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

Introduction

-------
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

FOA


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


--------
Pioneers:
"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!

Sincerely,
FOFOA


451 comments:

«Oldest   ‹Older   401 – 451 of 451
Victory said...

Nicklesaver,

You've been stepping your comment game up recently. I see you!

-v

tcelfer said...

Heads up to anyone in Chicago.

The past couple of days I've seen a guy walking around downtown with a sandwich board advertising Sears. It seems the downtown location is going out of business. At any rate, the sign indicates 60 - 75% off jewelry so I thought I'd stop in and check it out -- see if I can get any gold below spot. Not sure of their selection, or prices, so I can't speak to if it's worthwhile or not yet, but figured I would mention it to my fellow gold-loving brethren. I'm thinking about bringing my scale over there tomorrow to see what I can find :)

Hope everyone is having a great Tuesday!

-tc

Michael dV said...

So what is physical gold worth?
Fofoa developed a value now long ago. I wonder though if that is still relevant. At issue is the purchasing power and that can be obscured by many factors especially the control of the commodity prices. The Fed is doing many things can can influence these prices.
Just looking at the remaining gold in GLD and looking at all the dollars that could/will bid for it if there is a dollar problem yields some shocking numbers.
First pick a dollar amount...lets say it is 5 Trillion. A small bit of the treasuries out there held by CBs that might want to be converted to wealth.
Next lets use the current GLD inventory as 'all the gold there is left. We'll ignore the 2900 tons of new production for now, China will suck that up if they can.
Lets see 31,250 ounces per ton times 790 ton divided by 5 trillion dollars is...wow I get $202,532/ ounce.
Now this is of course silly at the moment. One can buy an ounce for $1290 or so.
What if....suddenly all the holders of treasuries realized that they were never going to be able to get real things for their treasuries. Of course China already knows this and so does anyone big enough to buy treasuries in that size.
So what do you think they are doing now? My guess is they are supporting the system so that their 'investment does not go bad before they can deploy a good bit of it. then I suspect they are evaluating other ways to spend all that wealth that cannot be honored by the USA in equal value to what was paid. Finally they have to be considering gold. Maybe they would not put it all in gold but maybe, if there was a panic the number on top might be larger than 5 Trillion, there are 17 Trillion outstanding. And maybe, when the panic hit the number on the bottom will be smaller, it has been getting small every month for 13 consecutive months now.
Anyway it is an interesting question. China alone could buy all the gold inGLD for 1/40th of their reserve holdings. They seem to want more gold. Ever wonder why they don't just buy GLD and be done with it? I do.

AT said...

For MatrixSentry:
http://about.ag/tulving.htm

Hannes Tulving, Jr., owner of The Tulving Company, currently has outstanding orders estimated at at much as $300,000,000 (but in reality likely much lower). It appears that he currently is only able to ship out about $1M of orders per week, presumably using money from new orders. We believe that he has taken over $500,000,000 of orders illegally (knowing they would not be delivered within 30 days, violating the FTC Mail Order Rule, CA law, and his FTC consent decree) since April, 2013.

AT said...

http://about.ag/tulving.htm

Tulving has claimed sales of $650M in 2011. According to Hannes Tulving, "We ALWAYS Ship On A First Paid, First Shipped Basis." Given that a report on January 14 involved an order placed on June 28, 2013, that means that the current backlog is about 6.5 months. That works out to about $350,000,000 of orders that he owes customers, that have not shipped yet.
Since the problem started approximately April 12, 2013, as of January 12, 2014, that would be nearly $500M of orders that he took illegally (e.g. knowing that they could not be delivered within 28-30 days).


What happened in April 2013? Oh yeah--the gold price plunged from $1580 to $1380 in about 7 days:
http://www.kitco.com/LFgif/auapr13.gif

Leading to a torrent of physical buying before the price jumped back up to $1470 in early May:
http://www.kitco.com/LFgif/aumay13.gif

So does this mean some pretty big operators in the gold bullion business weren't bothering to hedge in the futures market? Or is Tulving just a crook?

