Friend of Another (9/20/98; 19:03:15 Msg ID:43)
The Markets!
To All: It's an interesting corner that the Euro people (BIS) have put the US government and the dollar into. As the only reserve currency, the dollar must fall in value in order to reflate the world economy. But, a week dollar is exactly what the Treasury doesn't need with the upcoming Euro. Now, all Europe has to do is wait and watch as the markets do their dirty work! If the dollar stays strong, the countries in crisis will sink even lower. In doing so this will create a US trade deficit never before seen in modern times.
It is no accident that most of the economies in crisis are many of the chief trading partners of America. It's also no accident that they all are IMF/Dollar advocates. Meaning, they hold little Gold and much US treasury debt as local currency reserves. The US will be forced, by deteriorating market conditions, to lower the exchange value of the dollar. But, if Greenspan lowers local interest rates, Europe will begin to dump the dollar. For them, they don't need the dollar as a reserve currency anymore! They will hold a small amount of it only as an currency exchange intervention vehicle.
With this new definition for the dollar it will be required to carry a good interest rate. They have the Dollar in a trap that will force the Fed to lower it's value through the foreign exchange window. All the while pushing interest rates up or holding them steady to protect this reserve currency.
This isn't a strange twist as it happened once before during the 70's. Only this time a new world reserve currency is coming online, giving many countries a choice for the first time. I think China can't wait to unload it's US treasury holdings for the Euro.
I agree with Another's last post (in the archives) about the vintage wine. Gold is that reserve vintage that many people kept trying to open before it's time. By the end of the year, the currency wars will bring this fine wine to completion.
Once it goes above $360 some major defaults will occur, changing the entire aspect of the market. Add to this the introduction of the Euro and the old US Dollar gold market will disappear. Some investors are buying gold for the Y2K problem. I thing the Currency Wars will destroy the markets long before Y2K does it's deed!
Also, I am very excited to hear of this USAGOLD FORUM. I think myself and Another will have much participation with this new discussion group! It will, no doubt, be followed by many Gold investors. Who knows, perhaps even a Central Banker or Government leader? Thanks FOA
Friend of Another (9/20/98; 20:09:53 Msg ID:48)
TO BNACD:
We continue to watch the BOJ to see if they are selling US Treasury debt. I don't think that is going to happen. They will buy gold, they will talk a great deal, but they can't sell US debt held as reserves. Why? From the beginning Japan has tied it's future to a US dollar world. They built their economic engine by trading with America using a dollar surplus mode. From a USA viewpoint, that's a balance of trade deficit in American dollar currency. It was always a week Yen (in real terms) that created the demand for goods made in Japan. The huge balance of payments surplus, held by Japan in world reserve currency dollars gave them the reserve assets to grow their economy. As governments manipulated currency exchange rates (known USAGOLD Forum that we will follow these events. As Another would say, "We watch this new gold market together, Yes?"! Be assured, he will post here as soon as this site is known to be open. Thanks as the dirty float) for the benefit of an IMF/Dollar reserve system, this action gave Japan an enormous advantage in trade and finance. As this has gone on for over twenty five years, Tokyo could not help but represent a bloated financial system. Today, they have reached an end that no one ever thought would come; the dollar reserve system is ending.
As one might expect, Japan having received the largest return for supporting this system, will now suffer the largest loss. They simply do not know how to play a different game. The Yen will one day fall with the dollar. Will the BOJ buy enough gold through the BIS to offset the complete destruction of their financial system? They will no doubt try, but I doubt their is enough gold out there to make a difference. At present valuations, all the gold held by Central Banks is worth what, 300 billion dollars? If we doubled or tripled it the amounts would make but a small speck compared to the loss of the second largest financial system in the world.
You see, the current supply and demand for gold as a commodity or weather one CB is buying or selling some of it today is really a non-event compared to a changing World Financial System. For the regular citizen, gold priced in the many thousands will have little effect compared to oil priced at $200 or $400 a barrel!
My friend, we are coming into changing times as never before. It will be here, on the USAGOLD Forum that we will follow these events. As Another would say, "We watch this new gold market together, Yes?"! Be assured, he will post here as soon as this site is known to be open. Thanks
Friend of Another (9/20/98; 20:48:44 Msg ID:51)
BMACD:
Here are a couple of items I read from someone else:
"The China Daily published a special report from the Chinese state planning commission that outlines a plan to reallocate foreign reserves ratios away from U.S. dollar holdings. It recommends reducing U.S. dollars as a percentage of reserves from 60 percent to 40 percent. This suggests U.S. dollar sales of $28 billion. The report went on to say that China should prepare for a weaker U.S. dollar on grounds that the U.S.(as a net debtor) consumption boom has created a Bubble."
Also:
"CHINA MAY BE FORCED TO TURN RESERVES INTO EUROS: ECONOMIST BEIJING, Sept 3 ( AFEC/AGENCIES ) - China may be forced to switch much its enormous foreign currency reserves into the new Euro if the dollar falls in the future, a leading economist was quoted as saying Thursday. While there has been widespread speculation over a devaluation of the Chinese yuan, state development planning commission economist Wang Jian said China would have to watch for any fall in the dollar when elaborating its economic policies, the official China Daily newspaper reported. Wang said the US economic boom of recent years was a "bubble," caused by a massive influx of foreign capital, which could burst when the Euro is introduced on January 1. China has around 140 billion dollars' worth of reserves, with about 60 percent denominated in dollars, the China Daily said. It also has around 60 billion dollars of US treasury bonds. Wang said China would reschedule its reserves so there was around 40 percent in dollars, 40 percent in the Euro and 20 percent in Japanese yen. China currently also has German marks, Swiss francs and yen reserves. The Euro is to be launched with 11 European members from January 1 next year. The government has insisted in recent weeks that it does not intend to devalue the yuan, inspite of the Asian crisis which has undermined its exports, and that it was ready to use its huge reserves to maintain the official parity. "
I think the question of the Euro will be answered by the actions of the official government Central Banks. For a citizen living in Europe and using the Euro, it will become the best of all worlds. Not much different from the American using dollars to buy goods (in discounted real terms) from Japan or any other third world country. Only, now the shoe will be on the other foot with the USA trying desperately to sell it's goods to Europe for EUROS. This will be another strange twist as many/most of Americas foreign goods producers will, by then have stopped using dollars as reserve assets.
The outcome of a change in reserve currency is mind numbing. For the small person outside of Europe, they should "Follow in the Footsteps" of others. The holding of physical gold can and will be considered holding a currency asset as will the holding of Euros. However, the Euro will not come remotely close to the appreciation of gold as valued against all things. The ECB and the BIS will make it that way. You sir (or Ms.) will see this come to pass. Thanks
Friend of Another (9/20/98; 22:02:45 Msg ID:53)
BMACD
Before I continue, I want to thank Mr. Kosares for creating this Forum. This effort by USAGOLD will reward many readers with interesting discussion and debate about the future of gold in the world society. Michael, thank you!
Also:
BMACD: In reply to your 20:48. Hashimoto made the comment, but what position do we find Mr.Yen in now? I think it was a comment created by political need at the time. What would happen if Japan sold (dumped if you will) their US dollar reserves on the world market and/or brought Gold with the proceeds? Even if the Federal Reserve purchased some of the debt, it would no doubt drive down the value of the dollar. But this action would not help their economy as they still operate worldwide in a dollar reserve system. The dollar price of gold would rise, but not enough to liquefy their financial burden. In short, they still have to sell goods and services to the world, in order to raise their GDP. This will not happen if the Yen appreciates against all other currencies!
As you can see, this is the box they are in. It is also the predicament many other countries are in that operate using the dollar as a reserve currency. For many of them, a rise in the dollar price of gold will not help them, yet. Gold has not been brought to the forefront as a true currency reserve asset. It will when the Euro is created. At that precise time these economies will have a new market for their goods and they will accept payment in a new reserve currency.
Until this reality becomes apparent, the world financial system will continue to slide down the dollar reserve slope. This slide will create the illusion of a economic deflation, but then isn't the dollar really an illusion also? Thanks
ANOTHER (9/22/98; 07:00:04 Msg ID:79)
Aragorn III (9/21/98; 16:07:21 Msg ID:71)
Mr. Aragorn, Your write offers good thoughts. I also often question why a person would want to hold the "silver for the little person"? Indeed, the gold can be divided into very small parts and still it holds the good value. I think the silver issue comes from the same view point that gold should not be "up valued" against paper currencies. It has always been seen that an official reset of the gold price is "the bad thing". Always, it is "at all costs do not raise gold price"!
The political Western stand is "Give the citizens silver and let that price rise, but, keep the gold low and we purchace it for our well being". It would seem that those of the "democratic power" want to hold the gold for "insurance" (as Mr. TYoung rightly does) and never allow it's good effects to pass to the "little person", as you say. Perhaps we do still see the "human nature" at work with silver. Persons are always attracted to the leverage argument in any investment. Again, the western analysis uses the past dollar performance of silver to make the point of "it will rise at faster rate than gold". I think, if the past economic and monetary performance was to continue, this could be true. However, we come to the end of this era. The changing of a monetary system for the benefit of removing "debt load" does also require the changing of rules for past game!
History will be written as this: "we now know that in times of major financial change, real gold increases in value and holds that value far greater than any paper gold derivative" also " no other form of commodity (silver and platinum included), even food, was valued as gold". Even in times of past war, soldiers and citizens were found starving for food, but still, gold was found in the pockets, not food! Thank You
ANOTHER (9/22/98; 07:36:39 Msg ID:80)
Goldfly (9/21/98; 21:37:48 Msg ID:77)
Mr. Goldfly, Perhaps your question will be answered in the future we now approach. However, for today, if we place ourselves in the land of Russia at the entrance of the "once most strong bank". What price do you offer for gold to replace the lost savings account? It would seem that in the process to return a portion of your wealth, that does represent a "lifes productive efforts", any price for gold would be as "the bargain".
I do admit that it is not the good position for ones family to be in, as others will also bid for this opportunity to gain gold. Tomorrow, when you and your neighbor use Euros to purchase the gasoline, a much smaller supply of gold will be divided by the dollars in existence. Few will concede that gold could be so high, as at present, "dollars price gold". But few have known a time when "Gold priced dollars"! Thank You
Friend of Another (9/22/98; 15:21:04 Msg ID:92)
TO: RAINMAN (9/22/98; 10:19:25 Msg ID:83)
Rainman, We do disagree on this reserves issue! To make my point I'll start with my most solid concept and work forward. First, people are the real backing for any currency/money. It doesn't make any difference if circulated money is gold or if circulated paper currency is backed by gold and silver. When no one will use it or accept it, money it is Not! All the gold and silver in the world could be stamped into coins and if people are not willing use it, it can't be money.
