Thursday, December 5, 2013

Public Service Announcement




Beware of fake gold being sold on eBay. I received this email from a reader yesterday:

Hi FOFOA,

I purchase the vast majority of my gold coins and (in-assay only) bars on eBay. I have had much success. eBay buyer protection has saved my butt on occasion, not just for gold purchases. I authenticate every coin I buy. For every purchase, regardless of source, I use a Fisch for Eagles & Krugerrands and a jeweler's scale and calipers for other coins, plus a detailed visual comparison to known-genuine coins (and bars). Anyway...

About a year ago I purchased a 1/10 oz. gold Philharmonic (10 euro). It was an obvious counterfeit. When I reported this to eBay it stirred up a brief hornet's nest: there were other buyers who got taken...they actually traced discovery back to me and thanked me. I remember someone asked you, a year or so ago, whether forgers would consider counterfeiting small gold coins. Answer: Yup!

But what happened earlier this week has, I believe, the potential to compromise the integrity of the slabbed coins certified by the major numismatic coin grading companies. I, for one, will never again knowingly purchase a slabbed coin. If I can't personally authenticate the actual coin (per the above) I don't want it. I purchased two generic 1/4 Krugerrands from a seller with 100% positive feedback (mostly small, non-gold transactions). The seller also sold at least 7 other 1/4 Krugerrands (I watched). The seller stated the coins were located in California. A few days later I received the tracking information: the shipment originated in Shenzhen, China. Hmmm! On Monday (12/2) I received the coins. They were NGC slabbed:

http://www.ngccoin.com/certlookup/index.aspx?CertNumber=2771828-004

http://www.ngccoin.com/certlookup/index.aspx?CertNumber=3676849-005

Wow! NGC certified proof gold coins a great price! To the casual observer, everything would look fine. Except, they are counterfeits! The obverse and reverse sides are supposed to be perfectly aligned. These coins were offset about 20 degrees (I could tell based on prong locations). Ooops! Then I examined both coins under 5X magnification next to a known-genuine 1/4 Krugerrand: there were many engraving quality discrepancies, especially with the border engraving shapes and overall lettering crispness and shapes. Bummer! I also compared the NGC slab to the website photo and another NGC slabbed coin I owned. Results: the slab was either stolen or (more likely) an incredibly accurate forgery, including holograms. I could not discern any defects whatsoever. Very disturbing.

I then 'opened a case' with eBay buyer protection for both coins, describing what I had found, including the above links to the NGC website. That's when things started to get really interesting! The next day I received a message (for each coin) from eBay stating that the seller had agreed to provide a full refund when I returned the coins. Then, within an hour, I received another message (for each coin) from eBay stating that I would immediately receive a full refund with no strings attached, which was done. Then something happened that I have never experienced with eBay before. Everything about the purchases (purchase history and seller account information) completely disappeared (poof!), as if the transaction had never occurred and the seller never existed. Bizarre! So, as of now I have possession of two forged NGC proof 1/4 Krugerrands until someone (?) tells me what to do with them. In the meantime I will play some show-and-tell guessing games with friends.

FOFOA, please warn your readers that buying certified slabbed coins no longer assures authenticity. Apparently the Chinese have started producing high-quality forgeries of the coins and slabs.

Take care. Merry Christmas and a happy and golden New Year.

God bless you and thank you for your efforts,
XXXXX

I asked him a few questions and also if he could take pictures of the actual coins he received. Here are the pictures, front and back, which you can compare to the photos on the NGC website:


The most obvious difference is that the coins seem to have shifted orientation inside the fitting, which shouldn't happen. But more remarkably, it seems that the reverse side of the coins shifted more than the obverse. Imagine that!


And if you look closely at the labels, they are clearly not the same labels as in the pictures on the NGC website. Look at where the printing intersects the background watermark. Notice how the P on the real one just butts up against the scale bowl, and on the fake one it overlaps the bowl. The M on the real one rests on the inside of the bowl, and on the fake it rest on the edge of the rim. Above the KR on the real one, there is a gap between the KR and the scale arm. On the fake there is no gap. And look at where the point of the 2 intersects the circle on the left.


Here is how he answered a few of my questions:

Were they advertised as slabbed? Did he include a picture of them?

"They were not advertised as slabbed. Just a generic (obverse) picture, which I can no longer access. I was surprised and very briefly (very briefly!) pleased that that they were slabbed...I paid $319 for each (including S&H). He had listed 3 at that BIN price; one had sold, so I bought the other two. He advertised later coins (3 at a time) at $329 BIN. I tried to buy more, but for (again) some strange reason I never encountered before on eBay, I was not allowed to buy any more for at least 10 days...the message said only a single purchase of up to 3 coins/buyer allowed per 10 days. Very strange."

Was the 3 coin limit imposed by the seller or by eBay? And was the limit apparent before you bought your first coin, or only when you tried to buy more?

"I don't know who imposed it or how. I did not know about the limit until I tried to make the second purchase (I tried again over several days to see it it was real...yup.)"

Did the seller appear to be an individual or a business?

"The seller is an individual (I even have his name & address in California). I have not tried to contact him. I don't know what would happen if I did. I'll let eBay worry about him."

What advice would you offer for people shopping for gold on eBay?