Archer said...

Yet over that same time frame, the price of oil has nominally fluctuated in a channel of $90 to $100 per barrel.

Yep. Energy isn't accommodating. And that's why miners and the dolts who buy them are, the recent death twitch levitation higher notwithstanding, are not going to deliver anything like what they imagine.

Nickelsaver said...

¡muchas gracias -v-

tEON said...

Marc Faber in his recent interview with Barron's : I recommend the Market Vectors Junior Gold Miners ETF [GDXJ], although I don't own it. I own physical gold because the old system will implode. Those who own paper assets are doomed.

Archer said...

I own physical gold because the old system will implode. Those who own paper assets are doomed.

The language is instructive. The point which Mr. Faber has, I suspect, unwittingly made, is that if you don't own it, as in have it in your physical possession, you (not only) don't own anything, but your claim ticket will be null and void.

And, within the context of the coming global reset, whose chief aims will be to, as quickly and cleanly as possible, extinguish debt in concert with launching a new system, I can think of very, very few entities more readily expendable, more inconsequential juxtaposed against the aforesaid imperatives, than a bunch of silly gold mining specs.

Nickelsaver said...

One of the questions I see come up from time to time is; Which comes first, FG or HI? - the death of paper gold or death of the dollar? From where I sit, it is both.

The dollar and the gold market (real and paper) are intricately entwined. They have been ever since the dollar first assumed the role of proxy for gold on an international level.

If we were simply to view dollars as a market, we would see that paper gold is really just an extension of that market. Like the dollar, paper gold is a proxy for the real thing. (Which might make you want to argue that paper gold is also a currency. I wouldn't dispute that.)

The point is, they are tied together in a way that no other commodity and the dollar are. The dollar in its inception was a proxy (on an international level) for only one thing, and that is Gold. Now silver was used as currency within the progression from full fixed gold backing to what we have now. But silver was never the backing. Enough said about silver.

Paper gold is an extension of dollars. Both the dollar and paper gold exist within the monetary plane. Physical gold within the physical plane.

Now there is a pressure, a force acting on the gold market. And that is the pressure of debt in form of the entire monetary plane. This pressure, had it been allowed to release in the past would have brought many open positions to bear. Indeed, there have been those that have seen the end coming and have sought to close those open positions; first Saudi Arabia, it always demanded at least some physical gold as payment; then the EU, it covered its open position when it established the Euro and marked its gold to the market. Then China, via its accumulations over the last decade or so. (Frankly, China has been playing catch-up. They will prove to have eaten more paper than anyone in order to do so.)

Now this gold market has had some pressure relief valves attached to it, which could also be viewed as support for the dollar.

One of these relief valves is the continued confidence in and hoarding of dollars. The other is the actual flow of physical gold.

Now as support for the dollar in the form of hoarding dollars begins to unwind, physical gold desires to bid for it less and less. And where there are no bids, there is no flow of gold. So we see that the one valve acts on the other.

Now the flow of gold is a relief valve. Because as long as gold is flowing, there will be those that will support whatever mechanism is in place that gets it to them. Whether it is cheap oil, or the purchase of UST's, or the holding of homeless dollars as reserves.

In any case, it boils down to which relief valve will fail first. I think we can see by some simple logic that it is the flow of gold relief valve that must fail first. But it fails because of the force of debt upon it. The greater the debt, the less gold will bid for dollars.

The dollar has an additional relief valve attached to it which the gold market does not have. The dollar has the FED and USG, both which can support the dollar artificially. But this artificial support does not trigger hyperinflation. It actually prevents it, postpones it is probably a better way to say it. And it really seems like this artificial support can continue forever. But it can't.

What alters the effectiveness of this dollar relief valve is the seizure of the gold market. And that happens as the flow of gold stops.

