain to me if Martin Armstrong fits into the Freegold concept with his cycles analysis ?
If you believe in Freegold does that mean MA is wrong (and vice versa) or does he have the timing for it?

I’d love to get FOFOA, Martin Armstrong, Bron Sucheki, Mike Maloney, Koos Jansen and others all together at the same time to debate it out and explain it to me.

Credibility is a big part of this for me.
I always read Bron because he is in the industry, Koos because of his research and FOFOA, MM and MA because their argument is convincing to me.

I understand that people would like to be anonymous and let the concept do the speaking, but the public will never accept this.
They want to know that the message is delivered by someone of integrity who can defend it against all comers.
Otherwise, they will assume that the message comes from the nutter who stands on a box in the town square, shouting at people on a Saturday afternoon.

Why doesn’t Freegold have a public spokesman when King World News can dig up lots of ‘town square shouters’?

Thanks,

Rob

Michael dV said...

KG
Rathaus = government building
I love it!
We will call ours the 'Porkbarne.'

Phat Expat said...

1240... And it's gone. ;-) Here come da MonkeyHammer. I'm shocked!

@KnallGold
Thanks for the info and invite. I'm meeting family this week but if I get a chance to step out I will certainly do so.

I will be looking to buy some gold tomorrow or the next day depending on the paper price action; looking very supportive for me right now. I will stay under 10,000 initially; but the temptation is there.

Another great day! And one step closer to FG.

David said...

Hello FOFOA, I would like to post some of your posts to my blog, but have no idea how to contact you directly to request permission ?

regards

ampmfix said...

John, if I may add some color, in my last trip to Geneva (around summer this year) I asked the customs officials bluntly, upon arrival, if I could leave the country with some gold (back to my original trip start in the EU). The lady was surprised and left to ask her boss. Came back and told me that what was the purpose, I said investment. She said that they couldn't care less and all I had to do was to declare it in my final destination country (or not..., they would not communicate anything). I then asked what would happen upon crossing the security detectors and she said that was the business of the airport security, not customs. She added upon my insistence to know the full procedure that if the stash could not be used as a weapon, they would not mind me passing through (my intention was to cross with 1 half kilo bar + some 10 or so vrenelis). I have later known that in order to preserve confidentiality if security asked me to show the metal I could do it in a room, far from other passengers view. I ended up taking 10 vrenelis and 3 AEs in my backpack and nobody even bothered me, until I got back home. But, the destination difficulty depends heavily on the country you go to, I hear the French are not easy...

John said...

@ KnallGold

Many thanks for your insight and very interesting...in the US the Vrenelies are typically priced (to buy) at anywhere from $15 to $25 over spot (so 5 -10% premiums) and can be sold back at maybe 1% over spot. They are indeed beautiful coins, and no surprise that though plentiful carefully hoarded....I believe they are the most highly priced of the Old Europe 20 franc/lira/mark series. Interesting how the Swiss Constitution was revised to redefine issues of existing gold currency.

@ ampmfix

Thank you for sharing those experiences you've had with customs and airport security. My own has been similar, surprising ignorance and at best only mild curiosity at airport scanners and/or borders particularly within EU. My own impression is that it speaks to how infrequently people are passing through with such items and how under-owned physical PM's are as a wealth asset by the public at large. Have gold will travel :) I always carry one little shiny token in my wallet wherever I go....my personal version of the old Amex slogan "don't leave home without it" :)

Sam said...

@Rob

"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."

I'm personally guessing 2014 will be the year but it is only a guess. I base this guess on my view that most of the hard to time dominos have already fallen.

John said...

@ Robert

Thank you for explaining those EU VAT directives...not surprised that what the officials "believe" at these borders differs from what the regulations state. Never assume that in depth knowledge of specific rules is widespread among the typical officials who staff these positions.

Bron Suchecki said...

Hi Rob,

If you have just "bought gold out of the fear of collapsing currencies and war, not because I’m trying to make a killing from revaluation" then does it matter if the geopolitical revaluation aspects of freegold happen or not?

As to KWN, they and similar sites will never run anything but mainstream goldbug consensus thoughts.

Aquilus said...

@tcelfer

The point of "following in the steps of the Giants" is to buy physical gold as long term savings. That means you won't need to sell them to live or pay the rent for decades if not generations. If you do that, does timing matter? You can just live and enjoy your life, and when it happens, great!

If you buy gold with money you know you're going to need then timing becomes of GREAT importance, but I submit you're not doing it right and the ulcers you're going to get are many...

Aquilus

Aquilus said...

@Rob

"
Why doesn’t Freegold have a public spokesman when King World News can dig up lots of ‘town square shouters’?"


Because Freegold is about not about uniting you to fight any evil elites or anything like that. It's simply about understanding what's happening from the viewpoint of the super-producing people/organizations/countries.

It's up to you to read, make up your mind and understand why they are buying physical. Then make up your own mind.

There are no seminars or computer predictive models to sell you like MA - just you thinking long and hard about things from a different perspective.

It's an acquired taste, and not acquired by all.

Aquilus

Blake said...

FOFOA or anyone care to comment on the FOMC taper statement today? Structural support for USG debt from foreigners is waning and yet the Fed also announces to reduce their purchases of USG debt as well... As QE is all about USG debt monetization, how can we reconcile their announcement to reduce the pace of monetization when they are clearly the only buyer left of USG debt?

Rob said...

Thanks for your replies Bron and Aquilus,

Yes, I bought a lot of insurance and whenever I see what's going on with China v Japan(USA), Syria(Russia/Iran) v Saudi( Qatar/Israel), Western debt, Western unemployment and QE, I think I am justified.
I sat in a pub in a small town in the North East of England 6 years ago and watched the queue for the Northern Rock bank snake around the corner, as I watched a bank run in real-time.
Actually, my current bank is the CO-OP which has had it's own problems very recently.
This summer I was surprised we didn't have any riots from our youth. I remember Brixton and Toxteth. I am actually quite disappointed in them. They seem pacified. It surely has to happen with more youth unemployment and a hot dry summer in Europe somewhere.

I am an Engineer in an office of engineers and we speak about the debt and the difference in inflation between the BBC's reporting and our pockets.
We are practical people, yet I'm the only one who has done anything. Why is that ?
It makes me think that my fears are unfounded and I am wrong.
This is why I like explanations from the other side - for balance.

I don't believe in the conspiracy theories and the new world order. If there is one, it does not involve our politicians.
I was one of the many who petitioned our MP's not to go to war with Syria and let me tell you, my MP did not have a clue of the world political stage.
We see how they interact daily and I have relations/colleagues/ex schoolmates involved with the Labour and Liberal parties and know some of the MP's .
Their take is that there are some talented individuals but most are just not that 'bright'.
Politics( in the UK) has more in common with The X-Factor than running a country.
On the world stage, Putin, seems the most adept to me.

I am still interested in the TIMING of Freegold and also, can someone explain to me where the 300 tonne sale of the UK's gold by Gordon Brown in 1999 (to bail out the 2 LBMA banks) fits into the Another/FOA narrative around this time frame.

Thanks,

Rob

Motley Fool said...

Rob

I realize there is a lot of it, but most of your questions are already covered in depth in reading the blog. Some here may be able to assist in directing you to the right posts for your specific queries.

You have quite a bit of reading to do still it seems to me. :)

TF

Rob said...

Yes TF, you are right and I'm appreciative if anyone can direct me to the correct places.
I really don't want to get involved with 'Belief'.
Data and logic is good, that is my job.
I can pick any religion for belief.

belief
bɪˈliːf
noun
1.
an acceptance that something exists or is true, especially one without proof.
"his belief in extraterrestrial life"

Thank you for being kind to me.

I just have some questions that don't sit straight with me.
I think this blog is maybe a bit beyond me just now, so I'll sign off.

Rob

Motley Fool said...

Rob

Well, as regards belief, there are some detractors that label our views such. You will not find any here doing so except in jest. Logic and reason are my 'beliefs'. ;)

TF

5b83c13a-7ca3-11e0-b7aa-000bcdca4d7a said...

Balloon dogs are kept, not frequently traded. Slow, cold wealth.

In posting, FOA quote, "as gold is once more used as "wealth money", this action will again impart an unlimited value for gold in use."

So gold is wealth, money, and "in use". Balloon dogs are wealth, but not money that is in use. Maybe the comparison of balloon dog / high-end art with gold is not holding up?

I have about 10% of savings in physical gold, so I am not criticizing. Just wondering if that comparison may not be so strong. Great blog. Thanks.

Motley Fool said...

Blake

This suffices imo : "3. Sentiment is critical; if the public starts to believe (as Kyle Bass warned) that the central bank is monetizing the government's debt (which it clearly is), then the game accelerates away from them very quickly - and we suspect they fear we are close to that tipping point"

From : http://www.zerohedge.com/news/2013-12-18/fed-tightens-tapers-10-billion

TF

ein anderer said...

Rob,

I am far away of being able to tell you the whole story of Freegold. But I can give you MY story, in short:

If you want to protect your savings don’t forget that EVERY currency failed, sooner or later. The debt based Dollar can die every moment. So you’ve done right to take some of your saving and put it in an asset which is not currency.

The Freegold revaluation is only cherry on the cake (well, quite a big amount of cherry; where is the cake?). If you would not have found FOFOA it would be perfect anyway to put your savings in physical gold, laying save in your own hands. No other asset is known in this world which is accepted everywhere by everyone since thousands of years. So IF there is a »stable« store of value: Here it is.

Freegold will happen, in short, as soon the huge market of paper gold has no physical basis anymore because there is no free flowing physical anymore. The outflow of SPDR (alone this week again: 15 tonnes) could be a kind of symptom that the end of paper gold is near. It IS definitely nearer than one year ago. FOFOA speaks of probabilities—like the great earthquake California is waiting for …

Wil Martindale said...

I for one do BELIEVE in the discipline and freedom of gold as the wealth asset which has the correct properties to bring about an equity based system ...

I DO NOT BELIEVE in the power to conjure wealth from thin air on paper notes,

I DO NOT BELIEVE that a single nation's debt can truly endure as the world's focal point wealtyh reserve asset.

I DO NOT BELIEVE in the religion of Keynes.

Yes, there is logic and reason behind these beliefs, but look at the world around you, see the volatility and the lack of any form of anchor to reality and ask yourself do you really believe with your eyes and ears the present reality we are enslaved to?

A reality that makes men like Rob question the very foundation of their instinctive reaction to the madness?

It does take a deep belief I think, in the present reality, to stay the course.

In some ways, one must accept that "doing the right thing" by yourself and by your fellow man does not always offer the greatest immediate reward in this life.

And that said, when one believes he is doing the right thing, timing is of no matter whatsoever.

It has been written here about the manu jars of gold found buried away from the present world, never to endow its "rightful owner" with the rewards of wealth, never spent into other forms of wealth, because it had to be hidden away from the world in that time, and for reasons that have nothing to do with "what is right and just and equitable".

Wealth passes away in this life as we do, but to do what is right by ourselves and our fellow man ... that we leave behins endures.

So as for timing, I may not live to see an equitable world ... but I take comfort in doing my part toward that end.

Jeff said...

Imitation is the sincerest form of flattery (Balloon dog redux)

http://www.zerohedge.com/news/2013-12-18/guest-post-bubble-modern-art

Zebedee said...

Plata's latest missive - 'When reality overthrows imagination'.

"We humans are living a great part of our lives in an imaginary world; I believe the great problem of our time is that this imaginary world has gradually evolved to a condition where what we imagine is rapidly losing connection with the real physical world in which we live".

plata.com.mx/mplata/articulos/articlesFilt.asp?fiidarticulo=227






Jeff said...