"My advice for buying coins from anyone, not just on eBay...immediately authenticate your purchases like I described earlier. For eBay, 'open a case' with Buyer Protection immediately for any perceived irregularities. Stay clear of slabbed coins unless you have the necessary expertise to evaluate them, since they cannot be weighed and measured.

eBay is quite diligent about tracking down forgeries, especially with regard to precious metals. I had several discussions with their precious metals fraud team after I discovered the fake 1/10 Philharmonic I told you about. They traced all the eBay purchases of that batch of coins (~200; some were resold several times) back to the original seller, shut down open listings, and contacted buyers. I think everyone got their money back. As I said, buyers traced discovery back to me and I got thank you's for identifying the fakes. What really surprises me is that so many buyers didn't realize the coins were poor quality fakes...they only weighed 2.4 grams. Scary."

I have always advised people against buying gold on eBay, and I have never done so myself. Stories about fakes originating in China and sold on eBay have been around for years. My advice is to buy your gold from a reputable dealer. If possible, I prefer to buy in person from a local dealer who has been in business for a long time, but I have also had good experiences with APMEX.

I also think that coin shows are a great place to buy bullion coins. I can usually negotiate a good deal, often better than what's offered online, and meet lots of local dealers at the same time. It's also an easy way to swap your silver for gold! ;D Here are a couple of websites to help you find coin shows scheduled in your area:

http://www.numismaster.com/ta/inside_numis.jsp?page=CoinShowsCalendar

http://www.coinshows.com/

As for slabbed and graded coins, I prefer to avoid them, for precisely the reasons above. I do have a few, but only because that was all my local dealer had at the time, and he sold them to me at the bullion price.

Sincerely,
FOFOA

246 comments:

«Oldest   ‹Older   201 – 246 of 246
Unknown said...

Hello Everyone,

I am new to the comment section but have been reading this blog for more than a year. The depth of understanding has transformed my views on the gold market.

Does anyone know of any analysis FOFOA has provided regarding the impact of bail-ins on the gold market? Anyone have a take?

My thoughts are whatever the final outcome be it deflationary collapse without any more debt monetization or more debt monetization the US dollar will eventually no longer price commodities and Gold will be set free to be valued freely as should be. Meaning any of the two seemingly inevitable outcomes that will finalize this paradigm shift will result in freegold.

Anonymous said...

@Gary (tEON)

“You may not appreciate what the world will be like post-FG.”

A return to a world in which net producers are allowed to keep more of their net production away from the Keltocracy sounds pretty good to me? Basically Freegold represents a means of exchanging net production between former and current net producers. Sign me up. Those who live hand to mouth will still be living hand to mouth after Freegold. The biggest losers will be the Kleptocracts which raid the true net producers of the middle class on a regular basis. I’m not going to shed a tear for them. If there is any justice the only thing they will own after Freegold will be what they can stuff into their corporate jets as they flee to their villas. Good riddance, you can stay in our jails or leave our shores your choice. All paper claims to a nations assets and industrial base will be transfer back to the ‘citizens’. To do other wise is to be an accessory to the various financial crimes committed by them upon the middle class. A can’t think of any better way to maintain social order than to give the working poor, the young, old and infirmed a hand up by selling the Kletocracies ill gotten assets to the real net producers of the middle class, can you? With a return to honest money, limited government and equal treatment under the law back in control, the net producers that become wealthly going forward will be wealthly due to good old fashion innovation, hard work and luck not due to cronyism, rent seeking and regulatory capture the defines the super rich now.

“What do you suspect you will need Silver for, in the first place?”

Let say FOFOA is right that oil/energy will become cheap in terms of gold in a freegold world. Let’s also say that gold is finally freed of being held down by these various gold to (insert commodity here) ratios. Let’s also say that silver crashes and burns to a 10,000 GSR as a result. The amount of oil energy required to produce 10,000 oz of silver is significantly higher than the energy ‘purchased’ with 1 oz of gold. Thus given that the two primary resources of all life are water and energy, its not a bad bet that critical commodities that must be produce every year will increase in value relative to even Freegold over time as the human race is forced to go after lower and lower EROI resources. The same will also be true even if Freegold goes away. So you can cover yourself for either scenario.

Now one could attempt to store that energy in say wheat but then the storage cost and product degradation over time hurts you, plus wheat is a renewable resource to some extent. You could use copper but the energy required to refine copper vs. silver makes it a lower grade choice regardless of the future EROI. BTW this is also why I’ll have my eye on the Platinum Gold Ratio. 25 times rarer than gold and thus takes a lot more energy to refine than silver.

Again, when the second law of thermodynamics has your back you are in good hands.

Edwardo said...

Joshua wrote:

My thoughts are whatever the final outcome be it deflationary collapse without any more debt monetization or more debt monetization the US dollar will eventually no longer price commodities and Gold will be set free to be valued freely as should be.

The consensus here is that debt monetization will continue right up to the point that a reset takes place. A deflationary collapse as occurred in the 30s is a very low to no odds bet because it can be avoided with a mere keystroke. Buttressing that condition is the reality that debt monetization ad infinitum is a far more politically palatable course of action, despite the seemingly incessant chatter about imminent tapering by The Fed. What the numerous commentators who posit such an eventuality seem to have difficulty grasping is that The Fed is compelled to engage in QE because the rest of the world, or at least the productive portion of the rest of the world, have already commenced tapering.