When the flow of gold stops and physical gold goes into hiding, then the dollar will hyperinflate. That because there will be no further need for ANY outside support for the dollar. It will be FED from within only. But, it is the actual confidence in paper that causes gold to stop flowing. And that confidence is the reality that the dollar was already hyperinflated, it just hadn't shown in the price yet.

Anand Srivastava said...

Nicklesaver:

I disagree that FED and USG provide support to the dollar. Not really. They are the problems for the dollar. The supporters are the people who are absorbing the debt. So the support is pretty bad for both of them. They will necessarily fail at the same time.

The more interesting question is whether the Revaluation comes before or after the Dollar Hyperinflation. I would think it will be before, because the Paper Gold will go down at the same time as the Dollar crisis. There will still be some time for the Dollar crisis to convert into Hyperinflation. In the intervening time, the Gold should revalue. But we cannot be sure of that. Depends on how fast the hyperinflation happens. It could be near instantaneous.

Motley Fool said...

tcelfer

Jewelry stores typically operate on margins much in excess of 100%. They are not however stupid, and can easily resell gold at very close to spot to refiners. You will not find any gold at less than spot.

At best you might find new jewelry at what is considered cheap rates in the West...so maybe 20-50% above spot.

Just thought I would save you the disappointment. :)

TF

Roacheforque said...

MdV,
What is a wooden paddle worth in the corner of your garage? That same as when you find yourself up shit's creek? When gold's essential utility is deployed, it's value will be recognized, but much derivative debt will simply be written off. We have a bank ,,, for international settlements, as the arbiter of last resort.
Which brings us to China. If they drain GLD tomorrow, it's all the gold they'll get at today's prices.

Remember, no Giant wants to spook the market. There are still many more "Western mindset" fools, seeing today's paper price action, and selling physical into this demand (as they set up their Myra's).

As I have alluded to recently, the insider's are already spooked, and we see the evidence of that in flow restriction all around us. But the desire to "get all of ours NOW" versus "get more slowly" is not a weakness that Giants generally succumb to. They don't need to.

And finally ... "when the system is ready, the gold will appear."

Michael dV said...

Roach-ey
It is obvious no one is making a run for the GLD gold. Your point is a good one…that it would increase the price of the 2900 tons that might be mined this year.
BUT…what if there was a rush? In that case i.e. if the dollar was seen as quickly loosing its value…then the 200k figure makes sense.
Hell if we see HI we could see trillion dollar gold.
I'm not saying (wishing yes) that gold will have purchasing power of 203,000 2014 dollars post transition, but if all treasury holders divvied up the remaining GLD gold evenly the price would approach 500k.

Nickelsaver said...

Anand,

I disagree that FED and USG provide support to the dollar. Not really.

Hence the qualifier, artificial. There is no question that QE is an artificial dollar demand satisfier. And I agree that the revaluation is a watershed event. That because the CB's that mark their gold to market have the replacement for dollars already on their books, to instantly balance their books, in the form of gold. Imagine the Forex on the day that these CB's (the EU leading the way) reveal their newly adjusted balance sheets.

But then again, I tend to think that the Forex will already be in chaos at the moment the gold market seizes. For the biggest portion of the paper gold market is on the Forex, XAU:WTF. All of these forces are correlated. The trump card is the desire of the USG to salvage itself. Hyperinflation evident in the price of goods and services requires time. My general impression is that it will occur in the space between the gold market seizure and the revaluation. The revaluation will tell the whole world what the dollar is really worth, not much. It will necessitate the dollars replacement or at least its reconfiguration.

I do not see HI evident in prices occurring prior to the gold market seizure.

tcelfer said...

@TF -- Ahh, very good point, I didn't realize that. While I figured their margins were higher, I didn't realize they were THAT much higher. My jewelry experience is very limited.
Thanks for the heads up, I appreciate it. I may stop in just to see what they have but your point eliminates any chance in my mind of getting any sub-spot gold. :( Oh well!

Does anyone here do any gold recovery? (Old computer parts, etc) I've looked into the process a bit a while it seems cumbersome I have to imagine the yield can be worth the effort?