Rob, FOA has a good explanation of the confusion generated from so many points of view on gold. Would you rather consider the arguments and decide for yourself, or listen to someone who promises you certain things by a certain date, usually for a fee and often revised? :)

FOA: Looking back, Another was a true master of understanding people's thought processes. He knew that none of us, that's you, me or any of the rest of us raised inside a background of American financial understanding, would ever accept his position thrust; with him just spelling it out in the open. Especially when this whole financial / political transition has been taking place over more than a decade and a half. By the way, he started this some decades ago. So, he decided to ask readers and listeners to think for themselves; by presenting bits and pieces of the flaws in our "Western Thought" as others saw it and as it pertained to his world of gold and oil. Not wanting to prove anything, while asking us to prove everything for ourselves; as these long term events unfolded.

I understand that there are a large group of basic individuals that fully understand our line of what is happening and are buying gold. What I never envisioned was how many groups make up the gold trader crowd; all standing apart from the Physical Gold Advocates. Further, I never thought they would segregate into so many vocal tribes, each trying to advance their own minor position in the gold world and willing to step all over themselves and anyone else in the process. I find it all a real show / play to watch as it truly demonstrates the very human dynamic Western governments have use to distort modern gold thought. I now understand that Another did fully grasp just how distorted this chain of thought was and went around it all by waiting for events to completely destroy their concepts; instead of debating with a host of gold tribes.

In the end, physical gold will win out and prove to be the greatest wealth holding anyone has ever known. Unable to grasp that only a transition of political influence by old world players can break this modern American Western hold on gold, these tribes are vulnerable to the same government influence they long for. Their wealth will be portioned by those same Western governments as world political reality forces our American leaders to embrace a world "free market" in physical gold. While abrogating, thru taxes and windfall appropriations, all forms of paper gold ownership.

Today they chant; "we want our leaders to recognize gold again"! OH, it will all right and the impact such a recognition will have on these various paper gold plays will leave these gold tribes dancing around a midnight fire! (smile) If nothing else, the entertainment of watching them spew brime on each other will be quite an act to follow. If nothing else it will educate future investors as to where to look for reason. Indeed, the law of ages never changes as one's conduct in social interaction still identifies oratory as being worthy or no. People that relish rash interaction always find themselves surrounded by fools. Eventually broke fools! (smile)

Jeff said...

Rob, FOFOA wrote a post for your question, three years ago:

http://fofoa.blogspot.com/2010/12/freegold-in-proper-perspective.html

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

@Rob ...You said, "I’ve probably not got much more than 20 years left in me."

Gold has outlived Solomon and King David.Your Gold and my Gold will surely outlive the both of us.

Gold, a "WEALTH OF AGES" HOLD you some...

BustinStones said...

Jeff, thanks for link.Slow day at the office :)

Polly Metallic said...

Rob,

Two passages by Another/FOA are helpful to me, and may be to you as well:


"I want to openly state that we have absolutely "NO" faith in gold! None! We do have "absolute", "unending" and "complete" faith in the judgment of our fellow humans. Because we travel this life journey as a society of like kind, our success over time depends on the ability of
people to deal fairly with each other. There is nothing to gain in this life but the honest productive efforts we bestow upon each other. These are represented as the goods and services each of our special talents can produce. We also believe that no one, in this life, should be cheated out of any portion of their savings and will act to protect themselves from loses. This act of protection can and does take many forms as the "lessons of a long life" become the "tools of a families defense". For most of us, indeed, money is "the" lifelong lesson.

******

What I offer up is the private "Thoughts" of a very private person. I believe his appraisal of this ongoing political game comes from his real interaction in world events. On that count, his is the very basis of thinking in major circles. The "Total" concept offered was never so much about gold as it was an impending political move away from using the dollar. Yes, the impact on gold values will be important to us, but the real asset wars will be in the currency transition. For the majority of world commerce, this action dwarfs the gold market! The price of gold, the when and how much are interesting, but are far overshadowed by the "having of gold in your possession" before this change occurs! He (Another) said, he doesn't care what the dollar price is because it won't matter anyway. He sees it as a real money currency, here and now. I agree and try to
position myself for this event.

Rob, you don't need "religion" to see that the world is transitioning away from our past dollar-centric global financial system. The clues are everywere, as are the signs that gold is coming back into a new financial architecture, but the world has seen that the past gold standard and gold exchange standard had flaws that make those systems unworkable, particularly in our modern time. Freegold is the best of the old systems combined with the means of escaping the errors of a fixed gold price.

As stated in the quotes above, you don't need faith in gold, you only need faith in mankind's desire to be honestly paid for his labor and not robbed of his savings. The rest of the world is putting in place a new system that will more effectively benefit global economies and the savers within them.

Luke said...

Gold approaches multi year lows. Burn baby burn.

I would imagine the move from 1180 to 1100 would be brief.

ein anderer said...

A total of 311 metric tons will be withdrawn from bullion-backed exchange-traded products next year, according to the median of 11 analyst estimates compiled by Bloomberg.

Speculative short positions remain substantial and redemptions from SPDR Gold Shares accelerated in December.

Holdings in the 14 biggest ETPs fell 31 percent to 1,813.7 tons since the start of January, the first annual decrease since the funds started trading in 2003, data compiled by Bloomberg show. Assets in the SPDR Gold Trust, the biggest gold-backed ETP, declined 39 percent this year to 827.6 tons, the lowest level since January 2009, according to data on the fund’s website.

Source:
»Gold Declines as Fed May Start Taper, ETP Holdings Seen Dropping«, Bloomberg, Dec. 16, 2013

Ashley said...

Rob,

I am an Engineer in an office of engineers and we speak about the debt and the difference in inflation between the BBC's reporting and our pockets.
We are practical people, yet I'm the only one who has done anything. Why is that ?
It makes me think that my fears are unfounded and I am wrong.


Inertia, confusion, social pressure, etc. I would venture to say that the crowd here has a disproportionate number of oddballs, social misfits, entrepreneurs, self-starters, and autodidacts.

You can talk about financial collapse all you want, but once you begin taking concrete steps to prepare it becomes more "real" and many people simply can't handle the stress (or are more worried about fitting in with the herd than being prepared).

My younger brother is a doctor and one of the more rational, intellectual members of our extended family. We've had good-natured, knock-down, drag-out debates about everything, our entire lives, but not about this. As soon as I start talking about it and laying out the facts of our economic situation and the steps I've taken he becomes very angry. He doesn't even know enough to debate or refute anything I say, just falls back on hopeful generalities presented by "leading economists" in the mass media that "everything will be OK". I found this deeply depressing because I believed he would be the one close family member capable of both listening, understanding, challenging, and sharpening my own views.

On the other hand, I've been approached by much less intellectual family members who intuitively sense that something is very wrong, don't have the knowledge or capacity to plan for it or sort through the garbage spouted by nonsensical charlatans, and are desperate for good advice from someone they trust.

KnallGold said...

The window is more open than ever, one day you might dare to look around and discover that there aren't any walls around the window.

Timing? Don't think too much, buying under production cost is a no brainer!

Burn baby burn, they took it literally and BURN ONE or two (and welcome to the occvlt underground world of Wi†CH HƟ▼SE + GR▲VΣ W▲VΣ - †‡†

America seems to play along, lots of acts of mercy, amnesty and forgiving these days from the power elite. Guess they see the golden light at the end of the tunnel...may the world prosper in 2014!

Sir Tagio said...

1 of 2

FOFOA,
Thanks for another head-adjusting, perspectivizing article!

@Wil,
+1. it is better to do the right thing, and there is great peace of mind in knowing that one is doing that, come what may.

Fellow blog participants,
In the who the heck can tell what the future may bring department, I can't help speculating lately on the fallout of a crash of the paper gold market. I have been pondering what effect it may have on the rest of the financial system and, in particular, whether it will trigger a derivatives implosion or whether the effects will be limited to the "gold market."

Another way of saying this is, does "all paper will burn" mean, all paper gold will burn, or, no really, ALL paper wealth will burn?

I am hoping that the deeper and more knowledgeable thinkers on this blog may share some of their views.

First, there is the question how paper gold is linked to the other aspects of the financial system - in other words, what is the linkage by which contagion may be transmitted? I assume that some "gold positions," maybe a sizable portion, are used as a hedge to protect against currency fluctuations. An implosion of paper gold may, therefore, lead to greater volatility in the currency markets, which would have a destabliizing effect. - but would increased volatility be sufficient to bring down the whole system? On the other hand, a rapid, sizable increase in the price of physical gold following implosion of the paper gold market would indicate that all currencies were suddenly worth less than everyone thought. Since they all float against one another, one could ask, what is the big deal, relatively speaking nothing much would change - except for one inconvenient fact. This would strengthen the Euro as against all other currencies, because Au is a reserve asset on the central bank balance statement, and the dollar would suddenly decline as against the Euro, increasing the costs of all imports here in the USA, possibly initiating hyperinflation - is this the transmission mechanism to the "all paper will burn" bonfire of the vanities?

Sir Tagio said...

2 of 2

What I don't get is how a crash in the paper gold market would trigger cascading defaults of interest rate swaps or credit default swaps. Won't the Fed and CBs be able to retain control over interest rates after a paper gold market implosion just the same as they do now? How would destruction of the paper gold market cause them to lose control of the interest rates on bonds?

I have always suspected the argument that the financial system will crash because of a cascading derivatives default to be somewhat dubious and sure hope that the advent of FG does not depend on such a thing. Yes, the numbers are crazy large. However, when push comes to shove, I don't see why the governments wouldn't just declare the derivatives contracts null and void rather than risk letting them take down their favorite TBTF buddies. As I recall, China declared them unenforceable during the 2008 crash, which fact people seem love to put down the memory hole and ignore. It's a great business for the banks to earn fees for selling "insurance," but there are solid legal grounds for declaring these contracts invalid, nonbinding or unenforceable. First of all, there are the defenses or excuses to performance of Act of God (who could have seen this coming?) and impossibility (there is no obligation to perform what is impossible to perform, which will be the case if there is a systemic crisis). Holders of derivatives who were told to buzz off could argue that the banks committed fraud in the inducement by suggesting they would pay, collecting huge fees under false pretenses, but since everyone in the biz knows the banks do not have anything like adequate reserves to pay these things off except in an isolated case or two (or unless Uncle Sugar makes a nice gift to them to help pay them off, as they did with AIG), not in a cascading systemic default, their cases probably wouldn't go far, and in any event, the banks would just end up with a decade of litigation where they end up paying pennies on the fees that they earned, as is occurring with mortgage document fraud, selling of dodgy MBS, etc. Second, there is supervening national interest.

I'd appreciate anyone's explanation of what the impact of a paper gold market implosion will be on the rest of the financial system - what is the transmission mechanism to the "all paper will burn" scenario?

Thanks to anyone who helps me out.

Cheers!

tcelfer said...

Well then, it seems no one is interested in my game, fair enough. The answers that I did receive though, were far more 'Zen' like than I would have expected. This place always keeps me on my toes, heh :)

@Aquilus -- I think perhaps the context of my 'game' came across incorrectly. The knowledge that the trail has brought me has indeed increased my overall serenity. The knowledge that I'll be prepared to weather my future, regardless of the impact of the outside world (and hopefully the future of the ones I love after I'm past) brings great solace in a world that was undoubtedly making me uncomfortable with uncertainty. My whole life, I knew that something was 'wrong' with the system but I could never put a finger on it until I was lead to the trail. While I realize my question came across as 'How much longer do I have to wait until I can buy 17 Bentleys!', what I really intended it to be was simply to spark conversation. I thought it might be interesting to get personal predictions from people -- knowing from reading comments how some individuals generally appear to skew -- and connecting the dots. I'm certainly happy to accept your Zen answer, and I agree with it, it doesn't really matter. I know I've got a seat in the front row to watch the upcoming fireworks -- but while we wait for the start of the show, it doesn't hurt to grab a drink and a snack to bide the time :)

I enjoy posting, and seeing what the FG minds will respond to, and with -- but never in my life have I found a place where it's so easy to feel like a fool, ;)

DP said...

