Tuesday, January 7, 2014

Chapter 1

I am going to offer a series of posts (chapters)
starting at the "beginning". We will use simple logic
and common terms to explain "what has happened"
along this "journey through time". Another will edit it
for direction (as he has this post). This will be a long
process, and I hope it will offer a real value for
"thoughtful minds". As many are now starting
to discover that most of the Western ideas of
gold investment were flawed from the beginning,
so too will they find their present (gold) portfolios
"unprepared" for the storm that approaches!

-FOA 6/19/99

I know you have all read "The Gold Trail", right? But have you ever read chapter 1?

ANOTHER showed up in 1997 with earth-shattering projections from an ancient but inexorable perspective on wealth. Two years later, he and FOA decided to explain this perennial perspective with paramount modern implications "starting at the beginning… as a journey through time". "The Gold Trail" is the result of that decision, but its first step was taken seven months before they came up with the idea of separating it from the regular discussion forum as a stand-alone archive.

Consequently, the first chapter, or perhaps we could call it the Gold Trail pilot episode, languished in obscurity while the famous Gold Trail actually began on chapter 2.

"The first step is taken and thus defines the trail…"

"For people who demand solid facts and figures to make investment decisions, I submit; we are not trying to create reasons to invest, rather our purpose is to build a background for the understanding of these Thoughts. In this light, all that read this will become the pioneers of new insights."

So now, with the proper frame of mind, and without further ado, here's chapter 1:

ANOTHER (7/10/99; 17:35:55MDT - Msg ID:8633)
Gold: Saving Real Money In A Time Of Transition


A gentleman leans over the fence and tells his neighbor that gold is going to rise in price from its current $300. As the person on the other side of the fence thinks differently, they both agree to a binding bet. In three months, we will settle up with a payment of the change in the price of one hundred ounces of gold. Whatever it rises, the "bull" collects that amount. Likewise, whatever it falls, the "bear" collects from the bull. Each puts a $1500 payment guarantee into a common shoe box and gives it to another neighbor for safekeeping.

As an observer of the above, we have just witnessed the creation of a wager not unlike a comex futures contract. On each side of the fence stands a long and a short, that together create an open interest of one contract. Neither has any intention of buying gold, nor do they expect physical gold to be a part of this bet. Yet, at cocktail parties and on public internet forums, one claims to have "bought gold" and the other states that he "sold gold".

To build a further understanding of this transaction: Both of these gentlemen, probably don't have the $30,000+/- to buy or deliver 100 ounces of gold. Human nature being as it is, if they did have that much, they would most likely increase the bet to ten or twenty contracts. Clearly, the intent of this paper market, is to bet on the price of gold as it is determined by the buying and selling of other physical traders. The western public should take these trades for the concept they truly represent. ""I (the long side) bet on the "price" of gold not because we need or want the physical metal. Rather, my wager is that others will need real gold to protect themselves from bad monetary systems. In fulfilling that "need to own", these others will drive up the dollar price and I will make money while working within the confines of our good monetary system.""" The shorts make the opposite bet, in that they think the world monetary system will work itself out and induce "the others" to sell all their gold. That is, gold they bought in the first place, because they did not know that our money managers could repair the world financial system.

Yes, today Western longs and shorts are playing out these two views of the gold market. Yet, both sides are using paper gold bets to represent their beliefs. Truly, the major majority of this market does not buy or sell physical gold to represent their investment concepts. There are a few that buy coins and bullion, but, even in their large amounts, it is only a drop in the paper gold bucket.

This, my friends, is the very nature of western trading of gold. The mindset is to treat it as a concept for making currency, not protecting existing wealth. The exact same mentality exists when one invests in the gold mining industry. Even when these players see the faults in the dollar, and loudly proclaim its inflationary downfall, the largest part of their assets go into the business of producing real gold in exchange for more of the same paper currency. It is a means to build wealth through paper asset appreciation, using the very financial system the "concept" says will fail without physical gold.

There are many mental angles and philosophical side steps one can take when understanding the above. But, in this concept lies the very basis of the flaw in the current gold market. A paper market, built upon world misconceptions of currency values and the historical reasons for owning gold. The present deployment of world assets into a paper system of valuations is likened to traveling a trail of no return. History has shown that the assets accumulated in this way will never be transformed into "the things of life"! The paper wealth you currently own is nowhere near the real value your currency says it is. With the above introduction, we have begun close to the end of this journey. In the upcoming chapter one, we return several miles to walk ground already well traveled. We will observe concepts on the right and the left, not discussed by other guides. The very sights that make such a trip, "worthwhile".

"You will see this trail thru the eyes of history and feel old ways as new Thoughts!" Another


(( 1. )) Thinking Gold: A montage of views

"the first step is taken and thus defines the trail, a second step brings others and upon this journey we do now make sail"
"pioneers bring light, for directions long unknown, new spirits shine like stars, so bright the seeds are now all grown"
"quickly to the heights we climb, even the top of the mast,
for there I see the end of knowledge, as it was written in the past"

To fully understand the past and present concepts of gold as money, we are going to have to use logic and common sense. In addition to these attributes, the ability to place oneself into the context of the moment of history will also be helpful. For people who demand solid facts and figures to make investment decisions, I submit; we are not trying to create reasons to invest, rather our purpose is to build a background for the understanding of these Thoughts.