Thanks,
-tc

Anonymous said...

So many places to buy gold ... http://www.csidata.com/factsheets/factsheet-futures.html

Unknown said...

ROW stops supporting treasuries. USG solution = MYRA

Unknown said...

With the inevitable shift in the international monetary system coming I believe the State of the Union fits well with the freegold lens.

MYRA- Make up for the lack of support by the ROW in purchasing treasury bonds.

Tax incentives for bringing jobs back - We are going to have to produce and actually work for our living standards rather than benefiting from The World Reserve Currency

I may be overestimating the USG intelligence of foreseeing the coming HI crash? But I think some attempts are being made to make the HI crash to transition of becoming a producing country again easier? Any thoughts?

Sam said...

@Josh

I think the US private sector will explode into a period of great prosperity not long after Freegold. It's the US government's "standard of living" that will be greatly reduced.

Myra's will be interesting. The USG needs free stuff in exchange for future promises in order to survive. Those that give up the free stuff must then hoard these future promises in order for the promises themselves to maintain the illusion of value. Can the US citizen take on the role of free stuff provider/future promise hoarder? I don't think so. Anyone have any thoughts as to why? (or why not for that matter?)

byiamBYoung said...

tcelfer,

Never did any recovery, but I have also looked into it, and it doesn't seem to be beyond the capabilities of average folks.

I do have a small stockpile of old PCs that I will gladly chop up and submit to the reclamation process, but I don't think I'll bother until the whole system goes poof.

Here's a link that seemed to explain a lot for me.

Zebedee said...

@ spaul67

I've been delving into those links you provided (Belangp) and further into his YT channel. I came across his work some time ago but hadn't kept up with it. Very FOFOA-ish indeed.

It boggles my mind that all the usual high profile gold talking pundits can't see the declining paper price as a given prior to the eventual reval. I guess you either 'get it' or you don't. If you give it some thought it isn't that hard to encapsulate, is it? I mean it is one of the basics eh?

Anyway, cheers for the reminder spaul and a big thankyou to FOFOA for this blog.

tEON said...

1/2
It boggles my mind that all the usual high profile gold talking pundits can't see the declining paper price as a given prior to the eventual reval. I guess you either 'get it' or you don't. If you give it some thought it isn't that hard to encapsulate, is it? I mean it is one of the basics eh?

Indeed. There are legitimate reasons that the community of gold analysts are so misguided. Obviously, since most are in the business of selling, gold, it wouldn't be profitable to state their opinion that they expect the price will be decreasing in the future. Why they, as a group, can't separate the physical demand from the paper price, is another story. It would seem logical that the two should relate - but the disparity between physical and paper has only been widening for 20+ years. Certainly, now, more than ever, physical data is almost totally irrelevant in regards to price. When these same analysts are frequently incorrect regarding price predictions they simply blame 'manipulation'. Yes, the evil 'banksters' - the evil Federal Reserve - they are manipulating the market. Well, unfortunately it goes far beyond that. The paper market dwarfs the physical by over 100-to-1. And the paper market absolutely controls the price discovery. It doesn't matter how high the demand for physical is... by China, coin sales, CB purchases or anyone else. It doesn't have ANYTHING to do with the offered paper price that is determined by those (including computers) that trade paper Gold. So, why do virtually none of the gold pundits accept this? I think that many, erroneously, believe that the market is on the cusp of a shift where the paper price will be overwhelmed by the physical demand. Personally, this makes no sense to me. As physical demand INCREASES (physical gold gets more scarce) then that, in-turn, should only DECREASE the paper price. This is a process with a sudden ending. Let's look at it a different way. If there was NO physical gold to buy - the marketplace (coin shops, hidden redemption, online venues etc.) was dry - what should the paper price of gold be? or rather - what should a futures paper receipt for gold, that does NOT exist in physical form, be? How about zero? So if GLD drains, COMEX defaults, your local - and online, coin shop is heavily back-ordered....what will the paper price (the one in total control of the price discovery mechanism) be? It should be... lowering. As physical demand increases the paper price should drop further. No?

tEON said...