128,000 Dominoes - Falling into past - a journey around the world

Wil Martindale said...

Sir Tagio,
IMHO, the current paper gold market is one of "infinite supply" and whether by cause or effect this market implodes (fails to dictate price in relative paper terms) we will have the return of a true supply and demand dynamic.

Not just in gold, but in all real things.

People will begin to once again recognize the finite amount of gold available amidst an alarming demand.

People will begin to recognize the finite capacity for a sovereign to somehow satisfy a "generations in the future" supply of debt, held as wealth.

In short, a paper gold crash (it's failure to be defined by the many ways it fails for the many who depend upon the status quo) will be the ultimate reality check that ends the Keynesian fantasy of "regardless of all fundamentals, all things in this world can be managed if only the confidence and perceptions can be properly managed".

So paper that has neither any real-world "backing" nor consensus support will burn.

As for the tcelfer game, we may have a long way to go, as presently, the decline in paper gold is more attributable to "taper talk" than to a disbelief that the current market can adequately price gold at all.

And the dollar presently has the "backing" of the US Military, which can decline rather quickly as the dominos continue to tumble.

But that time will come, either tomorrow or sometime next century. The only thing that could stop it, would be if human beings actually invested their time and money in space exploration, instead of the Coliseum (and its games) such that a new source of gold, beyond planet Earth, changes the rules. The odds of that I think are exceedingly low in this century.

Or, someone invents a way to create gold from, say, dirt. they've been trying to do that for the last 20 centuries I suppose, so I'm not betting on that happening this century either.

The only thing I really know for sure is that I will die, and ... pay taxes. I'm betting the farm on those two, but alas, no one is takking the other side of THAT trade.

athrone said...

So as it understand it, people here are cheering the drop in price because the current thesis is that this indicates that somehow the paper and physical price are starting to diverge and/or people are "losing faith in paper."

1. Does this theory suggest/require that those who are selling the paper are then using the cash to purchase physical, or does it assume others who were not involved in the paper at all are the ones who will begin buying?

2. If it suggest/requires that those who are selling GLD/futures are exchanging it for physical, what supporting evidence is there for this idea? How can we be sure the people who are selling GLD/futures are exchanging it for physical Gold as opposed to sitting in cash or buying something else (stocks, bonds, etc.)?

3. If it does not suggest/require this, what is the mechanism for people who were not involved in Gold at all, not even in paper, to suddenly start purchasing Gold?

Edwardo said...

Athrone wrote:

So as it understand it, people here are cheering the drop in price because the current thesis is that this indicates that somehow the paper and physical price are starting to diverge and/or people are "losing faith in paper"

You don't understand it. Setting aside any putative cheering, the drop in the paper gold price doesn't by itself indicate anything other than that western investors, specs, etc. don't want any part of something whose price is trending lower. However, as the price of gold falls below production cost the specter of a massive reduction in mine output raises the highly likely prospect of flow freezing up like a Siberian lake in winter. Beginning to get the picture.

Gary (tEON) said...

@anthrone

what is the mechanism for people who were not involved in Gold at all, not even in paper, to suddenly start purchasing Gold?

You should really get rid of this idea that the masses (or some awaked group) are going to be the Gold holders/driving accumulation of physical scarcity in the near future. That doesn't even have to happen. The Giants - who already own Gold - appear to be raiding GLD. They seem to know that paper has had its day. Also, below mine production cost you can count of a lot less mined Gold next year. Physical is being divied up. The West, with typical Bizzaro investor psychology, will probably sell physical as the price goes down. Remember Gold flow has only a little less motion to stop totally - it is the paper market imploding that will initiate FG, IMO.

athrone said...

If draining GLD means giants are losing trust in paper, then what does it mean when GLD adds tonnes, they are gaining trust in paper? Were Giants gaining trust in paper when GLD rose from 10M ounces to a peak of 40M ounces and then lost it when it dropped from 40M to 26M ounces?

Seems like a ridiculous argument to me. Why would Giants give up 40M ounces of gold (to GLD) 6 years after Another and then remove it 2 years later if that premise is correct?

Look at the data yourself, isn't a simpler answer that if $POG rises you add ounces to GLD and if the price drops you remove them...what evidence is there that this is about trust in paper?

How can you say people are losing trust in paper if physical bullion can be freely added and removed from GLD? If it can be freely removed, doesn't that imply the physical is really there?

http://www.spdrgoldshares.com/assets/dynamic/GLD/GLD_US_archive_EN.csv

Knotty Pine said...

I suck at this investment stuff. I am a terrible market timer. My cost on the physical gold I own is about $1350.00 and I don't even care. :

Blake said...

Nobody wants to take up reconciling the FED's reduction in USG debt monetization with QE's true purpose (USG debt monetization). USG debt flow needs to be absorbed and the FED is the only buyer left? What am I missing? Is the reduction in purchases de minimis such that 75b/month will still absorb the flow of USG debt?

Thanks in advance.

athrone said...

I know these are all stupid questions (rolls eyes) but why is silver dropping? Are people losing trust in paper silver as well? I thought only Gold would be liberated...?

Or is this just a normal down trending market in precious metals that has nothing to do with conspiracy theories...?

Not saying that paper will never diverge from physical, just trying to attack some of the "evidence" and see what really stands up to scrutiny.

Michael dV said...

anthrone
the world sees all the metals as commodities, even gold. When the group goes up or down they move generally together. When we undergo a reset, gold will no longer be in that group. It will be the monetary metal, the rest will be industrial commodities. Sure some will be used in jewelry and some may continue to hoard silver but the central banks will show the world what gold is really for.

athrone said...

Michael dV,

Right, so how is it that we can distinguish whether they are all heading down together due to investor behavior reasons (bearish sentiment) vs. Freegold reasons (paper divergence)?

This is what I am asking -- how do we know it is dropping because people are ***bearish in paper gold only*** as opposed to being bearish on gold in general (both paper and physical).

Michael dV said...

Anthrone
Remember we were told that gold has been cornered. The central banks haven't really added much and we think they actually parted with physical to keep the paper gold market alive. In the Fall of 2012 they seemed to have withdrawn support. Since then GLD inventory has fallen 541.2 tons. In the period from 2004 to that point there nothing but slow increases in GLD inventory. The price has fallen from 1800 to under 1200.
I accept fofoa's explanation (and indeed prediction) of these events. If you want to try to squeeze these facts into a better explanation I'm all ears but so far I have not heard one.
Look at another fact: China seems to want gold. They have 1.3 trillion in US Treasuries. Why don't thy just buy all of GLD? For a lousy 31 billion they could own it all. I have to suspect that they haven't done it because they either know it would collapse the system (and they aren't ready yet) or they have been told they can't have it (yet).
There are lots of things we can't know for certain and the only other explanation is that evil bankers suppress the price of gold and for some unexplained reason the fund suddenly started selling off their gold. They did not do that when the price dropped 25% in 2008.
Something is happening. I believe that if fofoa has figured it out that those who follow his ideas will prosper. Those who trade gold during this period will get caught with their pants down when the final whistle blows and every thinks its the end of the period but it is actually the end of the game.
Ultimately if you have physical gold it won't matter what you believe but doing so as the price continues to fall is proving to be very stressful for those who do not see things the way fofoa does.
For me this is real peace of mind, in fact it make the drop in price fun as it tells me we are nearing the end of the wait. If you go to ZeroHedge it is all anger and tears. Take you pick...just hold physical while you decide though.

Dim said...

Hi anthrone, I don't think they are silly questions.

I asked the same question about silver a few months back. The answer I received was that the commodities are correlated (as Michael dV pointed out). But the 'Giants losing their trust completely emptying' spike downwards as in The Shoeshine Boy has not occurred yet. I guess it is like going over a waterfall, you don't actually plummet until you are over the lip...?

Michael dV said...

Blake
I was surprised at the taper. The 10 year rose today to 2.95% (and then came down a couple of basis points).
The fed has to do more than just fund the USG. They have to keep interest rates low so that interest rate derivatives don't bankrupt a major seller of these fine products and set off a cascade of defaults. This could happen in a millisecond. Morgan Stanley has 70 trillion in such items. If they go down (they are highly leveraged in these holdings and it would not take much to kill them off) they take all the other big banks with them.
When the 10 year nearly hit 3% in September Bernacke had to cancel the planned taper. My guess is he will have to reverse this one. Anyway the fed is busy propping up a sick monetary system and who really knows what they have to watch and even where they really spend their money.

athrone said...

Michael dV,

I'm not saying it's true but just imagine Gold is the same whether paper or physical. Right now there are not two visible markets so we cannot see the real physical price. As far as we (and most others) know they are one and the same because when I buy a coin at the LCS or buy a share of GLD the price is the same.

A simple explanation is that Gold is simply in a bear market the last 24 months, and GLD is dropping because people are selling Gold. I don't see how the inflow/outflow of GLD is an indicator because it went from 10M -> 40M tonnes when the price went up and it is going from 40M -> 26M now that the price is going down. What is the difference?

People can be bearish on physical Gold can they not? If they were what would it look like? Probably exactly like what we are seeing today, correct?

So if you tell me, people are bearish on paper only because GLD is draining, that to me is not a valid argument. So what real world evidence is there aside from the theory here?

-athrone (not anthrone)

athrone said...

Furthermore, if you are going to say that there is a two-tier market (physical price and paper price) and that the same people that are draining GLD are draining it because physical is not the same as paper, how can that make sense if they are getting their physical at the paper price?

There may be a lot of reasons to suggest paper is not the same as physical but I cannot see how GLD is one of them. If there is some error in this line of thinking please point it out...

Jeff said...

Of the three articles FOFOA wrote on GLD, what's your favorite and why, athrone?

athrone said...

Michael dV,

I'm also going to challenge one of your points on a factual basis. You said: "In the period from 2004 to that point there nothing but slow increases in GLD inventory. The price has fallen from 1800 to under 1200."

If you download the excel file here:

http://www.spdrgoldshares.com/assets/dynamic/GLD/GLD_US_archive_EN.csv

and plot ounces held vs. time will see your statement above is not true. To me, the adding/removing looks almost exactly symmetrical. There is a large jump up in inventory when the price of GLD spiked up and a large drop down in inventory when the price of GLD spiked down.

Please view the data for yourself.

athrone said...

Jeff,

Frankly, I have read enough articles on this site as have I enough comments to not have to go back and re-read anything. I've been following this site for over 2.5 years now.

I'm more interested in testing recent events against the theoretical predictions. If you want me to cite an article I will cite the recent article where FOFOA posted a list of tweets where people were cheering the price of Gold dropping, as if it meant paper was diverging and Freegold was on the way. I will also cite the comments in the recent threads which are positive for the declining Gold price.

Jeff said...

Which comments are you referring to? You agreed with them?

athrone said...

Jeff,

There are two times since I've owned Gold when I thought Freegold was possibly imminent, one, when I had no gold and I was first buying coins and the price was going up every week it seemed and I couldn't get my money transferred fast enough. Two, when Gold had a big drop in April and it seemed like paper might be diverging. I bought some more coins after the April drop.

This last two years, basically slow and steady with downward volatility, indistinguishable from a bear market in any other asset if you removed the labels has got me pretty much losing hope about Freegold occurring anytime soon. I have not yet sold anything but I have no plans to buy more.

When I pictured Freegold after reading all the writings here I pictured a continual rise in physical along with either a sudden drop in paper or a sudden revaluation in physical. Basically I only pictured losses in Paper! It is hard for me to believe physical gold is now almost 40% lower from it's peak if it was already 30x undervalued and people were "scrambling to obtain more." I cannot see how physical is readily available at these depressed prices for some two years now with no premiums if Freegold is true. I cannot see how you can easily buy 500 tonnes of gold at $1200-1500 if there is really a physical-only price which is 30x higher.