You have heard this called the confidence factor. Well, I think a persons confidence in money is built after money is seen working, not before. We are not born with this confidence, it comes only if money continues to buy goods and services at a constant price, over time. People will accept fluctuations in the buying power of money, but that tolerance has limits. Once currency starts to fluctuate in it's purchasing power or exchange rate, citizens begin to require other types of backing for their money in order to maintain confidence.
This backing, to maintain stability comes in only two forms that I know of. The currency can be turned in or exchanged for real items held by the government Treasury as backing (gold?). Or, the Central Bank can purchase the currency in the open market using Exchange Reserves as Backing. The obvious, well documented problem with this comes when the government doesn't have enough Backing to maintain confidence in the currency. As in the case of the dollar, they have created more currency unit obligations than they have Exchange Reserves Backing to defend it with. If the need arises. I know that you already fully understand how this works.
My point? Modern digital currencies are today defended in the open market with Currency Exchange Reserves, not Gold. Most countries call their gold reserves. But, no country today classifies it's Gold as Usable Exchange Reserves . The Euro will!
Of the 40 to 50 Billion in reserves that the ECB will hold to defend the Euro, some 15% will be Gold Bullion. Unlike currency reserves that will be sold to purchase Euros as defense, gold reserves will be added by selling Euros to buy gold from the EMCBs. At present, the dollar has only one competitor for reserve currency status on the world stage, gold.
The dollar has been made strong in a low gold price.
To compete with the dollar for world reserve recognition, the ECB will add Euros to the EMCB (European Member Central Banks) to replace their gold. The EMCB will then be free to purchase gold on the open market, using no longer needed US dollar reserves. Remember, the Euro will be the main currency reserve of Europe. The ECB will not have to sell it's currency dollar reserves as they are a small token amount for balance. The roaring price of gold in dollar terms will now make up the lions share of Real Reserves backing the Euro!
In this context, the ECB will have no problem using the new dollar gold valuations to cover any dollar commentments of it's overextended members. Now my friend, you have my view! Perhaps you now understand why some natural resource countries value gold today at a Far higher dollar price than currently exists! Thanks
Friend of Another (9/23/98; 07:06:03 Msg ID:102)
The direction of gold.
TO ALL: I think we now are now in one of the best periods for gold ever to occur. You have every hedge fund, trader and producer ready to short/sell into any major rise in the dollar price of gold. They will be wrong, this time!
During the lows a short time ago, major CBs were buying gold in small amounts through the BIS. All of the small sales announced by other CBs were taken in with ease. The BIS did not make a public announcement that these buying banks were behind this coordinated effort driven from the BIS. Many years ago this would have been the case. This time they will not want to start a panic with the Euro about to commence operation. Am I correct with this view?
We should see each pullback in gold stop at a higher price. These pullbacks will be used by major buyers to complete their acquisitions of gold and hence the distribution of dollars. Well before the end of the year, many will look back and understand that we will never see these dollar prices for gold again, ever! The same forces that confounded the efforts of gold theorists to explain the drop in price, will now confound them again. The next 18 months or less will give rise to this metal in a way that will have gold bull analysis calling for a large pullback. It will not happen. We will run through $400, $600, $800, $1,000 and on. Each time a pullback occurs, massive buying will ensue. For guidance, look to the US balance of trade deficit and a fast changing negative exchange rate for the dollar to chart the course.
Also, as this unfolds, look for the US Federal Reserve to raise interest rates solely for the purpose of defending the currency. A currency with a future that no longer holds resurve status. High rates will be of little help, much in the same way that Canada, Mexico, Brazil, Korea and others have raised rates to no avail. Some would call this an extreme view? From what I understand of this era, it is an extreme view for extreme times. Perhaps what Another has told me is true, "many are to comfortable with familiar habits of finance to understand the potential for change". We shall see! Thanks
Friend of Another (9/23/98; 19:21:21MST - Msg ID:120)
WELCOME!
Welcome Tyler Rose and Aloha Pu`ukani, I have seen these names before! TYoung, I agree with you that it would be really nice to have the archives so we could read them back in time. Aragorn III, that was some post! Good to see people writing their views for everyone to see. Questions are nice, but you can not follow a market properly without seeing it through everyone's eyes, both large and small. In this light these discussions make markets become real life events, impacting our real living habits through time. Not just a moving graph line on a computer screen. For the future, myself and a few others truly do think that these monetary changes will not only be something we see, but will be something we will feel in our homes. Our families and neighbors will have to make adjustments to account for the very events that we chronicle here. Thanks of considering! FOA
Friend of Another (9/23/98; 19:37:43MST - Msg ID:121)
Tyler Rose (9/23/98; 19:09:59MST - Msg ID:119
Tyler Rose, I don't think we are going back in time to a gold backed currency. Even as Aragorn III (id:112) spells out the possible correct way to divide the metals for one, he also shows that it is an undertaking that requires political agreement by most countries / Treasuries. An insurmountable task, for elected officials. I can't add to his post, but I can show more to think about! Unfortunately, the future for the Euro will most likely present an evolving monetary system that we in the audience must watch as the play unfolds. No doubt, if the world financial arena becomes bad enough, Europe could evolve back into a Gold Standard. They have been there before but human nature being as it is, this is not where they want to go.
The one positive aspect is that the Euro will become a major transactional currency for a larger functioning gold market. To unseat the dollar gold will have to be brought back as a true currency evaluation tool. Much more so than it is today.
Following these lines we can see that the world value of gold will have to increase many times in order to create a large enough pool of value to be of use in measuring the billions of currency obligations outstanding. Just as none of the governments, that supported the old London Gold Pool never wanted to re-value the gold price upward in their currencies, they will now be forced to accept an open gold market evaluation!
I fully expect a soaring gold price in US dollars to force the American Treasury to implement foreign exchange controls for it's currency. They will never accept the public vote of no confidence that gold will deliver. Note that none of this can take place during the time that the World gold market transforms from being a dollar settlement system. This was a function of the dollar reserve currency status that is soon to end. That transformation will be part of a financial panic that witnesses the default/liquidation of billions of dollar/gold assets, built up over many years. The trading of gold in dollars will stop for some time as these loses are worked out. Only after this debacle will gold be able to naturally trade in Euros exclusively.
I know this doesn't address all of your reflections, but I thought it needed to be put forth. I think all of this will be well discussed as events begin to play out. We shall see. Thanks
Friend of Another (9/23/98; 20:25:45MST - Msg ID:125)
BC (9/23/98; 19:08:38MST - Msg ID:118)
BC, Hello! Will they be at greater risk than central banks with larger gold reserves? Yes and no. It depends on the productive capabilities of the country. I think we must remember that gold (in a goldbug interpretation) is money, not part of the goods and services it is traded for. If a country has something the world wants, the world will deliver gold to their door to pay for these productive efforts. The world may also deliver currencies acting as money. As long as we have an open market gold valuation to keep the paper money honest, any productive country can develop a positive balance of trade. This can create a surplus that could be used to add gold to the national treasury.
A nation selling it's gold cheap is no different from one that sells it's trees, land or any other real thing at two low a price. They made a mistake. To correct this they may also repurchase these real things with productive efforts. The whole argument of gold, currencies and debt comes from cheating by the Central Banks with a dirty float of exchange rates. In progression this leads to over creation of the currency by it's treasury. Further on, the real purchasing power of the national currencies can never represent the true productivity of the country. A better answer/reply to your question would be: In the future a CB with gold has a better chance of covering it's past mistakes than one that doesn't. A lot of past mistakes with too little gold does put them at risk. That risk being that the citizens will have to produce more for less. Thanks
Friend of Another (9/23/98; 20:47:25MST - Msg ID:127)
bmacd (9/23/98; 20:11:08MST - Msg ID:122)
bmacd, one last thing then I have to go. Canada (your home country) is a good example for my last post to BC. They are a fine group of hard working people, in a country full of natural assets that the world wants and does buy. Yet, by allowing their government to gamble with their currency in a effort to stay in a Dollar/IMF world monetary system, they are going broke! In time they would look like Russia if this system doesn't change. By selling their citizens gold, the stage is set for them to, again, dilute another productive part of the economy. That being to tax and/or grasp for the gold mines of the nation to minimize the CBs past mistakes! I think this is a real possibility that is never discussed by the industry in front of stockholders. Goodday
Pete (9/23/98; 21:26:13MST - Msg ID:131)
FOR ANOTHER OR FOA
I will make my questions short and sweet. 1) I noticed today that a hedge fund needed immediate funding in order to divert default. Is this just the tip of the iceberg and a sympton of things to come? 2) Will an interest rate cut by the FED avert the inevitable or is it too late? Glad you are both posting here at USAGold and appreciate your THOUGHTS. Thank you, Pete
Friend of Another (9/24/98; 06:29:33MST - Msg ID:133)
Possible large default in gold paper? LTCM
Thursday September 24, 6:50 am Eastern Time LONDON, Sept 24 (Reuters) - Gold rose then paused in early European trade on Thursday as bullion dealers sniffed a possible recovery in prices and looked to New York for guidance. London and Hong Kong dealers said another factor lifting prices was market talk that a U.S. hedge fund was covering short gold positions.
Friend of Another (9/24/98; 06:39:18MST - Msg ID:134)
Pete (9/23/98; 21:26:13MST - Msg ID:131)
Pete, Looks like you are on top of the market news! Haven't seen you in a while. Another read most of your old posts. Here is a partial copy of my (FOA) last post on the old USAGOLD Another (Thoughts!) board. The full write is still there in the archives.
Another had told me that a large default in paper gold was coming, real soon. I didn't have a clue who it was. Now we have a BIG clue!
(COPY AS FOLLOWS)
9/3/98 another archives
Michael, I'm looking for a large default in the paper gold market. With the major CB only buying now something is about to give as the most extended shorts can not cover. A default is most likely part of a game plan to get the ball rolling. This spike in gold will no doubt crush the dollar. The next few months will offer the last period of time to roll out of dollar assets at a good price. Of course, all of this is my opinion from and for the most part, Another's.
(END OF POST)
Friend of Another (9/24/98; 06:58:47MST - Msg ID:135)
MORE TO: Pete (9/23/98; 21:26:13MST - Msg ID:131)
Pete, To answer your questions: Yes, this is only a very, very small tip of the iceberg. Many of these people are short the gold paper market and they are the ones in the know, at least we are told? And just look who is in the rework group: Goldman Sachs, Merrill Lynch, Morgan Stanley Dean Witter & Co., Travelers Group Inc. and UBS AG will make up the committee.