2/2

When it is obvious that something is plentiful - paper receipts can be perceived to have value (just trade, redeem them for the real thing... if required) but when it is becoming apparent that the item no longer exists in an obtainable form - what are paper recipts for it really worth? The marketplace is in the initial stages of this awakening process and it should co-incide directly with physical demand heightening ("China’s 'insatiable' appetite"), and Giant 'custody' - Perhaps it will dry up totally (or perceive to) very quickly - possibly overnight. So, is the price dropping (37% down from all time highs in 2013) a sign that the physical market is becoming scarce? OR as gold stops flowing at the top levels - will it trickle down (rapidly) till we can finally see there is none to buy? I'm guessing most see the latter? that we will be able to buy right up to a revaluation. That empty store 'surprise' won't be any fun - As long as the coin shop has, say, X ounces of gold, we see our needs as capable of being fulfilled, even if it usually has 4X, 5X, 6X. Sorry - Just thinking out loud - talking myself into buying this week, price is down this morning :)

Zebedee said...

Thanks Gary (not the evil one) for expounding. Glad you mentioned the drying up period.

"Or as gold stops flowing at the top levels - will it trickle down (rapidly) till we can finally see there is none to buy? I'm guessing most see the latter? that we will be able to buy right up to a revaluation".

I often ponder whether having the Perth Mint in my back garden may be advantageous during that drying up period. Will the coin dealers be the first 'empty store surprise?' Will I be able to benefit from having a minting operation in my backyard? Who dries up first? Is this a case of the chicken or the egg? Does it depend on coin dealer inventories? Are they reading FOFOA?

I care not to try and time the eventual 'surprise', but thought it may be nice to think that I have a small exorbitant privilege in my backyard, via a 20min car ride.

Cheers.

Unknown said...

So many great points recently made here, and all are in agreement with the Roache.

To wit, MDV,
All that remains then is to define what is a "rush" something that can begin small and accelerate rather quickly, or gradually, but when and how to mark the starting point?
Nickelsaver:
"All of these forces are correlated". Well said sir.
Sam,
"I think the US private sector will explode into a period of great prosperity not long after Freegold.", Perhaps you're thinking of the recent article whereby China is considering the US as a good potential target to establish its foreign labor force from a standpoint of future currency arbitrage? Though you've said this long before that article came out. Many of our predictions here seem to be coalescing now eh?
tEON,
A very good reminder of the conditions I believe we should all be expecting.
It would seem the consensus here bodes well for freegold, a fertile field indeed for the flower of understanding as it grows reaching toward that golden radiant light above.

ein anderer said...

Black Swans. A chronology of panics, mania, crashes and collapses from 400 BC to present. By Michael Kosares.

Source:
http://www.usagold.com/reference/panicsmaniacrashes.html

tEON said...

I was emailed a quote from a William Kaye...

So no matter how much physical gold that the elite own, arguably if they know it is about to be reset much, much higher, and that’s what I believe will happen later in 2014, then you can’t possibly own enough no matter how much you own.

One Bad Adder said...

It's interesting to ponder "enough" (as in too little - enough - too much) in a similar context as Past - Present ...and Future.
In a FreeGold regime the likes of which is anticipated here (when $Po-phys-G has done a Bitcoin), maybe a single Oz will be considered to be well and truly "Enough".

The Present - our ever-changing Here 'n Now.

Motley Fool said...

tcelfer

Hmm. If memory serves STF has an older post about a simple chemical process for extracting gold from electronics.

TF

Roacheforque said...

Ein anderer,
It is a conicidence no doubt, but I was just wondering if China would default on major derivative loss, claiming it to be a fraudulent scheme based on recent revelations of Libor Shibor, and soon to be gold market rigging etc...

In other words, if the conditions that trigger, say, an interest rate swap payout, are indeed proven to be rigged, does that invalidate the derivative, or do we simply assume it's all a legal scam, so pay the crookie bookie anyway?