The slow drain with physical dropping right alongside paper is a counterexample which does not seem to fit this theory. I don't have the comments off hand but I have seen multiple (dozens?) of major posters here seem to thinking this drop is proof paper is starting to diverge.

I can buy paper diverging and I can buy paper and physical moving up together -- what I cannot buy is paper and physical moving down together... if what Another said is true.

Sam said...

I personally see the drop in the price of gold and the draining of GLD as thoughtful and excellent speculations as to the emergence of Freegold. But they are not the foundations. The foundations are rock solid and once understood the only rational thing to do is buy physical gold at any price you can, as soon as you can. Sorry athrone, beyond that nobody here can credibly do timing or claims they can. I'm sure there is a newsletter somewhere you can buy that has those answers.

Gary (tEON) said...

@anthrone

how can that make sense if they are getting their physical at the paper price

What evidence do you have that 'they' are getting their physical at the SPOT price? I can't tell you the number of analysts that suggest that you pay a huge premium for large (tonne) quantities of Gold (attributed, mostly, to Chinese buying). And there are other analysts that suggest you cannot buy large quantities of Gold at all.... 99% of Gold lies still. Do you understand about a two-tiered market? Did you read about FoFoA's Coat Check theory of GLD? What specifics do you dispute about it?

I'm more interested in testing recent events against the theoretical predictions.

So it's not enough that FoFoA was, essentially, the lone voice in entire PM community predicting the declines of both the paper price and GLD - now are you saying you dispute his logic and that he just got lucky (and it is, simply, the end of the Bull Market?... that he, obviously - must have, called)

That seems quite a stretch to me. If you couple his views with current financial events (ie Global QE, Foreign Treasury abandonment aka death of the dollar etc.) then it certainly seems more plausible... to me. You may differ, but my suspicion is that, while you claim to have read, perhaps you have not comprehended (or let the information sink in.) Re-reading is not a sign of weakness, Antrone. It seems pointless to simply reiterate FoFoA's points - for them to, again, be ignored. It's perfectly okay if you don't feel compelled to believe. It's a big world...

When I pictured Freegold after reading all the writings here I pictured a continual rise in physical along with either a sudden drop in paper or a sudden revaluation in physical.

Can you accept that what you 'pictured' may have been incorrect? NO ONE CAN GIVE YOU A ROAD MAP TO FG... only the logic behind its inevitability.

I cannot see how physical is readily available at these depressed prices for some two years now with no premiums if Freegold is true.

Why do you expect premiums? Why are you trying to time this? What is so special about a 2-year time-frame? Your proof that FG is incorrect is that it hasn't happened in two years? Have you not come to the conclusion that you can't time this? THIS is why I have determined you to be a 'weak hand'. It would benefit you to see the price drop as a positive sign... but you seem most resistant to this. Envision $900 Gold... or $750... what do you think the average Western investor will do? They will sell of course IT'S GOING DOWN!!! LOL... There won't be premiums, Anthrone - it will be an overnight revaluation!!!

The slow drain with physical dropping right alongside paper is a counterexample which does not seem to fit this theory.

Why?

I can buy paper diverging and I can buy paper and physical moving up together -- what I cannot buy is paper and physical moving down together... if what Another said is true.

Only for shrimps. See first comment.

Michael dV said...

anthrone
that chart is where I got my data and if it looks symmetrical to you...I don't know what to say.
As Jeff mentions above the whole GLD as a 'coat check room' was covered in detail.
The decisions are yours. Good luck with your assessment. If it does not lead you to the same point it lead me then we will have different outcomes I guess.

byiamBYoung said...

Anthrone,

"I cannot see how you can easily buy 500 tonnes of gold at $1200-1500 if there is really a physical-only price which is 30x higher."

FIrst, where did that example of 500 tonnes come from? I'd be interested in the source.

I learned something a few posts ago that has given me a great perspective. Here's my understanding on the gold price.

So much goldish paper is trading out there (forex), that the demand for physical is virtually incapable of influencing the price of the physical/paper conglomerate. Even if demand for physical is enormous, it is dwarfed and outshouted by the paper.

So, the price of "gold" has nothing to do with the demand for physical gold. Period.

Keeping that in mind, this show is a lot more interesting.

Cheers

Michael dV said...

Anthrone
if you can show me a legit sale and transfer of 500 tons of physical gold...I'll yield to your superior abilities.
My understanding is that even 10 tons of physical simply cannot be sourced...not by mortals.
Ask your local billionaire to see if she can get even 5 tons (that's only 200M$) I do not think it is possible.
The entire message here is 'you as a shrimp can still get gold...do it while it is still on sale.
What goes unsaid mostly is that gold could go 'into hiding' and there will be no gold price or gold market. At that point you'll be stuck with worthless gold...and yet unable to buy more.
You've been around long enough to know this stuff.

Roacheforque said...

It's quite simple really. As long as people believe that the price of gold is what the paper says it is, it is (and can be bought for) that price. And the East is furiously buying as much as it can at that price.

At that rate of flow, and as the price drops, those beliefs will be challenged, therefore, it will rise again, but the long term trend will be downward.

All by design. A tool for the 90's ... and beyond.

Blake said...

I think I figured out my own question. The Fed announced to keep ZIRP for the foreseeable future but also announced to reduce QE by 10B a month. A reduction in QE will cause interest rates to increase, but due to the Fed's promise to keep ZIRP in place, they must intervene and continue to supply the system with as many reserves as necessary to keep rates at the zero lower bound. So ultimately, the Fed will need to buy more short-term (and likely longer-term) USG debt to neutralize the QE taper and keep nominal rates at zero...Thus, USG monetization continues and in all likelihood increases...Nice sleight of hand I must say!

Gary (tEON) said...

@anthrone

Rereading your comments - I think I understand your biggest hurdle. You have not come to grips with the difference between the paper and physical markets in Gold. The only way they relate is that YOU, a shrimp, can buy at the depressed SPOT price. Other than that paper and physical have no co-relation. You, as a shrimp, will, probably, be able to buy right up until the flow stops. It will be sudden and there will be no way you can predict a date. No matter how much you read here, or pot-watch charts and data - you can never time this... hence FoA's advice of buying every paycheck. I can concur that adhering to this regular process has other, stress-eliminating, benefits.

This is the same problem that Sprott et all cannot come to grips with. The physical data suggests very high demand but the paper price does not reflect that. Eric Sprott anticipates these data points to relate - he feels they must... eventually - but FG states they will never relate. One must die for the other to reach its potential - to rise like a Phoenix. Paper needs physical - not the other way around. Eventually the paper market will be finished - why? because it is backed by nothing - it is worthless. FoFoA postulates it won't go to zero - but be halted at some stage. Essentially, though, it will be dead. No half-measures. Then physical Gold will evolve its true price discovery. Physical (not unlike going bankrupt) won't deplete gradually... but suddenly. If you can't be a PGA without knowing this day/month/year/decade - then you best get out now - rather than do it later in a, depressed-price, panic. IMO.

Luke said...

anthrone

Like you I do not believe in a current two tiered pricing system. I can see the logic behind the story, but little evidence. Regardless, I feel a freegold system will reign in the near future.

1.Paper currencies won't be able to defend themselves, but politicians won't want to give up the easy money, so gold will be used to defend the paper currency. Seems simple and inevitable.
2.The sudden rise in the price of gold will be attributed to
a.massive demand from people at all levels as it becomes a recognized as THE global monetary asset/saving vehicle.
b. Bullion Bank fractional reserve banking being run on.
c. most importantly, it will be the only thing on global balance sheets which can be revalued and will be accepted to defuse the global debt bubble.

Have you compared the GLD inventories to the SLV inventories? The prices of both have gone up, then gone down, but the inventories have acted much differently.

Nickelsaver said...

Athorne and those like him are not worth debating, At least not to me. They are basically trolls of the CPPA variety.

Current Paradigm in Perpetuity Apologist

This kind of person will simply aver that everything is just as it has always been, and there is no reason to believe that it will change. A POV which I personally believe requires a tremendous amount of faith.

A logical person looks at and tries to grasp all reasonable POV's and weights in with the one that best fits all of the data. There are many here that have weighted in on the A/FOA/FOFOA perspective in the affirmative. I am one of them.

This blog is about presenting a POV which is not widely known or understood. It is POV derived from the extrapolation of different data, and measuring that against the assertions of some insiders that have already proven to be right about much of what we have seen unfold over the past decade.

It is not a simple POV. By that, i mean that it requires a good deal of reading and contemplation just in order to grasp. As for belief, it is like anything. I believe that there are planets orbiting distant stars. I have never seen one. no one has. But science has proven they exist using some methods that were once unavailable to man.

http://www.space.com/23858-most-distant-alien-planet-discovery-hd106906b.html

What do you know vs what you believe?

Sam said...

part 1 of 2

@Luke

Physical evidence of a two-tier system would cause a fairly instant convergence but there is all the logical evidence in the world! Why didn’t central banks sell gold when it was at nearly $2000 an ounce? Are they just bad traders or do they value it at more than what it is selling for on the market? Or was it that net selling long ago and net buying recently was actually great timing? Maybe your answer is you think it’s an “insurance policy” for them in case of a currency crisis? That has got to be one of the favorites for the “rational” crowd. OK, lets go down that road because no matter what you call it, all roads lead to two-tier.

Insurance policies normally have spelled out terms but for a physical object like gold to function as an insurance policy, CB’s would have to have a pretty good idea what gold would be worth in case of a crisis right? So lets just think about this logically

1) Do you think the current monetary system is going to last forever?

Based on your comments I’m sure you answered “no” to that one. So gold would be more like a life insurance that you get to collect on when someone else dies. Everyone dies, so a payout is assured, and if gold is the insurance policy, there must be a way to calculate what the pay out will be so you can determine how much insurance you need/want.

2) Do you agree that contract law stipulates that all contracts are only enforceable in legal tender?

You should, because that is the law. So anyone that owns “paper gold” denominated in dollars does not have to be settled in real gold in extremis, but dollars.

3) So how do central banks value their gold?

Or to put it another way, what is the value of the life insurance policy they are holding with a 100% chance of payout? Well, we don’t have to guess at this one because our trail guides told us. “Gold is valued by the number of outstanding claims against it.” Makes perfect sense to me, we have seen something similar to this before haven’t we? In fact this same barbaric asset was once held as a reserve long ago with paper gold claims against it called dollars that far out numbered the actual hard reserve at officially published values. Sounds like two-tiers

Sam said...

part 2 of 2

Had to include the ANOTHER quote:

"In this modern world, the current value of every asset is formed by a relationship of gold/currencies/oil. This cross relationship is the "very basis of our modern world banking system"!

Through this basis, all currencies are given value as the local government treasuries hold US$ as reserves. The US$ is given backing as its government is guaranteed that all crude oil, worldwide, will be settled in dollars. An oil reserve backing, if you will. And the "value" that the "future supply of" currency traded "oil" imparts to the world economy, is guaranteed by an "INTERBANK paper gold MARKET" that values "physical bullion" in the Thousands!...

But, how can this be, you ask? It is done, "right before your eyes" and we see it not! I ask you, if you have one ounce of gold, and sell it on the market for $300, it is worth $300, yes? Now, what if a CB holds one ounce of gold, and sells it twenty times, that one ounce is now worth $6,000, no? The difference between you and CB? The persons that hold "interbank" IOUs for gold, value them at the multiple of leases/sales made against reserves. This leverage, it is held for performance on bank part."

DP said...

This IS a commodity bear market, to which gold IS correlated. Gold (physical AND paper) IS just in a bear market with everything else.

This will be the case until either (a) the commodity market players turn around from bearish to bullish again, paper gets to live another cycle, or (b) the people on the other side of the bearish bets are not delivered the physical gold they order from the sellers.

