Wednesday, April 30, 2014

Eastbound and Down


"Gold is so old. Such a rich history.
An educated western mind cannot begin to understand it!
We live in a time of closed thought and controlled perception.
How could we have known that two thirds of humanity
would still think of gold as wealth?
It’s not that they are right or wrong to think this way,
it’s that we want them to work for us! That is the problem!
And when they worked for us we paid them!

And who in the hell would have thought that they would have
used so much of that pay to buy gold! Some bought in tiny amounts
and some bought in large amounts. This started with the new
world trading order that came into being about six years ago.
By now that gold is so spread out it would take 20 years
and 5 small armies to get it back, I think."
–Another


Much of the Western gold flowing eastbound to China and down to the Middle East and India passes through Switzerland on its journey. And just last week, Switzerland released its import-export numbers for the first quarter of this year (h/t Flore). More gold flows into Switzerland than out, probably because Switzerland is a good place to store gold, but most of it just flows through. Currently, according to the data, gold exports are about 80% of gold imports. Last year it was 90%, and the year before it was 70%. But what's most interesting is where the flow comes from and where it is going.

More than 50% of the flow, about 270 tonnes in the first 3 months of this year, or 90 tonnes per month, originated in the UK. Projected annually, that's about 2,150 tonnes per year flowing through Switzerland, of which half is coming out of London. For comparison, 2013 was a little higher with 2,777 tonnes flowing through Switzerland, and 2012 was a little lower with 1,570 tonnes, which was down from 2011's 1,819 tonnes.

I can't tell how much of the 2,777 tonnes came out of the UK last year because Switzerland only started including information on its trading partners in 2014, but if it was close to 50% like this year, that would be about 1,390 tonnes. Adding the first quarter of this year's 270 tonnes, that would be about 1,660 tonnes drained from London in 15 months. For comparison, GLD was drained of about 560 tonnes. If all of that gold drained from GLD made a stop in Switzerland to be recast as kilo bars, then one could imagine GLD accounting for roughly a third of the London drain.

Frank Knopers made this nice chart yesterday, for his Market Update site, of where the gold flow is coming from:


But what's more interesting than where it's coming from is where it's going. 438 of the 537 tonnes, or 82% of the gold that flowed through Switzerland in the last three months, went to Asia, India and the Middle East. 281 tonnes, or 52% of the flow, went to Hong Kong and mainland China alone.


Apparently Mr. Chang still likes his gold, very thank you. So not much has changed, except that structural support is now negative, for the dollar and for gold. By the way, did you know that the same year the CBs ended their 21-year gold selling spree, Saudi Arabia made the single largest one-off purchase of gold by a CB? I guess that whole "special-deal-to-buy-time-for-the-dying-$IMFS" thing is over. It's almost as if no one is trying to buy time anymore, so maybe something really big has changed. Meanwhile, the physical is loaded up and truckin', eastbound and down.

Sincerely,
FOFOA


779 comments:

1 – 200 of 779   Newer›   Newest»
One Bad Adder said...

I like the notion of re-casting into Kilo-bars - which implies Bullion is being distributed far and wide, rather than simply being re-vaulted in one or two locations.
Better for ALL concerned I feel.

Good work FoFoA.

Jim Okefenokee said...

Here in the west, we all hear about how "the Chinese love gold" and how "the Indians love gold" etc. You had better believe it. Allow me to present one anecdote.

A few years ago I attended my (Chinese) father-in-law's funeral in Malaysia. It was a 'traditional' Buddhist/Taoist funeral that went for three days(!). Such ritual has long been banished in China by the Chicoms, but it continues with the Overseas Chinese.

The funeral was sad of course, but what fascinated me (as a gweilo) was the obvious Chinese belief that you can, in fact, take it with you. I made myself useful over the three days by folding thousands of sheets of gold and silver coloured paper into precious metal ingots. Then, in the tropical heat, I got to build (Tiger beer in hand) several bonfires into which all this gold (and yes, silver) could be thrown. My wife's family is English educated and quite westernised (courtesy of British colonial days).But some things never change. Including inside China.

I find this whole flow of gold from west-to-east fascinating because I just know deep down that it's not a passing fad.

(By the way, I have a sinking feeling that the old boy knew his onions and was, in fact, able to take it with him).

BaronSilverBaron said...

So going on these two charts and the 'flow' plus the estimated amount of Gold the Wast has available someone must be able to predict pretty accurately when the 'flow' will stop and reset happens.

Comentakit said...

Can you imagine.....the vast stores of gold piled up by the Saudi princes over the past 40+ years?

Can you imagine how attractive those piles are to the banksters and zio-bureaucrats of the world, when considered with the oil supplies still there?

Can you imagine how vulnerable and targeted the princes must feel, knowing how others lust for their wealth? The measures they must have taken to bury and hide their stores of wealth in the sands of the desert?

Now imagine how disappointed and displeased God is with those who spend their lives worrying with such things.

He wants us to spend time close to Him, not seeking wealth, especially the wealth of others.

Let it go. It’s gone. Spend time with Him, instead. The world will be a much better place for you and for everyone.

ein anderer said...

FOFOA, many thanks! Gives hope that we don’t have to wait decades anymore ;)
@Comentakit: God is with those who use their brain and their mind, means: acting wisely and thoughtfully. Brain and mind are gifts of nature after all, isn’t it?

Woland said...

A strange ( to me ) anomaly, via a map from @ The Real
Asset Company - 2013
Largest gold refineries by capacity (tonnes per year)

1. Valcambi 1400 Swiss
2. Metalor 650 Swiss
5. PAMP 450 Swiss
6. Heraus 450 Swiss
7. Argor Her. 400 Swiss
9. Johnson M. 250 Swiss ( used to be in UK?, now Zurich )

The remaining three:

#3. Rand Refinery 600 South Africa
#8 Perth Mint 300 Australia

and the "anomaly"

#4 Tanaka kikinzoku Kogyo 540 Japan

so, whose gold is Japan refining?? Philippine? Indonesian?
( or is it just "idle capacity"? ) {;<)>>

Beer Holiday said...

DAE start to read the initial Another quote in Kenny Powers' voice? Freaked me out.

"Gold is so old. Such a rich history.
An educated western mind cannot begin to understand it!

Brain freeze :-)

Woland said...

and, on another topic, I always try to follow the essays at
Robert Pringle's excellent "The Money Trap" site;
www.themoneytrap.com I particularly like the new 29/03/14
Geoffrey Ingham on Money

Roacheforque said...

I see that Frank Knoper is a fellow Freegold cultist. I tried to comment there, but the captcha token was unreadable.

If I could have, I would have asked if he felt that the Euro could effectively replace the dollar in a $hyper-freegold transition vis a vis the original Freegold theory of Another, even while Europe takes this position of siding with sanctions and aggression against the same trading partners Frank cites in his Freegold article reply to Anands comment (namely Russia and China) here:
China, Russia and others want to join this model, placing gold in the centre with currencies around it.

This may surely be a test of the so-called "a-politicality" of the Euro, a currency which energy, industrial output and gold trading partners will embrace, even as the issuing country sides with it's Nemesis?

Or is this all a completely overblown head fake? If so, the military build-up is certainly a convincing prop.

In summation, might we extrapolate that Europe's position is a pensive one? Yes, by supporting dollar sanctions they do in a way support the dollar's own undoing by further helping the idiotic Neocon element within the dollar faction to further remove it's own dollar support ... but ... they do this in a most awkward and almost cloak and dagger way.

Talk about playing the devil's advocate in a game of "be careful what you wish for". And yet, this is all so convoluted.

It would be nice to get FOFOA's take on this, but short of that, I'll have to peel many onions to get to the center of this.

t au said...

Dear Reverend Comentakit:

Do you have locks on the doors to your home and automobile? And if so, do you use them or do you “Let it go”?

Safeguarding accumulated wealth for one’s own benefit and for those of others is not a spiritual decision, it is just a practical choice each individual is free to make.

If the voice(s) you hear say to “let it go” then you are indeed free to do so.

Insinuating or equating the preservation of wealth as some type of sinful behavior is a bit warped in my opinion – but hey, maybe that is just me.

Jim Okefenokee said...

@ Comentakit,

Good luck with pushing that western God-bothering line in East Asia. Plenty of Christian missionaries gave it a shot, but.... no cigar.

Personally, I agree that we are all just passing through on the way to nowhere, hoping to have a few laughs along the way. So no point in getting too uptight about wealth (although, although...)

Nickelsaver said...

Robert said...

Andrew, if we are shrimps and we will be the last to see real tightness, should we stop looking for it?

Bron Suchecki had a post over on his blog in January where he said that there is no premium for 400oz bars. He said he would report when and if that situation ever changes.


If the Perth Mint does 300 tons per year, that's less than 1 ton per day. According to Another/Foa/Fofoa, the premium or upper tier price applies to giants trading gold *IN SIZE*, which is many many tons. One ton would be a small order.

That means that the Perth Mint is a shrimpy broker and no authority on *LARGE* gold flow. 1 ton is a *small* order!

burningfiat said...

Good update FOFOA!

Jim O., here from Thailand I can say the same... If one has spend any time here, one can surely say this gold saving thing is not a passing fad. There's literally a gold-shop next to every bank here. I wonder why :D

I saw my sister in laws new house today. Top-class in every way. Took 5 years to build. Not a single mortgage on the thing. She and her husband lived their whole live (both over 60 now) in a fucking tree hut, herding cattle and saved in gold. Most people would probably classify them as poor (based on their simple living conditions), but now they have a mansion to pass down to their children. Debt-free in every way their whole life!

This is so unlike anything I'm used to in the West. Like I've said before FG saving ways is already a reality in Asia. Western people, please wake up before it's too late!

PS. My wife went to pay the taxes on one of her land-lots today (~ 1 acre). It was 6 Baht per year! That is 0.18 USD! Just saying...

Dante_Eu said...

Oh man, where are western buyers on those graphs? Now we know why all those Max Keiser's campaigns, "Buy X crash Y", never works. Maybe if he and Stacy put some real effort and learn Chinese.

Sam said...

Some people even need to RRTF....Bible. Start with Matthew and ponder the parable of the talents. It's a pretty straight forward rebuke of the lazy anti-wealth Christians that just love to lecture the rest of us after a long day of work.

Thanks for the update FOFOA. Interesting times we live in.

Dim said...

Amen Sam. There's nothing wrong for a Christian to work hard and save in gold. So long as he isn't living his life for the sole purpose of earning money ("serving mammon", as I understand it). What are some well known words on here? Live life, enjoy it, pay your bills, save in gold!

Knotty Pine said...

This might be a good video to help introduce a friend or loved one to the hazards of saving in fiat and the benefits of saving in gold.

M said...

I don't see why the shrimp demand cant upset the whole market regardless of the giants.

Robert Mix said...

...

My local central bank made another small purchase of gold just yesterday, smile,,,

I did some quick arithmetic recently, and it looks like I own some 50% or more gold having read FOFOA (since 2009) than I would have otherwise owned if I had never encountered this blog. I have been buying for decades, but started stepping up purchases in in 2008/2009.

***

@ Sam and Dim,

kind-of O/T

My understanding of Matthew (via author Emmet Fox) is similar to yours. "Ye cannot serve two masters." But, you get wealth by adding value to others, and the saying about how hard it is for a rich man to get into Heaven is really spiritual code (again, Emmet Fox).

/kind-of O/T

...

Nickelsaver said...

There are a couple of discussions going on that I simply can't resist adding to.

One has to with the timing of FG. The other, the virtues or not of acquiring/storing earthly/material wealth vs spiritual wealth.

Comentakit said..."imagine how disappointed and displeased God is with those who spend their lives worrying with such things.

He wants us to spend time close to Him, not seeking wealth, especially the wealth of others.

Let it go. It’s gone. Spend time with Him, instead. The world will be a much better place for you and for everyone."


If this were a blog dedicated to the pursuit of God, and the readers interested in that pursuit, I would probably agree with most of that. Although, I don't think God exhibits disappointment, for that would imply an expectation of a result that He did not already know would happen. And while God may in fact desire all of mankind to pursue Him, as opposed to pursuing themselves. I don't see Him expressing that as an imprecation of the natural course of life. But rather contrasting the spiritual against the natural.