In this light, all that read this will become the pioneers of new insights. Travelers in search of new vistas that best present the lost concepts of money. The real money that this generation has never known.

In our introduction, we witnessed two friends with a fence between them. Neighbors, betting on the "price direction" of gold. Not its future impact on their daily lives or the use of gold as money, but rather how much currency would other people use to buy gold at any given time. Contrast that perspective to our concept of gold and you will see that a wide gulf of understanding stands between our "minds from different worlds".

-------- "They never said it wasn't money! Only, that they could no longer use it as money for their purposes" ------

The author of that statement is unknown, but it was spoken sometime after the "Smithsonian Agreement" of the early 70s finally closed the door on using gold as part of the world monetary system. The old Bretton Woods articles were then officially dead and the dollar would no longer be a "contract currency" for the delivery of gold. Shortly after this event, banks, governments and large investment entities still agreed that gold was real money, but it should be held only in reserve. So, instead of using the dollar as a contract for gold, the world would substitute it as real gold in the currency system and thus sent it down the road of being "demoneyized".

From the 1920s to the 1970s (with striking similarities to today), gold loans between private and official sectors had periodically become so great that they simply couldn't be paid. The world economy was being built upon a debt of gold that no one could pay off.

Early on, it was agreed that because the repayment of loans in real money would break the banks, payments in newly created real money substitutes would suffice as gold. Over time, the reaction to this concept was easy to understand. Every thinking person knew that creating more (inflating) paper currency to cover existing debts would lead to devaluations of such fiat currency. Therefore, we will all hold gold in reserve, while these bankrupt deals are worked out with fraudulent money payments. Money that was no longer "contract currency". Later, gold will be revalued upward to balance these newly created money substitutes. In time, all world currencies would finally be officially devalued against gold. That, my friends is why so many investors continued to buy and hold gold as a long term savings asset throughout the 1970s. It was perceived that the world would eventually return to using gold as the money for payment of debt, instead of using paper money substitutes.

This perception was extremely prudent because history had proven, through the actions of countless generations that creating paper money to save governments and banks from bankruptcy eventually destroys the "concept" of using created money for currency. No one ever expected the general populace to continue using and saving "non contract dollars" for any extended period of time. Mostly, everyone expected the citizens to patriotically continue to use the "new inflated paper legal tender" as asset savings until price inflation exposed that they were sharing their life savings with the state. A process that would require five years at most. Never the ten to fifteen years that have passed. In the end, it made little difference how long it took, as the adjustment in value always compensated for the inflation plus interest. The only investors that didn't think gold would outlast this new system, were the ones with a "short life of little history experience".

Again, from the failure of Bretton Woods to this present day, there is an ongoing event being further played out from the early twenties. By now (2000) the world can no longer use gold as money because to do so would require virtually every debt to fail. But, what is never considered is that a fiat currency system always "fails" the debts anyway. When the price inflation begins, old currency debts lose value at the same rate as the inflation. A history lesson soon to be performed today right before our eyes. We have but to watch and learn!

But, why do we nowhere read that it would be OK for these banks and businesses to fail, thereby allowing others to buy them up for pennies and save the system? Truly, this was the same real problem with the use of honest gold money as it forces "the important" people to fail. People of influence and prestige. Persons that will not allow their debt assets to fail, even if they gain only a few years. For them the world cannot function without an "expandable monetary system"! An ages old scam that is presented to each new generation as a new and improved currency system. Custom tailored for their own technological advances and special time in world History. A special system that will force the average worker to "share" in the loses but still retain this new generations wealth! With this system, any government can then borrow or print money to inflate (expand) the money system so as to bail out failing businesses and foreign entities. Does this sound like the present IMF?

Yes, gold was our money back then (pre- 1920s). But, the bad business debts and wars of the world had "used up" much of those gold savings. Over time, the savings stock of much of the gold that every citizen, business, government and bank had, was borrowed to finance expenditures. It is imperative to understand that using the expression "gold used up" meant that it was "lent out"!

Of course, back then, even if gold is "lent out" it went somewhere, and from that new savings account (somewhere) it can be borrowed again. However, if the world financial strains become great enough, failing governments and businesses could not borrow gold at all. Therein lies the solid law of real money that scares governments today. We must totally fail and start again.

"It is to say, the gold you thought be in your bank, was not. In your account, the real money was lent and the credit claim represents your wealth" Another

It was here, in the 20s 30s 40s, in that context of time, that we witness the harsh reality that wars and governments are financed by borrowing real savings assets and spending them. When gold is used as money, it effectively demonstrates the real risks in lending one's life savings. That being: you may not get your money back. Is it any wonder that many families decide not to lend their savings? A compelling truth, that allows one to separate their money from the state and not share in the losses of others. In this light we confront the real issue of why so many governments always move from using gold as money, to using fiat currencies as money. It enables them to force you to lend!