Of course (a) is entirely possible, but despite the price being below the cost of production… "computer says sell". This may present an issue for (b)?

GLD draining is evidence that the bullion banks are still able to make good on the sell orders of their clients. Is there somewhere else they can dredge up another thick slice of physical gold, when GLD is gone and clients still wish to sell their unallocated balances?

Answers on a postcard please?



WRT a two-tier market. I don't personally believe anyone currently pays "the Freegold price". But I do believe that some value their gold at the Freegold level.

This be not a good world, where secrets close doors and hide truths. I do feel ALL persons are very intelligent, and can understand the road maps of life.

One Bad Adder said...

@athrone: - There is currently no physical determined Price-of-Gold and (to a lesser degree) Silver Sir. Even your (and others) guesstimates of $30K/Oz lack an appreciation of the issue IMHO.
Put all thought, of "price" aside athrone...and in doing so, you will be a lot closer to embracing the reality of the future Sire.

ein anderer said...

Is there somewhere else they can dredge up another thick slice of physical gold, when GLD is gone and clients still wish to sell their unallocated balances?
What about the 1,000 tonnes in the other ETPs? Source: Bloomberg.

Roacheforque said...

As long as someone is willing to sell physical at ANY price, the price can be ANYTHING.

Bur ... as the price falls to 1000, 800, 500, 250, 42, 35, 20 (all valid fixed, decreed or managed prices of the last century) what will the reaction be.

Let's pick $42.50, isn't that the price the US Treasury accounts for? If the free market price dropped to $42.50 would generational gold holders "panic" over there worthless tons and sell? Would there be any buyers of the useless stuff?

After all, with the much improving US economy, we're definately headed in that direction. Haven't you heard?

The US is embarking on a great manufacturing redevelopment plan, and the dollar is on it's way to great strength and triumph. We are the light of trhe world and are rebuilding trade class wealth at an epic pace with the best fuel efficient cars, airplanes, trains and cargo ships the world has ever seen.

Our cities are blossoming with newfound paper wealth and no one needs "food stamps" that is a thing of the past. Farmland is abundant with organic crops, enough to feed the world a hundred times over, and shale oil is bubbling up from the ground in buckets of high grade crude.

Anyone who wants a job can work all day in these wonderfully efficient factories and steel mills that supply the emerging economies with world class infrastructure.

With all this going on, as "gold" dips below $800/oz. the barbaric Eastern mongrels have been shown the folly of their ways. We really stuck it to them during this great time of healing and rebirth, they were happy as pigs in shit to buy up tons of our worthless metal.

Now they stuck with a mountain of useless gold that no-one wants, as the dollar reigns supreme.

Folks, it is the greatest head fake of all time and your front row tickets are getting cheaper and cheaper by the day.

This we learn from the flower of understanding ...
;0)

Jeff said...

It depends, EA. Are they redeemable?

Here is a list of top gold ETFs:

http://etfdb.com/type/commodity/precious-metals/gold-etf/#overview

Let's look at #3, SGOL. A physical gold fund; excellent. Is physical delivery available? According to this, no:

http://www.etfsecurities.com/institutional/us/en-us/products/product/etfs-physical-swiss-gold-shares-sgol-arca

What about #6, DGL? If we look here:

http://www.dbxus.com/products/commodities/metals/metal-etfs/powershares-db-gold-fund

we find this statement in the small print: "Shares are not individually redeemable. Owners of the Shares may acquire those Shares from the Funds or tender those Shares for redemption to the Funds in Creation and Redemption Units, respectively, consisting of 200,000 Shares."

So if we get 200,000 shares we can get our physical gold? Well, no. "Unlike GLD, the underlying assets of this product are not gold bars, but rather futures contracts on gold".

Paper gold. :( So you have to do your homework really carefully if you want to find an untapped reservoir of physical gold. If you find one though, post it here. I'm sure a Giant or a Giant's personal assistant would be grateful to read about it.


ein anderer said...

Jeff, :D, thx!
I'm sure a Giant or a Giant's personal assistant would be grateful to read about it.
LOL

ein anderer said...

@Roacheforque,
there will be better answers to your post than mine, nevertheless, here it comes:
… the folly of their ways. We really stuck it to them during this great time of healing and rebirth, they were happy as pigs in shit to buy up tons of our worthless metal …
Same folly pigs are sitting here, blind to the facts and not knowing what they do, yes?

Edwardo said...

I thought thislooked interesting.

Edwardo said...

The headline to this report is typically misleading. Here's the key paragraph:

"Ironically, as we break through our target, we will start to see companies actually initially trying to produce as much as they can because they start to face some cash flow problems," says Darby. "But, we think that around about this level, over the next 12 to 18 months, companies will be forced to cut back on production as, unfortunately, their cash costs start to turn negative

http://finance.yahoo.com/blogs/talking-numbers/why-lower-gold-prices-more-gold-production-top-114213379.html

Sir Tagio said...

1 of 2

Oh, well, no one except Wil (thanks Wil!) tried to answer my question about the contagion vector of a paper gold market implosion through the rest of the financial system, just like no one answered my question a few months ago about why FG was "inevitable." Either no one here knows, has an opinion about it or I guess I'm Rodney Dangerfield around here. C'est la vie.

It actually really bothers me that Westerners are selling off so much of their (private) gold to the East. I'm not sure it's going to be so great around here when almost no one has any gold and it turns out that this country needs gold to settle its trade imbalances or to support its monetary system. Sounds like a recipe for scapegoating and severe repression and in that case certain people might have to lay really low for a while.

Indians have their traditionsand China has the sense to actively encourage its citizens to hold gold. If Europeans still had this grand FG plan, you would think that they would also encourage their citizens to save outside the system instead of suckering them into questionable "investing" schemes (pension plan implosion) and pounding them into the dust with examples like Cyprus, but no. What is the ECB like God, supposedly omnipotent but "communicating" by thunderbolts and "signs," instead of, you know, just actually using words or ad campaigns ("everybody should own a little gold") ? That is, if they and American elites had any sort of committment or thougth to actually having a working society instead of mass poverty and extreme wealth and a neofeudal world order, you would think there would be some effort made to encourage some of the proles to own a little gold. Instead of the PR campaign to relentlessly mock it.

The Europeans seem to have become too Americanized and think that they will be able to produce wealth endlessly through scams, manipulation and fiat that extracts wealth from the lower orders upstream to the top 0.1%. They appear to have lost the trail completely, IMO, (if they ever really had it) and in this case, the architects of FG may prove to have been too clever by half. Assuming the whole FG thing wasn't just a psy op to begin with to buy time with the Saudis ("Psst, hey guyz, sit tight, and you'll get a 30 - 40x reval in the New System!"). The Saudis should have heeded The Who ("meet the new boss, same as the old boss") and crashed that MF-er by demanding gold as payment for oil when they had Americans by the short hairs.

Assuming the FG project WAS sincere, then if the architects actually wanted their schemes to prevail, they should have devoted more attention to making sure that certain key people in politics and industry were in the know, and not just a few eggheads at the BIS and a handful of strangers on a gold forum. This point - of carefully bringing others into the know - is so central to a successful venture that JKLRowling made it a key part of the final battle between good and evil in her last Harry Potter book. Yes, it a lesson that she thought CHILDREN should learn.

But of course if the whole world is manipulation and effing everyone else till their eyeballs bleed, then you need to keep things to yourself, so you can profit by your secret plans.

Sir Tagio said...

2 of 2

I just ran across this Catherine Austin Fitts presentation, a speech she gave in Holland in 2012. at some "free energy " conference. https://www.youtube.com/watch?v=JzVIZU3gmXA

At an hour and 45 minutes, it's interesting because she has the time to present her overall view. Usually we only get bits and pieces in her short interviews with Greg Hunter, or Max Keiser or others, but here she lays it all out. She makes the point that with GATT, a decision was made to "rebalance" the global economy, meaning, ending the preeminence of the West as a disproportionate devourer of resources and holder of all the wealth. This fits well with remarks that James Rickards has made, and which I've referenced before on this blog, suggesting that there is a plan afoot to launch a new monetary system in which gold will play a role and everyone is sort of cooperating and biding time until the major players get their gold balances in line with the size of their economies. Rikcards pegs the coming price of gold in the 7k - 10k range but admits it could be much larger, just depends. He has a new book coming out next year called "the End of Money" or some such title so my guess, based on his track record of calling things and being out there to warn and prepare those with ears to hear, is that we have two or more years before the new rollout.

Michael dV said...

So according to Goldcore we are seeing increased buying at about 20 tons a day in China up from a tad over half that:
http://www.zerohedge.com/contributed/2013-12-20/gold-buying-shanghai-gold-exchange-surges-again-sub-1200-gold
If we see increased buying as we did in April when prices were even slightly higher than now we could see a huge drain of GLD inventory in the order of >100 tons as we saw then.
The freegold clock would then have to be recalibrated and our waiting time shortened.

Sir T:
We have discussed mr. Rickards here on several occasions and my view is that he simply has a different view than our host's. He sees a return to a classic gold standard but with 'frequent repricing'. He still has the state setting the POG but resetting it according to market forces. Unfortunately the state never does this. It always keeps the POG where it needs it. The new system pictured here sees gold outside the monetary system and kept as a wealth and bank reserve asset. Jim is miles away from freegold and he never reveals where he gets his direction. My guess is that it is the same 'elites' as Lindsay Williams...in other words, he says what he would like to see rather than what any authority is actually planning.
He also embraces the SDR which solves none of the problems of the current monetary system.

Sir Tagio said...

Michael dV,
I agree completely with your assessment of Rickards. My only question is the extent to which his descriptions of a future financial system reflect the actual plans made by those at the top. I certainly can't tell, and only note that he travels the world, has Pentagon contacts and is an insider of sorts. I take him as a "timing" clue more than anything, at least as to the timing of a "planned" rollout as opposed one forced by necessity if TPTB lose control over the system.

I agree with your idea that his talking points reflect what he would like to see, not necessarily what will be. He likes his pegged gold price system because it leaves more room for continuing dollar and US hegemony than a strict FG system would.

ampmfix said...

Sir T,

You make a great point: why "whomever" in power that knows about FG (I am starting to doubt that person exists) does not push "somebody" in power to encourage the masses to buy gold. Even mentioning it subliminally! doing otherwise sounds like we live in a bad horror movie or nightmare, I just can't believe that highly civilized countries that value their citizens do not warn them, maybe because nobody frigging knows about FG?? I would give a toe for an evening with Jaime Caruana splitting a scotch bottle with me and finally finding out if the BIS is in on this FG stuff, or not at all. IMO, this is the weakest point of FG theory, or: "who in power knows and believes in this except us"?

KnallGold said...

The key in the aei article is "— so far in 2013 the Fed's actual monthly purchase of bonds — the size of QE — has averaged $94 billion, or $9 billion above the advertised pace of $85 billion per month. ..".

Judge them by what they DO and not what they SAY, says the bible. By comparing both things, it gives a glimpse on where the fed's fear actually is. Removing Bernanke's Matrix sun glasses and see...

Apropos North Korea Gold, wikimining says the 2000t figure are in-ground reserves, not CB holdings. What the CB holds is unknown as they don't report officially.

What makes sense is that they DO sell to China (and only China), a ZH article from last year claimed they sold 2t in a year. I can also follow that the country might be close to economical collapse, shooting at themselves as recently confirms the suspicion.

So they could indeed be defending the currency with Gold sales. Still, it seems impossible to find out what their holdings are but it would be reasonable to take this into account when reading China Gold import statistics.

Although if South Korea's 100t is a guide, and the 2t/year earlier export figure with the 2t's mined internally, its probably not so relevant.

Phil S. said...