As for the dollar losing its ability to price commodities, well, that isn't really the issue with respect to gold being set free. It is true that there will likely be a reasonably strong temporal correlation between the dollar's inability to hold purchasing power in the physical plane for all but brief periods of time and the dramatic revaluation of physical gold, bear in mind that were it not for the fact that gold, ultimately, is only very marginally a commodity, no such revaluation could take place.

Unknown said...

Edwardo:

Thank you for the response! That was very helpful. It seems that the end of this paradigm may be taking place in this format then; US cannot taper, while ROW prepares for reset/final crash initiating a reset by implementing bail-in rules and in case of China (purchasing gold in mass).

Sam said...

@Luke

Suppose you knew, with 100% certainty, that in exactly 18 months, gold would be revalued at $50,000 an ounce. Something like this is impossible for us peasants to know, but not that difficult for those that decide and support the monetary systems we peasants use.

Then it was explained to you that because of your SIZE, and the SIZE of the current gold market, that you would have to buy a maximum of 50 tons a month (total of 900 tons) at $35,000 an ounce. Otherwise, if you try to buy gold it at 1300 an ounce you would get a maximum of 100 tons before all gold would go in hiding. Would you agree to participate in this two-tier system?

Prior to 1971 there was a two-tier gold market. I hope you believe in that because it was managed openly. CB’s traded gold at $35 an ounce, while the “free market” traded gold at $44 an ounce.

I put “free market” in quotes because it wasn’t that free. Traders had the substantial central bank hoard looming over their head at a published lower price. If the two markets were ever merged this would crush the open market price, and of course these fears were legit since they finally did merge.
With the CB tier of the two-tiered system LOWER than the open market gold price, there was a price suppressing benefit to making this information public. However, with the CB tier higher than the open market price, its existence is only possible if the CB valuations are private.

Prior to 1971 the gold market was mostly physical. After 1980 it was dominated by paper. This paper gold market has suppressed the price of gold quiet well as people holding contracts for gold treated them as good as holding the gold itself. However these low currency prices make the overall physical gold market extremely small for large entities like CBs.

ANOTHER:

“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. The BIS, it forces performance, on any economy!
This is why oil can take a small amount of physical gold out of world supply, at current "freely traded", "managed prices", and hold it at a many times valuation. That is what gives this "new world gold market" much value in trade at high levels.
You see, "physical gold is of much greater value than public traders can move it for"!

said...

Yes, I know how the story goes. So who is selling these giants the gold and why? Are they buying it from the miners/mints at $1250 and selling at $30k? And I assume if shrimp such as ourselves are talking about a ~$50k reval, it is known to anyone who can move gold in that size. Why would they sell?

Why wouldn't someone willing to pay $30k/oz simply buy up mines(there are plenty of private mines around the globe) and get the gold at 20x less?

It just doesn't make sense.

I do fully expect gold to be revalued, simply because that is the only thing that can be revalued to balance the balance sheets of the world. I think it has to happen. But I see no evidence or logic behind a current two tiered system, especially one where gold is trading 10 or 20x more than current shrimp price. It all sounds very silverbugish.

said...

In regards to the fractional reserve bullion banking, that is something which can be seen and it makes total sense. I feel it will be a huge catalyst for gold's revaluation.

Michael dV said...

Luke
if you don't believe in the 'whole 2 tiered gold price' (and by that we mean it moves at a higher price among central banks, correct?) then why hasn't China just snatched up even more than they have? The've got $1.3 trillion to spend, at a minimum; what is keeping them from getting closer to the 10% reserves in gold level that many countries already have (or exceed)?

Michael dV said...

The answer I accept for the two tiered price system is: 'gold is cornered'. Yes you and I can buy all we can carry on 3 strong mules. If you are a central bank however and you want to panic out of treasuries and into gold, I don't think it can be done.
Get a billionaire friend to prank call his bullion banker and ask for 20 tons, home delivery in 30 minutes or less. At that level I don't believe you'd get any of your 20 tons, not physical anyway.
They can keep you and me happy but those with huge wealth?..who knows...I don't have a spare $ 1 Billion to ask the 20 ton question. We have been told by Another that that is and has been the situation for some time.

tEON said...

@spaul67

So you see FG as...

The biggest losers will be the Kleptocracts

Hmmm... may actually be the middele class - it is not worth betting one way or another.

after Freegold will be what they can stuff into their corporate jets as they flee to their villas

You sound exceedingly bitter... until it is you owning the jet and buying the Villa with your windfall from FG.

With a return to honest money

??? This is libertaraion ideal that has little hope of transpiring... fiat (or, worse, digital) is here to stay.

the net producers that become wealthly going forward will be wealthly due to good old fashion innovation, hard work and luck not due to cronyism

Without extending the debate... including the Silver silliness, it sounds like you really hate the current system. What you may hate is human nature. In this sense you are no different than most of us, but I'll leave you with this, to always be aware:

"if you hated the old system, you won't like the new one either"

Best of luck with your AG interpretations and unique visions of a fantasy world post-FG...

Edwardo said...

My last sentence was missing a key word. Here's how it should have been written:

but bear in mind that were it not for the fact that gold, ultimately, is only very marginally a commodity, no such revaluation could take place.

Josh, with respect to the prospect of bail ins, to the extent that the spectre of bail ins propels the drive for physical gold ownership, particularly amongst a certain class, it can, at least theoretically, be said to be a positive force in assisting the next system's arrival.

Unknown said...