During the time (1930s) that the American government called in gold from its citizens, it would have been very simple for the US treasury to revalue gold upwards into the $300 +/- range (from the low twenties). Yes, many major financial players would have fallen from this dollar devaluation. In addition, America would have lost much international prestige. However, the real productive assets of this great country would have been kept, "intact"! Those assets were much of the private savings of working people, and most of it was in gold, in their hands. Again, in that time, it was the only money not lent out. This unprecedented action of devaluing the dollar would have clearly identified the losses from wars and poor lending decisions. It would have forced the large wealth holders and governments to lose assets in proportion to their size. As it was, the small citizens were forced to share in balancing the destroyed assets by turning in unlent gold.

History has shown that "some great leaders" have taken the honest gold "deflation" route when they are not under the influence of "money lenders". In these situations, the context of deflation is not the destruction of the money supply, which was gold, rather it was the destruction of the debt securities held as assets. Assets, due to be paid in gold, and cannot! Deflation, in these terms is a far different animal than what is discussed today! In our time, all currency assets are debt securities. That is why any form of price deflation or price inflation, today, will destroy the entire world monetary system. Forcing people back into using real gold, the only money that cannot be deflated!

"It is the clear view for an honest eye, yes?" Another

The Bretton Woods system was bound to fail because the world governments continued to pursue a strategy of saving the integrity of all debts. Even while holding an international pledge to use the dollar as a "contract currency" for gold as money. After the US had robbed its citizens in the 1930s (of gold money) to help balance the books, the stage was clearly set to proceed into currency inflation. They continued to print "dollar currency contracts" as the dollar was a legal contract to deliver 1/35 of an ounce of gold. They did this knowing full well that this process would further demoneyize the dollar. The final destruction of Bretton Woods was but a further step to no longer using gold as money: not using gold because its use required debts to fail. If the debts are "to never" go away, the currency substitutes must be continuously inflated. Thus, the savings of workers must be diluted in order to always save the system from default. As long as the next generation believes that their money assets are growing, they will accept the currency and the fraud it represents. The price inflation (that history shows will always follow this process), is totally dependent on how many currency units the citizens will hold without spending them! If the world population can hold one trillion dollar debt units, and ten years later hold ten trillion without spending them, then no price inflation will show. However, even though each person thinks they have ten times more assets (and are as much more wealthy), that wealth is quickly degraded if and when such currency savings are exchanged for real goods. Again, history shows that only the spending of a small percent of such highly inflated currency holdings will quickly jump the price of things to such a level as to revalue the remaining existing currency. It then becomes equal to real world buying power, not the fiction in your savings account. This, my friends is the realm of price inflation and currency destruction! No currency has survived even a short time, once this spending process begins from the money inflation levels that exist today.

Now you have read some many views of the old dollar and gold. We will discuss these much further in other chapters. So, how do we (myself and Another) view gold?

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 losses. 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.

I believe, that in the time just ahead, most people will use their natural good judgment and leave the "world monetary system". Mostly because they will begin to lose savings from price inflation. If the history of human kind is any guide, they will return to the safety of the past. They will use the only "conservative money" the world has ever known that cannot be deflated or inflated. They will do this until the currencies are correctly revalued against gold. Gold will then become the de facto world money as currency will be used only for commerce and trade. Its value in trade closely governed by its exchange rate into gold.

To this end, we do not hold gold for any currency return. We hold it as money. No return of any kind is expected because it is not lent or invested. What is expected is a continuation of an open world market for the purchase of gold at lower paper substitute exchange rates. These values of world currencies, as expressed in gold will be governed by the "tolerance" of world savers to hold ever increasing amounts of paper currency as savings. In addition, the ability of governments to keep the market open with physical gold at lower prices are necessary for the continued use of the present currency system.

It is our current perception that the performance of both of these functions is coming to an end as the dollar currency creation process has ended. As this progresses, the value of gold will be best judged by its ability to purchase real things. Out of necessity, the failing paper market place presently called the "gold market", will price gold at ever lower values even as their ability to deliver gold is failing. This situation is not unlike the massive gold loans of years past. Using dollar "contract currency" as a proxy for gold, the world found out that the promise to pay at even $41=/- per ounce was a fraud! We shall see.

In chapter ((2)) we will build upon the workings of the gold market as it represents oil, the most strategic world commodity.
Thank You FOA and Another


The Trail continues here!


Wednesday, January 1, 2014

Happy New Year!

Year of the Rains

"It won't be long before the rains come
and the ground begins to open…"

Let me start by saying that I do not have a crystal ball, but I do have a lens. My lens is Freegold, and it is quite simply a paradigmatic framework in which to view events past, present and future in a different light. Events that defy other frameworks of understanding and confound their proponents, requiring either complex conspiracy theory explanations or else fluid foundations that must shift every time the wind changes directions, make perfect and simple sense with this lens, which is why I take its necessary conclusions so seriously. Once again, here is one of my favorite quotes from FOA:

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."

Last year's New Year's post began with this: "It is tempting to believe that extraordinary events must have been carefully orchestrated by someone. This is the main ingredient in conspiracy theories—denial that extraordinary events are caused by the ordinary.

The reason I bring this up is to help you put Freegold in the proper perspective to understand my use of the term "window" as in "window of opportunity". Freegold will certainly be a high impact, extraordinary event as I understand it, and completely unexpected by most people. But that doesn’t change the fact that it could be, and was, seen coming a mile away.