"they should have devoted more attention to making sure that certain key people in politics and industry were in the know, and not just a few eggheads at the BIS and a handful of strangers on a gold forum"

Hahaha lost it right there, thanks for the laugh ;D

Do note that China can and must afford greater energy to convince their people to save in gold, as the country was drained of all its reserves during the 20th century, not the case for Europe. As we understand, Euro group also had to be sure the Euro is not marketed outwardly too strongly as the total departure of the $IMFS it really was designed to handle! For Euro group, marking-to-market reserves and removing all taxes on gold had to be enough. They simply can't be as aggressive in their "marketing gold" to citizens as China can be, for one because Europeans are "Westerners" and a temporary bear market like 2012-2013 would "sadden" those savers and channel negative popular emotions back to ECB, which isn't officially in the business of recommending a savings strategy to EU citizens. A gentle nudge here and there, such as "bail-ins", plus 0% tax and no restrictions for those willing to rediscover this asset, had to be enough in a Euro context. Also you must be aware how officially Europe is still aligned with the anglo-saxon world in many issues.

China had a great case for urging citizens to buy gold -- they know it's not a trade but wealth that's worth more when cheaper, plus they had a greater need for more gold for FG than Europe on a per-capita basis, plus mobilizing 1b people can't be beat. Wouldn't work this way in Europe. FG isn't about "mobilizing the masses" primarily anyway, as we all know and have often discussed.

Sir Tagio said...

@ampfix,
Yes, the superorganism is evolving to FG without any conscious participation or intention by anyone, and will overwhelm the best laid plans of politicians and financiers to continue their debt-based ponzi wealth extraction games is not really a very reassuring or convincing "argument" and seems completely "faith-based". One can see that the Euro was designed to thrive in a FG system and to survive a dollary hyperinflation, but that is far from an assurance that FG will occur.

Edwardo said...

Sir Tagio,

Why is a physical only market aka freegold inevitable? It's inevitable because it is the arrangement that will achieve the necessary system reset with the least disruption. There is no escaping upheaval, but, equally, there is a spectrum of outcomes that entail various degrees of unpleasantness. Now, if one is of a conspiratorial bent- and I include Jim Willie, Catherine Austin Fitts and Martin Armstrong among the members of this dubious club, despite their varied strains- no such outcome is possible since some brand of global enslavement-depending on which of the aforesaid one hews to- is the elite's agenda. The various levels of lunacy and unsupported claims amongst this group writ large have a life of their own, but none of them seem to have any purchase, or so it seems to me, on the doings in the gold marts.

Edwardo said...

Addendum to my last post.

By definition, nothing being proposed by anyone in a position to weigh in on the matter achieves the necessary state change in the global monetary and financial architecture. It really is a case of those who know don't say (this blog will serve as an exception) and those who say don't (&/@!)know.

One thing one can count on is that after the fact many who clearly had no clue will claim that they had seen it coming all along and will engage in furious revisionist exploits so as to claim credit as seers.

M said...

Despite the taper, the QE has never been higher as a percentage of the govt deficit because the deficit has fallen.

What I don't understand is why everyone is getting along so well.

Why no speculative attacks anymore ?

There has to be a profitable trade in crashing the paper gold market. But nobody is stepping up.

Sir Tagio said...

@Edwardo,

I appreciate your answer, and I believe you when you say it is the best way to do a reset with the least disruption. FG is a brilliant and balanced system. I do not say that it will NOT occur. I hope for my own and the world's sake it does, the sooner the better. However, there is a lot buried in your use of the word "necessary" in "necessary reset." Necessary to whom and when? Neither the political system, financiers nor oil sheiks have determined it is yet "necessary," since it hasn't happened. There must be more milk to get out of the cows before moving on.

However, I am sure you also appreciate that a FG based monetary system that absolutely no one in the political or financial realm talks about, mentions or appears to have any understanding of, that no one prepares its citizenry (sub rosa) for even minimally (to the contrary - "We Buy Gold"), and is talked about only on obscure blogs here and there, will have its own set of credibility problems, right up there with Catherine and Jim, both of whom proceed fairly logically given their premises and in Willie's case, given his "inside information" from Mr. Big or whatever name he gives his mysterious tattle-tale.

Fitts has her own special credibility issues. She thinks the Elitz have access to secret alien technology including free energy technology, and that the Elitz are building a "breakaway civilization." Um, okay. Nevertheless, I follow her and Willie from time to time to try to glean from them what I can. She is right that GATT initiated a major structural change in the world economy; whether the Elitz had the intention she ascribes, who the hell knows. It is hard for people to believe that things just happen in human affairs without someone being behind it. It is hard not to ascribe intention to unintended consequences, which are always so obvious after they occur that surely people knew when they started, so they must have planned it that way.

Roacheforque said...

Most interesting comments lately.

Phil, you beat me to the punch, China is indeed encouraging it's citizens to hold gold. A point well made by Sir T and well addressed, yet China certainly seems on track for a staggering stack if their presumed un-reported is as substantial as the FED's under-reported easing, which frankly would not surprise me to exceed 100 billion/mo. depending on how one defines "easing".

I do believe however that the supply of real gold in many, many weak hands that have no choice but to give it up for reasons that have little to do with a choice in the matter does continue to sell.

There is an important part of your supply. As I mockingly alluded to in my previous post (good one EIN A) there is a great deal of gold in strong hands that will NEVER be for sale at any price BELOW a VERY LARGE FIGURE OF THEIR COLLECTIVE CHOOSING in any of our lifetimes, and once we are down to that supply, well there will be the end of the gold derivative market AS A PRICE DISCOVERY mechanism for physical.

I don't know if that will conclude, be concurrent with, or redfine a "failure of debt" but the likely outcome will be quite instructive I'm sure.

Some would call it a COMPLETE FAILURE of the gold market.

Others would call it a transformation.

Happy Holidays
-Roache

MatrixSentry said...

As I read the comments here it is apparent to me that there are quite a few misconceptions that have developed. I highly recommend that everyone adopt a new year resolution to read this blog in its entirety.

I think it would be useful to ask the following question: Do I have enough gold to make the transition to a Freegold world?

If the answer is no, do you wish for Freegold now, or do you hope for some more time to acquire gold? Would you, if you had the power, hasten the process of transition? Or would you act in a manner to preserve the status quo as long as possible in order to meet your target? What if you didn't know for sure what your target should be? What if you wanted to strategically weaken your competitors while gaining advantage for a post-Freegold world?

Sir Tagio said...

For something hopeful and uplifting that does not involve "Waiting for FG", consider this talk by Gar Alperovitz, on "What Then Must We Do?", on how we might build a more life-affirming world:

http://www.youtube.com/watch?v=vX-MocuuOfc

Cheers!

frankthetank said...

And why take the blame cause you were the one who crashed the world economy. Giants don't need to be hasty.

tcelfer said...

"If the answer is no, do you wish for Freegold now, or do you hope for some more time to acquire gold? Would you, if you had the power, hasten the process of transition? Or would you act in a manner to preserve the status quo as long as possible in order to meet your target? What if you didn't know for sure what your target should be? What if you wanted to strategically weaken your competitors while gaining advantage for a post-Freegold world? "

@MatrixSentry -- Very poignant questions, great food for thought. Some questions I will surely ponder over the upcoming weekend.

I have a feeling that a lot of TPTB are knee-deep in your final question of that paragraph.

One Bad Adder said...

@M: - I think the "profitable trade" you allude to is in fact to support the $PoG/S for as long as is possible ...and by so doing, lending credence to the system du-jour.
IF $PoG/S were to crash through the floor "too quickly" it's all over ...and I think they well-know-it.
...whatsmore, IF you care to apply a similar logic to the "price" run-up (c '98 - '11) the picture becomes crystal-clear IMHO.

Gary (tEON) said...

@ampmfix

... why "whomever" in power that knows about FG (I am starting to doubt that person exists) does not push "somebody" in power to encourage the masses to buy gold.

Why, in the world, would they wish to do that? Those people who 'know about FG' probably wish to prosper from the masses lack of education about it and how bound these same masses are to $s. Fiat will exist after FG and who do you suppose will benefit from controlling the printing press with a new emblem/logo on the bills? If you look at paradigm shifts through history - it's a miniscule % who profit from the massive change. The majority lose... as you may know from personal experience - informing others can be.... a usless waste of time. Accepting this can take time but it can also be life-affirming. Really.

I don't consider those who are 'aware' and don't try to scream it from the rooftops... as being immoral. They have simply come to expect that this is, simply,... natural. Weighing all factors - you can try to change the world (how about GATA?) or accept it. Being a realist is definitely more difficult than being an idealist, IMO.

because nobody frigging knows about FG??

What the Giants know about Gold - and have known for centuries - they probably don't consider to be 'new'. This is simply a natural progression. Hastening it or delaying it won't affect their lifestyles one iota, but initiating it may damage them - or may not - why risk it? The marketplace has the biggest voice... and I suspect that they are well aware of this. Time is the key - they work through generations while most can't recall what happened last month. Perhaps this is a rationalization for, what you might consider 'the indifference' of their behavior. The human species is flawed - 'memory', or lack or it - seems to always bite us in the ass. History has too many examples of how effective the manipulation of the masses can be. The French were bamboozled into 2 failed fiat paper currencies in the space of a few years! You can either accept human weakness as a trusim or spend a, fruitless, lifetime nobly fighting it. Fully endorsing FG, in my personal opinion, can have a pragmatic element. There are many ways to view through your individual lens.

"who in power knows and believes in this except us"?

All the more reason to embrace it. I am fully willing to accept I am right out-to-lunch, but my gut screams to me that there are a very few who will benefit - the manipulation, memory, our weaknesses are more imposing anchors than we can believe. We have, devout, Forum posters here who will desert - sprint from the trail - exactly as FG becomes most evident... most transparent. It will be fascinating and sad, but it will be something else to simply accept and move on - probably like a, typically practical, Giant.

Rob said...

I understand everything ampmfix says and agree.
The answers are interesting, but it wouldn't convince the lads down the pub or my father-in-law who is a an ex- university lecturer.

So maybe Freegold comes from people like me although (I am a very small minority).
After paying off my house and having no debt, I am 'balls deep' and ' all-in' with gold and PM's.
99% of my savings and pension are in the PM's.
I have 'so called' physical ETF's, which I'm kind of forced in to through UK pension and ISA rules. People say this is bad because I don't have the physical, but I don't care if I can get my money after revaluation. I've emailed and spoken to them and they say that it is all allocated.
I have a big chunk with Bullionvault in Switzerland. Same problem ?
I emailed Adrian Ash and his reply was that everything they have is with Brinks and Viamat and that there are no banks involved and no counter party claim. I can post his email here if anyone wants to rip it to bits.
I have some shares in PM mining companies.
Finally, I have Au and Ag physical coins hidden.
I don't have as many as I would like due to the fear of robbery. We have had a couple of home invasions in the local area in the last couple of years.

So, how did a non-Freegolder get here ?

I reached a point where I had savings that were getting 0% interest in the banks( that I had no confidence in).
If I made any money, the government would tax me on it.
The share market looked like a lottery, particularly when I looked at PE ratios.
If I made anything, the government would tax me on it.

If I bought property, the government would tax me on it.
I've rented out property before and had all my stuff trashed by tenants who couldn't care less.

For me, I feel that I was forced to go into the PM's.
I had NO other option.

I had fear from getting 0% in banks that I felt could collapse or steal my money in a bail in.

I feel more akin to those folks a couple of thousand years ago who buried their savings in a pot in the ground but no-one else I know is there yet.
My logic is that the PM's will never be worth nothing and I have history on my side.
Freegold never came in to it.

I have 2 fairly frugal friends who have recent bought new cars with their savings.
There logic is that they are making nothing on their money, so they might as well spend it so that it cannot be taken away from them.
This is where the good, sensible, ordinary people are. They are not at FG.