The Parable of the Talents is precisely that. It uses the natural to explain the spiritual. It is not using the spiritual to invalidate the natural. Additionally, the parable is not a promotion of the virtues of investing or growing ones material wealth. The story assumes that the reader already understands those virtues (which are natural), to convey what God considers the better course, the investment in the spiritual.

Now as for those who eagerly anticipate the arrival of FG. What they are really saying is that they want to profit from a 30 or 40 times revaluation. Which is to say, show me the ROI. I don't think giants think this way.

As for me, I aspire to what Paul said in his letter to the Philippians, "Do not be anxious about anything, but in every situation, by prayer and petition, with thanksgiving, present your requests to God. And the peace of God, which transcends all understanding, will guard your hearts and your minds in Christ Jesus...for I have learned in whatever state I am, to be content: I know how to be abased [be a debtor], and I know how to abound [be a saver]. Everywhere and in all things I have learned both to be full and to be hungry, both to abound and to suffer need. I can do all things through Christ who strengthens me."

To wit, be responsible with all that God has put in my charge. And from my vantage point, that is to store material wealth in gold. For the days of the dollar are coming to an end.

But I do not yearn for freegold. For even though I may come out ahead as a result, most (a statistically significant majority) of my neighbors will experience a hell they didn't see coming and weren't prepared for.

I'm ok with the can be kicked a little longer - as if I had anything to say about it.


Jim Okefenokee said...

Praise The Lord and pass The Krugerrand.

Jeff said...

M,

FOFOA: I have predicted that the most likely and direct collapse trigger will be when gold **IN SIZE** stops bidding for dollars. That is, when the Giants withhold from the marketplace the gold they already have. Not when they use all their dollar reserves to bid for a little more gold, but when they withhold what they already have. When infinite demand meets zero supply **IN SIZE**.

Now if you think about my "dealer network" you'll see that it is still full of gold when everything freezes up. But this gold will not move because it cannot be restocked from one of its two sources (either the public or the Giants.) It's like a water hose that's full of water yet none comes out because one end is capped and there is no flow, with a hundred thirsty mouths gaping and waiting at the other end.

For a more detailed explaination see:

http://fofoa.blogspot.com/2013/08/five.html

jojo said...

"That means that the Perth Mint is a shrimpy broker and no authority on *LARGE* gold flow. 1 ton is a *small* order!"

Shhh....don't tell Bron that!

That feels as slanderous as saying they operate in a tiny corner of the physical gold market.

Woland said...

Hi Jeff; don't take this question personally, but I need to have
it cleared up: "That is, when the Giants withhold from the
marketplace the gold they already have."

Now, to me, if you "withhold gold you already have" from the
marketplace, that implies that, prior to that point, you didn't.
In other words, prior to the collapse, Giants sell some of their gold into the marketplace. However, the bulk of gold that we
see China, India and the other large buyers accumulating is
at the "paper price". I don't think that fact is in dispute. (It
may be that the BIS is moving some gold at a different price,
but the quantities would have to be small, and from other CBs.)

However, at the same time, we are to also believe that the
Giants value their gold (and always have) at many multiples
of the "paper price". Fofoa has made a major point of this. So
the Giants are taking an extraordinary loss ( in their own eyes)
by continuing to supply gold to the market at paper prices.

Now, I can understand that, if you were to INCLUDE certain Central Banks into the pool of "Giants", they might well have
motive to disburse their gold to others, even at paper prices,
if the sacrifice were to "rebalance" gold ownership in such a
way as to facilitate the eventual Freegold transition. I could
accept that. If you were to include the MINES into the same category as"Giants", then yes, they have no choice but to
sell for the paper price. What I cannot accept, ( but feel free
to try to convince me ) is that "old world money", or the super
wealthy are willing to sacrifice 97% of their perceived wealth,
in order to take a hit for the team by selling gold at $1300 per
ounce, and that they are still doing it. That I cannot believe.

M said...

@ Jeff

As Woodland is pointing out, there seems to be some confusion as to who is supplying physical gold at paper prices and who is buying physical IN SIZE as paper prices.

A giant that fails to get delivery IN SIZE. Does FOFOA mean at giant market prices ?

Are the tons upon tons of physical delivery to China transacted in paper prices ?

Shrimps in the west, the ones who are interested in the gold market, are not buying paper gold. There is towo camps. The normalcy bias camp, who continue to partake in the latest bubbles and the others. The gold bugs are already stacked and keep staking more. But I am noticing a lot of people who feel they missed the gold train in 2010 and know something just isn't quite right, are starting to accumulate physical. (at paper prices) We all know about the Indians and Chinese accumulating physical all this time (at paper prices) We all know that gold miners are hemorrhaging capital by supplying physical (at paper prices)

Jeff said...

Woland, not sold but lent? What is bullion banking? Where does dollar liquidity come from?

DP said...

Woodland horizons

Nickelsaver said...

Relaxation headfake

Michael dV said...

M
I think when this ends we will (perhaps) see how it all happened. For now I am content knowing that there is an obvious shortage of physical. It is manifest in the import/export numbers and in the loss of gold from GLD.
Who pays top dollar for physical remains hidden. Who gets relatively large weights for paper price we don't know.
If you know a billionaire ask him how much he can get delivered. My guess is that a ton would not be allowed.
Those of us who usually buy in lesser quantities are kept supplied even though we are legion. How that all works out I'm not sure but APMEX still wants me to buy more.
Recently I saw some numbers suggesting APMEX had 22,000 ounces. I think the guy went through their published numbers and added it all up.
So you could buy out the biggest gold seller in the USA with 30 million dollars or less.
My guess is that there is enough to keep the stackers happy. It is the hogs, the super producers, who demand many tons on a regular basis who have been informed that there is a problem.
Look. Gold is desirable. It is cheap. A guy with a billion to spend should be able to buy 30 tons. Since there is some dollar risk I think a lot of entities with many billion to spend would take all they can get.
If you look at the available supply it just isn't there.
The entire GLD ETF could be had for central bank pocket lint. Yet it is only slowly moving.
To me this suggests a big effort to keep up appearances. How would it look if CNBC announced that GLD was 'temporarily' out of gold?
Eastern nobodies buy out of habit. Westerners buy out of paranoia. Giants the world over buy because there really is nothing else to have now that the reserve is in decline.

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

Peter Schiff has liquid assets at about 30 million from what I understand. So he could buy out AMPEX. ha

Its the bullion banks though, who will probably be able to hold out the longest. Back last April, Bank of Novascotia HQ in Toronto was out of gold for a week or 2. But after that, its been smooth sailing.

I will call the Edmonton branch right now and see if I can get a few hundred ounces : ) They have told me how much Toronto has before

Robert said...

Michael dV, I used to believe that supply was tight, but now I do not believe it anymore.

I guess there are two ways to look at it. Imagine a large punch bowl. Imagine all the straws in the punchbowl. Those who think of shortages are focused on how much punch is in the bowl and how quickly the punch is all getting sucked out. I think of the KWN and GATA folks in this group. I think FOFOA's post on bank runs also fits with this way of looking at it. Here the message seems to be: Soon there will not be any punch left.

But there is another way to look at it, and that comes from Jeff's quote from FOFOA a few entries above. For this second view, forget about the amount of punch and the number of straws. Instead imagine this: You blink, and when you open your eyes the punch bowl has disappeared. It may have been half full before, but now it has disappeared before all those straws could suck out the remaining punch.

In theory it could play out either way, of it could be a mix of the two.

For now I have given up on thinking about it according to the first model. I think there is plenty of gold out there, at least for now, even for the jumbo shrimp and small giants. If there were shortages you would see a premium in the wholesale market.

Coming back to model number two . . . I know that most people here don't like conspiracy theories, but I will offer one up anyway, just thinking out loud.

Suppose the Chinese become the dominant market maker for gold. No directly, but through intermediaries. They are active not only on the bid, but also on the sell to keep the market functioning. They become the dominant market maker, but but for the purpose of building up their inventories in a dark pool with an endless supply of dollars. As the dominant market maker, they see the flow. They keep the jumbo shrimp and small giants happy, careful to make sure there is no run. As long as the general trend keeps the overall flow moving in the direction they want, the game of musical chairs will continue. Until the day it doesn't. Until the day liquidity dries up, just like all those fake HFT bids that suddenly disappear in a flash crash. Except this time it won't be a flash crash. It will be an inverted flash crash as gold takes off into orbit.

I know, I know. It's just a crazy conspiracy theory. But I think it's more credible than all the straws somehow managing to suck all the punch out of the bowl.

byiamBYoung said...

Folks, maybe you can help me understand this data better (attention, Robert).

Just quickly looking back at the supply and demand totals from 1997 through 2010, it looks like over that 14 year period, supply (Mining+scrap) fully satisfied demand with something like 1300+ tonnes left over (after removing ETF activity).

http://goldratefortoday.org/supply-demand-gold/

Looks like gold demand last year was something like 4,636 tonnes. That's the WGC calculation, but with the ETF activity removed.

http://www.gold.org/supply-and-demand/gold-demand-trends

From Kitco, supply last year was 4340 tonnes.

http://www.kitco.com/news/2014-02-17/WGC-2013-Global-Gold-Supply-Falls-Due-To-Contraction-In-Recycling.html

That makes for a shortfall of 296 tonnes.

So, just looking forward, if mining supply doesn't dramatically rise, and with recycling in decline, overall supply will probably fail to meet rising demand from here on out, right?

Isn't the surplus over the past years and the present shortfall a good parallel for the rise and now decline of GLD? Is there a connection?

Someone please point out the flaws in my thinking.

Thanks

Robert said...

byiamBYoung, I am not sure the "supply and demand" figures tell us much of anything about supply and demand. Regardless of how great or small the annual supply of new gold from the mines might be, all of that gold will find a buyer. Likewise, buyers of gold bars aren't going to be too particular about whether they are buying a new bar or an old bar -- they will find someone willing to sell them a bar and there will be a price. I think everyone here will agree that the price discovery mechanism for these transactions has little to do with the ebb and flow of year to year jewelry, dental or electronics applications for gold.

The data that really matters is the data that's missing: How much of the gold stock is out there available for sale and ready to flow at given price points?

M said...

@ BiamBYoung

"Just quickly looking back at the supply and demand totals from 1997 through 2010, it looks like over that 14 year period, supply (Mining+scrap) fully satisfied demand with something like 1300+ tonnes left over (after removing ETF activity). "

You are making this calculation as if gold is a regular commodity. It is not.

What we do know is that there is more buyers then sellers. And few dishoarders anywhere. Who is a major dishoarder of gold right now ?

Imagine the CB's, the public, the Chinese and Indians all started dishoarding and selling their gold for 3 years in a row. In those 3 years, would you expect the price to rise ?

One Bad Adder said...

I'd suggest not to focus too myopically of Bullion-flow or availability as a systemic fail-indicator.
The Intrinsic-value of a $1,000 Bond Certificale is probably close to $0.10 - ie: far-removed from the reality du-jour ...as is the Intrinsic-value of a 1Oz Gold Coin - but in the opposite direction ...perhaps?

Sam said...

It's shocking to think about the value of gold. A commodity that is for the most part unconsumed yet new stock is necessarily added year after year just to satisfy enormous demand and keep the price from spiraling out of control. What would the price of gold be if mining costs averaged 3,000 an ounce? The answer is around $3000. Now what is the price of gold if there is no mining supply? Well I suppose that's the $55,000 question. This whole paper game and the giants that support it is designed to keep gold flowing out of mines cheaply compared to its real value. We have a few mines working double time at the moment churning out a whole bunch of physical at around production cost. Once this low hanging fruit is depleted I think the dying paper market will be cast aside. I don't think any of the powers that be want to see their economies pulling gold out of the ground for $3000 an ounce because of the comparable commodity prices that would go with it. So what's the alternative to another commodity bull market? What are the big players of the world preparing for? They are preparing for the day when gold is revalued and flow is encouraged by a price large enough to move the existing stock. It's at that time people will realize just how absurd $1300 an ounce is.

ein anderer said...