Pete, I wonder how many tons they move in world gold markets! The change in motion by the BIS, concerning gold and the Euro is going to play them right into the European game plan! Read a few of the last (Thoughts!) archives at USAGOLD. I may reprint some of the things written here the last few days, it begins to tell the story that is before us. The Fed will push money like mad for now, but they will be raising rates like mad a little later as the dollar falls off the charts! Keep up your analysis, as you see things some of us don't catch. All minds don't work the same and it helps to mix Gray Cells in different portions. Thanks
Friend of Another (09/26/98; 17:00:37MDT - Msg ID:193)
Goldfly (9/24/98; 21:05:32MST - Msg ID:159)
Goldfly, "By the end of this year" is laying it on the line"? I hope you didn't think I meant that gold would go to $1,000 by the end of the year! It could, under the right conditions. We will most likely see it begin a climb past the $330 / $340 area. Remember, if it gets past $360 before the Euro comes out, it would create a panic that could destroy many of the shorts. As you can see, a large portion of them are Hedge Funds! These same funds are big into currency trading. The disruption in the financial arena would , as Another has shown, be catastrophic! You wouldn't have an official gold market to buy from! Another has not sent me a reply yet, but later on we may get some discussion from him. FOA
Friend of Another (09/26/98; 17:32:18MDT - Msg ID:195)
Victoria (9/24/98; 17:34:06MST - Msg ID:150)
Victoria, Welcome to the discussion group! It has taken a while to reply with the bugs in the Forum and on my end.
Many disagree with a physical gold only investment. Another has spent an enormous amount of time, writing how the times will be different in this era.
I think most of the diversion comes in where investors can not envision gold going up in price all that much. Most don't feel they can create a meaningful return through holding bullion only. The slant is always towards the leverage of mining companies. Most think they will be able to exit these securities and move to physical after some of the future rise in price is complete. That's good if we continue to progress into another economic cycle typical of the past. However, the American economic system is about to change in a way few can follow. The small person will come out far ahead of the large investors by holding onto gold through thick and thin.
As for the large Gold resource countries becoming more powerful? That's a good question that I would like to see others, including Another commit on. It gets right into the politics of money! Will oil rise with gold? I have to agree with Another, oil in dollar terms is going to go up out of sight. But then again, the dollar is also going to go down out of sight. I think these very items will get a good amount of coverage right here as time goes by. Thanks
Friend of Another (09/26/98; 17:43:47MDT - Msg ID:197)
ET
ET, The swings in the markets (all markets) will get larger untill the average investor cannot stand it anymore. Remember, during the great German monetary inflation their stock market went wild, even by today's standards. Today, the people in the know, know the risk! They are playing the same game, with the same mindset of a currency holder. I can get out before anything goes wrong! The problem for them now is that they think the markets will stay open while they cash in, it won't!
Friend of Another (09/26/98; 18:31:32MDT - Msg ID:200)
Ph in LA (9/25/98; 10:09:42MST - Msg ID:175)
YOUR PARTIAL QUESTION: "Would it become impossible and/or difficult for citizens to repatriate funds/assets held outside the country? It seems hard to imagine the chilling effect "currency controls" would have saying that holding gold outside the country under such circumstances might be unwise, too."?????
Ph, The possibility of FXC (Foreign Exchange Controls) is very real. This topic has been discussed in several well written books spanning 25 years. In a way, the closing of the gold window in the early 70s was a form of FXC. Anyone outside the country could no longer get their gold because too many dollars had been printed to cover the gold in the US treasury.
Today, to many derivatives have been printed (paper gold is one of them) than can be covered by the outstanding dollars! The US Federal Reserve either prints a load of dollars to cover this contingent or the system falls apart. If the Fed prints, the Americans get inflation. If the Fed doesn't print, the world financial system, based on a dollar reserve currency, starts to implode and foreign holders of dollar assets try to exchange these for their local currency. To do this they must take the dollar home to the USA for exchange! During this exchange, if the dollar loses to much value in the exchange rate, these foreign holders just SPEND THEM in America!
Again, the US experiences price inflation, only this time it's during a global deflation in dollar assets. To stop this chain of events, this time the US Treasury closes the dollar window. It's usually a last effort to hold the banking system together. The gold window was closed by holding gold at a low price valuation and not selling any of it. The dollar window will be closed by buying dollar currency at a rate so low as to stop most major holders from exchanging. This usually brings a two tier market , dollars inside the country worth more than outside the country. For some time, all dollars outside the US were called Eurodollars! Will we see these Eurodollars exchanged for Gold ???? In some countries, the CBs already have. Thanks
ANOTHER (09/26/98; 19:41:45MDT - Msg ID:201)
TYoung (9/24/98; 18:46:57MST - Msg ID:153)
YOUR POST:
"I mentioned to Another the other day that I thought derivatives would cause loss of confidence in the US$ and asked what he thought would be the cause. Well, looks like derivatives are at the forefront. I was really just pitching a high fast ball to a high fast ball hitter.... Another...but I'd still like a comment. Yes? Tom"
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Mr. Young, while in the US I have seen your new fast ball hitter! A good eye has he, and a fine person. His composure and stature as in play, is the image of a true American to many from afar. Sir, I will swing for your pitch as my view now becomes clear. This LTCM, they stand in the open for all to see. This "Noble House" holds no resources above or below the ground and many now ask "how this palace of paper could stand"? To this I add "how will they deliver the real items they owe"?
Others have built their fortune holding the debt of these traders. And now Default will follow default and all will look to settle for real things that become short in supply. Sir, the confidence in this dollar was purchased with "the greed of men". Soon, this "backing of greed " will lose the support of oil. For the value of a world currency is not made from the "fools gold" found in a gambling den. Thank You
ANOTHER (09/26/98; 21:57:35MDT - Msg ID:203)
Pete (9/25/98; 10:06:55MST - Msg ID:174)
YOUR POST:
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ANOTHER & FOA-THINGS TO COME?
My Dear FOA,
Thank you for your prompt reply. If only some(NOT ALL) posters at Kitco were as courteous and gentlemanly as yourself and ANOTHER, Kitco would be much better off. IMVHO. Their loss is USAGolds gain. My views are very simple minded. I have not the brainpower or ability to dissect every little nuance in the markets and therefore try to analyze as best I can. My thinking is that the current currency crises occuring throughout the world was and is unsustainable. The FRB is between a rock and a hardplace. The strength of the dollar has to be decreased to help most currencies before a world wide depression took hold. In other words something has to be done before the dollars strength destroyed the world economy. My 1st thought was that the FRB would be forced to devalue the dollar by a rate cut. My 2nd thought was that this would be a temporary solution. The derivative markets have been in a no lose, win situation for several years due to such things as the yen-gold carry trades which in time were carried to extremes. That these would eventually default because the dollar would have to reverse course soon. Once this reverse happens, many highly leveraged derivatives would be caught in a squeeze that would put the dollar in jeopardy forcing the FRB to again change course and defend dollar by rate increases which in turn will tank the equity and bond markets. As you stated in a recent post that you and ANOTHER expected a major default which will mean the beginning of the end for the dollar. The recent hedge fund bailout is as you say only a small tip of the iceberg. More will surely follow as sure as day turns to night. Your prognostications such as a Jan 1988 post?(Can't find it for now) that some on Kitco used to trash ANOTHER predicting that a rush to cover may be difficult to contain and predicting that the price of gold would be $320-$360 by year end was and is right on as of now. Also your post on Jan 10, 1988-21:03 predicted with no uncertain terms that the BIS would not allow the price to go below $280 has also held to date within acceptable parameters. I am still trying to determine in my mind why a concerted mean spirited effort was made by certain posters on Kitco to so desperately squash your input and what their true motives were? We will watch closely as events unfold, yes? Thank you for listening to one of a simple mind who has as much faith that gold will triumph in the end as I have in God. Pete
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Mr. Pete, This LTCM, it begins the beginning of your increase in wealth. As Mr. TYoung has spoken, I do add that; "these boys of summer have struck out"! This game will never be played beyond your shores again. As I write, all that hold the debts of America ask, "of what form does the collateral take"? The dollar is represented as the "gambler's tool" and of little use as a builder of wealth. This Euro, it does hold at least, "the pretense of respectability".
Sir, what you have written, it is done well. Follow this change of weather as it is at the door, perhaps it has entered your home as the new season for gold. Even I, myself will add flavor to this new gold market. Of the "mean spirited ones" you speak? They are seen in all the world as "boys that curse the wind, but a strong wind has no ears". Thank You
Friend of Another (9/27/98; 08:35:40MDT - Msg ID:209)
el St.One (09/27/98; 03:25:04MDT - Msg ID:206)
St. One, ________ It's the same story for any financial operation, if the economic cycle repeats itself. Everything will work out fine. I have been forced to rethink any investment direction because of the input from A (Another). History shows that we get caught the worst when the times change. The banks are no different. They are run to make profits by people using the established architecture. Foreign currency accounts are not provided for customers with the intent of creating a vehicle to protect against changes in the national law (read that established architecture). If FXCs are implemented, your account is voided to some extent? Foreign currencies are just like your dollars, the bank doesn't hold them in the account. It's loaned out and the bank Credits you for the money. With FXCs they cannot import the real thing, even if asked to by a customer. Even if they could the new exchange rate would destroy your purpose for holding the account in the first place. That's my view on it? If anyone can show this to be incorrect, please do? FOA
Friend of Another (9/27/98; 18:11:12MDT - Msg ID:213)
Ph in LA (9/27/98; 11:39:16MDT - Msg ID:211)
PH, I may have sent you (and others) the wrong signal in my reply to el St. One . In your post you noted:
"Yet you also said yesterday to el St. One "...the new exchange rate would destroy your purpose for holding the (foreign currency) account in the first place."
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You must read that statement in context of St One's question. At least as I understood it. My thoughts to him were from a standpoint of having an account in "a bank in the states"?? See his post (Msg ID:206). My explanation was directed towards a person that wanted to hold foreign currency in an account "in the states"! Does this make more sense? Ph, I thank you for giving me your interpretation of this. It has been one of my greatest problems, trying to refine some of Another's message. Many people have picked it up out of context without receiving a better "English" explanation! Sometimes I don't get all of it in the first read. As time goes by, events have made it more understandable. On this Forum, I am able to explain in the company of very polite interesting people.
Also: It is clear to me that this Forum is not for the use of only a few. It is for ALL thoughts and the understanding they impart. I consider myself but a guest in this grand hotel! Thanks
Friend of Another (9/27/98; 18:15:20MDT - Msg ID:214)
TYoung (9/27/98; 15:29:10MDT - Msg ID:212)
TYoung, That post was excellent!