Extraordinary events are caused by the ordinary all the time, and Freegold will be a good example. It has been rolling in like the tide longer than most of us have been alive. If there was a "conspiracy" surrounding Freegold, it was a conspiracy to forestall the inevitable, by those who had the most to gain, until structural foundations could be retrofitted enough to withstand the storm of transition.

With a long view, we can see several times when massive amounts of resources were expended to keep the wheels on the bus at times when it looked like they were falling off. A popular view is that central bankers do this to retain their own power and influence. But a different view exposed by the Gold Trail reveals that it was being done for a purpose: to buy time in order to retrofit the system to withstand the inevitable transition to Freegold."

"Everyone knows where we have been…"

I dubbed last year the "Year of the Window" which was speculation pertaining to a theory that Aristotle developed beginning around 2005. The basic theory goes like this:

The current system is old and fragile, like a crumbling edifice with minimal, but necessary, structural support. Picture an old brick building with basic earthquake retrofitting, more for the perception of safety required by its residents and to meet public building codes than for actually surviving a serious disturbance.

Brick wall with earthquake retrofitting

The current system edifice has two main structural weak points, both of which require support, and either of which could bring the whole thing down on its own. The two weak points are the overvaluation of the dollar and the undervaluation of gold. If you think gold rose in real terms over the last decade, you're wrong. It didn't. The price of an ounce of gold when the bull market began in 2002 was about 13 barrels of oil. Today it is 12 barrels of oil. In 1999 it was 17 barrels of oil and in 1998 it was 24 barrels of oil. The real price of gold is lower today than it was for most of the time that Another and FOA were writing. But it's not the price that is the problem, it's the flow of physical at that price which requires support.

As for the dollar, it has been overvalued for a very long time. It's a long explanation as to why the dollar is overvalued which I'm not going to go into at length here. But it's basically like this: Saved dollars are backed in extremis by the ongoing net production of the American economy, only America hasn't been a net-producer in a really long time. Not only that, but the sheer amount of dollar-denominated assets existing in a world that has been systemically hoarding and reserving dollars for more than 90 years is above and beyond what even the most productive economy could produce in surplus over generations. It's a systemic flaw "which, when people become aware of it, will be viewed by history as an object of astonishment and scandal."

Again, both of these structural weak points need support, not just one or the other. Either one could bring the whole system edifice down. And please don't be confused by "the undervaluation of gold" as one of the weak points. Again, the weak point is not the price, but the flow of physical at that price. So if the central banks wanted to support the current system, they wouldn't do so by suppressing the price, but by supplementing the flow. It's really that simple.

Structural support for the dollar is equally simple. In order to support the global system edifice, foreign net producers need to continually hoard and reserve more and more dollars to keep the dollar overvalued in real-production terms. Not financial terms, mind you, but in real goods and services imported by the United States. From 1980 through the turn of the century, structural support came primarily from Europe, and from 2001 through 2013, it came mostly from China. I wrote about this structural support for the dollar side in Inflation or Hyperinflation:

This is the structural support that holds the whole system together: foreign CBs perpetually gorging themselves on Treasuries. It's not that they might sell their stock of Treasuries. The real threat is that they might slow or stop their rate of accumulation relative to our rate of emission.

On the gold side, support for the flow of physical has two components or "legs": the commodity gold market component and the official CB component. From the early 80s through the turn of the century, the gold price was on the decline. The flow during that time was enabled and supported by the CBs backing the gold mine forward hedging part of the commodity gold market with their own gold to keep the mines producing and, toward the end of that period, by making deals with one or two of the world's largest physical gold consumers, "Oil" and "Big Trader". Ultimately, however, the CBs had to become the primary suppliers themselves.

You can read more about this support for the gold side in Checkmate:

Apparently, according to Another, even all of the new gold coming out of the mines each year was not enough to satisfy the East's taste for physical without an eventual revaluation.

ANOTHER: To avoid a spiking oil price the CBs first freed up the public's gold thru the issuance of various types of "paper future gold". As that selling dried up they did the only thing they could, become primary suppliers!

The west to east gold flow comes from three basic sources: Western dishoarders, Western gold mines and Western CBs. Think about these three sources in terms of support for the flow of physical at the commodity gold market price. Obviously gold mines are an important—although not the only—component in that structural support, and therefore the profitability of gold mining is an important element. But in the absence, or at least reduction of flow from the other two sources, mining becomes a relatively more important leg of support for the current system edifice.

One thing we learned from Another was that back in 1979 the BIS resolved to extend the dollar reserve system for a while. This resolution included the expansion of the paper gold market through CB leasing and gold mine forward hedging, so that the mines could increase the amount they were producing each year without a change in the price. In 1985, global mining production was at about 1,550 tonnes per year.

It is only through Another that we learned what they (the BIS, meaning the European central bankers) hoped and expected would happen, which was a five-fold increase in the flow of gold from the mines. Even if Another was exaggerating a little in that statement, which I doubt, the disparity between what he said they expected and what actually happened is so vast as to leave plenty of room for exaggeration without affecting the point of the statement.