@Robert,

I think your "If there were shortages you would see a premium in the wholesale market" is not true. Not true for those small ammounts of coins and single bars! As far as I understood FOFOA, this shrimp market is a market on its own. Has nothing to do with the market were tons are moved.
It may become very difficult to get some dozens tons in one stroke. But these coins and small bars are still floating around. But only for us shrimps. Giants don’t buy coins and single bars. They buy palettes.

Edwardo said...

Well said, Sam.

abe said...

What would be reasons that a giant would be dishoarding gold in the first place? What is the definition of a giant in that scenario? $50mm? $500mm? Is the supposition that anyone at that level of wealth is in on the game? Are all sovereign nations believing FG is as likely as those on this blog?

Maybe I get approached to sell off 15 tons of gold. Instead of a premium on the sell price, what if it is a discount on a purchase price arranged in the agreement? Owner Y wants to sell his company for $$, gold, RE, and Miami Heat tickets, and he views the offers based on the makeup of the offer?

Or, what if its new gold that doesn't understand (or believe) FG and is easily separated from his gold at the right bid quantity?

When the right opportunity comes around, converting wealth into a producing asset becomes a legitimate proposition. That legitimacy varies, I'm sure.

Both sides could play devil's advocate continuously on the topic of a two tier market. Where does the burden of proof lie? I doubt either side would be successful in obtaining concrete proof, or enough to persuade the other side significantly.

Woland said...

off topic; The "Monty Hall Problem" has a cousin - Rock,
Paper, Scissors………via BBC News, 2 May 2014
"How to win at Rock Paper Scissors" ( interesting )

Michael dV said...

abe
The concept of giant really begins at the top with central banks and major producers. It starts with entities that make so much they have a problem with long term, intergenerational storage of wealth. Their problem is not trading for more wealth, they produce oil or running shoes or trinkets for that.
Just because a person has a few billion dollar of net wealth does not force them to think like a giant. The folks you describe are just rich and looking to get richer.
Go back and read one of fofoa's first blog pieces about The King. Think about the Saudis who receive so much money that they begin to see the ability of others to destroy the value of that money by inflation. The oil is gone once sold. they want real stable wealth that will last for generations. Wealth that no one else can destroy.

DP said...

Date: Sun Oct 12 1997 10:42
ANOTHER (THOUGHTS!) ID#60253:

How DO they do it?

It's more complicated than this but here is a close explanation. In the beginning the CBs didn't sell their own gold. They ( thru third party ) found someone else who had bullion. That "party" sold to a broker who sold forward for a mine or speculator or government ) . In the end the 3rd party had the backing from the broker that he had backing from the CB to supply physical if needed to put out a fire. The CB held a very private note from the broker as insurance and was paid a small fee. This process mobilized free standing bullion outside the government stockpiles. The world currency gold price was kept down as large existing physical stockpiles were replaced by notes of future delivery from the merchant banks ( and anyone else who wanted to play ) .

This whole game was not lost on some very large buyers WHO WANTED GOLD BUT DIDN'T WANT IT'S MOVEMENT TO BE SEEN! Why not move a little closer to the action by offering cash directly to the broker/bank ( to be lent out ) in return for a future gold note that was indirectly backed by the CBs. That "paper gold" was just like gold in the bank. The CBs liked it because no one had to move gold and it took BIG buying power off the market that would have gunned the price! It also worked well as a vehicle to cycle oil wealth for gold as a complete paper deal.

Are you with me?

M said...

@ ein Enderer

"this shrimp market is a market on its own. Has nothing to do with the market were tons are moved."

I just find this hard to believe. The cheaper something is, the more available it is to anyone. At $1300 an oz, a fair amount of gold is available to a hell of a lot of people. It adds up when shrimps across the world are buying. This mass buying is what makes giants rich in the first place.

t au said...

Woland’s referenced website.

t au said...

hmm - or just try this

http://www.bbc.com/news/science-environment-27228416

jojo said...

This is good. (h/t sean)


"But the most interesting aspect of the CK game played on the Island of the Green-Eyed Tribe is the role of the Missionary. It is the public statement of information, not the prevalence of private information or beliefs, that forces movement in the CK game. The public statement is what creates Common Knowledge, even if all of that knowledge was already there privately. Everyone must see that everyone else sees the same thing in order to unlock that privately held information and drive individual decisions and behavior."


"The power source of Common Knowledge is the crowd seeing the crowd seeing an announcement or a press conference. This is why sitcom laugh tracks exist. This is why American Idol is filmed in front of an audience. This is why the Chinese government still bans any media mention of the Tiananmen Square protests more than 20 years after they occurred. The power of a crowd seeing a crowd is one of the most awesome forces in human society. It topples governments. It launches Crusades. It builds cathedrals. And it darn sure moves markets."




" Once you put a smart person on the right theoretical path … once you show him or her how to see the world in a new light, one that illuminates and makes clear behaviors and decisions that were formerly shrouded in myth or custom … well, there’s just no end to what’s possible."

Sam said...

@M

nobody is saying the entire shrimp market all added together is small. It's large though a little manipulation via paper proxies has kept it in check. Instead I think it is being suggested that the shrimp market exists only because those large enough to destroy it either a) haven't thought of it yet b) are forced not to destroy it by those in power or c) actually support it

Think of it like a scale. To us shrimps on the far left end of the scale $1300 or one ounce of gold take an equal amount of effort to accumulate. For practical purposes they have equal value even if someone of us are training our minds to follow in the footsteps of giants and accumulate gold. As you move to the right on the scale of wealth and power currency is much easier to come by than gold or any finite commodity for that matter. The far right end of the scale would be a nation that can print currency. To the far right of the scale there is no price to high for gold. Push comes to shove printer's of currency don't bid for gold. Gold bids for currency

Dante_Eu said...

Couple of months ago, I read an article about the show "Who wants to be a millionaire?". What caught my eye, was a part about the "Ask the audience" lifeline. It turns out, that the audience is the best lifeline there is even if your best friend (whom you are calling) is the expert in the subject. In virtually all cases the majority of the audience in the studio chose the right answer.

But this collective intelligence of the audience only works if each participant makes the decision on their own. Otherwise, the magic is gone.

That got me thinking about the FED and its Federal Open Market Committee (FOMC) which comprise of 12 members. With all due respect for these 12 ladies and gentlemen's collective intelligence, which is responsible and make decisions all-things-monetary for 320 million people, that is to much to ask for from them. Not to mention that in extension, the same 12 people are taking monetary decisions for 7 billion people out there, because of the US$s role as a world reserve currency.

It really is ridiculous when you think about it. That's why I tend to think that the Freegold-like system would be truly breathtaking, in a positive way. As a result, the collective intelligence of the mankind could rise order of magnitude from where it is today. The old saying, sky's the limit, may transform to the galaxy's the limit.

Of course, this is no news for those who know their Life in the Ant Farm. :-)

PS BTW Slumdog Millionaire is an outstanding movie, if you haven't seen it. In that case you may skip the link.

Jeff said...

FOFOA: First, let me ask you a question. Which of these two scenarios should be more instrumental in the transition to Freegold?

1.) A bottom-up shift in value perception as millions and even billions of small savers use their meager dollars all at once to bid up the price of gold.

2.) A top-down shift in risk perception as the very few physical gold holders of size in the world all at once withdraw their physical from the marketplace.

Just think about this question. That is its only purpose. And one more; Would either of these events be exclusive of the other?

Jeff said...

Woland,

Now I'm not pecking on a phone.

Date: Fri Jan 23 1998 19:01
ANOTHER (THOUGHTS!) ID#60253:

All modern digital currencies do not go into an investment, they move THRU it... There is an alternative. Gold! It is the only medium that currencies do not "move thru". It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say "gold moves thru paper currencies".

FOFOA: This is the key to EVERYTHING!!! It is not "gold liquidity" that the bullion banks create... it is DOLLAR LIQUIDITY. Dollars bidding on MSFT stock set the value of that stock. If dollars are frantically bidding on MSFT (high velocity), the stock skyrockets. If dollars stop bidding for MSFT all at once (low velocity), the price falls to zero. This is true for everything in the world except gold.

Gold bids for dollars. If gold stops bidding for dollars (low gold velocity), the price (in gold) of a dollar falls to zero. This is backwardation!

Fekete says backwardation is when "zero [gold] supply confronts infinite [dollar] demand." I am saying it is when "infinite supply of dollars confronts zero demand from real, physical gold... in the necessary VOLUME." So what's the difference? Viewed this way, can anyone show me how we are not there right now? And I'm not talking about your local gold dealer bidding on your $1,200 with his gold coin. I'm talking about Giant hoards of unencumbered physical gold the dollar NEEDS bids from.

And in my - purely speculative - analysis, "the BIS gold swap" CONFIRMS this view!

What the bullion banks do is they take a piece of gold and they inflate it 1,000% and sometimes up to 10,000% so it appears to be a SUPER BID for dollars. And they prefer to do this by LEASING gold (borrowing your gold) rather than buying it outright. It's a lot cheaper that way.

The dollar NEEDS voluntary bids from private physical gold to survive. My guess is that pool of REAL bids of size is bone dry and cracking. And "dollar liquidity" is just a cheap façade at this point. This is why the dollar NEEDS a rising gold price. As the price (for selling, not borrowing gold) rises, weak little bits of gold here and there will bid for dollars.

Of course that won't be enough (dollar demand from gold) to float the dollar for long. Gold must EXPLODE to reach equilibrium.

jojo said...

Great quote Jeff.
That's from this great post btw.

M said...

Basically what I am saying is, we should be seeing a slow increase in the price of paper gold, like we did for 12 years from 2001, if there is more buyers then sellers.

Shrimp demand is not being reflected in the shrimp paper price. Nobody would expect the shrimp paper price to rise for 3 years, if shrimps were selling gold for 3 years. But here we are. Shrimps are buying and the paper price is falling.

Indenture said...

M: "This mass buying is what makes giants rich in the first place." The mass buying of physical gold makes Giants rich? "In the first place"? How does this work?

Sam said...

First off who said there were more buyers than sellers of paper gold? Secondly if there were more buyers than sellers of paper gold the price wouldn't necessarily rise if more paper was being created at current prices to satisfy the demand. I suspect this happened during the bull run to keep the price rise under manageable control. Now there is way too much paper gold without a supporting price to give the paper any sort of credibility. This hasn't happened because the market is all of a sudden grossly undervaluing paper gold. It's because the paper markets have served their purpose and are now unsupported and left for dead as we prepare for a physical revaluation.

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

Great quote Jeff, and for anyone (like myself) who wants to catch up on what FOFOA means by DOLLAR LIQUIDITY check out his epic (18-part) comment here. It is almost like a Post by itself.

vizeet srivastava said...
This comment has been removed by the author.
vizeet srivastava said...

Dante_Eu,
This is called "Wisdom of crowd". http://en.wikipedia.org/wiki/Wisdom_of_the_crowd

jojo said...

M,
You're going backwards dude :)

Dante_Eu said...

Thanks for the link vizeet, very interesting.

Franco said...

Why do banks sell gold coins in Canada but not in the USA?

M said...

@ Sam "First off who said there were more buyers than sellers of paper gold? "

There is now, unlike earlier in the decade, more buyers of physical gold at paper prices. There is no westerners buying paper gold anymore. Its either physical or nothing now, everywhere.

@ Indenture How does this work? "

Giants get rich because their production reaches the masses. Everyone on this forum plus probably every adult on this earth is probably connected to the Rockfellers or the Saudis wealth through the energy markets.

So I just find it kind of ironic that people say the shrimp gold demand doesn't matter when in reality, the collective of the shrimps is what makes giants , giants in the first place.

One Bad Adder said...

The alternative to "Wisdom-of-the-Crowd" is "Group-speak": - ...which is debatably more applicable under the current monetary circumstances.
http://www.psysr.org/about/pubs_resources/groupthink%20overview.htm
...albeit a BIG Group ...aka Extraordinarily Popular Delusion.

Sam said...

@M

If I was as resourceful as Jeff I would post the FOA quote that says something like "the paper market used to represent a market that is priced by the supply and demand of the underlying physical but now completely overwhelms the physical market to such a degree that physical buying and selling now has no impact on the price.