TYoung (9/27/98; 19:36:22MDT - Msg ID:218)
Debt....supply....Japan
The answer is...you can not "push on a string". Banks that lose capital...debt default...will not want to lend. People will not want to borrow when bad times arrive. Debt creation is a creature of "good times". Tom
Friend of Another (9/28/98; 13:53:09MDT - Msg ID:224)
Goldfly (9/27/98; 19:47:36MDT - Msg ID:219)
Goldfly, --------- I don't mind being nailed down on price predictions. It's just that in the past I haven't had a time parameter. Read my post of (9/24/98; 09:38:18MST - Msg ID:140), them add to that what Another said in his (ID:203) post that he would add flavor to this market. Now I feel we can say that gold is going to start moving, now! After today's action, I can see someone is adding that "flavor"! My direction on gold? We will be through $300 tomorrow and be in the $320 range in a week or so! It won't stop there now that the BIS has blocked the funds from covering by buying any new large supply. I don't want to see it, but I think we will break that $360 level before the end of the year. Before the Euro comes out. Also, all the movement in the price of oil this year has been little more than posturing before the long process begins to remove oil from the dollar standard. We shall see? FOA
Friend of Another (9/29/98; 08:44:25MDT - Msg ID:232)
BMACD:
bmacd,--------
Everyone all agrees that gold is a political metal. Having been used as real money (both in coin form and in paper receipt form) for thousands of years, it's natural human nature for governments to try and control it. It's nothing new and for generations, investors worldwide have come to expect it. Political structures will always manipulate whatever form of money is being used at the time. Today, they rework paper money on a grand scale no one could have ever believed only 30 years ago. People get very nervous as gold was worked over this last decade and fear to hold it through this process. Yet they hold paper currencies that, on a world scale, have been engineered to degrees that make the current gold markets fluctuations look normal! The same investors that have held Yen in 1990 at 64, then watched it go to 120 in 1995, and finally back to 72 in 1998! Now mind you, this is a major currency, not gold! We can also see it in reverse as American citizens held dollars in 1990 that would buy 156 yen, then in 1995 would buy 83 yen and back to 138 yen in 1998!
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Bmacd, -----------
observe all the paper money today as it swings wildly on the exchange market. Those swings translate directly into major swings in price for every item traded in the world economy, not just gold! You may not see these price changes directly on the goods purchased as the fluctuations are absorbed through producers profits. But they are real never less. The market price for gold is not absorbed by anyone as it delivered directly to the buyer. But, then again, gold is also money so it is normal for it's exchange rate to change, just as any other currency does (Yen?). The notion that investors will not buy gold as it's exchange rate changes is ludicrous. In 1995 did Americans stop buying Yen when it suddenly became expensive with one dollar able to only buy 83? No. But it went up in price almost 100%. How could anyone afford it? You see, today we know gold is a major currency because it's being manipulated to no end, just like the rest of them.
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What does all of this have to do with your question of the IMF? If gold is going to $170 in dollar terms, it's because the political powers want it there. It's a currency, and will be moved up and down. It doesn't fluctuate in simple commodity supply and demand terms. If it did we would have seen it much higher in all currency terms years ago. Trading of gold, on and off official markets dwarfs not only new mine supply but is even larger than all existing stocks. LBMA, trades a million ounces a day! And that is only what is seen. The IMF could sell it's gold currency assets in the same fashion that it could sell Dollars, Yen or Marks. A ready market exists.
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If gold is a currency to today's political movers and shakers, we need to see it in a different light. To understand gold, is to grasp that not all world entities want it to fall further in dollar terms. Just as government CBs battle over currency exchange rates, they also form opposing sides on gold valuations. Western investors may not view gold as an asset to evaluate the worth of circulating paper money, but many resource countries do! The value they place on a currency is directly related to how much gold it will buy. This view is not lost to ECU nations either. It's easy for them to see that the number of American dollar assets worldwide takes the valuation of the US gold holdings into the many thousands and makes the current illusion of gold in dollar terms a fraud from manipulation. They also know that the US gold is held in the Treasury, not the American Central Bank, and therefore does not represent any form of backing for the dollar.
Perhaps this is the reason that the Euro gold reserves will be held by the ECB (not the national treasury as none will exist for that entity) as part of the foreign exchange reserves that DO / WILL back the new currency. It's also easy to see that the reserve gold currently held by the EMCB will find no home on the dollar market as they will have too many dollars as it is. Even if Western analysis think the Euro will not fly, it's still a fact that it will be the reserve currency for the ECB and it's EMCBs. In the coming years they, the EMCBs, will be in need or more Euros for their expanding economy and the way they will get them will be to sell gold (at a much higher rate from today) to the ECB. This need for Euro money will be driven by countries that wish not only to sell products to Europe, but also to retain the Currency as a Foreign Exchange Reserve. In much the same way that dollars are retained today, nations with a balance of trade surplus with Europe will end up with extra Euros, the same Euros purchased with gold by the EMCBs. That gold will make the Euro a truly well backed strong currency in world eyes. Especially if the dollar price of gold is soaring!
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Back to the IMF: That gold is the only remaining link that the dollar has to metal. It is also out of the US government's control. I believe Arabia has some control over the IMF and it's gold as they are major contributors of assets. Perhaps someone could correct this view? As Another has told me. "If the IMF sells gold, a good deal for someone , yes? Yes!
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Also, a thought? If the dollar is the current world reserve currency and all dollars circulating outside the US are called Eurodollars. Then, If the Euro becomes the new world reserve currency, will all Euros outside Europe be called,,,,,,,,,,,,,,,,,, Dollareuros? Thanks FOA
Friend of Another (9/29/98; 18:27:57MDT - Msg ID:243)
My view.
Dec. comex gold did not make through $300 today, but it came close. Slowly the liquidity of physical supply, that was so available 24 months ago, is now drying up on world markets. The lease rates have not risen much simply because many of the Bullion Banks now understand the risk and don't want to supply leased gold for the purpose of covering the bad bets of others. In this process, the demand for borrowed gold falls away
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From the beginning gold was sold down to give strength to the dollar. As the process continued, funds, large traders and investors arrived on the seen with their own oversupply story as the reason to sell. We were told that gold was no longer an asset and it would fall in value for the rest of time! Now that they have told their story and made their sales, the true gold market is about to speak. It's not a story of oversupply or undersupply. It is a story of market need for a currency evaluation tool. A way for governments not supportive of the dollar to show it's true value through gold.
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Some of these short traders have already started to cover. But it will not be until gold moves into the low $300 range that they grasp how tight the market will have become by that time. It has taken years for this selling to build and it will not be covered in a few months. Perhaps many of them will have to be bailed out as LTCM was? We shall see.
Friend of Another (9/29/98; 20:20:46MDT - Msg ID:252)
USAGOLD (9/29/98; 19:04:04MDT - Msg ID:244)
USAGOLD, -------------- Your words:
"Would the Swiss central bank in a case like this be forced to lend UBS gold to pay their creditors, or face the prospect of Europe's largest bank going under?"
Michael, In the circumstance you describe, no CB would set the precedent of supplying gold to cover a gold contract (not of their making) that has failed! They may find themselves in a position of not having enough gold to cover all possible claims. This would also imply that it would be legal to use a nations gold in this way. It may not be.
I think, the major players on the receiving side of these gold contracts only deal in paper that would force the CB (or any supplier of gold) to perform in the event of a Bullion Bank failure. More often than not, the problem for the bank would be to collect the currency that was created from the proceeds of a gold loan. If that has been lost then they must purchase the gold back from the entity that it was sold to. If that is an option! Or the lender of the gold (CB) could extend the contract, however, once the contract is found to be in nonperformance, it all goes up in smoke! A mess indeed! thanks
Friend of Another (9/29/98; 20:33:16MDT - Msg ID:256)
TYoung
Did you expect gold to cross $300 today? Or did it do as your tea leaves predicted?
Friend of Another (9/29/98; 20:36:51MDT - Msg ID:257)
BMADC
If the dollar falls to low how will Mexico sell to the US? Perhaps this is as it should be. The dollar worth less than the peso!
Friend of Another (9/29/98; 20:46:40MDT - Msg ID:261)
bmacd
Speak of manipulated markets, look at Japan! They have taken rates down to nothing and still no recovery. Is this the same fate for the USA?
Friend of Another (9/29/98; 20:50:34MDT - Msg ID:262)
IMF sell gold?
Only if the right people ask for some supply. You can bet no one will know who buys it. All the attention will be on how gold was sold and it isn't even an asset anymore!
Friend of Another (9/29/98; 20:54:36MDT - Msg ID:263)
Again Mexico?
Not long ago the whole world was at risk if Mexico didn't get help! Now they are small peas in a big pod. Just remember, the world is selling gold because no one needs it. That is all the citizens need to know. But I think TYoung knows better, Yes Tom?
Friend of Another (9/30/98; 07:21:11MDT - Msg ID:275)
TYoung
It looks as though we will have a rough day in the equity markets. Perhaps the quarter point drop in rates was not only a political move for LTCM, but also a market move to create a default situation for the derivative players. Once they are taken out, and their short positions received by new owners (banks), rates will begin to increase. This would certainly bail out these short positions, now held by the largest and most connected bank entities. No matter how it works out, the American dollar economy is about to be shaken as never before. I'll be in and out during the US market day. Good luck
Friend of Another (9/30/98; 18:54:41MDT - Msg ID:295)
All:
PH in LA,------------ thanks for the kudos! That was nice. Perhaps by looking both ways we will not be run down by the train that's coming. By the way, as you know Spain is one of the EMU countries that will join in Jan. If you have assets or contacts there, could you update us as to how people are taking it? Always good to hear all sides. RAINMAN : on Market Rap with Bill Fleckenstein, September 30, 1998, he had a interesting report
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"Golden development... Moving on to the gold market, the Belgian National Bank, governing council member of the ECB (European Central Bank), said "The bank has no need or desire to sell gold in the future to satisfy reserve restructuring."
The "in the future" part of the phrase is interesting because in the past the ECB commentary hasn't mentioned this. Another bullish development for gold. Bills page is at:
http://www.stocksite.com/features/contrarian/rap/
ALL: -------- This was part of the latest from WGC. I think the lease rate action will work in reverse as the Bullion Banks also draw away from servicing their clients. They (BBs) may not want to borrow gold (acting as the dealmaker) and risk having a contract go bad. This action would push lease rates down for a different reason, "no demand from the middleman"! ??? So, the action in gold rates, up or down may signal a bull move from lack of liquidity?