A five-fold increase would have meant the mining of 7,775 tonnes per year, but what actually happened was that global production plateaued at about 2,550 tonnes per year in 2000, and stayed there. There are probably a number or reasons for this, but one of them is surely that, even as technology improves, the efficiency it provides is offset by the declining marginal grade of the ore that is uncovered.

The point is that this is quite possibly the natural peak level of new gold production. And that "peak" would have been nearly impossible to predict back in 1985, although 7,775 tonnes per year does seem wildly optimistic, which makes me wonder how and why they came up with such optimistic expectations. Another explained it thusly: "Don't ask where they got this, as they are the same people that bring us government finance and such."

Sometimes I wonder if that "five times over" was what they figured at the time as being necessary for Western mining to eventually become the primary supplier of the eastward flow, since Western dishoarding had its obvious limits. In any case, the variance between estimates and actuals is well-established, though not usually that far off. (Note that, while European CBs had most of the official gold reserves, Europe has only 2% of the unmined reserves. Most Western mining supply comes from dollar bloc countries like the U.S., Canada and Australia, plus South Africa. So if Western dishoarding dried up prior to Freegold, it was preferable to the BIS for Western mining to pick up the slack rather than the European CBs.)

Here's something interesting that Another wrote in February of 1998: "When we speak of these [Giants] one must know that they purchase much larger amounts than Berkshire. Most cannot understand that it is difficult to take five or ten million oz./gold in physical in a month or less… At this time the market is very, very tight for large money to go into physical. Paper, yes! I could move five billion US into paper metal very fast, but not physical."

What's interesting about that paragraph is that it gives us a rough size for the Giants he was talking about. 5M ounces is about 150 tonnes, so he was talking about 150-300 tonnes per month. Obviously there are not too many Giants of that size, but even one Giant taking the average between 150 and 300, or 225 tonnes per month, would require 2,700 tonnes per year. Gold was $300/oz. at that time, so he was talking about a Giant with $1.5B-$3B in surplus currency per month to convert into physical gold. 7,775 divided by 2,700 is less than 3, so there can't have been more than two such "Giants" in the world (plus the "third world no ones") that the BIS was concerned about. My guess is it was "Oil" and "Big Trader" (the Middle East and the Far East, or more specifically, the Saudis and China/HK) plus the "third world no ones" that the BIS thought required, in aggregate, that "five times over".

Here's something else interesting that Another wrote around the same time: "The central underlying questions from the beginning of these "Thoughts", was always, "will the CBs become the primary gold suppliers in the continued support of low oil prices" and "will the oil producers accept a world gold market that supplies only "non-mined" gold"?"

Why "only non-mined gold"? That's because, not only had the gold industry failed "to expand production some five times over" in the preceding decade and a half, but the price of gold had recently fallen below the cost of gold mining for the first time ever. This, I think, was the primary reason that Another showed up in the first place. The first to appear was "Big Trader" in December of 1996. In November of '96, gold had dropped from $379 down to $371, and here's how Another later paraphrased Big Trader's comment:

"This was not far from the time that "Big Trader" said that "if gold drops below $370 the world would see trading volume like never before seen". The rest is history. Now the CBs will have to sell 1/3 to 1/2 of their gold just to cover what's out there. To use the Queen's English "it ain't gona happen dude"!"

Another wrote that in October of '97, then in November he wrote this:

"How will this all end? As the CBs never sold much of their gold, they are still locked to the deals thru the BIS. In the real world it was stocks of gold outside the governments [Western dishoarding] that got traded. And that trading multiplied many times. Today, more gold is traded than exists! This paper today, has become the "gold pricing standard" without backing. There is no way out! As we have now reached production cost, we have reached, "THE END"!"

So apparently $370 was an important price level at that time, probably related to the profitability of the Western gold mining industry, because below that level, Another said that the CBs would have to become the primary suppliers. And apparently they did, for a while. Here's more from Another in March of '98:

"On March 18, the Belgian Central Bank said it sold 299 tonnes of gold last week. This sale/purchase was ongoing, completed and announced during the time frame of my post ( of Date: Mon. Mar 09, 1998, 07:55 )

This purchase was completed by the BIS for its account and held in five CBs. It was made at appx $305us. As this transaction was made public within the 5 to 10 day time frame, did that mean gold would move to its new range of $320/$360 in that time also? No. What it does show, is that the BIS has made a decision to "no longer support the LBMA gold paper with CB gold"!"

So there was some CB support in '97 and '98, and then the BIS announced in the WAG in '99 that it was strictly limiting future gold sales and leasing operations. That's when the BOE ponied up another 400 tonnes at Brown's Bottom.

The point I'm getting at is that it was ALL about that price at which gold mining is profitable. Apparently that was somewhere between $320 and $370 in the late 90s, and when the POG spent a good portion of '97-'01 below that level, the CBs had to become the primary suppliers to the eastward flow. Of course that's not to say that the mines shut down during that time. They didn't, because they had already hedged many years out.

What we can see in hindsight, when looking back at this period from 1979 to present, is that the price of gold has roughly tracked the cost of gold mining that whole time. From 1979 through 1996, the POG was a little above the cost of gold mining, yet the mines were able to expand production by developing new technology and new locations with funding from forward sales, the sale of paper representing the gold that was still in the ground.