I have more fear than them, but this is rooted in working class poverty. Most of us in the west have not been hungry and I don't want to go back to this.

I don't believe in an Elite.
From everything that I've seen of the people in power in the UK, I don't think they are really up to it.
I also don't think that they would be able to keep it a secret.
Could things have been set up with a structure to work with the future, like the Euro ? Has BIS and the IMF discussed the future and different scenarios. Sure ? it would be foolish not to.
Conspiracy ? No, I don't think so.

No-one has said anything to convince me of the TIMING issue.
Why was Another at least 15 years out ?
There does seem to be a lot of faith in the FG concept as far as I can see. Pragmatism works better for me.

We all know that the sun is going to burn out but I'm not planning for it because it's too far away and I'll be long dead.
This is why I'm interested in the timing, even a rough timing.
If it is a long way off then I'll be buying a new car too.

My biggest worry now is unemployment.
All my new savings are in cash that has been removed from the bank after payday.

Please don't flame me too much.
This is just how I see it.
I've never been one of life's believers.


Thanks
Rob

Phil S. said...
This comment has been removed by the author.
Beer Holiday said...

Hi Rob,

Firsly, coins in the ground can stay lost for a long time! like in this time team episode, or this
http://www.youtube.com/watch?v=4NMlkDnK19k

Or the Saxon gold episode - I get shivers watching it:
http://www.youtube.com/watch?v=eQNUdMets6I

I can't speak for anyone else but I have no interest what-so-ever in convincing anyone of freegold. My guess is that applies to most commenters. Not you, not professors or people in the pub.

I've never been one of life's believers.

I don't think many freegolders are believers. It's fun to joke about us "Evil gold hoarders, jerks, time misallocators and brainwashed cult members:" ..... and poison connoisseurs :-)

But it is a joke - it's not a cult, no one's trying to "save" anyone.

My interest is in viewing the unfolding events with this particularly fascinating world view. When I first encountered freegold I was interested in testing the logic with my most critical and sharp friends (but not convincing them). But we've been there (there is a whole thread on FOFOA blog where everyone "took their best shot" finding holes in freegold).

Other blogs have there own dedicated freegold criticism threads and/or posts (screwtape files, neural net writer, Bron's goldchat etc).

I speak for myself when I say I'm over it and instead " let's see were we're going "

Beer Holiday said...

Merry Christmas everyone

Edit: I meant to post to the time team episodes coin hoard and saxon gold above, buy somehow messed that up. They are both on youtube.

Beer Holiday said...

Just one final time team comment on the topic of wealth objects:

There is a great episode on the flooding of much of Europe which separated early man in the UK and the continent. At the end of that episode, they confess that even though pristine relics of early man are often dredged up by fisherman in the channel, few ever see the light of day.
It's called "Britain's Stone Age Tsunami" and all the episodes are on youtube if anyone's interested.

Apparently artifacts mostly sell to collectors on the black market for megabucks. Probably sitting in vaults in London.

Another episode "the mystery of the Roman treasure" is a very interesting look at what I think is a wealth item in the sense of the Balloon dogs - except with a long history of controversy.

http://www.youtube.com/watch?v=YaG8GFdCROk


Beer Holiday said...

Final edit (I promise): "the mystery of the Roman treasure" above is a great collection valued at more than 100 million pounds which is sitting in a vault. I really found that episode gave a glimpse into the actions, motivations, and thinking of people with serious wealth.

DAE wish Blogger had an edit function :-)

ampmfix said...

gary (teon),

Thank you for your comments.

"Why, in the world, would they wish to do that?"

I still believe that humankind is able to achieve an advanced society with respect for the citizens (and not treat them like cattle, as is done in many other said advanced societies, including the one I live in) and where the government are just public officials that are not there to get rich or make shady deals behind our backs, maybe Switzerland is one of the few countries on earth, Scandinavia and some other European northern countries may also be categorized as such. In those places, if the government or CB has a plan to introduce FG, it must help its citizens prepare. Note I said IF.

I have been reading this blog and all the comments for almost 4 years (just once, no RRTFB), and I think I understand most of it and agree and hope for most of it, but, some tings really escape me like the Giants stuff (this could be easily dispelled by seen one of them talking about FG publicly).

Another point I have a lot of trouble with is the fact that no bright mind in the world talks about FG (Another, FOA, FOFOA and many here although very bright are not unique in the world). There are no echoes anywhere about FG as it is explained here, it just doesn't make sense to me, especially after we see time and again the NSA, CIA, Chinese intelligence, etc.. poking their nose everywhere. It is obvious to me someone in those places are studying this blog as an intelligent, off the mainstream possible solution and this would have leaked out surely.

Again, the most needed proof for me would be hearing a high BIS or European CB official confirm FG at least partially and clearly.

Rob,

Understand you well, at least you have no debt, I do...
But please examine closer the investment with all those unallocated or even allocated metal funds, you do need to have a contract specifying a bar number, and still, for the really mistrusting the best is still burying the phys well spread out.

One of the things making me nervous is the need to swap still some Ag, should have done it one year ago like one of our colleagues here did back then, might just do it soon and start sleeping better.

Happy holidays and good luck to all next year.

Dante_Eu said...

Oh crap, here we are Dec 21st 2013 and no Freegold yet.

Well, "This time next year we'll be millionaires" as good old Del Boy would say.

Anyway, happy festivus everyone! :-)

PS @Ashley: Nice description of western Freegolders... :D

ChrisF said...

Rob,

Re. your beer buddies in the pub and your timing issue.
Assuming they know what a 'perpetual free call option' is, I suggest you put a few 1oz. gold coins in each of their hands and tell them that if they bought them today they could drink for the rest of their life for 'free' after the expected reset.
In the event no reset occurs the coins will still be worth approx. today's value in fiat since we are close to production cost. They have little to lose and lots to gain. This is basically a free call.
Timing. There is a phrase which says "whenever you are offered a free call, take it." Timing therefore not relevant to the decision. Take the perpetual free call anyway.

Once they have taken this free call they can sit back and watch and wait with great interest, like most people here on this blog ...
Hope this helps.

Phil S. said...

ampmfix -- the general understanding about FG is -- it's not an evil cabal by BIS/ECB/PBoC/insiders/giants planned in secret until one day they toggle the "reset" red button switch. The general idea is -- most players agree and anticipate the implosion USD-IMFS as inevitable though not timable, FG being a highly likely outcome "evolved by the market superorganism". No one has the power to enforce something like FG, but if and once it happens, no one has the power to prevent it either. USD-IMFS has been at the brink of collapse every "end of the decade" since the 70s, the writing has been on the wall for a long time, but it can't last forever. Work-around systems and bad solutions "by fiat" such as Bretton Woods, SDRs, can no longer be counted on. In the past, most of the world was poor and a few countries could call the monetary shots. No longer the case, something like Freegold might emerge as the "easiest way out", ECB (and increasingly all other CBs) is designed to continue working exceptionally well in that case, but not to enforce it prematurely if this isn't where the market ends up heading for whatever reason. But many signs increasingly indicate to it heading there, and FOFOA documents and dissects such developments. FG is just a lens.

"Again, the most needed proof for me would be hearing a high BIS or European CB official confirm FG at least partially and clearly." --- they will when it occurs. Again, most folks here don't believe it's a high-level plan as much as a highly likely organic outcome to be prepared for. ECB/BIS approach is, and its speakers and representatives have in many ways communicated it to whoever listens in that angle (remember Duisenberg?), just most "smart people" don't look for that angle. You gotta realize that "finance folks" look at paper solutions and leveraged number shuffling to make things work, "real-economy folks" are looking at ordering tractors to work their fields, political commentators look at regulatory ideas, no one is really interested in "what might the market super-organism evolve" to easily do away with many cumbersome issues, other than A/FOA/FOFOA. And frankly that's a good thing, most of the academics/commentators/forecasters/economists don't have a great track-record in this area anyway.

Phil S. said...

All -- here's my amateur take on timing! Seems like financial crises seem to happen at turns of decades -- late 20s, late 60s (run on the US gold), late 70s (crazy inflation and global loss in USD confidence), late 80s (Wall St. crash), late 90s (Asian financial crisis), late 2000s --- I predict we're in "safe" FG-free waters until at least 2017 ;)

Edwardo said...

Um, Phil S.

While you may be correct with respect to your timing, The Nixon shock occurred in '71, FDR called in U.S. Citizen's gold in '33' and The Genoa Conference was in '22. Last but not least Bretton Woods was in '44.

Phil S. said...

Edwardo, you win.. your examples are actually much more relevant than mine are! So then, it's either now or in another decade ;D

Beer Holiday said...
This comment has been removed by the author.
Beer Holiday said...

@Grumps

Wahts teh interest rates? OMG OMG secrets gold might finally be revealed. After thousands of years, some troll on a gold blog has finally figured it out. #soexcited.

Gary (tEON) said...

@ampmfix

I can appreciate and understand that for your more complete capitulation that you require

... the most needed proof for me would be hearing a high BIS or European CB official confirm FG at least partially and clearly."

That is not going to happen until 'post' FG, IMO - if at all. It might cause some form of panic and Gold market volatility. The exact opposite of what is desired. As stated many times this is the entire reason Gold, the non-commodity, will be revalued. Hence (too) the slow, deliberate, decline of the paper price.

I still believe that humankind is able to achieve an advanced society with respect for the citizens (and not treat them like cattle, as is done in many other said advanced societies, including the one I live in) and where the government are just public officials that are not there to get rich or make shady deals behind our backs

Perhaps the most difficult 'revelation' to accept is that there is a reason why things have evolved in the manner that they have.... with (simplified) exceedingly rich and 'cattle-like' poor. 'Where we have come to' may seem unjust, but it is totally natural for one smaller group to oversee/influence a larger group. I've given up trying to understand why humans are like they are - I am trying my hardest to simply accept it. Yes, it would be nice if everyone was equal but as a natural evolution - we, obviously, are not. Organisms strive to live beyond their means... or they go extinct. Competition weeds out the weak so the strong can survive and flourish. Great advancements have usually come at the cost of an expanded pool of failures.

I've obsessed on this for a couple of years (Gold and FG are relatively simple - and certainly more logical - by comparison.) On a personal note, I reflected on the reaction I receive from my very own family. I sit at a holiday gatherings with my sister, brother-in-law, nieces - their husbands, my mother, my wife and kids... I have some sphere of influence (probably shrinking rapidly - LOL). I don't talk about FG - just about Gold. I cover the basics, lots of history. When my eldest son was born my sister gave him a commemorative gold coin (it was about 80% of an ounce). She probably paid about $280+. A nice gift as we are exceedingly middle-class. A few days ago my son turned 11 and the coin is now worth around $960? These mini-lectures have been going on for about 2.5 years. They are polite and listen to me - there is no rebuttal - few questions. So how much physical Gold do they own now, you ask? I'm sure I don't need to tell you that the answer is 0.00 oz. I have to conclude that they just weren't meant to comprehend this or to act upon it if they can accept the data. So then begs the question - why do I know? why am I different? As far as I can tell - there is NOTHING special about me... maybe you are the same. They would view FG as a crazy conspiracy, if I ever brought it up. I feel lucky to be here and awake. If anyone out there has a spouse that, at least, understands Gold then I'd say you should count your blessings. BIG thanks to FoFoA and his blog.
Cheers,

Phil_O_Dendron said...

Gary (tEON) - I am pretty much in the same boat as far as family and gold/freegold. I don't speak about it much anymore I just do what I think is right thing and hope that I am still around when my efforts are revealed and justified.

I have to go polish my tin foil hat now - talk with you later.

Roacheforque said...

Gary,
China is encouraging its citizens to buy and hold gold because it understands that many hands create a larger flow. Better to have as much gold as possible in the hands of the people you tax, than elsewhere in the world,
So there is an ulterior motive there if you need one, but I think the East Asian mindset is different enough from the Western to be reason enough as to why one culture encourages and another discourages.