Edwardo:

Thanks for helping to take the thought on bail ins a step further. That was a piece of the puzzle I could not quite see.

Unknown said...

Edwardo:

I guess we watch and see where that money flows then right? The money that is excess deposits in bail in zones. I may sound naive but hopefully it doesn't flow back into the overvalued US stock market, or US housing sector or into paper gold and we have to hear about how well the economy is doing for any more time than is necessary.

Not that I don't agree physical gold is the best place to put that excess savings.

Ideally those who are aware of the bail in rules and have excess deposits put their money into physical gold. This would set off a a possible contagion event where banks were collapsing left and right but this time the GOV would not be there to bail out with tax money. Then after the dust settled sometime gold would be revalued where the pain and suffering would be offset by revalued gold reserves. This is assuming those who know of bail ins escape before what may lie inevitably ahead?

Forgive me for my unrefined thoughts. Thanks for any additional thoughts.

Michael dV said...

Spaul67
Have you read Return to Honest Money? If not I suggest it highly.
Fofoa: What is honest money? It is money that is what it says it is! In other words fiat could be fine if it came with a warning sticker that read: Do Not use this product to preserve wealth over any duration exceeding 2 months. (or some such time period.) Once folks catch on then the money already printed will suffice as folks won't hoard it or it's derivatives.
If we can warn folks not to put a baby's head in a plastic bag then a warning about fiat should be easy.

said...

Michael,

I don't think China wants to move out of treasuries and into gold too rapidly. I agree if one central bank wanted out of treasuries and into gold in a short time, there would be some behind the scenes talks to get them off the idea. That is a logical guess and you could make the argument whether there is a high and low tier for gold.

Beer Holiday said...

@Spaul

I don't really buy the "energy-stored-in-PMs" argument at all.

Silver production is largely a buy product of base metal mines copper-lead-zinc. The silver-only mines died out when silver stopped being money.

If you really believe in the idea of energy stored in a metal then you should look at aluminum ingots (h/t MdV who pointed out this last time).

Aluminium must be the most energy intensive to produce of all the metals. The average Ally smelter has it;s own substation AND it's own auxiliary power plant. Can't have a black out in an Al smelter - or the whole plant is destroyed.

As an aside, I wonder who here has held an Al ingot - I have! It's interesting that our everyday experience with "Aluminium" is really with Al Alloy. Pure Al is very soft, you can dent it with a fingernail.

Anyhow, aluminium smelters will send you ingots if you order a pallet from them , and it's cheap as chips, despite being extremely energy intensive.

Beer Holiday said...

Further to the above; gold must be the lazy metal - so easy to obtain that people have been finding in rivers for thousands of years. It has been argued here that gold mining was deliberately expanded by central banks through gold leasing, as freegoldtube has summarized in this mesmerizing video:

http://www.youtube.com/watch?v=Lxg7JTYCq8k

Thanks Freegoldtube!

PS Don't invest in Australian gold miners...

Brady said...

Josh R,

this fofoa post may help:

http://fofoa.blogspot.ca/2009/03/all-paper-is-still-short-position-on.html

a snippet:

"FOFOA: No, the net result will be ASSET deflation, not deflation. Japan had a slight net INCREASE in the CPI during the lost decade even though they had massive ASSET deflation. Asset deflation and monetary hyperinflation are completely compatible with each other, they happen at the same time, and they happen together in all cases of hyperinflation. Hyperinflation and currency collapse are basically the same thing. Hyperinflation and deflation are almost the same thing. And hyperinflation and inflation are similar in name only. Please read the Daniel Amerman articles linked at the bottom to learn about the differences between asset deflation and monetary or price deflation. You will also learn that what was discovered in the 30's was actually the opposite lesson. It was that a determined government CAN stop deflation on a freaking dime whenever it wants to. Yes, we will discover the same... very soon!"

Unknown said...

Brady:

Thank you for that. I didn't know Japan had a net CPI increase! I can see a bit clearer now. Asset values will decline in value! And at the rate of US printing and currency being less and less used abroad I can see how HI is a very real and imminent threat. I do understand hyperinflation is the collapse of currency rather than outright printing response.

And we only have to look at the response so far that the US has chosen. ZIRP and QE, bailouts with little to no conditions. Additionally, Greenspan has already mentioned that US debt will never be defaulted on while Europe is talking about bonds containing risk. A clear difference in policy I can see(with the help of VTC tweets).

This is madness! Thankfully we do have competent people to act as compasses to help navigate through the violent seas of affairs of men.

Sam said...

@two tier deniers =)

I think an important distinction to make to help answer a lot of the hypothetical questions on the two tier gold price is not to look at gold being “bought and sold” for a higher price but more like it is “valued” at a higher (or if you like future value price). Giants slowly take gold off the market at the market price but value it at a higher price. So if two entities that both value it at a higher price are trading there’s no need to pretend the gold is only worth the laughable pittance the shrimps think it’s worth
Luke asked, "So who is selling these giants the gold and why?”

Anyone that wanted to keep the current system intact either sold their gold directly or supported a paper market that manipulated miners and western hoarders to sell theirs. The key was to free up enough physical gold at low prices for Giants to take slowely off the market First it was central banks themselves, then it was hedged mines with gold denominated loans and dishoarding westerners not interested in an investment that was going no where. The people that did this did it at great expense because the alternative of the system collapsing would have been far more costly.