Sam said...

Also I recall fofoa broke down support for the paper gold system like this: paper buying and or physical selling = support. So if we are seeing physical buying and paper selling why do you think the paper gold price should be going up?

A rising paper gold price would indicate support for prolonging the system. Support which almost every indicator I'm watching tells me has been withdrawn.

M said...

@Sam

" So if we are seeing physical buying and paper selling why do you think the paper gold price should be going up? "

I see what you are saying...

But..What happens when paper selling has exhausted itself except for the entities that will hold paper for the sake of prolonging the system ? Wont the buying of physical at the paper price start driving the price up ? Provided that the remaining paper is staying still ? (strong hands holding paper, who do so only to prolong the bullshit system)

Jeff said...

Good luck cornering the paper gold printing press. And I doubt that paper gold will lie very still. Paper gold doesn't support the system, only physical gold can do that.

FOA: Gold: Saving Real Money In A Time Of Transition

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. […]

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, "worth wile".

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

Alex in Montana said...

Gold has been moving East for the last 15/20 years. It will be moving to the East. The Chinese do NOT trust the dollar or the Euro. China must diversify its foreign currency holdings. It needs the gold to back the Yuan. The dollar reserve currency system is on its last legs. Read "The Death of Money" by James Rickards. He is spot on. He totally nailed it (4) years ago with "Currency Wars". He predicted all major countries devalue one at a time and that is precisely what is happening.

The rest of the East are individuals who until 15/20 years ago were either in Socialist or Communist countries that produced zilch that the world wanted so their was no personal savings to speak of.

Now all these countries are capitalist. They are either state capitalists (China, Viet Nam) or Free Capitalists (Taiwan, S Korea and India with others in between).

These folks are natural gold buyers for thousands of years, BUT now they have money. None of these countries or people will sell their gold except to themselves. This gold stays in Asia.

If you read Marc Faber, Kyle Bass, Martin Armstrong, Paul Singer and James Rickards (and of course others) on the West's fiscal situation, you come to the conclusion that Japan, France are bust and so is the US. Over the next 10 years and probably sooner they will blow up in that order,. If Japan and/or France go first The US dollar will strengthen for awhile and so will gold. Then the world even loses confidence the US dollar, but gold will continue to rise.

When the US dollar goes, the world resets its monetary system. This is a 100% certainty. Rickards projects that the IMF will attempt to use SDR's to take the place of the dollar. Then and only then can Freegold happen as the SDR is just a basket(case) of the same currencies. The bankers will try to save the system, but they can only do so temporarily, Then its Freegold time.

My two cents

Archer said...

Your two cents? Sounds like someone else's two cents. I strongly suggest you RTFB. You will no doubt still be operating with someone else's pennies, but at least they'll be made of a finer grade of metal.

Indenture said...

Alex: "Then the world even loses confidence the US dollar, but gold will continue to rise."

What denomination of currency will price this rise in gold?

S P said...

I want to give an update on offshore storage for gold shrimps like us. In fact I think a whole post should be dedicated to this and I know some have been in the past.

GoldMoney is still a good option because you can actually register individual 1 kg and 100 g bars at their via mat switzerland vault. So you don't just have to have fractions of a 400 oz bar. The storage fee remains 0.12% per annum which is quite good and this can be deducted from your fractional ownership. So you can for example register some bars, and then keep a small amount in fractions to pay the storage fee, and never have to worry. And they have done a recent survey which indicates they might be looking to expand their options.

Another company I have recently looked into is BullionStar Singapore which is offering free storage until 1/2016 and 0.39% per annum thereafter which again is quite competitive.

I have done quite a bit of searching and many of the others have a fairly high minimum investment or high storage fees. If any of you have found something better please share.

M said...

@ Jeff

"Good luck cornering the paper gold printing press. And I doubt that paper gold will lie very still."

Paper gold selling seems to have exhausted itself.

And it has been very still, for over a year now.

One Bad Adder said...

$PoG starting the week "again" showing weakness in comparison with the other currencies. We might see a decent uptick early, either $PoG ...or DX (or maybe both?)
http://stockcharts.com/h-sc/ui?s=$ONE:$USD&p=D&yr=0&mn=6&dy=0&id=p14522796477

Testing said...

I think this is worth reading. Dunno if it´s old news or what but worth sharing anyway

http://www.reuters.com/article/2014/05/05/emirates-dubai-gold-idUSL6N0NP03R20140505

But the region's refining clout has lagged. Annual capacity in the United Arab Emirates is about 800 tonnes, including a 450-tonne refinery currently operated by Kaloti; Switzerland dominates the industry with over 3,000 tonnes, accounting for roughly 50 percent or more of global refining.

"Kaloti's new refinery will have an annual capacity of 1,400 tonnes of gold and 600 tonnes of silver, making it more than three times the size of any of the UAE's current refineries."

Besides the huge production capacity, they are clearly focusing on gold above silver, despite the larger worldwide quantities of silver in comparison to gold.

Tom R said...

Though slightly off topic, this gold was definitely East bound and Down, way down.

http://blogs.marketwatch.com/thetell/2014/05/05/odyssey-recovers-gold-from-one-of-the-largest-cargoes-of-gold-ever-lost-at-sea-2/

Phat Expat said...

Greetings from Shanghai. Aside from a few meetings I am able to once again partake in the excellent food and sights. Should be here for a month or so.

In other news... I have to laugh when I read Kitco and other such sites tying the fortunes of the paper gold trade, every wiggle and squiggle of the chart, to 'news' delivered by the MSM. Whether China, Yellen, the ECB, safe haven demand, and what not, it is all rather queer. After all, the information one needs is readily available in graphical form. Hmmm...

I like that the site has become somewhat quiet; the true FG adherents are steeled in their resolve, knowing they have adequately secured their wealth for themselves and their future heirs. A few others seek confirmation of their decision to buy gold, whether all-in or holding a sizable stash, and are doubting the FG thesis. That is good too; in fact, that is exactly what I want as further affirmation I am properly positioned.

In still other news, the sun will set, and the sun will rise... You heard it here first.

M said...

Phat Expat said "I have to laugh when I read Kitco and other such sites tying the fortunes of the paper gold trade, every wiggle and squiggle of the chart, to 'news' delivered by the MSM. Whether China, Yellen, the ECB, safe haven demand, and what not, it is all rather queer"

It makes me puke. Remember the age old excuse that the reason paper gold knee jerked lower with the stock market was because people were selling their winner(gold) to cover their losers ? This was before the Sept 2011-present swoon of course....

Anyway nobody in the gold space seems to have answers for what is going on now. The freegold timeline never really accounted for years of range bound , below production priced paper gold. While physical flows out the door like bread.

How come people say paper gold is at production cost
when the miners are losing money hand over fist ? Its not at production cost. Its well below it. As far as I can tell anyway...

Lets take one of the lowest all in cost producer of them all. Elderado Gold 2013. All-in costs of just $786.

Net profit margin -57.80%
Operating margin -41.39%

Phat Expat said...

@M
It is a conundrum, but I don't believe it necessarily diminishes the FG theory. Ultimately, this 'system' that we are under today, can no longer be supported. Cutesy terms, such as ex-priv, were invented to demonstrate the unfairness of the system; though everyone happily played along until the numbers have become so large, the system so complex, that it can just no longer be supported or obfuscated. It is over; the system is in its final death throes and we will reach the point of critical instability in short order. I only play the paper game, kinda like Pascal's quote about God, just in case FG is drawn out significantly longer. ;-)

Blaise Pascal
"If God does not exist, one will lose nothing by believing in him, while if he does exist, one will lose everything by not believing."

burningfiat said...

Phat Expat,

Congrats on your renewed expat status! :)
I like the analogy between Pascals quote and FG!

Even though I personally always rewrite the quote to:

"If Odin does not exist, one will lose nothing by dying a glorious death in battle, while if he does exist, one will lose everything by dying in any other way!"

Cheers!

M said...

@ Phat

"It is a conundrum, but I don't believe it necessarily diminishes the FG theory."

No it doesn't at all. But in the meantime, it gets really annoying to be in no mans land like this.

Bjorn said...

Rofl burning I like your version of Pascal a lot better than the original. :-)

Phat Expat said...

@burningfiat
Thanks, always good to be back. I do have an affection for Asians and their approach to life. Now if only I could speak the lingo.

And, touché. :-)

Roacheforque said...

Phat,
I too often chuckle at the continual "gold surges on" and "gold plummets on" the intraday commentary du jour, the undertone of which implies that gold is solidly channeled within a tight band controlled by the thoughs of lemmings as they plunge from the cliffs and any little wiggle deserves note.

When the big moves come all such wiggles and squiggles will be sen in an entirely new light (i.e. not at all) ...

- R

Phat Expat said...

@Roacheforque
Exactly. And interestingly enough, look at the plummet of the USD just now (and without a counter move in gold, as of yet). I thought things were surreal before but this is taking things to a whole new level; the cliff just might be rapidly approaching.

Be interesting to see the $IRX that OBA references (though I confess to not understanding the relationship to FG).

Woland said...

Quiz; when Freegold arrives, what type of music will be played to celebrate?

Phat Expat said...

Don't know, but I'll take Here Comes the Boom for now. ;-)

Jim Okefenokee said...
This comment has been removed by the author.
Jim Okefenokee said...
This comment has been removed by the author.
Phat Expat said...

Good Lord y'all, where is the PPT? The USD is en fuego! Now that takes me back to the good ole days when my brothers in arms and I would sing The Roof Is On Fire; replace roof with your favorite 'installation', if you know what I mean. ;-)

Jim Okefenokee said...

The Arrival of The Queen of Sheba

Beer Holiday said...

@Woland's question

I don't know why but Dead Star by Muse

Roacheforque said...

USDX started in March 1973, soon after the dismantling of the Bretton Woods system. At its start, the value of the US Dollar Index was 100.000. It has since traded as high as 164.7200 in February 1985, and as low as 70.698 on March 16, 2008.

DP said...

Lent

Woland said...

"truly, in this light, though many thoughts do indeed hold
value, yet in the end, only one can be right" ..............Bob

Knotty Pine said...

The arrival of freegold could be a bit scary: Leaving Eden

Yin and Yang

Nickelsaver said...

woland

http://youtu.be/v4L8L43GieE

RJPadavona said...



Woland,

Given the "ship" connection to FG, I know what'll be on my turntable when that day arrives. And hey look, it's Behemoth on the album cover so I reckon I'll be thinking about you too!

All At Sea



burningfiat said...

Woland this will played to celebrate for 24/7 for (at least) 12 months in row once Freegold is here!

http://www.youtube.com/watch?v=dQw4w9WgXcQ

Michael dV said...

My tastes are more mainstream but how about:
https://www.youtube.com/watch?v=SAe3sCIakXo
a song about true insanity and just having to watch it happen being unable to influence it as much as you'd like...and having to suffer as you do...amen

Michael dV said...

bf
ya rickrolled me!!!

Dante_Eu said...

Apart from burningfiats (those moves wow!), some lame choices. :-)

Freegold will arrive much thanks to these guys, so that's the first choice.

But the second one comes from the heart. ;-)

Victor The Cleaner said...

Woland,

The Ecstasy of Gold ?

Victor

Woland said...

the question was, what "type" of music. a "song" is not a type.

the answer; DXYland

"in DXYland I'll take my stand,
to live and die in DXY"

(and yes, I know it is a stupid joke. but, that's what I do.......)



Indenture said...

Those who trusted paper as a store of wealth will be screaming...
http://www.youtube.com/watch?v=z5rRZdiu1UE

Woland said...

RJP: I Just listened. you have "impeccable" taste!

Indenture said...

Others will celebrate when the knife point finally reaches a vital organ.
https://www.youtube.com/watch?v=PQUs8RlsQ14

Testing said...