Then, 1997 through 2001 was a stressful time on the system and its central banks because the POG spent a considerable amount of that time below the cost of gold mining, forcing the European CBs to support the crumbling edifice of sub-$370 gold flow from '97-'99, and the BOE from '99-'01. Coincidentally (or not), that was the same time period that Another and FOA were posting.

Then, from 2002 through 2012, the POG was once again a little above the cost of mining. And now, during most of 2013, for only the second time in all of history, the price of gold was consistently below its production cost. Notice, very roughly, that from 2001 through 2012, the nominal POG and the nominal cost of energy (oil) both rose around 5X. Oil rose from roughly $20/bbl. to $100/bbl., and gold rose from $300 to $1,500, roughly the present cost of sustainable gold mining.

During that same time period, another 30,000 tonnes of gold were mined and added to the above-ground supply. That's roughly the same amount of gold as is held by all of the CBs combined. So while that amount falls short of what even a single Giant absorbing 225 tonnes per month would have required, it is still a significant amount of new flow, with the 1,353 tonnes that eventually made it into GLD representing less than 5% of the decade's total.

Today we have reports that suggest China, alone, may be importing around 2,000 tonnes per year. Oil is still at $100/bbl., and the POG is probably a good $200-$300 below the magic number for sustainable gold mining profitability, only this time the mines are, by and large, not hedged, the CBs are apparently not interested in becoming the primary suppliers again as they were in '97-'01, and the Western investor/trader mindset has had it with the paper gold market.

I'm trying to give you the general overall picture of what I mean by structural support for the crumbling system edifice so that you can see how it was removed, precisely, in 2013. It's not any one thing, but a combination of many. On the gold side, support for the flow of physical includes both official and unofficial (or market) components. The official component is the CBs, and the market component is the Western dishoarding of physical while also embracing the paper gold market enough to keep Western mining profitable.

From 2002 through 2012, Western investor sentiment toward paper gold was high (gold peaked in euro terms in September of 2012). In 2013 it was low. From 2002 through 2012, gold mining was profitable. In 2013 it was not, and some mines simply quit. If the sources of eastward flow of gold were hampered or reduced in 2013, we'd expect to see something, or at least I would. Perhaps we'd see the CBs max out their self-imposed 400 tonne per year gold sales limit. But we didn't. What we did see in 2013 was the draining of 550 tonnes from GLD.

Above I wrote, "…so he was talking about a Giant with $1.5B-$3B in surplus currency per month to convert into physical gold." GLD's loss averages out to 45.8 tonnes per month. At the average POG last year, that's about $2.1B in physical gold, per month, that left GLD and went somewhere in 2013.

Back around 2005, Ari started noticing European central bank policy references to the year 2010, which he interpreted as a general time frame in which a window might be opened (structural support removed) such that a natural transition of systems could occur with minimal disruption thanks to preparation and foresight. Then, following the 2008 global financial crisis, he looked for signs that the time frame might have been pushed back. In late 2010, he wrote in an email: "As for the new timeframe, I'd say that the reported EU plan "to make private bond holders shoulder some of the pain from any sovereign debt restructuring after mid-2013" is as good an indication of a benchmark as any I've seen."

This is the basic theory on which "2013 – Year of the Window" was based. You may not believe that the current system is fragile, and therefore needs support, but the BIS, the European central bankers, have believed it since at least 1979, and have acted accordingly. If Another is to be believed, they were worried that the launch of the euro, combined with the withdrawal of their support for the dollar and the gold market in 1999, would usher in the new Freegold paradigm right at the turn of the century.

That didn't happen for the reasons I have explained (the BOE, China and the commodity bull run), and by 2005 they may have noticed some adjustment to their new Eurosystem that they hoped to implement before the transition did ultimately occur. That sentiment may have been what Ari picked up on. The 2004 renewal of the WAG/CBGA reaffirmed the same limitations on support laid out in 1999, but the subsequent 2009 renewal lacked the limit on gold leasing. Perhaps this was a reflection of some renewed purpose for extending their support at that time.

In any case, following Ari's theory, I kept my eye on 2013, and one year ago today I asked the question: "Will 2013 be the year of the window?" To answer that question, I proposed a test:

"If the recorded price on Friday, January 4th, 2013 is EUR 1,246 or lower, it's game on for Freegold meaning that the window of opportunity is now open because official support for paper gold has apparently ended. In other words, there may be no system support the next time something breaks. But if the recorded price on January 4th is EUR 1,389 or higher, it's six more months of kick the can. And if it's anywhere between EUR 1,246 and EUR 1,389 (which it is today) then the €PoG will be too ambiguous to be predictive one way or the other."

Of course there was nothing magical, scientific or even mathematical about my test, it was simply me looking for an unambiguous sign—or at least a significant indication—one way or the other, in case there was something to Ari's theory. And yes, I do believe there is something to his theory. But as it turned out, the January 4th snapshot came in at €1,261.18, delivering mostly ambiguity and no definitive confirmation either way.