"In spite of the short covering, lease rates jumped, with the one-month rate climbing from 0.4% a week ago to 1.7% amid reports that central banks were beginning to exercise a good deal more caution over the quality of their immediate counterparties, the bullion dealers, and the ultimate beneficiaries of leased central bank gold, the short sellers. http://www.gold.org/Pages/Home1.htm
Friend of Another (9/30/98; 19:10:56MDT - Msg ID:296)
BC
Bc, ---------------That was some post! If Mr. Greenspan is trying to signal something it will not be seen by the regular wall street boys! But, you can be sure that the major world investors are moving their assets before the change takes place. America has never fought a currency war from this position. Everyone still thinks the US military might has something to do with a paper fight, it doesn't. Look at Russia, a huge military nuclear power! But they lost the financial war without a shot being fired. Could AG be sending up the white flag before the fact? I doubt it.
Friend of Another (10/1/98; 04:53:53MDT - Msg ID:298)
PH in LA (9/30/98; 22:44:55MDT - Msg ID:297)
Hello PH, ------------ as I write this today the sun is shining not only on me but the gold market as well. The Comex Dec contract is up $2.00 US to $301.00 in after hours trading. It is my understanding that some entities are inquiring about for physical gold (not paper) to return leased material. Some of the old deals are in default? It makes perfect sense because, if the leased gold was sold to someone else, it's gone. What is left is the money from the sale and that may have been gambled away. Without the money or the assets that money purchased, there is no collateral to stand behind the lease contract for the security of re-acquiring gold. It's default time. Also, any and all derivatives that may have been used to leverage these assets further, such as gold OTC options, futures contracts (both on and off exchange) and LME paper is now floating with no coverage! In other words, these items are worthless unless the physical gold they are suppose to represent is purchased to cover. As TYoung would say "it's a whole new ball game". ---------------------------------------------- Your thoughts about LTCM come into play here. I don't think they actually sold gold short as the rumors say. These people only used the cheap cash, supplied by others, (3% rate?) from these sales to leverage themselves. As to the political motives for the Fed to kill them? PH, it's not that they were not the only fund to do this. All of these management's copy the profile of a well connected winning operation. You may have already heard that several other funds are in trouble and it is spreading with the rally in 30 year bonds! The truth is that the FED had lost control of this market because of the size of these investors. It was either kill them or risk a total meltdown later on, as opposed to a partial one. We shall see! Look's like Another rough day in the markets! Thanks
Friend of Another (10/8/98; 07:24:37MDT - Msg ID:443)
Is the position of LTCM in the clear?
ALL: A quick note for today. There are several stories that LTCM (and most other hedge funds) are covering their short positions. They are not! What they are doing (as the NY
Post article below shows) is further hedging in the paper gold markets to attempt to control the coming (huge) loses! That will not work as the BIS has changed the rules. Read my old post to Pete below:
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Pete (9/23/98; 21:26:13MST - Msg ID:131)
Pete, To answer your questions: Yes, this is only a very, very small tip of the iceberg. Many of these people are short the gold paper market and they are the ones in the
know, at least we are told? And just look who is in the rework group: Goldman Sachs, Merrill Lynch, Morgan Stanley Dean Witter & Co., Travelers Group Inc. and UBS AG will make up the committee. Pete, I wonder how many tons they move in world gold markets!
The change in motion by the BIS, concerning gold and the Euro is going to play them right into the European game plan! Read a few of the last (Thoughts!) archives at USAGOLD. I may reprint some of the things written here the last few days, it begins to tell the story that is before us. The Fed will push money like mad for now, but they will be raising rates like mad a little later as the dollar falls off the charts! Keep up your analysis, as you see things some of us don't catch. All minds don't work the same and it helps to mix Gray Cells in different portions. Thanks
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There truly is not enough physical gold to cover these positions. We are heading into a total default event that will also impact your ability to buy real gold in a timely fashion. It will also impact the ability of the mines to function during this phase. The length of occurrence, that this pre-default period will span is unknown. We may enter into turmoil for a year or so? I believe the story of LTCM covering shorts (see below) is an attempt to calm the markets. We shall see! Michael, (USAGOLD) I sent you an E-Mail the other day that they were only using the money os sold gold, not short gold themselves! Now the cat is out of the bag!
ANOTHER (10/10/98; 16:38:31MDT - Msg ID:487)
Is the Yen door closed?
"Gold has walked this path before, many times. Now, the way home is blocked. All watch and ask, who are these that must follow a yellow guide? "
The G-7 have closed the Yen carry trade. Think you now, long and hard! To close a contract in Yen, it does create the loss, yes? Yet, a close with gold requires the supplier.
In which direction will the billions move? Free money was supplied to the greedy by nature. Now these gentlemen will perform a task written by others. Truly, only fools would think gold is offered without purpose. For the price of free paper currency be high when returned as real gold! We watch this new gold market together, yes?
Another
ANOTHER (10/10/98; 16:47:10MDT - Msg ID:488)
THOUGHTS!
Jayne (10/1/98; 07:35:38MDT - Msg ID:300)
Your question:
"To Another:
The NY Times and other papers ran an article on S.A calling on US oil co. to help them develop the kingdom's vast energy reserves. Saudis "desperately need capital to invest in their oil sector to keep the oil flowing" etc. How does this fit into your postings. On 10/19/97 part of the post Only one oil state counts, Gold very important to them, etc... Of course, I am assuming that S.A was the one oil state. Also, I believe you posted S.A. has enough oil for our parents, parents, grandparents. etc.. What is the real story behind this article. What and why does S. A. need US Oil Companys help. How does this fit into the US economy today with the oil for gold deal thats soon to end. Thanks by the way to Another, USA Gold for "book on Another" forum, etc. I've learned so much in such a short period of time."
Jayne,
You have seen the "business of oil" continue all of your days. It will also continue for all the lifetimes of those that follow you. This "business of oil" will always search for capital and expertise for it is this constant search that brings the results of "oil flow". However, we do not confuse the "conducting of business" with the "need for stable currency"!
Oil in the ground walks the quiet path and speaks with the modest voice. The power of this wealth brings not the need for confrontation, as all know this commodity could become a "currency" in and of itself, if needed.
The troubles we find today are troubles of a "paper currency nature" that brings to the forefront the need for low priced oil. Yes, you may extrapolate the order of confluence in this way; "paper currency created thru the creation of debt" then "always the continuation of more debt to expand business and commerce" then " the limits are reached for world trade to repay this paper debt" then "a further creation of debt for the creation of paper money with purpose only to save banks and governments" then "the need for raw commodities (oil and others) to be priced unfairly low for the continuation of business and debt payment"! Today, if oil was priced fairly, in real terms, the dollar/IMF currency structure would not stand.
The basic engine for Western commerce is run with energy, energy from oil! The "wealth of nations" is based on the continuation of business, for it is this commerce that makes valuable the paper assets (currencies included) held by citizens. This is a common knowledge, little held by western thinkers. They say that it be the paper assets that give value for the purpose of trade. I say, a simple person does stand at the river edge and know from where the waters flow! If the current paper economy does destroy "the business of oil" then, this currency system will destroy itself. It does so today, as a low gold price in dollar terms does balance the value of reserves in ground, but the promise of good "future oil flow" is questioned if paid for in more debt. For as before, when this currency was expanded with "business as backing", today, the lack of alternatives forces the creation of dollars in the gamblers house! I will not hold the notes of a fool for the future of my country. I see our future with a currency from the "House of Europe" that will be used in payment for this future search for oil! You see, this "business of oil" it does continue, yes? Thank You
Another
Friend of Another (10/10/98; 18:15:59MDT - Msg ID:490)
Goldfly (10/10/98; 13:30:49MDT - Msg ID:483)
Goldfly: Hello!
Your question:
Who (besides Saudi Arabia- obviously) is collecting on the gold payments? I don't think we should look at these as payments. Because it is a free open market, anyone can collect, that's true. But, most don't, not yet! If any large buyer began buying outright, the market would rocket. I think, much of the gold is contained in the form of paper commitments. The actual gold still rests in the CB vaults. If it was ever officially signed over it would show up on the asset statements of the Euro CBs. (the answer to your "who is supplying gold) That's one of the reasons they don't want gold to rise yet, as the Euro is not available to offer as a repurchase vehicle.
This arrangement is most likely the main reason that the Euro will be a success, no matter what. Without a new reserve currency, the one major oil producer would immediately reprice oil in terms of a small fraction of gold plus payment in ANY major currency. The ensuing run on gold would cause every world oil producer to join in on this price set. Only fools would step back and watch their oil sold off for (at the then existing exchange rates) virtually nothing.
We shall see! FOA
Friend of Another (10/10/98; 18:51:39MDT - Msg ID:494)
Virginian (10/10/98; 18:17:18MDT - Msg ID:491)
Virginian,
Welcome! Your observation of gold shows how different the market is today from the past. That's one of the reasons we cannot expect the past history of gold (from 1970s to present) to be a guide for the future. Truly, that era was very good for an investment in gold and the business of gold mining. Today, gold should not be an investment. History shows that stock equities (gold mining included) or any form of paper wealth do very poorly during massive currency destruction. I think, gold bullion should be purchased as a currency only!
Yes, gold stocks will move up and down in a tradable fashion for the time being. However, when the real currency wars start, much of the current trading arena will close from default. During these extreme times, FXC (foreign exchange controls) will no doubt, include gold as a currency alternative. Physical gold purchase, contrary to most analysis, will be encouraged in America as an alternate form of wealth (401-K or retirement savings) because it will redirect money from going into the Euro. It will, of course be at a much different dollar price from today!
I hope gold does not go up until the Euro arrives. To date it is still in control. But, the Asian (and China) problem have come onto the stage much more quickly than anticipated. I expect it will rise through $320 in a week or so, but $360+ would be a disaster. We shall see. Thanks for the thoughts. FOA
Friend of Another (10/10/98; 19:42:23MDT - Msg ID:499)
My Thoughts!
Michael (USAGOLD),
I saw your Market report on 10-08-98 with the reprint of Reuters "Dollar could followFootsteps of emerging countries". Alfons Verplaetse (BIS) told it as he saw it. Isn't it strange how the perception of an alternative currency has moved so slowly for so long. Now every investor is trying to access the impact on their assets. We have never in modern history seen a move from one currency system to another. The rush to establish a Euro position will shock the financial system far more than the oil embargo ever did.
Because the majority of wealth is still held in dollar terms, the loss in dollar assets may prove to be The Event of the next 100 years! I think, with the support of oil producers, Europe may become an island of economic prosperity, even greater than the American experience. The next several years will prove the value of real assets for anyone outside the Euro arena. It will appear much to the typical American, looking in as it appears to the typical Mexican looking across your Rio Grand border. Many analysis think this could never happen! The same was said of Russia, Korea, Asia and even Japan in the late 1980s.