Luke also asked, "Are they buying it from the miners/mints at $1250 and selling at $30k?”

Ha ha. No, that would be a cool business though huh. Unfortunately this isn’t an arbitrage opportunity for a middleman to make a currency profit. Think like a Giant. There are simply two parties. Those taking gold off the market, and those enabling them to do so. Those allowing a little gold to be taken off the market each month by Giants want to keep the system intact, those taking gold off the market want the market to keep its illusion of gold’s liquidity at $1250 an ounce so they can slowly obtain a lot over time, rather than just a little before having it dry up.


Unknown said...

Gary:

Awesome! Thank you! I read the tweet convo. Very insightful. The paper gold market will broken by bank failures. I am still learning to think like a Giant.

Thanks!

Knotty Pine said...

Hi Josh R, welcome,

This post might be a good choice for you (I am re-reading it now as well). Remember FOA's famous quote:

"My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed… hyperinflation is the process of saving debt at all costs, even buying it outright for cash… because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn!"

Unknown said...

Knotty Pine:

Thank you! I will re-read this. The highlighted quote in the post fits well with all the macro events which are leading to a collapse in US currency. Both events described below are occurring more rapidly these days it seems?( Less structural support and money printing.)

From the post:

"It is about a currency that has reached the end of its timeline when the removal of structural support (an FOA term) meets the largest spending/dollar-emitting machine the world has ever known."

said...

Sam

Whoever is selling to the giants, wouldn't you say they know gold will soon be valued much higher? Surely you don't believe they are so short sided as to sacrifice being a monetary power in the coming monetary system for a few short years of status quo.

Do you believe the giants are buying at a higher price or are only valuing the gold at a higher price?

Anonymous said...

@Gary (tEON)

"if you hated the old system, you won't like the new one either" - Another

I agree this is exactly why we need to cover our bets.

Think for a minute; he said this knowing full well what Freegold represented. Now in the mind of a libertarian/net producer Freegold sounds pretty good for all the reasons I stated vs. the current system which clearly favors those that receive the printed money first. The fundamental problem in the world today is the over concentration of political and economic power and the nexus of that control is the debt based monetary system. Hence, why the power of Kleptocracy ‘should’ be significantly reduced if the foundation of the next monetary system isn’t under their direct control.

This leads me to the conclusion that even under Freegold the Kelptocrats will somehow have even physical gold under their control? First of all they hold a lot of gold and can nationalize the mines for even more flow if needs be.

“Follow in the footsteps of giants.”

It’s the only way to reconcile Another’s statements, is it not? In fact the epic fleecing of the middle class net producers in front of us (i.e. bail-ins) could have been behind Another’s desire to warn those he could of what was inevitably going to happen; perhaps a tinge of guilt as his remaining years were numbered.

I’m left to conclude by his writings that even physical gold will become a new means of fleecing the net producers saving in gold at say $50K/oz. So assuming a net producer is able to save 10% of a $100K income over say forty five years they would be able to save up 9 oz of physical gold for retirement. Sounds a lot like net producers that are forced to save in debt and various social ponzi schemes today. Eventually even the Freegold will also end and gold will be demonetized just like in the past. Suddenly $450K of wealth becomes worth at ‘best’ the incremental cost of extraction not unlike how bonds will deliver a fraction of their purchasing power post Freegold. Thus his warning could be that even Freegold will end and for same exact reason that the debt monetary system in place now must also end soon. The simple fact is that net producers must be fleeced on regular basis in order to maintain the social order as unfair as it seems to net producers. Why rob banks? …….because that is where the money is.

What won’t change though is a lower and lower Energy Return on Investment in combination with critical resource depletion going forward in human history. The closer your savings are related to this fundamental fact the better. Thus the future purchasing power of these mere ‘commodities’ will increase over time. So what a saver is looking for is critical consumed commodity that is durable easy to store and yet has high correlation with energy for its production.

In short even the Kleptocrats must obey the second law of thermodynamics. That’s one law even they can’t mess with.

Anonymous said...

@ Beer Holiday

Most aluminum is recycled thus its energy storage potential is diminished by this fact. I’m not necessarily suggesting this or that commodity, only what characteristics it should have vs. a Freegold price which by definition will be priced significantly higher in terms of energy and thus by extension all other commodities than it is now. I thought that was the whole point of Freegold, that gold alone will float well above mere commodities just like the energy content of fiat paper has no relationship now to the commodities it dominates.

Jeff said...

There are no kleptocrats; there are only bankers and politicians responding to our desire for money, and lending.

FOA: When you and others say """ FIAT HAS NEVER BEEN THE CHOICE OF THE PEOPLE ACTING IN COMMERCE OF THEIR OWN ACCORD """ ,,,,,this is true.

This is true, but this was never the thrust of the argument. The use of money in any context, fiat, gold or seashells, has always entailed the use of borrowing and lending... And as long as economies function at a profit, debts are made and paid back without argument. However, when the eventual downturn arrives, some portions (perhaps a large portion) of the owed wealth (debt) cannot be returned.

It's here,,,,at this point in tribal life,,,,,,,that all of the context from above comes into play. The "reality" of life on this earth is this: ,,,,,,Some portion of society will use their influence or control of the leaders to make their debts easier to pay. In fact,,,,,it's times 2 for that number of government influencers ,,,, because even the ones that have debt owed to them will try to alleviate an impossible pay back situation the ones that owe them face.

ome.