Sorry to bring you guys back to FG "seriousness" but there is a concept that I kind of keep loosing, and grasping, and loosing again... It´s really annoying at this point, to be honest.
If physical gold trading is "it is only a drop in the paper gold bucket", why is the paper gold price "supported" by physical purchasing?
If it is indeed supported by physical gold, and physical gold demand is sky-high, shouldn´t the paper gold price skyrocket, too?
If it is not supported by physical gold (as its sheer volume overwhelms physical buying or selling), why hasn´t it collapsed, since there is so much oversupply of synthetic gold? How come it´s hovering around 1300´s? Shouldn´t it be a sort of black/white, right/wrong, collapse/go thru the roof dichotomy?
Please explain...
Thanks

Jeff said...

I don't always fight a russian-backed insurgency, but when I do I buy paper gold.

Stay frosty my friends.

Robert said...

The recent Kyle Bass presentation (available on Youtube) is worth watching. Regarding willy nilly support and the trade deficit: For now the balance of trade is improving because of shale oil. Sure shale oil only "works" with high oil prices and ultra-low interest rates, and yes it's unsustainable in the long run, but in the short term it relieves the need to find willy nilly support. Production should peak in 2018.

When he talks about Japan, it gets me asking myself the question whether Japan is a domino. Or will it be precisely the opposite? When the dam breaks and the Japanese lose confidence in the Yen, what will they turn to? Gold? Or the Dollar? Or something else? Given that financial institutions will be the ones moving the market, I have to think the Dollar, at least initially. Whether that leads to a delayed reaction causing the loss of faith in "all paper" is another question.

Phat Expat said...

A glorious morning from the East. I concede, some very good music selections.

byiamBYoung said...

@Testing,

There is so much paper gold that physical gold demand is powerless to drive the price.

Paper gold doesn't collapse because the shrimp physical market is still functioning. As long as tiny amounts of physical gold are available at the paper price, the paper market continues.

Weird, eh?

jojo said...

"Please explain...
Thanks"

Sure ;)

A PIIG said...

Kyle Bass thinks Japan will sit on there USD reserves as they suffer an inflation, or at least he thinks they should sit on them. I don't share his confidence, I say they are more likely to dump them to provide some sort of relief for their population.

Dim said...

@ Testing

If there is more demand for physical metal, this should create a discount of the paper price. Who wants paper when you can get physical? The physical is in greater demand than the paper, driving the paper price down and the physical price up (but there IS no seperate physical price for shrimps....yet). I guess this is the beauty for PGAs in our current system, seeing as paper and physical are currently linked (as in you can buy a paper ounce for the same price as a physical ounce).

Feel free to correct me, anyone.

Testing said...

@byiamBYoung

That is exactly my point. If physical is powerless to drive the paper price, how come a tiny amount of physical supports it?
Suppose gold is unavailable for shrimps. The paper price should not move anymore than if huge shrimp buying was to occur (as it is happening right now). Paper price doesn´t give a crap about physical, does it?

Testing said...

I guess what I´m trying to word here (not very articulately, though), is that I sense some sort of inconsistence in this part of the theory.
Either physical buying affects the paper price or it doesn´t. If it doesn´t, why do you need the physical at the shrimp level? and why is it not collapsing?
If it does, how come it´s not going up due to high physical demand?
Sorry to be repetitive, but I can´t frase it any other way....

Sam said...

Testing though it is slightly different in nature think about it as similar to the gold standard. 1 ounce of physical gold is worth $35. The brighter you were the sooner you figured out that there were a lot more dollars floating around than a 35-1 ratio of gold coins in reserve. In order for paper gold "dollars" to not collapse in value gold coins had to be available for trade at the whim of anyone at anytime. In this respect physical gold selling "supported" this confidence game while physical gold buying put pressure on it. The pressure isn't on the price, it's on the paper system itself.

Today we have way more paper gold floating around than physical to back it at current prices. Yet as long as anyone can seemingly get a physical gold coin for the stated paper price this new gold standard won't break.

With investors selling paper (which drops the price) and savers buying physical (which doesn't effect the price but puts pressure on the system) you have a two pronged attack on the paper gold market

John said...

Well said Sam.......BTW, on the GLD " gold puke" front, I believe the latest plunge of 10 tonnes puts us at a new low level of 782 tonnes.

tEON said...

Either physical buying affects the paper price or it doesn´t.

It does not, but you cannot keep the shell game alive without a prize. Once it becomes apparent that there is no prize - the jig is up. Since the prize is never awarded (always settled in paper) - the prize only needs to exist - never to be delivered to non-existence. It's volume is irrelevant since it is never 'supplied'. When the market learns that it 'cannot be supplied as opposed to 'supplied if necessary' then the con(fidence) game is lost. You can't have a Beauty pageant without some beauties, but you can sell bikini's all day long.

The paper market is so large it is unaffected by the physical demand. It's an entity unto itself.

If it doesn´t, why do you need the physical at the shrimp level?

That is the 'potential prize' but in the large scheme it is merely a token. It is an illusion that even Sprott can't seem to accept - always talking about data and coin sales... as if it will effect the meaningful 'tonnes' or have any impact on the paper price. It does not.

why is it not collapsing?

Why do you think this should happen... now? Jim Willie would tell you it is collapsing. Slowly. The wall will fall down one day. I guess it has enough support to remain upright - for now.

If it does, how come it´s not going up due to high physical demand?

Why would the paper Gold price go up due to physical demand? Those paper gold traders may have never even seen a coin or bar except in a picture. The two are separate.

I think Dim made some good points.

burningfiat said...

Good responses to Testing!

I thought this might also be helpful to see why shrimp level physical doesn't matter:

http://fofoa.blogspot.com/2013/08/five.html

vizeet srivastava said...
This comment has been removed by the author.
One Bad Adder said...

Phatso...;-) - Curiously DX and $IRX tend to head in the same direction - http://stockcharts.com/h-sc/ui?s=$IRX&p=W&b=5&g=0&id=p72150404163
however when $IRX "finally" hits Zero, DX should go through the roof ...for a short time anyway - IMHO.

FG (GOLD - Physical-in-Possession) is Another Kettle of Fish altogether.
I like to think of the various financial instruments - $USD, $IRX, $XAU (PoG) $SPX etc as varieties of coloured Salt-water in Bottles ...and GOLD as bottled Drinking-water - where the Salt represents TIME.
When $IRX hits Zero, it's effectively saying "I'm as Saltless/Timeless as Gold" (which of course it's not ...and the market will then have an epiphany to end all epiphanies)
"Water water everywhere and not a drop to drink" FWIW.

vizeet srivastava said...

Testing,
It is simple. Why do people buy shares of certain companies? Because they expect it to do good. If people know that paper performance is not related to physical gold then why would anyone buy paper gold. No one puts money in crap unless they have different perspective.
The moment people will know paper gold is a crap everyone will withdraw from it and it will fall.

One Bad Adder said...

Testing: - You're no doubt familiar with the well-publicised methods* TPTB employed in keeping $PoG from rising too quickly over the years?
These same methods are just as effective in reverse ie: keeping it from falling too quickly...
...and in so doing, lending credence to and maintaining faith in the current system / regime.
* Lots of info available on the 'net.

JJ said...

@ testing

"If it is indeed supported by physical gold, and physical gold demand is sky-high, shouldn´t the paper gold price skyrocket, too?"

- If I'm not completly mistaking, the number of claims on stock has increased significantly since 9 months. Meaning the price expanded sideways instead.

"If it is not supported by physical gold (as its sheer volume overwhelms physical buying or selling), why hasn´t it collapsed, since there is so much oversupply of synthetic gold?"

- What do u expect happens to those positions that were expanded when price drops?

One Bad Adder said...

This Chart -http://stockcharts.com/h-sc/ui?s=$ONE:$USD&p=W&yr=3&mn=0&dy=0&id=p94136312222 - aptly identifies how $PoG has been ...and currently is, not the flavour-of-the-Month in Monetary / Investment circles.
From a FG perspective, Divergence - Good, Convergence - Bad!

One Bad Adder said...

FG Music?? I'm thinking the opening 8 mins of PYW: I'm on my way: - https://www.youtube.com/watch?v=8LTKhHV9DS4 demonstrates sufficient raw disrespect of "convention" (H/T VtC - clearly of similar vintage - Clint at his best. ...;-)

Testing said...

Thanks, guys. I´ll chew on that and see what my brain has to say about it in a couple of days.

Tom R said...

Excellent choice OBA. We know where we have been, we are on the trail, when will we get there, I aint certain, all that I know is that I am on my way.

Victor The Cleaner said...

OBA,

I don't think the USG/Fed will allow negative rates on short-term T-bonds. If cornered, they'll first accept runaway consumer price inflation.

The mechanism in order to prevent short rates from going negative is the reverse repurchase facility:

my comment at FOFOA's
New York Fed's Bill Dudley explains that it is meant to prevent negative rates
NY Fed reports on open market operations (the reverse repo volume has been growing every month since introduction, always peaking at the turn of the month)
my old comment on the choices of the Fed

Victor

One Bad Adder said...

Victor: - They "possibly" CAN maintain $IRX at Zero+ ...otoh Mr Market "probably" will drive it to Zero-.
...or vice-versa ...maybe ;-)
With the Credit side of the Ledger in control, I'd not discount it entirely.
The possible-probable "spread" is the intrigueing bit eh?

Michael dV said...

OBA
that Eastwood's career survived after singing in PYW is amazing. A great actor , yes. A decent singer? I'll leave that for the forum to consider.

Michael dV said...

Sam
that is a simple, elegant way to show the physical, paper relationship.

One Bad Adder said...

Michael dV: - ...then there's Russell Crowe - LesMis ...ouch!

Bright aurum said...

3+ years the POOil stays more or less range-bound, it is ripe for a change!

Michael M said...

I don't know if this has been discussed here but I have a sneaking suspicion that world governments and the elite are working towards a new cashless, entirely digital monetary system that would give them absolute control. Every cent you spend would be reported - not tax evasion, no black market. And if you have some of that high priced gold where are you going to sell it and not suffer exorbitant taxation - there go your profits. Any comments?

Michael M said...

this is interesting: http://www.alt-market.com/articles/2126-false-eastwest-paradigm-hides-the-rise-of-global-currency

Phat Expat said...

Eastwood
Didn't adhere to the "Man's gotta know his limitations..." quote.

OBAso. ;-) Thanks for sharing; another arrow in the quiver.

Michael M
Certainly some truth to that. When looking at the number of formerly financial 'free' countries (Switzerland) now willing to throw their 'investors' under the bus (US driven), you have to wonder just where this will all end. In fact, I don't see too much push back from countries supposedly wanting to exit the $IMF scheme at all. And I don't buy the excuse that it is to hasten the demise of that very same system. If you haven't gotten your physical now, only to subsequently lose it in a boating accident, you may not be able to acquire (and keep) any amount into the future. Conspiracy? I hope that line of thinking is.

M said...

@ MDV

"world governments and the elite"

The black markets get more advanced every day too.

Phil_O_Dendron said...

M ; Indeed - the black markets should flourish if gold is ever taxed too much.

Example: gold smuggling in India is illegal and is apparently very profitable.

M said...

Michael M said... this is interesting: http://www.alt-market.com/articles/2126-false-eastwest-paradigm-hides-the-rise-of-global-currency

Those articles always make it seem like there is no real conflict in the world. As if everyone gets along just fine. As if nobody has any real enemies. I don't believe it. Where does it stop ?

S P said...

It's just a question of herding sheep to the slaughter. Incredibly enough, the sheep are back into stocks and real estate. Who would have thought that, but with 7 billion of us walking, talking contradictions around, anything is possible.

The infrastructure is in place to make all currency digital. Sorry, there goes your cash. And then, once everybody is herded into digital accounts, keep interest rates at zero and institute "one-off" bail-ins and wealth tax, and limit transactions. Voila, banks are made whole and the game goes on. Object? Try doing so to paid men in body suits with machine guns.

Really, really easy folks, and, who made it possible? Why, we did! Because these past 30 years we worked and worked and put up telephone lines and built computers and engineered the software to do it. And we lined up after 9/11 to fight the wars, and the students are now accepting lifetime debt servitude.

I do not for a moment doubt the veracity of everything that has been discussed by and about Another/FOA/FOFOA. Still, it's a bit cute...to think that you can put some gold coins in a sock drawer, and then one day you will be part of the power elite.