A dynamic period lies before us! FOA
Friend of Another (10/10/98; 20:37:33MDT - Msg ID:507)
PH in LA (10/10/98; 19:17:02MDT - Msg ID:496)
PH in LA , Hello!
The $360 question is a difficult one to explain. I'll try. If you remember, after the Gulf War, gold began a strange (not understood) drop through the first part of 1993. About mid to late 1993 a group out of Asia began buying gold, real gold. It may have been a legendary trader out of Hong Kong or some other group in China. It was thought that they had understood the implications and reasons for the falling dollar price of gold. Their buying drove the price into a range of approximately $365 to $390 for several years. At one point this buying of physical and paper had leveraged them into a cornering of the market to some extent! The offtake was incredible. This is where the political intrigue comes in that I am unsure of? This buying (and leveraging) threatened to unhinge the delicate balance of valuing oil in dollars, through gold. Even though the buying was done with real money (paper not credit) and much of it was based in the hand over of HK to China, if allowed to continue, it would have driven gold sky high. With the EMU still in trouble with no commitment to price oil in Euros, a run of gold could have evoked a reprise of oil in gold terms. In early 1997, the BIS (the Euro group portion) came to some agreement about the Euro and oil. In return, the BIS smashed the Asian economy and unleashed much of that gold. Few people grasp this, but I offer that if the BIS could take down Russia, a world nuclear superpower, Asia was no problem. It is at this point that we begin to understand the real power of a union of oil and the Euro (BIS).
To answer your question, a run in gold past $360 would mean this union has split and a firestorm of economic destruction was at the door. After all, it is oil that has backed the dollar these last many years, waiting for an alternative reserve!
PH, I cannot possibly begin to discuss this in one day, so I hope this helps. Thanks FOA
Friend of Another (10/10/98; 21:21:42MDT - Msg ID:510)
Jayne (10/10/98; 19:38:34MDT - Msg ID:498)
Jayne, Hello to you, also!
I must address something here. The book, "In The Footsteps" was written by Mr. Michael Kosares, not Another. I have seen only minor parts of it, sent to me by others. I am also 95% sure Another has not seen it, but I cannot be sure. Michael has used his many years of experience to interpret the Thoughts! message and I am told it was done very well. As time marches on, no doubt world events will make it a worthy reference.
Your question of payment for oil, in what? I don't think that the exact day of Jan 01,1999 and the official start of the Euro will change all things. We will more likely see the beginnings of a progression of events, moving the world economy away from US$ based settlement. A good many analysis have picked up on the Another line of reasoning and are predicting a rise in gold for 1999. I don't think they understand what is before us as they are advising clients to hold US treasury bonds and gold stocks. That should prove to be a confounding combination for anyone looking for safety. In much the same way as investors invested in gold for a trade, then found that the markets did not move with historic supply and demand features.
Even Pete (a poster here), may bet the farm on a Euro proposition. Pete, please, allow only ten or twenty percent of your acres of corn for gold, it will be enough!
Jayne, if you have gold bullion, then do as TYoung, watch and learn. Even the strong Mr, Young will swim with a strong ocean tide, as will we all! Thanks for your thoughts!
FOA
Friend of Another (10/10/98; 22:25:40MDT - Msg ID:516)
turbohawg (10/10/98; 21:06:04MDT - Msg ID:509)
turbohawg, Welcome!
I would like to build on Goldfly's and PH's posts.
Much of the oil produced today is high cost in dollar terms. Even now many producers make little profit. This fact is not lost to the middle eastern suppliers as they are able to pump today with large profits. True, they posture their loss of market share and show how they are going broke, but they have reserves that can supply twice the current daily amount if needed!
To understand what is about to happen, one must see that in hard currency Euro terms, oil is going to drop in price (economic depression or not)! Yes, far below what the marginal producers can supply for. They will indeed have a choice, sell oil in plunging US dollars, or not sell at all in Euro terms as it will be below their high dollar production cost! Much of the worlds inefficient goods production is a result of maintaining the high dollar production cost oil supply. This is retained for the purpose of creating a strategic oil supply for the benefit of American Dollar stature. You see, the eastern producers always could supply the world, if only the world would pay in an honest currency! Falling oil prices in Euros will create a tremendous need for the world to sell goods to Europe to receive Euros. Oil purchased with Euros as a result of commerce and trade will drive the world economy in a way few envision. America will find that they must trade with Europe as only oil purchased in Euros will allow for competitive pricing of goods and services. You will see a hyperinflation of the dollar standing next to a full deflation of production costs in Euro/Gold terms. A new world indeed! FOA
Friend of Another (10/11/98; 07:58:16MDT - Msg ID:521)
Pete (10/10/98; 23:36:19MDT - Msg ID:519)
Pete,
What is shown here is the blueprint or chart of intentions. The changing of a world currency system is a tremendous political event. I offer the course and bearing that was set. It will be the captains of state that must sail the ship. The winds and currents may blow us far from the plotted journey, but the port of call remains the same.
I will use your questions in parts to explain.
Your words: --------"On the one hand you say that the Asians were purchasing gold in amounts that were disrupting the price beyond what someone expected thereby the BIS destroyed their economy so that they were forced to sell the gold they had been accumulating and to put a stop to the acceleration of price above $360/oz. On the other hand you have been stating that recently the price has been plunging below production costs and BIS reserve valuations by the actions of the iceberg(Banks, brokers, funds) use of derivatives. " Pete, In the currency world everything moves on perceptions of how current events will impact future flows. The same was happening back then. The Euro Group had never thought that Asia would become such consumers of gold. They had always brought throughout the years, but never in these amounts. Something had changed. The Euro CBs had wanted to bring gold into the $320 - $360 range and keep it there until the new currency arrived. Remember this was the range they brought it to by early 1993 (check your charts for clarity). In this range the dollar looked good (gold could be purchased in long term commitments) and most importantly, much of the world production was still online. Mine production was important as that (in theory anyway) was what fed the replacement of loaned out CB gold.
You had on one side Super rich Asians (including the Central Bank of China) buying gold because they didn't want to be caught in a Euro world holding Dollars. On the other side we found oil money that were waiting for a clarification of Euro policy, regarding gold. Any rise above $360 (prior to Euro launch) was seen as a loss of control that would create an every man for himself atmosphere.
That was then, a period from mid 1993 to late 1996. In early 1997 the Euro CBs attempted to lower gold and it touched off a buying spree that was unheard of! The lower it was sent the greater the buying. Even LBMA had to openly show what was happening. Eventually, the BIS worked with China to control Asia by including them in on the Euro sphere. China had / has little use for it's Asian neighbors and the American Political / Dollar influence on the region. Besides, all of Asia was long sense hooked on a US trading partnership. You remember the APEC conference in Seattle. The American economy had "bet the farm" on the Pacific rim and turned a cold shoulder to Europe. Jump to the present and we witness the "Master Plan", as Another calls it. The BIS smashed Japan and it's neighbors and has left them holding a ship load of Dollar assets only months before a Euro launch!
That sector of the competition is done for. Now all that remains is to control the traders and speculators that have jumped onto the "Yen carry / Gold carry trade in the mistaken notion that gold is about be phased out of international finance. Well, you can see the results. They forced Mr. Greenspan's hand into crushing these players. I can tell you he never, ever wanted to lower rates as a dollar crush will be the result (it has started)!
I have jumped around a lot here, but I think you see why the influences on gold creates an atmosphere of confusion regarding "intent". Actually, some other things have happened in the last few days that will come out soon. I hope Another will lead the way on this in that I may commit on them. It's extremely interesting. Thanks Pete, I will be watching and posting here. FOA
Friend of Another (10/11/98; 20:57:50MDT - Msg ID:532)
Secret deal on $US-yen dive ???
David Linkley,
The drop in the dollar against the Yen does make one wonder what happened? We had almost every Major hedge fund in the world positioning into derivatives trades that would benefit from a rise in US rates and a further fall in the Yen. Billions (some say trillions) placed on bets that used low cost ( almost free?) gold and / or low cost (almost free?) Yen to raise the gambling money. Speculation in the American markets had reached a level equal to the Japan bubble and the Fed lowers rates?? Yet the Yen carries rates of .25% +/- with it's banks going under and every investor worldwide runs into this currency in TWO DAYS to drive it up???
It makes one think that a door needed to be shut very fast so as not to let something out?? Well, the somethings are now locked in nice and tight with a lot of wealth needing to change hands to close the bets made with that, free money! You know, LTCM was a well connected group that many others emulated for the very reason that they were, well connected. Now, it first appeared that these gentlemen were reprimanded with lower US rates because they acted so boldly. In some quiet circles it is still seen this way. But the speed of the event makes me think that the Hedge funds positions were correct as was the information they acted on. Was some leverage applied to Mr. Greenspan and Mr.Yen to force a quick resolution of their problem? Perhaps a problem of larger scope and importance was seen over the horizon?
This I do know. To cover the open gold positions will require far more than simple option strategies as loss hedges! We may enter a pricing storm for gold that will see it's value literally all over the map! The possibility of the large up and down moves may wreck many portfolios that have strayed from the simple action of buying plain physical bullion, without leverage. I offer this as a fair consideration for the simple investor / saver. We shall see. FOA
Friend of Another (10/13/98; 10:51:03MDT - Msg ID:556)
My Thoughts!
USAGOLD,
I read Mr. Turk's article posted on your The Gilded Opinion page. It is a fine work of analysis of the gold market. If I may, a point of discussion can be brought up by viewing his thoughts from a different perspective.
Michael, from your earlier post this was pulled:
"In the course of our conversation the subject of LTCM's gold short position came up and he said in his understated, scholarly way that if LTCM's 400 ton loan position were defaulted on that the central bank or banks which made the loan would have to consider the loan "a sale into the market" since they are unlikely to get their gold back. I asked Mr. Turk the same question I asked ANOTHER a while back. "If you are a central banker lending gold, what do you take as collateral (since gold is the ultimate collateral, all other collateral is inferior.)" Turk answered. "You take nothing. It is an unsecured loan."
"You take nothing. It is an unsecured loan." ! With this statement in mind, I begin.
As Mr. James Turk stated, " like big tail-fins on 1950's Cadillacs. An era has passed"!
Yes, I agree entirely. We now swiftly come to the conclusion of an era that has brought gold into the monetary forefront as never before. Gold has been fought over, pushed, shoved and manipulated in the 90s the same way as most major currencies. The only items missing during this quiet war was the an extreme increase in value that the investing public must have to validate that gold is in use! As often quoted, "If the price isn't rising, no one must want it or need it". Truly a paradox of thinking in our time.