Jeff said...

There's nothing wrong with lending, even lending for consumption. A loan is productive for the lender if it's paid back, and it's productive for the producer because it allows people to buy their products. You don't need zero inflation or even deflation to make banks accountable for lending; just separate the MoE from Sov. That's a lot easier and more acceptable to the majority of currency users (debtors) than crucifying the debtors on a cross of euros.

Also, anyone who tells you they know in advance which loans are 'productive' is fooling themselves. There are always busts which will require spreading the pain.

FOA: ORO, I cannot accept that a "lender of last resort" causes a debt boom. It presumes that a great portion of lending is done for reckless, uneconomic reasons. Yet, at the end of great expansions many projects that were considered "blue chip" in the beginning still go bad. Sometimes, the most necessary economic activity is curtailed because peoples needs change during the course of life ,,, not to mention a recession. Thus changing business dynamics.

How many instances can we document where banks lent into real demand ,,,,,,, backed with the very best demographic patterns ,,,,, only to find the loan blow up from changing demand. Oil in the late seventies would be a convenient example for us (smile). People were breaking down the doors of the old "Texas Commerce Bank" in Houston ,,,,,,, all in an effort to finance hugely profitable petroleum projects. This was no flash in the pan, as the oil industry had a progressive expansion history of 15++ years before this. Truly, a lender of last resort was the very last thing on their minds. Later, even paper based on $10 producing reserves was trashed! Certainly there are many, many other examples,,,,,,,, most are of a more mundane, unglamorous nature, but fine examples.

Jeff said...

So who do you believe, the hard money boys who say this time they've got it right, or old FOA, who understood that it's better to give people what they want, debtors and savers.

Further:
Was this really circular thinking on our part? Did the Lender of last resort exist during the 'South Sea Bubble" or the "Tulip mania",,,,,, and did the "Black Plague" of Europe shut down a few sound financial systems then? I think gold was the norm in that period?

FOA: ORO, this portion of your thinking needs to include the other side of the lending aspect,,,,,, people want and demand loans for sound, economically justifiable, profitable projects,,,, and they get them on sound lending principles. Still, some 90% of them can become only "at the margin" when demand changes. And typical of our human society, we all shift at once.

Truly, my friend, bank loans often fail because human events change the course of money dynamics,,,,,, and it does so in a way that is beyond the vision of any lender. Be the lenders you, me or a group of people as a bank, large portions of deals go bad just as much from human affairs as from "over lending".

After all, the entire economic structure of the world is nothing more than people dynamic ,,,,,,,,, in the long run it's just too risky to bet ones physical gold on (huge smile)!

Jeff said...

I'll agree with FOA, and bet on human dynamics every time.

FOA: I think most hard money advocates have conditioned their thought process too much. A little time away from the trading screen and into the real world where fresh air clears the mind would do them good. There is a whole planet of people out there that can use currency right along side all their other wealth to trade anything. Old Ibn Saud was one of them.

tEON said...

Perhaps something BTC'ers didn't envision, JPMorgan patents Bitcoin-like payment system
JPMorgan (JPM, Fortune 500) has also patented payment software that would latch onto your Internet browser and allow you to shop without pausing to fill out forms with personal financial information. And with what the bank calls its Internet Pay Anyone Account, moving funds would be anonymous and as easy as sending an email.

In the patent application, JPMorgan notes two trends that are making the old banking system obsolete. One is that merchants are establishing direct relationships with customers -- and they don't want middlemen slowing down the transfer of money. The second is that digital products are often sold in small increments for very low prices, and the currently high price of per-transaction fees don't make sense.

"A new marketplace has emerged for low dollar, high volume, real-time payments with payment surety for both consumers and producers," the bank writes in the application.

"The credit pushes can be made completely anonymously, with the recipient of the credit having no way to determine from where the credit originated," the bank says in the application.

Sam said...

@Luke

"Whoever is selling to the giants, wouldn't you say they know gold will soon be valued much higher?"

I can't presume to know who knows what. I assume 99% of shrimps that dump their physical gold or scrap jewelry for $1250 an ounce don't value gold for more than that. Maybe they do but they need to pay some fiat bills. Miners must sell to pay their bills, loans, and taxes so it doesn't matter what they think. Only at the highest levels do I presume gold is valued at a much higher price. For one reason I find Another to be credible and he told us it was so. Secondly, it makes perfect logical sense and explains the otherwise illogical actions of certain players

"Surely you don't believe they are so short sided as to sacrifice being a monetary power in the coming monetary system for a few short years of status quo."

If by a few short years you mean 30 years of unprecedented growth and prosperity rather than a global depression that would have set our standard of living back 100 years, yes. It was a sacrifice, but no major player is destroying their future and selling all their gold. In fact the CB's had drained more than they were comfortable with right around the time Another came around and warned "if something doesn't change soon CB's will have to sell 1/3 to 1/2 of all their gold and that "ain't going to happen dude." That was a warning to producers to back off the pressure a little bit and let the Euro be formed because otherwise everyone loses. Now why would the CB's not want to sell their gold unless they valued it for more than the market price? Why couldn't Eric Sprott buy gold from the IMF? It's a fungible commodity after all. Just buy it back on the open market if the market price is so accurate and liquid.

"Do you believe the giants are buying at a higher price or are only valuing the gold at a higher price?"