And if the kiddies won't play nice and Uncle BIS can't strike a deal, is this our debt based black swan default domino "par excelllance"?

!! May the Power of the Flower Free My Gold !!

Tommy2Tone said...


Here'swhat MF refers to.
I have a bunch of parts ready to go but have decided to just stuff those boxes of crushed hard drives, memory sticks, and keyboards in the attic and after FG I'll just take it in and pay the fee to have someone else scrap it for me :)

Knotty Pine said...

An article in the daily reckoning on "The Triffin Dilemma". Not groundbreaking stuff for FOFOA readers but interesting to find it here.

Michael dV said...

I don't know how unusual this is but a nearly 30% jump in gold longs at Comex sounds big:
http://redliontrader.com/cftc-says-comex-gold-speculators-raise-net-long-position-by-17320-contracts-to-60672-in-the-week-to-january-28th/
Anyone have experience following these things?

One Bad Adder said...

KP: - Mr Canavan is (IMHO) spot-on.

Edwardo said...

Here are a few key quotes from The Triffin Dilemma piece with some commentary.

Perhaps surprisingly, the dollar maintained its role as the world’s reserve currency throughout the decade. Due to its economic and military might, the reserve currency status of the dollar actually grew in acceptance throughout the next few decades.

It's not a surprise at all, because, at the time, there was no other currency system of sufficient size to fill the void. This is no longer the case which brings us to this:

With the Euro-zone under pressure, the reserve asset of choice remains the US dollar.

The EZ is not equivalent to The Euro which is implicit in the above statement. That aside, the reserve asset of choice has been, is, and will be, physical gold. Certainly physical's
role has been eclipsed, at least on the surface, over the last few generations, but just as the moon, at times, eclipses the sun, one should never mistake which entity possesses the infinitely greater power.




Sam said...

Edwardo

Or should I call you Apollo! You are not taking into account Marvin the Martian's presence on the moon, black holes, or real interest rates! Wait the third thing I wrote doesn't matter at all just the first two....how stupid of me.

Edwardo said...

Hi Sam,

Thanks for reminding me of these key items.

Indeed, real interest rates are, so...unreal.

tEON said...

In his latest, Dr. Paul Craig Roberts discusses the excess liquidity that flowed into emerging markets is now flowing out with the taper throwing some of them into financial chaos. Destabilizing currencies in Ecuador, Venezuela, Argentina, Russia etc. He considers that evidence is fairly strong that the ecomony is turning down in this current year. Then the talk will all be about 'Deflation' (hence Gold may 'deflate' further) - the Fed will have to consider what it will do. He says there will be cries from the banks to 'support' the economy by increasing quantitative easing. Will the Fed do that? He feels it will depend on the state of the USD. The printing of money has had repercussions - Russian lawmakers are eliminating USD - proposing outlawing U.S. dollar ownership. Zimbabwe was using the $ as its own currency - they have switched to Yuan - The CB of Nigeria (Oil country) announced it is reducing its holding of USD - and increasing its holding of Yuan. Even at current QE there is 800 billion of new money (which would be unprecedented if they haven't already done over a trillion.) The Fed's decision will be to either defend the dollar - more taper - or save the banks/Wall St. (what they perceive as 'the economy') and expand its QE. Possibly this decision will need to be made by the middle of this year. Can it save the banks without bringing the dollar down? He claims it can't do both save the banks and save the dollar (keep its pedestal of world reserve currency). History would support saving the banks - or at least rolling the dice in that direction.

The former chief economist of the World Bank, Justin Yifu Lin, stated in the week that it is time to abandon USD as world reserve currency. It is the root cause of global financial and economic crises. A strong statement.

Roberts also discusses the MSM sour take on China and he feels that it is smoke and mirrors - China doesn't owe the world 17 Trillion, China doesn't have un-closable Federal Budget deficits. China hasn't off-shored all their production jobs. China has as many workers in manufacturing as the entire US workforce (about 100 million people). US has only 12 million workers in manufacturing now.