Never going to happen, folks. It's been 17 years...17 years! and counting...that is enough time to declare that the anti-freegold giants and TPTB have no intention of implementing it, and we made that possible.

Yes this is grim but somebody has to counter false optimism.

Michael dV said...

M
that reference was from Michael M not MdV....I'm just here to provide color not to get a rise from anyone...

Dim said...

How does someone "implement" freegold?

M said...

Dim said...

How does someone "implement" freegold?

They don't. Basically the same thing that happened in the 70's happens again. Inflation and a bond bear market.

Michael dV said...

SP
we've done the math here and we just can't find a better answer (as unlikely as it may sound) that satisfies all the variables. If you have a better solution please tell us...but show your work...and don't leave anything out...or add in things we can't check.
I think we are less delusional here than you seem to be pessimistic.

M said...

S P said...

"It's just a question of herding sheep to the slaughter. Incredibly enough, the sheep are back into stocks and real estate".

Thats not true actually. Retail is largely out of listed stocks. A lot of these tech bubble 2.0 stocks aren't even public. Hedge funds and cash are piling into real estate.

SP said "The infrastructure is in place to make all currency digital. Sorry, there goes your cash. And then, once everybody is herded into digital accounts, keep interest rates at zero and institute "one-off" bail-ins and wealth tax, and limit transactions. "

This all works fine under a 30+ year bond bull market bubble. Eventually, it has to come to an end. It always has. Hyperinflation or major devaluations happen faster without cash.

SP said" Really, really easy folks, and, who made it possible? "

No actually, digital money did not herald the end of resource scarcity in the world. And no, its not very easy. I am probably the most frustrated with the times as anyone, and even I know that it will come to an end.

SP said"Still, it's a bit cute...to think that you can put some gold coins in a sock drawer, and then one day you will be part of the power elite.

Never going to happen, folks. It's been 17 years...17 years! "

If the paper gold bull market was still going and gold was $2800 an oz now, you probably wouldn't be saying this. But since gold can be had for nothing, you are convinced that it will be useless in the future. Regardless of what happens, gold always makes higher lows. Even priced in magical USD. So what is the downside in holding physical gold, even if you don't think freegold will happen ? Missing out on Candy Crushes IPO ?

Robert said...

SP, I wholeheartedly agree that we need a healthy dose of skepticism, but I am not sure I buy your argument. You make it sound like 17 years is a long time -- but is it?

The Giants are giants both in the fiat world and in the realm of gold. They are doing just fine under the status quo. So why change anything and introduce all uncertainties that come with social instability? I have to think 17 years to a Giant is not a very long time at all.

I think we have have underestimated the degree of political support still exists for the USG and USD. The anti-US rhetoric is all empty. The USG gets what it wants almost all the time. Europe pretended to oppose the NSA, but when push came to shove, the US got what it wanted. Even after it came to light that Merkels phone was bugged, there was no real blowback to the U.S. Europe pretends to oppose torturing prisoners, but the US found plenty of "civilized" European partners willing to cooperate by setting up black sites. Remember when they turned back the plane with the Bolivian president, then forced it to land in Austria, and then searched the plane? I thought that was insane, but it showed me that the US can still get its way with all of Europe. If the US tells Europeans to buy more bonds, they will buy the bonds. Then did you see the story a week or two ago when we heard that the U.S. was ready to tell Japan to stop QE? And Japan signaled that it was ready to do exactly as it was told. Make no mistake: the U.S. still has plenty of political clout, and its allies are ready to try to support the $IMFS. Are they intimidated into doing so? Or just so thoroughly corrupt that they cannot distinguish a threat from a bribe? I cannot answer that one.

I remember reading the early post about the King and the Gold, that quaint idea that the Arabs will save in gold so that they will have wealth when the oil is no more. What good does it do an Arab government to save in gold when the U.S. military can invent a pretext for a military invasion to steal it? There is no reason for a nation to intentionally sink the $IMFS as long as the U.S. Navy has the power to show up and take all the gold. Our military policies in the Middle East are a warning to all regional governments that they better fall in line or else.

Eventually I have to think that rampant control fraud will bring down the system, whether the Giants want it to happen or not.

Sam said...

Without a foundation it's so easy to get pushed around by each and every gust of wind. Currency is nothing more than credit, most of which is already digital today. The fact that less than 1% of it is floating around as precious "cash" isn't protecting us all from imminent slaughter. The method with which we exchange credit doesn't really matter and frankly the more technologically advanced and convenient the better. We live and trade in a world of real things. If you want me to provide you with a good or service you need to pay me for it. If you want to buy it on credit you have to be credit worthy. This goes for countries as well. Their credit is their currency and it doesn't matter if it's paper or digital it's value will be determined by its ability to get me real stuff at some point in the future.

JJ said...

@ Robert

http://www.project-syndicate.org/commentary/mai-yamani-says-that-the-kingdom-s-mounting-distrust-of-the-us-has-forced-it-to-seek-an-alternative-protector

Perhaps enough soldiers in numbers to cause a slightly longer lasting conflict with subsequent disruptions in the flow of oil.

vizeet srivastava said...

@Robert,
I think you are not realizing the psychology of gold Giants or gold Shrimps. They see gold not USD as wealth. So even if you scare them with force they are not going to allow at the loss of their gold.

Robert said...

vizeet, first lets break down political support. Where does it come from? Who buys the politicians? I submit that it's probably a combination of wealthy individuals (jumbo shrimp), corporations, banks and other financial institutions who see it as in their best interest to perpetuate the current system. The giants are probably indifferent, well prepared for many different scenarios.

Now when I referred to intimidation, I was referring to one government intimidating another. Does a government count as a "giant"? Not in the same sense as an individual or family because it is a heck of a lot harder to hide the national treasure from a foreign invading force.

JJ, yes, these middle eastern kingdoms need military protection. But even with support from Pakistan the Saudis could never oppose the U.S.!

JJ said...

Robert

They will oppose U.S. Never is a long time in todays world. Russia and China are implementing measures that erode the importance/influence of US$. IMO the ROW allow, and thus support this. A currencys depleting usability will definately impact its value. The spiral is on.

What gives U.S its influence today is its military might. When U.S goes bankrupt, U.S naval bases are going to look like the russian bases did in early nineties.

When u state that "Saudis could never oppose the U.S.!" I think that u expect the U.S to be able to pay for and sustain their military. I don't.

vizeet srivastava said...

Robert,
The Middle-East governments are run by Seikhs, they are gold/oil giants.
True, in case of internal civil war and US drone attacks, it will be difficult for them to protect themself. But they also have ok relationship with Russia which can turn to good in future. But more important is that they are Giants or controlled by Giants and so they are not going to just keep US happy at the cost of their losses in gold.
No one wants to pull the plug but no one would go overboard to support the system at their own peril.
It is not that I believe system is going to come down this year but I think the system cannot survive more than 5 years.
US is not the most important country in the world but it owns the world reserve currency and so their is stress (a potential difference which is creating stress). With time the stress is going to rise.
It is like elastic -- when you stretch it, at some point it is going to break; what time it will happen no one can tell; but you may sometime tell the upper limit.

vizeet srivastava said...

Robert,
Most world oil/gas comes from Middle-East and Russia, it is not easy to attack them.

Sir Tagio said...

SP,

I am inclined to agree that FG is not going to happen, at least if it can be helped by TPTB. While it may have originally been "The Plan" 17 years ago, the crisis for which it was the solution was averted, probably due to China's structural support for the US$, which allowed TPTB time to develop a "better" idea that gives more maneuvering room for the printing press and political power than FG does. As we all know, having a printing press is more valuable than gold. So at this point in time, I view FG as the default result if TPTB absolutely lose control.

I suspect that the SDR system discussed by Rickards in his new book is "The New Plan" and will be the likely result, if TPTB can help it. In that new system, gold will play a role to secure credibility and to provide a foundation to ground and adjust the relative values of currencies. I.e., it can function as a reserve, and adjustments can be made based on balances of trade and thereby keep the currencies in the SDR basket somewhat tied to real economies while still leveraging off of the gold base with the fiat currencies in the basket. Like the Euro, the SDR will not be tied to any one country. However the adjustments will still be politicized based on the relative political strengths among the countries whose currencies are in the basket (rather than being completely in the hands of a free market in gold, which really harshes the mellow of the people running the printing presses). The FX system will still be in place with FX paper gold to manage/suppress the price of gold, i.e., to keep the "real" FG valuation suppressed. HOWEVER, gold will have a higher valuation/purchasing power under this system than it does currently. Rickards recently claimed it would be around $9k/ounce. He's probably being conservative, but probably not by much.

As far as I am concerned, without some insider like Another sharing with us across the campfire, none of this is provable, nor is a real-world advent of FG disprovable. It's all crystal ball gazing as far as I am concerned.

The bottom line for me is that it is good to save some amount in gold in order to not be completely at the mercy of the financial system, but it is very foolish to live, like Richard in Bleak-House {http://en.wikipedia.org/wiki/Bleak_House#Characters_in_Bleak_House}, waiting for your ship to come in.

BTW, if you want a conspiracy view of the rollout of the new IMFS, Brandon Smith's latest on ZeroHedge, "False East/West Paradigm Hides the Rise of the Global Currency," is entertaining speculation and postulation.

http://www.zerohedge.com/news/2014-05-07/guest-post-false-eastwest-paradigm-hides-rise-global-currency

Edwardo said...

You do realize, Sir Tagio, that Rickard's 9K an ounce gold is nothing more than a dollar devaluation number. He sees every commodity elevated which makes his special attention to gold meaningless. He might as well promote silver. As for the SDR scenario, rarely have I heard less substance in support of the argument. Rickards and fellow travelers are at their most woolly whenever they discuss it. It solves nothing and, so, at best, any putative reset riding on the back of SDRs can expect to fail. The thesis such as it is seems to rely mostly, if not entirely, on the idea of the existence of the IMF whose viability as a functioning body appears more and more suspect.

Indenture said...

S P: ”The infrastructure is in place to make all currency digital. Sorry, there goes your cash. And then, once everybody is herded into digital accounts, keep interest rates at zero and institute "one-off" bail-ins and wealth tax, and limit transactions. Voila, banks are made whole and the game goes on.
You make it sound like no one wants Final Settlement.
Even with your mathematics the world will run out of physical gold at the ‘discounted’ price. Then what?

tEON said...

Edwardo is absolutely correct. Rickards 9K Gold goes along with $120 Silver and $600 brl Oil (in the book) and doesn't, at all, address the paper gold destruction - physical gold revaluation theory that seems, to me, to be far more logical than simply another stop-gap approach with an SDR (that Rickards himself admits is "fiat"). Despite his rhetoric it is plain to see that the SDR is another unsustainable solution. Rickards thinks that China and Russia (both IMF members) will go along with the SDR trial-balloon because they will be appeased with an SDR's partial gold backing. I think it's a big leap of faith - but I guess we will see.

Indenture said...

Tagio: ”As we all know, having a printing press is more valuable than gold.
NO! A printing press produces representations of physical gold so the physical gold is more valuable than the printing press. Your sentence makes it sound like any printing press is better than gold. Let’s ask the residents of Zimbabwe.
You also said, “Like the Euro, the SDR will not be tied to any one country.” So why not just use the Euro?

Lisa said...

FOFOA has written lots about the SDR

Here's a teaser from his post "Special" Drawing Rights:

My basic approach to the SDR is, who cares? It doesn't matter. It would be worse than irrelevant to Freegold, it would be superfluous. It's just marginal speculation by people who haven't thought things all the way through. First of all, the SDR is only a unit of account, by design.


Here is a link to"Special" Drawing Rights. An added bonus is that FOFOA references many of his other comments over the years about SDR's in this post

Franco said...

"The infrastructure is in place to make all currency digital."

S P: I don't mean to be offensive, but you need to get out more. Most people in the world would not be affected by such measure as they don't even have a bank account. If your government attempted to do away with cash, all you need to do is move to any of the rural states in the US or any third world country for that matter. Perspective, man. Perspective.

Roacheforque said...