So was 2013 the Year of the Window as I suspected? Well, as the year unfolded, it sure appeared to be!

New Year's is that special time when we look back at the year that was, and forward to the prospects of the next. Looking back, 2013 was quite a remarkable year. Over less than one week in April, the price of gold tumbled $200, from $1,575 down to $1,375. As I said, the first ECB snapshot of the year was €1,261.18, and 6 months later it was down €341, to €919.92. 550 tonnes of gold were drained from GLD, over 40% of its inventory built up over eight long years, gone in one! Also in 2013, we witnessed what is apparently the end of structural support for the dollar!

Now see if you can spot the trend, and the dramatic change in 2013, in the following data. In 2010, the U.S. trade deficit was $498B, and foreign official holdings of Treasury securities that year grew by $456B. In 2011, the trade deficit was $560B, and foreign official holdings of Treasuries grew by $426B. In 2012, the trade deficit was $540B, and foreign official holdings of Treasuries grew by $386B. Of course the final numbers for 2013 aren't in yet, but here's what it looks like. The trade deficit in 2013 will probably be around $485B, and foreign official (that is, foreign central banks, i.e., "structural support") holdings of Treasuries grew by a mere $20B through October, $24B extrapolated through December. Here, I made you a handy chart to help you visualize it! :D

Let's take a quick look at some of the other remarkable charts from 2013:

That last one is a chart of every single quarterly snapshot since New Year's 2002. It's a little bumpy because, on shorter time frames, you pick up some of the market's normal volatility. Personally, I think the chart of yearly snapshots is much more useful in identifying any significant change in the larger trend:

So was 2013 the Year of the Window as I suspected one year ago today? While the year got off to an inconclusive start, I'd say that, in the end, it played out rather decisively. But you decide for yourself. Can you see how the structural support of the last 30++ years, as Another and FOA explained it, was gone in 2013? That's what "Year of the Window" meant. The window is now open.

"Everyone knows where we have been.
Let's see where we are going!"

This is the part where I post a bunch of A/FOA quotes and you try to spot the recurrent theme! ;D

ANOTHER (10/17/98; 22:57:24MDT - Msg ID:638)
Every season has the special feel to the skin and this winter will bring the sand storm as not before. It is not our place to change this weather, rather to wear the correct garments. I have always found the winter, it does change much too quickly for the traveler with all clothes. These traders will not move with the speed of sand and will find no shelter in paper skins. If the gods be gracious, these seasons will change slowly, yes? Thank You

How long do persons continue to make these paper claims to "bonds", "stocks" and "currencies" that are produced in numbers as the leaves on the trees? These seasons of spring and summer of twenty years time, have offered a harvest to gather wealth that lasts for centuries. When the economy of the dollar, becomes as your "Autumn" and arrives suddenly, they will pause from this foolishness. In that time, the savings for the future of their children will be as these dried "leaves" of winter, blowing in the wind!

Date: Thu Mar 26 1998 00:35
Time passes, thoughts change, people consider and value is perceived differently. Persons say, "the seasons are all the same", but we know "the weather is never the same". A storm approaches YOUR SHORES from across the pacific!

Date: Sun Apr 26 1998 00:06
Political, legal and military "currencies" do come and go with the "Seasons", but "gold currency" did keep promise for citizens of changing times!

Date: Sat Feb 07 1998 18:45
Without speaking in parable ?
Buy physical gold and hold it close. Real wealth can not know time, it is good for all seasons. It will buy you honor during a time without truth!

ANOTHER (12/2/99; 18:06:06 #20082)
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!

Trail Guide (02/11/00; 17:21:28MDT - Msg ID:25055)
Our use of digital currencies for trade always flows like a river that's strong and wide,,,,, and it always flows to its end in the sea. The water takes it into the air and rains it again upon the headwaters for another trip,,,,,a new currency starts again.

Trail Guide (10/17/00; 06:31:36MT - usagold.com msg#: 39207)
So, every investment era has its beginning and end. We (I assume you are a bullion holder like myself) can stand back and watch this paper gold system dissolve while gold the real international currency moves on. Our wealth in gold, whether large or small will weather this storm and produce some spectacular gains for our living standard. All because we made the hard choice to stand aside the misguided torrent that was an unavoidable river of Western thought.

FOA (12/02/00; 11:40:02MD - usagold.com msg#49)
I believe this storm will become worse as many paper assets are buffeted by its destructive winds. During this time the transition of currencies will place a more proper price on all the paper values we now hold to be so true.

In this light we should know that our real things in life will not change all that much. Your tools, chairs, clothes and cars will remain yours. Houses and land, TVs and boats, all will retain the exact same "value" they always had. What will change is our ability to use our currency and paper assets as a medium to measure the "real value" that's always so inherent in these items, yet so well hidden in our perception of today. Yes, the currency price of things will greatly change, even as their "use value" moves little. Such is the nature of dying paper money systems. Such is the ending of a currency timeline!

Trail Guide (2/24/2001; 7:15:55MT - usagold.com msg#: 48858)
Storm clouds are blowing in and I want to walk with a few private friends before the wind. Never know, might have to board up a window in the thick of it. (smile) OK, be back when able.