The facts, as presented by the World Gold Council (WGC) show that in 1997 only 406 tonnes of gold were actually sold from the vaults of the world Central Banks. This amounts to only 1% of all the gold reserves held in reserve. It is very important to note that the major countries that sold gold (Canada, Belgium, Holland, Portugal and a few others) made up the majority of this 1% reduction, if not all of it! They also are the source of most of the 5% of the Central Bank reduction in holdings during the last 10 (ten)Years!
To better place that last sentence in correlation with the current gold lease / lending market is to grasp that these banks, Canada, Holland and the lot, did actually sell their gold, not lend it. They don't want it back! Using this line of reasoning, then, if these countries made up the bulk of gold sales that represented the total reduction in Central Bank reserves, what gold was sold that represented the lease / lend deals?
Much of the conjecture amongst analysis in banking circles seems to center around one major point. A point that without acceptance, destroys the entire argument that gold leasing sales are what have destroyed the market. That point is: "of the gold still held in the Central Bank vaults and carried on the books as reserve assets, some it was has sold off and replaced with leasing paper"! Please correct me, but a bank may mobilize any asset for return and list it that way on the balance sheet. However, to list Physical Gold, that is not a paper asset, as present when it is not is "Fraud"! To do this on a scale that the present gold leasing market suggest is happening, would amount to a gross violation of BIS accounting standards. To view this in a better light I will use a phrase that Another has posted here:
"a simple person does stand at the river edge and know from where the waters flow".
To continue: The central purpose behind the Yen Carry trade and the Gold Carry trade is to place liquidity into the world financial structure. This action was made necessary by the failure of the US dollar to function any further as a money creation vehicle. In these last days of the dollar, worldwide debt as denominated in dollars has ceased to expand and is indeed contracting. This is a natural event that occurs in the latter time cycle of un-backed paper currencies. This contraction was expected to complete the fiat money cycle back in the late 1980s. It has been the Central Banks, lead by the BIS that created ingenious ways to expand liquidity until another currency system could be introduced. In these 1990s, the Yen / Gold Carry was one of those ways.
Much of the Gold lending dealings is more a function of paper contracts than actual gold sales. Using my "water flow" point above, if that much gold was actually sold out into the industry, we would have seen major reductions from the gold asset side of the Central Banks. The true purpose of the leasing (not all of it , just most of it) was to create cheap money that could flow into other aspects of the economy and help perpetuate a boom, worldwide. As seen in the LTCM debacle, a little money in the right hands can be multiplied into billions of new found liquidity. Now consider that some have stated that the gold loan contracts amount to 8,000 tonnes or more! Another has said that they, if actually closed out as gold deliveries would amount to over 14,000 tonnes! Suddenly we see where the money has come from to gun the world asset markets. A market of trillions!
So, why are they called gold loans if the gold isn't used? The point is the gold is used. It is the final commitment or backup if the deals fail. When a hedge fund (or mine) cannot repay the "cash equivalent" of the gold or "the gold itself", then the Central Bank, as the originator of the deal must deliver Real Gold or PAY IN A HARD CURRENCY!
One of the things that Another has been guiding us to for over a year is that the current gold deals amount to an all out corner on the CB gold supply. The major people that are on the other side of these Gold Loans (lets call them what they really are: currency loans on a worldwide scope that is backed, ultimately with much of the CB gold) will call for this gold that was already paid for over many years! The intent of the Euro Group CBs was to have these loans self liquidate in a normal fashion. If they did not them they would pay the equivalent of the gold owed in Euros! A function, in actually, of issuing Euros for already sold gold! Furthering a pending proposition between the ECB and it's EMCBs.
Now, my friends, you understand why a Euro price for gold of $6,000+ (current rate), if in effect a year or so after that currency debuts will create a reserve currency of tremendious debth and holdings worldwide. It will be a welcome development. With the dollar falling from reserve status and the total default of dollar based gold contracts, physical gold will be an "investment for a lifetime" as Another has said! The demand for gold as a currency reserve by governments and as a currency alternative by citizens, will amount to more metal than exists.
I credit Another with most of this input. It is his wish that these thoughts be discussed by all, for all to see.
Thanks FOA
Friend of Another (10/14/98; 10:13:46MDT - Msg ID:567)
Items.
ALL:
I must apologize for the poor placement of some wording in my post MSG: 556. My time was in short supply.
------------------------------------------------------------
Also: Someone (perhaps PH in LA) asked about Mr. M. A. Armstrong's various reports and my thoughts on them. I think we will see the many of the world economies that base their future on a trading relationship with the USA fall into a major depression. Perhaps much as MA suggests?? As for his views on gold and the Euro:
I add that the nations that have created this new currency have been around far longer than the thoughts of any analysis. The gold market will also outlive the negative predictions put forth by some.
The latest Oct. 9th work offered by MA has this statement: "The Euro has effectively been wiped off the face of the earth." I direct you to my last news post of Msg #556. If the Euro is wiped out then someone did not tell Japan!
Mr. Dallas Guns Msg #560:
You write: " Why is this the only place were this theory is being discussed? Wouldn't many more know the same as you and another?"
Dallas, in the 1970s few thought that gold would go to $800+ US and it was discussed openly by how many? Even less saw oil at $40+US or a Dow of 8,000+. The history of world major events are filled with actions that were impossible to foresee, yet some record was always found of people that did not discuss the event but did anticipate and prepare for it. Today we see the birth of a new currency that was thought to be dead (and openly discussed as finished) yet somewhere, somehow a very large group of people were working diligently to create it. Don't assume that your media and elected officials will always keep the public informed of impending events. Especially if those events could undermine their power.
You write: "If you are as sure as you say, why not bet the farm"?
I have learned a great deal about conservative living. And I learned it from some world class wealthy people. It was put to me this way:
"If you have a nature to bet the farm and you win, the winning will not change your basic negative character of farm betting. In time, you will bet all of it again! Conversely, if you do very well with an appropriate investment decision (with your family in mind), the
winning will reinforce a positive character of prudent wealth building. This you will carry for all your days."
Dallas, trading some of your currency (yen? mark? dollars?) for another currency (gold)is not investing! It is the prudent use of playing the history of gold against the history of paper money. It has worked for others for thousands of years and will work for you.
Thanks for the consideration. May we will continue this as time allows? FOA
Friend of Another (10/14/98; 19:39:14MDT - Msg ID:576)
Tyler Rose (10/14/98; 10:17:22MDT - Msg ID:568)
Tyler Rose,
To answer your question we must travel a distance. -------------------------------------------------------
Some of the confusion with gold loans in general stems from the fact that there are thousands of them. They exist in every shape and fashion. The terms Gold Loan or Gold Lease are generic. Just as when we speak of an automobile in public, it is of little use without knowing the make and model. The term Car covers a broad means of transportation.
Some gold deals are real in that the gold is sold and transported to a new owner. The borrower must literally pay back gold to the lender. However, as you may know, a contract between parties can be written in any matter that is agreeable. In a gold deal, a lender may ask to be paid back in the cash equivalent of gold in any specified currency.---------------------------------------------
Some deals do not even involve central banks, as they are written by private holders of gold. In these transactions, currency profit may not be the purpose. My point is only to show that there are many variables. ---------------------
Another has written before of the absurdity of Central Banks lending gold at a few percent. They stand on the roof tops to proclaim how smart they are to receive a return on an otherwise sterile investment. Yet, any fool can see that it is not a true business transaction in the usual sense. The point of my post was to show that by using official statistic on Central Bank gold holdings, the majority of the time they have not sold the gold involved in lending deals. If it was sold, it would have been removed or the title to it transferred. Therefore, the lending deals are only currency loans denominated in gold. The money actually generated in these deals is created by the Bullion Bank or another entity has supplied it. In this matter the CBs have used their gold as leverage many times over to create a massive new money supply. In reality, if the Hedge Fund / Leverage Community ever started to fall apart, a huge portion of the CB gold would be termed "deliverable" from default. -----------------------------------------
Tyler, you know and I know that the world gold market would be shut down long before they ever, ever deliver that much gold. What will happen is that much of the current financial leverage, that is heading into it's last days, will be covered by delivering Euros as partial payment. When gold begins trading again at a new value (of perhaps $6,000 US present buying power) in Euros, it will be easy for some of the defaulted holders of loans (oil and others) to be made whole in currency. With this in mind, some entities with huge natural resource reserves have used them as collateral to originate the money used in a 1% CB gold loan. It is almost like selling oil for gold, don't you think?
With a gold valuation that high, the Euro will become The Hard Currency for the 21st century.
Now, to your question: A gold loan by a Central Bank to a "Financial Operator" (hedge fund and others) in indeed an unsecured loan! They have loaned their gold as "backing for the deal" and must supply it if a default occurs. If they have loaned it to a Mine entity, they will have a right to claim the mine assets in a default. Therefore, a mine loan is not unsecured. Not a pleasant thought for the holders of gold stocks during a worldwide currency crisis!
Much more to it than this. I hope others will write their thoughts on the oil / gold /leasing markets. There is a lot of room and tremendous tolerance for diverse views.
Thanks FOA
Friend of Another (10/14/98; 19:47:44MDT - Msg ID:577)
Bottom$ (10/14/98; 10:34:11MDT - Msg ID:569)
Bottom$,
Hello! ------------------------------------------
Do you remember when gold jumped from $40+ to $800+ in a decade or so? Prior to that the world monetary authorities had enough gold in relation to circulating currencies that they could control it's price by actually selling it into the market. (why they didn't just revalue it's price to $1,000+ and continue on is another story we will cover here some day)(it covers why they took the dollar off the gold standard to raise the price of oil). When they stopped selling gold's price jumped. Today, they don't have that much gold in relation to the incredible amount of money and leverage out there. In fact, as I just discussed with Tyler Rose, instead of selling they are using it to build onto the money supply. Few understand that the price of gold is dropping during this era for several reasons. Besides being used to offer gold cheaply in dollar terms. it is being used to make the dollar strong by creating liquidity. A function the dollar stopped performing five or six years ago. They can never sell gold into the market again as a means of controlling the price the way they did in the 70s. --------------------------
Another sent in a fine piece once explaining how the the currency inflation in dollars was already present. More than enough to drive gold sky high. Just because the goods prices don't reflect currency printing doesn't mean it isn't already present. He said something to the effect, " your chickens have already rousted, only now you find they have come home"! When the dollar is removed from reserve status, the American economy with all it's deficit problems will be subject to all the troubles other nations now have. In this atmosphere gold will increase in real term value many times over. You may also add any amount to that figure for future price inflation. Thanks FOA
Friend of Another (10/14/98; 20:50:40MDT - Msg ID:581)
bmacd (10/14/98; 20:11:03MDT - Msg ID:578)
BMACD,
Do you own ABX? I remember when they were nothing back in the 80s. Then they and NEM started the revolution of gold loans! In 1995 or so everybody loved ABX as they were hedged. You were protected if the gold price dropped, so they thought. Today, many investors use the notion that Barrick has fallen less than others as a good reason for them to have bought the stock. Nice thoughts but that was not the original premise for buying it. ------------------------------------------------------------
Here we have the top gold mining company in the USA, with an operating cost at rock bottom in some of their holdings and hedged for years with high priced gold. All of this and it's stock falls! What is going to happen to the regular mines when the gold price goes up only a few hundred dollars before the market is shut down and a full scale currency war destroys all equity markets? Sure, OTC gold may trade, but will these mines be selling gold out into the public when the governments are shutting down for lack of treasury funding? BMAC, I don't think brokers sell these securities as investments in the context of future times. Mines are sold today as regular business ventures with a view that the past 20 years offers a framework for the future. The true facts are that even the last 60 years doesn't offer a historical example for the gold finding business. It's present structure is but a new niche in an evolving financial landscape. A landscape that may cascade onto the dreams of many mine investors that thought they were gold investors.