I find it interesting that in Rickards Reuters interview there is no mention of the SDR at all, but he's quite bullish on the Euro. Perhaps some editing took place, or maybe he was coached a bit?

http://roacheforque.blogspot.com/2014/04/the-preview.html

In any event, it does not matter. FIAT has a critical role in FREEGOLD and is certainly not exclusive of it, whether we call it "dollar, euro, SDR, Amero or Altyn". Many paper and or digital currencies will co-exist with gold, maybe even paper gold of a sort, but not of the sort that actually prices gold in fiat terms.

With freegold, all paper used to settle debt will be "priced" in gold terms.

It's hard to gaze into any crystal ball knowing that when the paradigm changes, and our definitions themselves change - incompatible with the "old science" as it were, our crystal balls change as well.

We view the crystal ball of today (trying to make sense of competing real time realities) through the lens of normalcy bias (or so it appears).

The crystal ball of tommorow we see through the freegold lens.

Roacheforque said...

I see they changed the video link at Reuters.
Hmmmmm ....

Michael dV said...

Rather than thinking of the world as a place with $50,000 gold I find it easier to view it as a place with worthless dollars.
From there you can do your own Sim World. Currencies will have to be redeveloped. Real stuff must keep flowing. Gold will not stop being wealth.
You can come to your own conclusions about how the powerful will try to get more than their current share. You can believe whatever you want. It is how you play your cards now that is important. The end game will just be a matter of cleaning up the board.
Or you can imagine that the dollar will live for ever. The ROW will keep giving us free stuff because the USA has a big military. I see this as unlikely. I think many are sensing weakness because of the dollar's problems and are either waiting or possibly planning to test the stability of the system.
Ultimately it is NOT about the Benjamins. It is about the stuff. Ask any good man from Zimbabwe.

Sir Tagio said...

Oh wow good discussions!

Edwardo,
Yes you are right, Rickards uses the 9k as a reflection of dollar devaluation, and I conflate that with equivalent purchasing power in today's terms. Possibly wrong of me, but if gold is used as part of the SDR to have international credibility and/or a factor against wihch the fiats in the basket can make relative adjustments against one another, it seems to me it sill serves a function similar to FG albeit diluted by being tied to the fiats and controlled by an international cartel, and I can expect, contrary to Rickards, that it will be a real increase in my purchasing power in today's terms. Roughly speaking, if gold is 20% of the basket, I can perhaps expect 20% of the FG valuation benefit. Perhaps there is no logic in this and it is pure fancifulness but I admit: I am not a freaking financial genius. Whatevs, I am not doing dances at every turn of events in which I see the Harbinger of FG adn I am sick to death of watching the pot or listening to others who are watching the pot. Time will tell, as they say, but I'm not holding my breath.

I know that bank balance sheets have to balance and that a full FG revaluation (not a Rickardian dollar devaluation) achieves this. That is a very strong factor in favor of FG. However, to the extent that high valuation is needed to offset the effects of the hyper trillions in interest rate and CDS derivatives, I don't buy it, because it seems to me the next time the IMFS seizes up because of a run on the derivatives, the debtor parties will all just declare force majeur and void the obligations, or the governments will do it for them, just like China did in 2008. So the question in my mind is, how much of a reval do you need to balance the accounts excluding the interest-rate and CDS derivatives? Don't know, but possibly a lot less than 55k/ounce.

If a reval is necessary to get gold to flow in size to giants, okay, but I have no way of knowing what that ultimate number is . Also a crash of the paper gold market does not mean that a new paper gold market cannot be erected on its ashes, with a bright and shiny new fiat system with all sorts of pretty baskets.

tEON,
My discussion of the SDR should not be taken as implying any kind of endorsement of that system. I view the SDR gambit as a continuation of the dollar gambit in new clothing goosed up with some gold for credibility. Of course you are right it is not sustainable, any more than the post 1971 dollar was sustainable. However, what IMFS post WWI has been sustainable? Judging by the past, sustainability is not the principal design requirement for an IMFS. They call it the "Rules of the Game" because these jerks actually think it is a game they are playing and at which they are winners. The game has more room to play (Winning!) if it is not subject to the rigors of FG. What can be cobbled together to have enough crediblity to get the goods flowing again? That seems to be the process. That the SDR makes no more sense than the dollar is not an objection, it looks different and has different features! It's a question of realpolitik, not intellectual rigor.

Sorry to harp on Rickards, I don't view him as a luminary, but he is out there talking to insiders, so maybe it's just propaganda or Rickards' ego and maybe it's a window into what's going on, who knows, but to my knowledge there is no one else out there in public taking a FG line that would give me some sense that FG thinking and planning was taking place in The Highest Places.

Thanks everyone for the comments.

Franco said...

To me, saying that a currency (or SDR) is "partially" backed by gold is kind of like saying that you are "partially" a virgin.

Nickelsaver said...

The point of the SDR is to alter the reserve pool in order to save the dollar. But the $9k gold figure is just wishfull thinking. The dollar can't peg to gold, it couldn't defend gold at any price. So the implimentation of SDR's would require a reboot and continuation of the paper gold market. But how do you make that happen without locking up the markets?

Michael dV said...

So Deutsche Bank expects Draghi to act.
http://www.zerohedge.com/news/2014-05-08/not-doing-anything-next-month-would-completely-shatter-ecb’s-credibility
They say he will lose credibility if he doesn't.
I see them begging for QE and I see Draghi smiling as he knows his real job is to save the Euro and not the banks in the zone or the various socialist paradises that exist there.
I say he does nothing. He may try to get the Fed to placate the folks at DB but I say he does not launch major inflationary policies.
What thinks the rest here?

Nickelsaver said...

The SDR is nothing more than a wild card dealt from the deck that FDR and Nixon held. Only problem is that it is being added to the deck after the cards were already dealt, by the weak hands. Think the strong hands will allow the change?

Michael dV said...

As for the occasional 'freegold will never be allowed' moans
I too get impatient and surprised at the tenacity of the dollar.
It is good however to occasionally reflect on what led us here and to worry about the world's monetary system in the first place.
For me it started with the realization that the USA could never pay it's debts....not even close. that has not changed. All that is surprising to me is the patience of the rest of the world and the mad skilz of the Fed in keeping up appearances. They have found ways to keep the various index markers looking stable. They have turned off the alarms as the fire smolders.
This is maddening and just does not seem right or fair but we knew that the game would be played like this. It is baseball not football. The clock does not matter.
As I wait impatiently I remind myself how my thinking got me here. I review the logic that led me to my current actions. I question the building blocks of my logic fortress. I question the very logical process itself (maybe magic is real and donkeys CAN fly out of my butt). In the end ...well I'm still here and still watching the greatest show in the history of mankind (at least in terms of how we deal with each other in the material world). These are the good seats.

Lisa said...

Michael dV

I appreciate your calm, common sense responses - infused with bits of humor.

The reminders of where we started and what we have learned over the years helps put things in perspective.

thanks!

Indenture said...

Tagio: “there is no one else out there in public taking a FG line that would give me some sense that FG thinking and planning was taking place in The Highest Places.”
The Euro architecture is proof enough for me that planning is taking place in The Highest Places.

S P said...

Well I'll also say this: the so called giants who just want the gold to flow, and will do what it takes to make this possible, for the benefit of all...you do realize these are the same people who killed JFK, orchestrated 9/11, and are now printing currency with abandon and heaping the costs onto the rest of us?

If anything, the giant people in our world seem dedicated to two things: infinite war, and infinite fiat expansion. Not peace, and not gold.

As many above have said...where is the proof otherwise?

I'm afraid it's over. There was a point to freegold back in Another's time but not anymore. It's too late.

I still prepare for freegold and will likely personally benefit, but I can't enjoy it, knowing what I know about the world, how we screwed up and can never make it right again.

Nickelsaver said...

S P

Is that the truth, er, the whole truth, er, and nothing but the Truther?

Phat Expat said...

Though not into conspiracy to think that the current 'system' is NOT responsible for fomenting much of the discontent and suspicious events at home and around the globe would be rather naive.

I don't believe the battle is lost but we face some significant hurdles that will hopefully be surmounted once FG is finally realized.

Sam said...

what if the sweet innocent little people, lets call them debtors, are the source of the "problem" not the victim of endless schemes and manipulation. What if its the sweet innocent little people that want, no demand, that we give them today what they think they can probably maybe pay for tomorrow. What if it's the sweet innocent little people that then demand help with their insurmountable debts and cry foul play! unfair! and power to the people! when those with more discipline have more than them.

Phat Expat said...

Ah, so it was the debtor in the living room with the candlestick. Got it.

M said...

Sam said...

what if the sweet innocent little people, lets call them debtors, "

I have always wondered about that. It seems like 10% of the population are savers and the remaining 90 are debtors. But where does this leave us savers ?

M said...

@ Micheal DV

"They have found ways to keep the various index markers looking stable."

This this this ^^^

They have kept the casual numbers looking so bland that it makes anyone whos been sounding warnings since 2008, look wrong. Its the normalcy bias crowd vs the gold bugs. With nothing in between.

The saddest part is, its been too long to discredit Keynesianism. If the $ crashed in 2010 or 11, Keynes would have been buried forever. But its already too late for that.

fnord88 said...

Seems to me that since Another was around, the world has progressed in ways he simply couldn't imagine. The Euro is becoming irrelevant to Freegold. Everyday more and more news surfaces about the strengthening of relations between Russia, China, Iran, Saudi Arabia and even Germany. Earlier in the thread someone talked about SA having to tow the line else USA could simply take their gold. That may have been possible 3 years ago, it no longer is. China and Russia may not be able to fight America in a traditional sense, but they can now deny them access to vast areas of the globe. The USA has simply lost total theatre dominance, they can no longer project air power where ever they want. The continued rise of Asia means the loss of Western trading partners is no longer a catastrophic event, especially if, as reported, 90% German business prefer closer ties to Russia rather than the rest of Europe.

If Freegold was originally all about oil, what does an alliance between countries producing 60% of the worlds oil mean? Throw in states like Venezuela and you are talking close to 70%. At those kind of numbers you can dictate your own terms. 5 years ago Russia was furious China was copying military tech Russia sold them. Now Russia is selling them everything they can, and China is copying it and on selling to oil producing nations in the middle east left right and centre. The Suadis supported the US not because they were promised gold for oil, but because they were promised military protection. Everything now clearly points to the fact that they are moving to new souces of protection. FOFOA may argue Europe's massive gold stash is why the Euro will be the linchpin, but as always, he who possesses the gold makes the rules, and Europe doesn't actually have sweet f all in it's possession. Europe dithered, and has now lost it's ability to shape the coming financial system, all it can choose is which side is bread is buttered on. The only real wild card i can see now is India, because India is essential to any new system, and it seems they are siding with Russia these days a lot more than the USA.

Of course i'm probably wrong about most things, but very little time is spent on this blog discussing the implications of military strength, and i think that is a huge mistake. We may have spent most of our lives living in relative peace, but history suggests that is not a normal state of affairs.

M said...

@ MDV

I" see them begging for QE and I see Draghi smiling as he knows his real job is to save the Euro"

I used to think that until the ECB cut rates a couple years ago. Now that the Goldman scum is at the helm, Im not sure what the real job is.

M said...

@ Fnor88

said "If Freegold was originally all about oil, what does an alliance between countries producing 60% of the worlds oil mean? "

I wonder if ANOTHER envisioned the communist government of China buying a a Canadian oil company like Nexen. Nexen feeds heavy oil into the US.Now anyway.. Maybe not when the pipeline to western Canada is approved. Now that the Chinese own Nexen, the wellsite consultants don't even care how much they spend anymore. One of them just said the other day "why don't we just spend the money here in Canada, rather then make profits for the Chinese so that they can take the money home and use it to point nukes at us ?"

toolmaker said...