ANOTHER (04/14/01; 18:08:54MT - usagold.com msg#: 51887)
Walk the gold trails of my good friend, do I. On my feet are "strong sole" of thick leather, purchased with much knowledge of physical gold. These shoes not go bare before our journey is done. On trail I see your "thin sole" gold investments cast aside and scavenged by beasts. Their owners walk no more as these investments took not this hard road of dollar transition. Many more will wear paper gold wealth thin before this walk be done. Only physical gold will see sun after this storm.

A recurring theme in A/FOA's 4+ years of writing was change in nature—the changing of seasons, falling leaves, storms rolling in, coming rains and flooding waters—as well as the nature of change. Here's a fun little story about rain and water:

FOA (08/24/01; 10:54:30MT - usagold.com msg#101)
A guy begins building his house of wealth in the middle of one of these dry washes. A known gold expert comes along and tells him; "hey buddy, that old stream bed floods from time to time". The Bug says,,,, yea I know, but I only plan to be here for a quick trade or two,,,,, I know it's unstable and washes out every so often,,,,,, taking all paper values with it. I'll just catch some good sun between the rain,,, I'll be ok.

Well,,,, years go by and the rain comes and he gets washed out a few times more than usual,,,,,, but the guy still stays,,,,,, even though the paper gold price keeps getting washed ever lower. Then,,,,,,, a huge unending wash comes even when no rain is falling. After seeing his house of wealth float away with a falling paper price he decides to walk upstream and find out why all this water keeps driving the gold price down??

By god,,,,,,,, miles later he finds a government dam that suddenly started releasing tonnes of water all the time. He raised hell and said it wasn't right,,,,,, but the man at the valve said they aren't doing anything any different than what this type of "paper market"-- I mean stream bed,,,,, was built for. This is a derivatives market, son,,,, meant for betting on the flow,,,, not building a house from it!

If all the public is just speculating on when the rain will fall,,,, why is it so wrong for the government to do it,,,,,, and help maintain your lifestyle to boot. Besides, if all your gold talk is so right,,,,, then we are catering to gold advocates and making physical prices more reasonable???

But the Bug says,,,,,, hey, this isn't a natural market,,,, I mean stream flow!! This bed was only suppose to flow between natural dry and wet spells,,, like a real free bullion market! In reply the valve man asked,,,,, who the hell told you that??? The Bug answered:

I learned it from My Broker!

And then there were FOA's parting comments, titled "There comes a time":

FOA (11/12/01; 16:31:28MT - usagold.com msg#132)
There comes a time

There comes a time in all things when one must do nothing and simply wait. This is an ages old truth that crosses all the boundaries of life's endeavors; for everything is not always in the doing, but also in the watching. Any good farmer knows that he does not grow a crop; he only prepares his field so the growing, he knows is coming, can take nature's course.

My friends, we have crossed time and space, while plowing these fields of understanding, and the unfolding drama before us must now sprout its own life. For now, it is my time to watch the trail and let the crop develop. Indeed, it will and it will do so for all to see.

Enough has been said to prove our reasoning is true, especially when the fields become full and in a shade of physical green only our seeds will produce. And planted them, we did, by hand, one at a time, over many years.

Enough has also been said about myself as this story was never about me; perhaps too much untruth was also said by others?

I am going to travel for a while and watch the trail from a distance. It won't be long before the rains come and the ground begins to open; in that time I will return. Until then; this farmer will rest from this work.

Thank you USAGOLD and all the fine people that make this media the best gold site in the world! Another time, we WILL hike again.

Sir Douglas
Your Trail Guide

FOA (12/16/01; 15:27:34MT - usagold.com msg#133)
(No Subject)

Seasons Greetings and a Happy New Year to the entire USAGOLD GROUP. Certainly, this includes every reader / lurker at the forum, hikers on the Gold Trail and the staff at CPM!

Of course, the largest thanks must go to Mr. Michael Kosares; as this media would not exist without his enormous efforts. Thank you Michael (smile)!

We rest from discussion during this holiday season; a season that also happens to be ushering in one of the most dramatic financial changes the world has seen in our time. As the rains arrive and our crops begin to grow :

---- "We watch this new gold market together, yes?" -----

A happy (smile) to all!

What do you think FOA meant by "the rains"? I don't think he was referring to a 10-year bull market in gold and silver (and the rest of the metals as well). Anyway, that has already come and gone, and surely you remember this storm reference:

"However, everyone that is positioned in physical gold will carry this storm in fantastic shape. This is because the ECB has no intentions of backing their currency with gold and every intention of using gold as a "free trading" financial reserve. None of the other metals will play a part in this."

So what do you think constitutes "the rains" in FOA's parting comments? I have my own idea, but I think there's a good chance that, by some point in 2014, we'll all be able to identify "the rains". That's why I dubbed 2014 the "Year of the Rains". With the fragile system edifice now wholly unsupported, the window open, and all forms of "gold" despised by Western investors even as the East is importing record amounts of physical, I'd say it's high time the rains come and the ground begins to open. It's been coming for some time. And with a little good fortune, maybe, just maybe… :D

Happy New Year to all of you! All the best—and try to stay dry—in 2014... Year of the Rains!