Gold is being accumulated in small quantities slowly over time by Giants at market prices and valued at much higher prices. If two Giants are transacting and both value gold at a much higher price then yes of course they are using a higher valuation. However, it is probably like a futures market where a discount off the true estimated future value is given for buying today.

Again, I personally think this is all going to come to an end very soon but this is the only logical way things were extended for at least the last few decades.

DP said...

Giants sell gold
Much much more than once
Possession is retained

… Quite the value proposition!

S P said...

spaul:
It was this blog that convinced me to dump silver. I want nothing to do with it, except for of course it's known uses.

Silver is an industrial commodity. Watch in amazement as the silverbugs dump it to get their hands on any fiat or gram of gold they can find.

If you want to play that game, so be it. Many of us refuse to, that's the point.

Jeff said...

Wim Duisenberg, the first ECB president, stated them pretty clearly in this 2002 speech: "The euro, probably more than any other currency, represents the mutual confidence at the heart of our community. It is the first currency that has not only severed its link to gold, but also its link to the nation-state. It is not backed by the durability of the metal or by the authority of the state. Indeed, what Sir Thomas More said of gold five hundred years ago – that it was made for men and that it had its value by them – applies very well to the euro."

Pretty clear what the separation was between. The euro was made for men, not to give some men power to dominate other men. Not to crush one group of currency users.

Michael dV said...

I was just wondering about the Cyprus situation and thinking that some might see the evil hand of the bankers in this act.
One wonders if those folk even consider that there might be other reasons for the act of bail-in. One such reason might be to make it clear to the entire EZ that the ECB is not the Fed and will not allow the 'end of fiat' behavior of the Fed to be anticipated in the EZ...but then they could be evil too, who knows.

Jeff said...

Wim Duisenberg, the first ECB president, stated them pretty clearly in this 2002 speech: "The euro, probably more than any other currency, represents the mutual confidence at the heart of our community. It is the first currency that has not only severed its link to gold, but also its link to the nation-state. It is not backed by the durability of the metal or by the authority of the state. Indeed, what Sir Thomas More said of gold five hundred years ago – that it was made for men and that it had its value by them – applies very well to the euro."

It's clear what the separation was between; gold and the state. The euro was made for men, for the people that use it. Not for one group of currency users (savers) to crush the other users (debtors).

Michael dV said...

Spaul
Most of us who keep coming here are adults with real wealth to protect. The decision to buy silver (as well as other things) has been considered with much thought.
One mistake at this point and we could feel the pain we felt in 2001 and again in 2008.
Everyone must make their own calls but when it is your retirement riding on the outcome of your decisions it become a serious issue and to let wishful thinking enter into the process will be dangerous.
I have considered the silver issue at length. I made a good deal of money in 2011. It was luck. It was also luck that I panicked early and only lost about a third of my gains.
I have been convinced by the arguments here not to be in silver. You know the pros and cons. Good luck with your actions.

Anonymous said...

Jeff,

It's clear what the separation was between; gold and the state. The euro was made for men, for the people that use it. Not for one group of currency users (savers) to crush the other users (debtors).

Are you sure this makes sense?

1) Why have Greece, Portugal, Ireland, Cyprus, Spain (partly) been forced into internal deflation (falling wages and shrinking governments in order to raise productivity). Isn't this harsh on the debtors?

Btw why do you think the Euro zone is interested in the internal balancing at all? (if they can just print "moar" in order to paper this over once again...- Why is anyone trying to come clean from the excesses at all if they have a printer that offers a way "easier" fix?)

2) Why was about half of the Greek debt wiped out in the restructuring in early 2012? Isn't this a bit harsh on the savers? Given that the Euro zone has their own printer, wouldn't is have been much nicer if they had printed enough in order to make the savers whole nominally?

Ooops. Perhaps the ECB's single mandate of preserving price stability in the Euro zone does matter, eh?

3) Why does Duisenberg say "the Euro is separated from the nation state" and "the Euro is separated from gold" if he means "gold is separated from the state"? Do you think he was confused and didn't know what the Euro was about when he made that speech?

Don't you think there might be some significance to the fact that there are two links that have been severed:
a) the link between the currency and the nation state, implying that individual governments can be bankrupt without any impact on the viability of the currency. This is in contrast to the U.S.: Youtube clip Greenspan, Stiglitz, Buffet.
b) the link between the currency and gold, allowing the currency to be kept purchasing power stable (i.e. all three: medium of exchange, store of value, unit of account) while gold is free to function as a reserve in order to balance international trade and capital flows and in order to balance the interaction between the "debtors and the savers".

Victor

Bullion Baron said...

"if you don't believe in the 'whole 2 tiered gold price' (and by that we mean it moves at a higher price among central banks, correct?) then why hasn't China just snatched up even more than they have? The've got $1.3 trillion to spend, at a minimum; what is keeping them from getting closer to the 10% reserves in gold level that many countries already have (or exceed)?"

@Michael dV, just because it's a tight market where a country can't instantly purchase a trillion worth of Gold in a single transaction doesn't mean there has to be a 2 tiered price. I don't understand how you are making that connection/assumption? China understands the need to tread carefully and accumulate slowly if it's to build a significant reserve without sending the price much higher, but that doesn't mean there are already central banks transacting with the metal at a higher price than market.

FOFOA said...

Public Service Announcement: A new post is up!