As I sit here "watching the River flow", I can't help but think of Fofoa's concept of the upcoming "meritocracy". A huge part of what has drawn me into the FG mentality is that the new system will reward "producers".
As a small (very, very small) "producer", I am looking forward to a time when my skills will once again become important and financially appreciated in America. I have learned (thanks to Fofoa) to save in physical gold.
The peace of mind that has come with - as Jim Sinclair would say " GOTS" - "get out of the system" is just incredible. The tax penalties of dumping the 401K's, IRA's, profit sharing plans, etc. are a small sacrifice compared to the stress of having savings in the "system"

Honestly, my first exposure to FG was WTF if I buy some gold NOW, I could become wealthy rather than continuously get F##ked by the "system". Now that my savings are "all in", my mind is "at peace". Physical "in my possession", allows me to concentrate on my business once again ( although I must admit that the pot-watching is a huge distraction).
How long this system of deceit can continue is anyone's guess. It has gone on longer than most of us ever thought it could possibly continue. Fofoa thought 2009 was pushing it. When I discovered this blog in 2010, I had no idea that 4+ years later I would still be watching the pot (or "the river flow") I do detect a high degree of "fallout" of many highly respected commenters. Some that I particularly miss are "Costata" and "Blondie". Their comments were always a highlight in my day. One of the many things that keep me coming back every day is that FOA made a statement that when the time is close (or right), that he would again grace us with his presence.
Although our current "guru" (thanks Fofoa) is a modern Prophet in his own right - how cool would it be to hear from FOA.

A toolmaker

JJ said...

Lot of talk about timing so why not go to the timing guy..,

Armstrong points to 2017 - " Gold is not going up because of all the conspiracy claims nor because the real gold will conquer the paper gold. This is all about reality. Gold standards do not work because you cannot fix the price of money regardless what you call it. To try to do so is communism where the real attempt was to eliminate cycles. Gold is a viable part of the portfolio. It will rise to the occasion when the timing is right. The very people accused of keeping it down are the very people who will turn around and send it up as well [withdrawing offer IMO]. This is just about time. Nothing more! When the time is right and people realize that the Governments have no Clothes, look out – there will be a stampede at that time. For now, that still appears headed into 2017." [Looking at Fort Knox, U.S could very well be the player withdrawing offers and thus lifting the POG IMO]

Alisdair Macleod has a different take but goes to the inevitability (resonates well with the Another quote on top) - "Now whether the West is right or wrong is not the point. The point is there are 4 billion people in Asia who have got a very old-fashioned view of gold, and they have become wealthy over the last twenty years. And their view is likely to prevail against the <1 billion of us in North America and Western Europe. I mean it really is as simple as that. It's not a question of Austrian economics, or Keynesian, or whatever. We're outnumbered."

Governments without clothes and west being outnumbered is why I first started saving in physical a decade ago. That is also why I continue. If a transition happens in 2014 or 2017 or 2024 or 2030 or.., or if it is just inflation pushing the price.., doesn't matter. Gold is the safest way of saving for my retirement and kids. I cannot find any other place to put savings where I myself alone can govern the savings without needing to trust governments or companies viability/honor and at the same time being able to move the savings where I please.

JJ

DP said...

Gold standards do not work because you cannot fix the price of money regardless what you call it. To try to do so is communism where the real attempt was to eliminate cycles.


Hard Money Socialism

Resssspect ma Libertah!!!!!!1

Bright aurum said...

@toolmaker
you wrote: "Some that I particularly miss are "Costata" and "Blondie"."
Costata is still with us. He will post some day when he have something useful to write about.
As far as Blondie is concerned, I am not quite sure why the guy left at the first place. Freefiat controversy is not a reason good enough for him or anybody for that sake to leave.

Archer said...

"Armstrong points to 2017"

Actually Marty points to 2015.75 as his next big turn date that weighs on the prospects for gold, but the autodidact ex-con is a slippery fellow with his forecasts. If one pays attention, which, for entertainment purposes, I do,
one notices that he quite often inserts doubt where before there was (the appearance at least) of rock solid certainty. And while Mr. Armstrong is quick to tout what he considers prescient calls, he, like so many of his "buy my marvelous market expertise" brethren, becomes very silent when his predictions fall flat as his recent April "Gold, look out below" prediction did. He has been discussed here before, and the consensus is that he either does not (or will not) fathom the intricacies of Freegold.

In the meantime, the following notions:

very little time is spent on this blog discussing the implications of military strength, and i think that is a huge mistake

And

If Freegold was originally all about oil, what does an alliance between countries producing 60% of the worlds oil mean?

strike me as coming from someone who needs to RTFB or RRTFB. The strength of the U.S. military is a direct result of Ex-Priv, but, when push comes to shove cause and effect doesn't run in the other direction. As for the alliance you speak of, and its effect on freegold, I feel duty bound to point out that the relevant countries, in the aggregate, feature governments and citizenry that save in physical gold.

farmersteveg said...

I am encouraged by the current discussions regarding, what seems sometimes to be, overwhelming forces aligned against freegold coming about, ever. The folks who read this blog are the best informed, in my opinion, regarding what is actually going on under the radar, unseen or understood by all the hard money movement., much less the carnival operators barking incessantly about the stock mkt, etc. Obviously, we have FOFOA to thank for that.
Indeed, sometimes the frustration of knowing the benefits of freegold, yet the strength of the crime syndicate that keeps it from occuring, seems unbearable. However, again we have our host to point out to us, in the most clear and obvious fashion, the support of the $ is indeed slowly but surely evaporating. When it becomes sudden, nobody knows, certainly not me. But it will, not because we do what is right, but because the folks that own things(natural resources) or make things(China), are gonna want to actually get paid for them, instead of having them stolen.
My main concern , and what I am truly frightened by, is what happens after freegold. My suspicion is there may be a short time period when things function as "theorized" here, but when the masses are hungry and govt is facing extinction and looking for scapegoats, they are gonna come after anyone and anybody who benefitted from the destruction govt policies brought on us.
On an unrelated topic, and one which I am not sure has ever been discussed here, now (as opposed to post freegold) might seem a good time(while gold is on sale) for some of us to want to mail to FOFOA a package (whose contents could be anything, possibly even something mad of a very dense, shiney material), but I would have no idea where to mail it. Human nature being what it is, just seems like we ought to do it before the price skyrockets and we start having second thoughts. Maybe just a PO box or something ??

Jeff said...

Sam,

That's a bit hard on the poor debtors isn't it? We could as easily blame the savers for saving in debt, or the governments that gave the dollar its' special status so long ago. But why blame anyone at all? Why not accept that everyone who uses the currency has a vital role to play? Debtors, savers, lenders.

Hard money says destroy the debtor to save the currency. Bend the man to fit the system, and if he won't bend, break him. And they wonder why it never works.

'The poor you have with you always', even in your monetary system. Embrace your borrowing brethren. Meet the needs of all currency users and you will have a currency worth using.

FOFOA: Freegold is not about making easy money a little bit harder. On the contrary, it is about the debtors and the savers coexisting without the perpetual monetary conflict embedded in all prior systems.

(...)

Now would probably be a good time to restate that "the debtors and the savers" is a dichotomy, not a moral judgment. It is a way of viewing the world in two camps that corrects Karl Marx's most enduring (and harmful) legacy. Neither camp is better than the other any more than women are better than men. It is simply a model for understanding how two groups with apparently different innate tendencies have always been placed in conflict with each other throughout history due to the emergence of monetary systems.

Michael dV said...

It seems that many of the debtor vs saver relationships have changed. We now have a banking system in which the savings are irrelevant as new money can be produced without a saver being needed. This is one of the handy aspects of a pure fiat system.
So the Fed can control that. What it can't control is stuff. It can only control the claim tickets for stuff. As long as ample production and flow of real things continues and the dollar continues to function as a claim on that production we don't have a problem.
It seems many of the problems with the prior way of doing money have been addressed and the monetary system failures of the past have been calmed. Most of the ways I thought the system would fail (i.e. history would repeat) have not happened. I suppose the managers of the system deserve some credit for that, not that they are not well rewarded now.
It appears that failure now must wait for a surprise, a new way to fail, or we will have to wait for problems in the real physical world of stuff not being available. Energy seems like a likely item to cause problems first….and then there is gold.

DP said...

We now have a banking system in which the savings are irrelevant as new money can be produced without a saver being needed.

RJPadavona said...



Painting my bathroom was an inside job. I wish the so called giants would've conspired with me on that one.

Roacheforque said...

The tone of geopolitical monetary events has certainly taken on a "EU and USA duble teaming against us" flavor coming from the BRICS:

http://thebricspost.com/china-russia-discussing-currency-swaps-package/#.U2z7K_ldV2M

However, the EU doesn't exactly seem unified in their stance. I stil think the possibility of a masked Trojan Horse has some traction among certain key players (we may not know them by name).

http://roacheforque.blogspot.com/2014/04/the-political-layer.html

Sam said...

I said "what if" to make a point. There are excellent arguments on both sides and plenty of blame to go around if blaming is what you want to do. There are way too many people with a predisposition to blame people different than them (the easiest one being rich blame poor, poor blame rich) and circumstance rather than looking within. I certainly live in a glass house. I’m a western debtor who only recently changed his ways. I’ve never gotten anywhere blaming the elites and or the unwashed masses for anything.

jojo said...

"Though not into conspiracy to think that the current 'system' is NOT responsible for fomenting much of the discontent and suspicious events at home and around the globe would be rather naive."

Yes but, that is focusing narrowly. All the conspiratard angles suffer the same.
The benefits to this whole world that have blossomed from this $IMF system have brought us humans along quite far in a quite short period of time. Need I remind anyone of space travel, the interwebs, microwave ovens, the smartphone (communicator) I read while on the shitter? The civilized world agreed to support this system. Depending where you were born, you may have experienced more or less of the benefits but no one orchestrated that, it just happened.
The current system also brought much bad and evil with it. So what. The bad and evil is us and any system would deliver the same thing. (and so will the next...insert Another quote here :) ). Yes, the $IMF could be seen to have amplified those bad things, but again, didn't it also amplify the good? It is what it is. Same as it ever was :) (h/t DP)

Seems to me, focusing so narrowly is the same as those tarders kicking water at each other in the shallows. This especially goes for those focusing on the Main Stage Drama Show called politics.
It doesn't get much shrimpier than to think one would learn the happenings at The Highest Places freely in the public domain. Or this: "As many above have said...where is the proof otherwise?" (besides showing little understanding of this blog :( )


"I don't believe the battle is lost but we face some significant hurdles that will hopefully be surmounted once FG is finally realized."

Hmmm....battle, that reminds me of the battle against JPMorgan, Blythe, etc etc ad nauseum.
Shouldn't "we the people" be in there somewhere? j/k :)

But seriously, there is no battle, there's just us humans trying to get along and there sure as hell is nothing that will be surmounted via FG. I do see socialism being DE-funded in a huge way and that alone will bring the type of change that this sentiment really (I think) speaks to. But again, it will be de-amplified. The good, the bad, it will still all be there but the magnitude would hopefully be far less as the malinvestment that is the enabler of socialism, will be deadheaded.

FWIW, the fairly recent tone change here and postings are comforting to me, they are serving as a bit of a bellwether I think. I think it reveals we are getting closer and the pull on the weak hands gets stronger. Surviving this transition is a struggle. It fucks with your head and your emotions and it's only getting warmed up.

Indenture said...

Our current EVIL SYSTEM...
Reminds me of a poopyjim quote, "We get the government we want. It already represents the people quit well, with disastrous results."

tEON said...

@Roacheforque

FIAT has a critical role in FREEGOLD and is certainly not exclusive of it, whether we call it "dollar, euro, SDR, Amero or Altyn".

No - the idea behind the SDR is not for the common man's MoE. That will always be paper (80% of the world won't be going digital anytime soon). The proposed idea for the SDR is the same as Gold is utilized in FG - for large inter-country transactions (think Oil) or even reserves for the largest corporations (IBM, Siemens etc.). This must be AU - not simply as decreed by government edict. It should not be 'fiat' (intrinsically valueless money). While they probably see its unsustainability - they may go for the temporary solution to further kick-the-can-down-the-road in terms of the destruction of USD... and all currencies (which is inevitable).

Dante_Eu said...

@M:

Regarding savers vs debtors and producers vs consumers let me tell you a short story.

A guy went to heaven. After some time in heaven he asks God a question:

- Hey God, how come we here in Heaven eat canned food every freakin' day, while those guys over there in Hell have ox on the spit - all day every day?

And God replied:

- Well, my son, you all are few they are many.

:-)

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