But something occured to me in this context.

We were talking a while back about China had "slowed its dermand" when was it, back in September? And many, myself included, perceived this as "China is nearing its optimal stack" sort of thing.

Now I wonder if supply, in those 20 ton plus numbers was being restricted by a slow-down of the flow.

In other words, they didn't acquire less that month because they wanted to, but because it was all they could.

Roacheforque said...

And ... if that was they case. And we are seeing China's gold accumulation gradually drop month over month for the next 10 months, I'm sure it would be spun as "China doesn't want any more of this deflating asset" as the price gradually trends lower.

And yet, what is really happening is that the flow of gold is drying up because "not enough is being offered for sale in those amounts".

When you go to that local coin shop and all they are doing is buying at spot plus premium, ask you fellow, "Do you TOO have a buyer who buys ALL gold no question asked at spot plus preium PLUS PLUS like Joe down at Mainstreet Coin & Gold?"

Roacheforque said...

This utter duplicity of the markets is a byproduct of the polarized world in which something that is worth NOTHING (paper) dictates the price of something that is PRICELESS (gold) when its utility is a last resort.

Derivatives are a mockery of the real world, they are defined by their opposites ... or so the flower of understanding seems to imply.

Michael dV said...

Roach…
I see paper money serving well in it's function as a mere medium of exchange. Derivatives are something needed to keep the fiat expanding. They won't be needed in the future. Gold has it's own role, the same one it has always had, it's only role (now that sputtering is replacing soldering in high tech electronic equipment.)
We are in a system that is full of 'scandal and amazement' as Rueff put it. Patience grasshopper.

ampmfix said...

Thanks you Phil and Gary for your explanation/POV. I will be signing off the comments for a while now, until I have another question I cannot solve myself or something to contribute meaningfully. Le'ts watch together what kind of a year 2014 brings.

Cheers.

KnallGold said...

"..I don’t need to remind you of the special role that gold plays in central banks’ official reserves. Not only does it have the valuable characteristic of allowing diversification, in particular when financial markets are highly integrated.

In addition it is unique among safe assets owing to the fact that it is not “issued” by any government or central bank, so its value cannot be influenced by political decisions or by the solvency of any institution.

These features, coupled with historical, political and psychological reasons, tell in favour of gold’s importance as a component of central bank reserves, both in developed and in emerging countries.

As an element that enhances the resilience of reserves to abrupt falls in value in times of stress, freegold underpins the independence of central banks and their ability to act as the ultimate guarantor of domestic financial stability. .."

http://www.bis.org/review/r131125f.pdf?frames=0

Not issued by xx, its value cannot be influenced by politicals or by the solvency of an institution, no abrupt falls in times of stress. There must be different kinds of Gold, eh!?

That must be the best music to watch the pot on Saturday evenings...
http://www.youtube.com/watch?v=ljtHpfb02Rc

ein anderer said...

For the case somebody missed it: Four exceptional clear speaches of central bankers about the role of gold. Thanks to Mortymer!
a href="http://anotherfreegoldblog.blogspot.de/2013/12/2013-lbma-precious-metals-conference-3.html
BTW: The 3rd link there is dead. Here is the right one:
http://www.lbma.org.uk/assets/Basco%2020130930.pdf

Woland said...

Thank you, KnaalGold. (and your addition of the "free" in
front of the word "gold" in the referenced text will not be
held against you in determining your final grade) I missed
that speech, and appreciate the your linking to it. {;<)>>

Michael dV said...

e a
Thanks for the references. I found this interesting in Gautier's comments:
We are still active in the gold market for central banks and official institutions. We do not communicate a lot around that, but central banks are a small community and when a central bank is interested in buying or selling gold or in the process of upgrading its gold or for custody purposes and things like that, they can be in contact with the Banque de France. Due to these regular contacts we now have a small activity in gold dedicated to central banks and official institutions.
I translate this as 'if you really want to know what we are doing, call us, we certainly are not going to announce our gold intentions publicly.'
I think that says something about the importance of gold to the French CB.

Michael dV said...

again ea, thanks for the reference
from Basco (Argentina) we get a hint at hedging operations.
Imagine a central bank having large amounts of gold in a falling market. they do not want to look stupid so they use the Forex markets to protect the balance sheet of the CB and yet allow it to hold gold at the same time. This can certainly explain some of the immense daily volumes of gold traded on the Forex. Much paper moving while the metal lies still.
btw there are 0.74 ounce of gold per person on the planet. The USA and the EZ have about 0.8 per person. For China to be close to that they would need 35,000 tons. I'd say they have a way to go no matter how much they mine and import. Even if they have 5000 tons now that is only 0.12 ounces per person.

Sam said...

@michael

Do you think China needs that much gold or just the means to get it? Mines, land, ect. that they own putting them politically in control of a lot of gold? I assume since their economy is also producing more than it consumes gold will flow to them post FG as well

Michael dV said...

I don't know how much China thinks they need. CBs are different than private entities. They real only need enough to defend the currency so they may feel OK now.
Yes as net producers they should continue to see gold flow in. But post reset the US will begin its return to production so who knows what it will take for settlement.
My guess is that they are thinking 'more is better. One of the articles ea linked stated there were about 20k tons of known reserves left. That would leave the planet with just shy of 200,000 tons using current technology. I cannot think of a reason that everyone would not be trying to get what they can and soon.

Polly Metallic said...

http://www.cnbc.com/id/101291987

I wonder if the financial media can get ant more bearish. "I wouldn't buy gold with my worst enemy's money." LOL.

Gary (tEON) said...

LOL. I love it. Thanks Polly - that US 'strategist' only knows Gold as the paper entity - and he is right about the future price decline.... while the rest of the world buys physical with both hands. What a disparity! Everything is on track.

Marco Polo said...

@athrone
@Rob

Your line of thinking echoes with me. Keep asking.

jojo said...

Keep reading instead.

Marco Polo said...

@athrone

If gold is at or near the present production price how can you lose if you buy now? This for me is the most significant thought as I have read the posts on this blog in the last few days. I was involved in goldmining (but not as a miner) and can tell you it is a very complicated business. It is capital intensive and it takes years to get a mine into full production.

If the price of gold falls any further, eventually existing mines will be forced to close. There is thereafter no quick or easy way to get physical gold out of the ground and onto the surface.

DOI: still have not got round to buying physical gold which I am keeping in my possession! Did buy some gold in bullion vault at around $1300. And I think I will ask them for actual delivery of the real stuff.

ein anderer said...

Marco Polo,
what I’ve learned here is that it is NOT the price which tells us if you could lose. It is more: How much money (Dollars, Euros) you need as insurance for harder times? How long it could take until Freegold is born? If you buy too much and (Paper)Gold goes down to 300 or 200 Dollars just in the moment when you need your money (saved in Gold) then you could get forced to sell all what you have. And then you will lose a lot. »Buy as much you understand!«

KnallGold said...

@Woland: I expected to be forgiven for that small addition ;-)

Similar sentiments here in the MSM, Gold losing its luster etc.. It smells like 1999. But no CB sales which could be limited by a WAG this time. The market is simply falling under its own (paper)weight. No timing of FreeGold, but a clock DID begin to tick when the price fell under production cost.

Once this is recognized, it might lead to a withdrawal of remaining physical sales and the specs anticipating by stacking further on the short side. Making this a self fulfilling prophecy, although its simply law of physics.

The point of the waterfall. Or then just a freeze, who knows. But something's gotta give at some point. Or is Rickards or Sinclair coming to the rescue? Or the US treasury??? Is there everywhere a silent agreement?

FreeGold is more about doing nothing, than something, I have learned.

Indenture said...

Marco Polo: Two months ago you mentioned you had invested 30,000 Euro in Bullion Vault. Have you converted it to physical yet?

Phat Expat said...

In case you didn't know it: Gold's Real Problem: Deflation

@KnallGold
Thanks for the rec of the Buendner Roetelli. I was expecting something akin to Kirschwasser but not even close. Aside from shots I also use this on cake now. Rather addicting... :-)

Frohe Weinachten!

KnallGold said...

Phat: looks like you got good one! Some day I'll brew my own ;-) It can also be used to make fine desserts, vanilla ice comes to mind.

Happy Christmas!

Knotty Pine said...

According to this article Chinese authorities are ordering journalists to put a positive spin in China's growing liquidity crisis.

t au said...

@ jojo
Keep reading instead.

Sage advice indeed.

Indenture said...

"Professor Sylla adds more fuel to the fire, stating: “The Fed seems to have, I think almost deliberately, is trying to push the stock market up. I’ve watched this stuff for 40, 50 years now and this is the first time in my memory when it seemed to be official U.S. government policy that the stock market goes up. And the Fed likes this because it thinks that when the stock market goes up, people who own stocks feel richer, they’ll go out and spend more money, and the unemployment rate will come down.” "
PBS Debate

Roacheforque said...

The gold war of the 80's was just a battle. Today's currency wars are merely the backdrop for the biggest gold war of all time. There is a new heavy artillery option to support this new "use value" of freely issued fiat.

It is the Keynesian "denial of fundamentals" value which pits new money against old (gold) money in the epic showdown of our several generations.

Make sure your popcorn is warmly buttered for this one ...

nearlynapping said...

FOFOA, thanks for taking the time to share your thoughts. I have been quietly following your site for a while and find the ideas to be fascinating.

Edwardo said...

The nooseis demonstrably tightening.

Beer Holiday said...
This comment has been removed by the author.
Beer Holiday said...

Merry Christmas :-)

http://www.youtube.com/watch?v=BBfnOZmWrX8

ein anderer said...

Marcus Grubb-Managing Director of Investment at World Gold Council (WGC), stated Dec 23 on USAGold:

»(…) the solitary fact that Central banks continued to remain on buy side in 2013 is a clear indication of their trust in gold’s unique value. In fact, all ETF redemptions have been largely absorbed by Central bank demand or strong physical demand from Asian countries.«

Quite a confirmation of who is »weak hand« and who is »strong hand« …

whatever-fits said...

I am curious if there is any thought on the consequences of Fed default on returning Germany's Bundesbank's gold as a result of liabilities resulting from German Bank derivatives. My thought is some of the Freegold thesis assumes that actual gold is in the possession of European Central Banks. As the cracks in the interbank "trust" system seem to be slowly emerging this appears as a possible scenario for the Fed, when push comes to shove. How is it that what should have been around 80 tons of gold to be returned to Frankfurt this year has only amounted to 38? Any thoughts here?

Tekin said...

Europe says:

Gold can be used to support a currency in the process of international (re-) legitimisation but once it reaches international status, it de facto recreates confidence in currencies. Gold is then relegated to its role of "barbarous relic", leaving currencies to rely on the true riches of modern times: energy, production quantified as wealth, etc… This is why, at this stage still, LEAP is continuing to advise its readers to diversify part of their assets into physical gold to lessen the shocks in view in 2014, but one must also know the time to sell.

http://www.leap2020.eu/GEAB-N-80-is-available-Currencies-geopolitics-real-estate-finance-2014-the-big-American-retreat_a15224.html

----

Time to sell? 2015? Hmmm? Well...

A final re-valuation or an intermediate re-valuation. That is the question. :)

Terry Laundry's time symmetry suggests that the gold run could extend to 2020-2021.

http://ttheory.typepad.com/terry_laundrys_t_theory_o/2003/12/new_gold_megat.html

However a ten-fold increase from these levels would make me very gold-heavy, and I would not object re-balancing from, say, 95% to 60%. :)

For some reason, I find Terry Laundry's time symmetry more reasonable than LEAP's 2015 date. Why? I cannot tell that. I must think about that to put it into words. Most probably, LEAP's solution is too straightforward. No head fakes? No detours?

Beer Holiday said...
This comment has been removed by the author.
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