ChrisF said...

@ Michael dV
My data goes back to May 95, so nearly 9 years. It is for futures and options whereas the article you referenced refers to just futures.
Average Specs Net Long (SNL) is 146,000 contracts - 9 years
Latest week 91,000
Previous week 72,000

So, the specs have been much shorter than usual and their net position seems to be reverting towards the average.

There seems to be a positive correlation between specs increasing/decreasing their net longs and price increasing or
decreasing - 70% of the time for the week in question.
However, there is no correlation between this activity and the NEXT weeks price action!
Since the data is reported late Friday for the previous Tuesday close it is of little use to short-term players.

I thought that no-one here is particularly interested or concerned by the short term price action....? Hope this helps.

Michael dV said...

Recently a China official (sorry no reference) called for an 'international' reserve currency.
Of course to most of the world this sounds like a call for a new currency. To us here we can see that an international currency already exists. At this time it is seen as a local medium of exchange for European countries but what is the Euro?
It is of course a currency that, with little effort could be adopted as a world currency by all countries willing to forego the benefits of being able to manipulate the money supply for internal advantage.
Today that seems like a lot to ask of a country like the USA and like China. BUT if the world turns a few more times and the dollar goes wobbly and the Yuan shows the weakness that has likely developed over the past 5 years as it created a dozen trillion in loans...well then maybe the people of the world might accept a change.
After the Weimar the citizens of Germany became rather resolute in demanding a stable currency. If the printers of the dollar are sufficiently embarrassed by the current dollars demise even they might surrender to a universal medium of exchange.
If gold is seen as the store of value and if people see the flaw in holding any medium of exchange for too long then it won't be a great advantage to being just another printer of a MoE.
My guess is that many countries will still want to print their own currencies. There can be short term advantages to doing so. I doubt we will ever see another country allowed to hold the exorbitant privilege as the USA was (has).

Aquilus said...

Sam

On January 29, 2014 at 5:55 PM you asked

Myra's will be interesting. The USGov needs free stuff in exchange for future promises in order to survive. Those that give up the free stuff must then hoard these future promises in order for the promises themselves to maintain the illusion of value. Can the US citizen take on the role of free stuff provider/future promise hoarder? I don't think so. Anyone have any thoughts as to why? (or why not for that matter?)
------------------------------


The answer is two part:


1. People's savings from inside the US buying Treasuries is a very good way of funding the Treasury. Every purchase gives the person an asset to hold, remove credit money from their back account and base money from the bank's reserves with the Fed at the same time (because the person's back pays the Treasury ’s bank which is the Fed, and the Fed is paid in bank reserves only)


Then the Treasury spends the base money it received from the sale in the real world. When the government spends, that money both re-appears as credit money (bank liabilities) in someone's back account AND as base money (bank reserves) appear in that person's Bank account at the Fed.

Why? Because the government issues a check or a wire for an amount. That amount gets deposited in a regular checking account (bank credit/credit money) AND at the end of the day settlement happens between the government's bank and the person's bank. Since the government's bank is the Fed, that means that the Fed will increase the amount of reserves of the person's bank. Therefore when the government spends we create both base and credit money. (Please see Think like a Giant for FOFOA's explanation of this)

However, the amount of bank credit did not change after the government spends the money it gets for the Treasury bought with savings, right? The buyer has less money in their account but as an asset (the Treasury debt) and the gov created base and credit money for that amount. So the credit money supply quantity (total money in bank accounts) did not change and we have an extra asset (the treasury debt ) being held as savings. As long as ever saver did this, it would be a nice virtuous circle for quite a while.

And in truth one can mandate that this virtuous circle occur inside the US if needed since laws can always be implemented.

The problem comes from the behavior of the people paid in dollars that are OUTSIDE the jurisdiction of the United States.
Which brings us to part 2.