An Eye for Gold

Sincerely,
FOFOA

DASK said...

@Spaul, Beer Holiday

I have some reasonably good data on energy / metal production, here is how it breaks down.

I used data, global for a 1 g/t gold-silver deposit. Underground mines and zinc/lead/copper/silver/gold deposits are less energy intense (factor of 2 minimum). Aluminium, I took the average per kilo from the entire global supply chain. Oil is for fuel + generators, Natgas is for Heat+Elec, Coal is for Elec. I did not include renewable/nuclear electricity which would add significantly to aluminium's numbers.

in kg/kg, (Oil, Natgas, Coal):

Gold: 4450 / 2370 / 6200
Silver: 71.5 / 45 / 121
Al : 0.64 / 0.83 / 6

Now using prices: ($/kg)
Gold (@1250): 40188
Silver (@20): 643
Al (@4): 4
Oil (130.92 kg/barrel):0.763825237
Natgas (russian terminal) (0.025 kg/BTU): 0.2
Coal (China, 630Yuan/t): .103

You get the following percentage for costs (across the entire supply chain to refinery exit)
(Oil, Natgas, Coal // Total)
Gold (8.5, 1.2, 1.6 // 11.3)
Silver (8.5, 1.4, 1.9 // 11.8)
Al (12.2, 4.2, 15.5 // 31.9)

So, if you are investing for 'Energy', Al is clearly the superior choice, but in all cases, they don't really reflect energy. There may be some argument to be made that increasing energy in the future will increase the capital costs, etc. but the buy metals as an energy hedge though doesn't seem to hold water yet.

Beer Holiday said...

Wow, DASK that's an awesome analysis.

It's not obvious at first thought that the prices of the metals don't reflect energy costs, but it seems the be the case. What I find amazing if the incredible amount of energy stored in everyday items that makes our standard of living so wonderful these days.

I guess if you really want to invest in energy - just cut out the middle man an buy stocks in an oil/nat gas/coal companies!

My geologist friend used to have a sticker on her fridge: "what's mined is yours ". I believe it.

DASK said...

@BH, thanks ;) It's a bit counter intuitive, that's for sure. There are few things more energy intense/$ than aluminium in society. Depending on how you treat recycling/ energy recovery, plastics and wood can be, because they have use as feedstock. If you want to hedge energy with material purchases, perhaps high quality hardwood or pure PE or PP slabs? I think plastic would be the ideal produced oil physical hedge based on strictly energy properties. Not space efficient, but storing energy is tricky.

A few caveats should be placed on the above analysis though: the numbers are for 2010, and are slowly rising for gold/silver. The oil bit is of course strongly geared to tons/g (inverse of g/ton). Finally, the data has a system boundary at 'produced' fossil fuels; some sort of EROI multiplier should be used to evaluate these numbers. At present, I would estimate a +8% from fossil fuel net output as a global average. (~12:1 EROI across oil) I don't know enough about the true oil picture to feel comfortable making a future prediction. As an extreme, even using only tar sands at a charitable 4:1, it would be +25%. It is thus difficult to see how the oil content would double (to 17% of price) without massive grade declines. Grade, and, more importantly, political will to produce will be everything.

Anonymous said...

@ DASK

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 etc) numbers that are difficult if not impossible to figure out with any degree of precision. The market none the less will figure it out for us as the EROI goes lower and lower. In fact one economic theory is that all cost structures eventually reduce down to EROI. Life is the product of energy and water. Even fresh water is direct result of energy.

Regardless, the price of energy and more importantly the EROI will be defining parameter of the 21st century IMHO. That is assuming mankind doesn’t event 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 the 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 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.

What I don’t understand from your numbers regarding Aluminum though is if this is for new aluminum or for a mix of new and recycled? If this is for new aluminum then I think the numbers need to be adjusted for 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. Same would be true for silver as well or any other energy intensive commodity. Basically to energy streams for new vs. recycled.

DASK said...

Hi Spaul,

The numbers are for virgin metal in all cases. Right now, only about 40% of 'fresh' aluminium comes from recycling (despite a higher recycling rate), as we are still very much in the 'build up a societal stock' phase. Recycled aluminium would be much lower (some 90%) in terms of energy consumption. I don't know whether it makes sense to add recycled flows though. Are we after the marginal energy cost to get some in your hands? the marginal energy cost to add to society's stock?

I am completely with you on EROI, but that 'wider system' thing is difficult to quantify. At least the narrow system results can start some discussion! And gold in a freegold environment would be completely untethered from energy. Back to EROI, it's effects on society and that wider system will IMHO dominate the narrow supply chain impact. They will be reflected in the 'real price' of energy as well as a potentially vanishing surplus capacity as the number of people on the margin and the cost of maintaining them rises. Again, I have no crystal ball here, but the numbers to me currently seem cautiously optimistic long term. Liquid fuels will be a bit tight, but there will be enough for strictly necessary functions in the most pessimistic scenarios (not saying it gets shared nicely though). Solar (silicon) now has an EROI of over 10:1 according to Swiss LCAs of German production, wind is over 20:1. Concentrated Solar is about 15:1 even counting the massive salt reservoir required for 24/7 baseload power. Again narrow numbers, but roughly the same as what we power our society with today (nuclear, coal, oil, gas all not much better than 10-15:1 right now. The problem I see is in the scale up rates: there may indeed be quite some bottleneck that takes all bets off the table.

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