2. As the US Government has a structural DEPENDENCY on imports (US economy cannot to satisfy enough of its demand for real stuff), a good portion of the dollars it spends from the Treasury sales is OUTSIDE the US. That is the threat for the dollar.

As we've seen, inside the US we can "In Extremis" mandate that all savings purchase Treasuries. But outside the US we must rely on the self-interest of those parties to send those dollars back instead of spending them.

In the past few decades, the self interest has been there, and most extra dollars have been recycled back to the US Treasury instead of being spend on buying real stuff with them in competition with the purchasing pressure coming from the US Gov.

The moment that does not happen, those dollars will compete with the new dollars spent by the USGov for the same items, causing price rises in dollars. And since it's unlikely that the USGov will be outbid for things it wants when it can issue its own currency, it's very likely it will also lead to a hyper-inflationary spiral.



So the answer is: it's a great step as long as the rest of the world also supports the dollar. It simply reduces the amount of debt the Fed needs to purchase. But it does not do a single thing to reduce the danger coming from the rest of the world not recycling their surplus dollars into currency.

Aquilus

Sam said...

@Aquilus

Great answer

Unknown said...

Aquilus,

Yes, great answer! Thanks for the post on MYRAs.

LD said...

Aquilus,

MyRA response to Sam is enlightening. Thank you.

Edwardo said...

Aquilus wrote:

So the answer is: it's a great step as long as the rest of the world also supports the dollar. It simply reduces the amount of debt the Fed needs to purchase. But it does not do a single thing to reduce the danger coming from the rest of the world not recycling their surplus dollars into currency.

I doubt it will be successful because, quite frankly, among other reasons, the pool of savings amongst U.S. citizens is in a state of terminal decline with an ever steepening downward slope. And it seems to me that there is more than a little cruel irony in that since this state of affairs can be directly traced to the dollar's reserve currency status which has been thoroughly corrosive to the domestic economy, hollowing out as it has a former manufacturing mecca and replacing it with the now dying embers of the so called FIRE economy.

Lisa said...

Aquilus. Great comment as always

Edwardo
Do you think they would force those who currently have retirement plans to hold large percentages of MyRAs? There is a large pool of retirement funds out there (15 trillion?). That provides a source of funds.

Edwardo said...

Lisa,

Maybe, but I have a hard time seeing how how they "force" folks with retirement plans to hold something that is so clearly contrary to their interests. Obamacare is quite similar in this regard, and it's already coming apart now.

And even if we assume that the vast majority of folks don't know thing one about how the monetary system works, they are going to get clued in by the few who do sooner rather than later. The way government tabulates inflation makes it apparent that one is getting robbed from the word go. This is nothing more than the inverse of what the Indian government is trying (and failing) to do with its citizens. There they prohibit purchasing gold, while here the talk is of compelling the acquisition of debt.

One Bad Adder said...

Tomorrows 3-mo T-bill Auction might be of interest (pun intended!)
The market seems hell-bent here (pun intended) on plumbing the depths again ...which seems (at least to me) the ONLY way out.
Let's watch!

Franco said...

This is my guess of a possible path for the gov to "capture" retirement money in the MyRAs:

-Implement MyRA as a tax-deferred treasuries-only savings vehicle (done)
-Later on add some incentive to make MyRA more appealing than IRA and 401(k), for example: some amount of distributions are tax-free, but with the caveat that it HAS to stay there for at least 10 or 20 or whatever number of years. No early withdrawals allowed if you want it tax-free.
-Reduce the tax-deferred contribution limits on IRA and 401(k), or some other restriction such as employer matching contributions can only go into MyRA.
-Continue squeezing until they achieve the desired outcome.

That's how they can push more and more money into the MyRA. I don't think they will just "take" your money. They will change the rules until people will decide that they want to do it.

FOFOA said...

For those of you on email notifications, a new post is up!

«Oldest ‹Older   401 – 451 of 451   Newer› Newest»

Post a Comment

Comments are set on moderate, so they may or may not get through.