Having said all of this gold stocks will, no doubt go up 600% next week. My loss Bmacd, hopefully not yours! Thanks FOA
Friend of Another (10/14/98; 21:46:26MDT - Msg ID:585)
Tyler Rose (10/14/98; 20:19:54MDT - Msg ID:580)
Tyler Rose,
The "3rd party Who" that you refer to is indeed the billion marks question! Ever notice how all of the gold sales often state who sold the gold. The public statement deliberately poses the sell side of the equation because the seller can be known. If they printed it as a gold buy, then the buyer would be listed and the public left in the dark about the seller.------------------------------------
They do the same thing with the gold lending markets. -------Think about it.-------When the Dutch sell gold, we know it because their vaults have less gold to be reported. But when they lease gold, nothing ever leaves the vault?? Example: We know that in a gold lending deal, say, $300 million dollars are created and given to someone to play with. Party #1. We know that a Bullion Bank obtained $300m but don't know where? If no CB vault had $300m in gold (one million ounces) removed then the money didn't come from a gold sale. Now the contract can still be called a gold loan because it requires one million ounces of gold to be repaid. It didn't require that one million ounces be sold to create the money! Now, don't you think that a bank , operating in a fractional reserve environment, would be willing to create capitol by holding any 3rd parties collateral (in this case even dirt would due) for 1/2% to 1% plus fees and no risk whatsoever? You see, the CB gold only backs the deal. It's not sold in the event of default, it's delivered! Using fractional reserve banking, I wonder how many loans could be made with the same million ounces of gold? As to who are the 3rd party investors that helping to expand liquidity by really buying gold with in-ground reserves at a cheap price? When the dollar starts to come off the oil reserve standard, we will all find out. I have to go now. Be back to read the
thoughts of others.
Thanks FOA
Friend of Another (10/15/98; 06:20:55MDT - Msg ID:593)
turbohawg (10/14/98; 22:41:02MDT - Msg ID:586)
turbohawg,-------------------------------------------------
I hope the Dow doesn't fall any further. At this moment there is a whole group of not only Hedge Funds, but major international banks that are even or just under water. Look at my News post #591 and see the part: -------------------------------------------------
"Yet a new dynamic now seems to be appearing whereby a cut in short-term interest rates, to the extent it leads to expectations of a weakening dollar and a corresponding fall-off in foreign investment, creates higher long-term interest rates."---------------------
This kind of unconventional market action is going to undo even the conservative financial players. As I said before, it is going to drive a large contingent of the world capitol into "Euro Assets". If the Dow does fall before the Euro launch, much of this money will go into the EMU basket of eleven currencies regardless of the perceived risk. It will be the lesser of the two evils. As the dollar falls, gold will unfold into it's new image as a Euro proxy whereby the Euro becomes the transactional currency for gold settlement, not the current dollar. It should be an unfolding event, not a crisis run into metal. However, if the current leverage crisis forces the default of much of the gold carry trade, the spike in gold that closes the market will ensue. That's the part of Another's Thoughts I don't like.
We will see. Thanks
ANOTHER (10/15/98; 22:06:54MDT - Msg ID:602)
Thoughts!
Mr. Kosares, The new day we begin from a dark long night. The Greenspan, he has seen the end of his dollar as king! See now, how the assets are removed from the back of this weak beast. It was planned for this time, from years that have passed, how these last days will show a new direction. Your Federal Reserve does now see this new war as a "battle fought while in retreat"! Indeed, this retreat will become evident as "rates that rise" over a dollar "that does fall"! Gold? You have seen the small sales from small countries? I have waited, with patients, for large sales as some say would surely come. From the time of the Belgium deal, this year early, gold is offered no more. A US dollar price below $280 held the BIS as "the bank with no teeth"! A "one tooth cat" they are not, as this bank does mate with the great tiger of the orient. The last meeting in Hong Kong did change that world. Both now have the large hunger for gold and consume it as I write. In Europe, my friends the Swiss, they speak of selling yet buy with both hands and both feet!
This new day for gold, it be right indeed!----------- --------------------- " the world does float upon the ocean of dreams, when the wind of our mind blows full with a truth redeemed" Another
Aragorn III (10/16/98; 15:40:56MDT - Msg ID:612)
Friend of Another, PH in LA, and Michael K.
Michael...excellent Market Update on USAGold today. It is good to be reading your site again.
PH in LA...I went offshore following my Oct. 6, 14:01 MsgID: 405 post, and have only now returned. Scanning through the archives I saw your following comments and questions. Further scanning revealed that these were later resolved, hopefully to your satisfaction. Thanks to jinx for adding to my explanation of the relationship of Treasury Notes and Federal Reserve Notes regarding the "vanishing act" depending upon who holds the Treasury note--the FED or else another party. Sometimes I do not express myself as clearly as I should like to.
Friend of Another...reading your MsgID: 556 from Oct. 13 at 10:51 was a real treat. I cannot emphasize strongly enough that everyone should read it if they haven't already. In it you managed to lay open the nature of the beast for all eyes to see clearly. The experience reading it was an example of truth coming home to the mind so naturally it was as though a distant memory were being recalled. Thank you. I was glad to see that many of your posts over the past week more fully developed and gave support to my latest thoughts.
A final thought for all...on the notion of gold value over time relative to all things--particularly a fine suit for a man equating with one ounce. Just let it go. While some things do correlate well for periods of time, history may bear false witness when looking toward things to come. This is a world not as before. I offer this simple, real-world example. There was a time, not long ago, when gold panners in Columbia were frustrated with the abundance of hard grey "pebbles" that would litter the final washings of their gold. They heavy nuisances were discarded with disdain. Today we value platinum a bit higher than they would have imagined. The modern use redefined the value accordingly.
So it will be with gold. It is very important to remember that these are not the days of the pharaohs, the kings, or the czars. There are more people ALIVE today than the sum total of all who have lived and died before us. Economies have grown geometrically while the supply of real money (gold) has failed to keep pace. The price of everything in terms of gold actually decline over time. This has been obscured during the modern geometric growth of economies because the world has been detatched from a gold standard for the casual observer. As the pendulum swings its return, many will indeed be surprised that all things priced in gold have become so very much cheaper. This is good. The excess production of your youth (measured in gold) will not abandon you in your old age as a fiat currency is want to do. To express this in dollar terms for those who cannot detach their view from this measuring standard--if the U.S. reacted intelligently, naturally, and did not cling tenaciously to the current structure, they would peg the dollar to gold. Under this arrangement an ounce of gold would be priced at many thousands of dollars while a gallon of milk would remain at only two dollars. If the U.S. does not peg to gold, and they fight the stubborn fight, the dollar would be worthless relative to all things. Gold would be priced at many thousands and food would be priced beyond your best guesses.
The choices seem clear. Is there a clear-thinking mind to be found withing the halls of the U.S. Govt.? Let us hope so.
Friend of Another (10/17/98; 07:13:18MDT - Msg ID:615)
Where is gold headed?
ALL: Gold looked as if it would drop last week, but it didn't! I think it even bounced off it's 220 day moving average (a good sign for Technical Analysis) on Friday. Why is it starting to move up now, at the end of this year? This night (MST) I will offer further reasoning to go with my earlier posts. Those writings dealt with how the Central Banks lent gold but never sold it! Now Another has opened the door (in his last post) for some analysis as to where gold is going and how soon. It should be interesting. Thanks FOA
Friend of Another (10/17/98; 21:33:27MDT - Msg ID:632)
THINKING!
All: If we step back to review the gold market throughout this last year, it offers a surprising glimpse into an orderly process few thought possible. We have read many times how this market was in a supply and demand deficit and it was the Central Banks that were filling the void of un-supplied gold. Some reasoned that if it wasn't for this new supply the markets would have been much higher by now. No my friends, that just is not correct! Granted, there is much more gold being consumed than is being mined, but it wasn't the CB that were supplying most of it. Yes, last year (1997) all the CBs on average did actually sell off some 400 tonnes +/-, and that was NET sales, not leases. But the question remains, who supplied the other 700+/- tonnes that made up the total deficit? If the CB vaults lost only 400 then how could their lending action be identified as the source of the new supply?? The answer is, it didn't! But I have gone to far, let us back up. By far, the largest amount of gold lending / leasing is a paper product made possible through the LBMA. This group of Bullion Banks and brokers (perhaps the Bank of England also) trades some 30 +/- million ounces of gold a day. A day! Some of it may be physical and some of it paper, but all of it Very Liquid! With a ready Gold CURENCY market of this size, there is simply no problem raising paper currency capitol by shorting paper gold. If you have the correct backing. I am assuming the reader has read my posts #556 and #585 and much of the Thoughts! of Another.
If an entity can produce some form of collateral along with a Central Banks agreement to back the gold loan with gold, then a Bullion Bank has little problem supplying cash by shorting paper gold. The CB does not have to move or sell his gold and receives 1% or 2% for a signature on the general agreement. The BB collects fees and any arbitrage that may result. The "entity" ( for poster Tyler Rose, that's the 3rd party) obtains little in the way of return on this investment except for one obvious point. That being, that they will receive the benefit of any net gains on the repayment of the gold loan, in physical gold, after the financing is paid. This works because all of the risk is upon the middleman, the Bullion Bank. Now considering that the BB hedges it's part of any gold risk (increase in price) in the derivatives market so that in the completion of the deal if gold rises in price this increase is, as stated above, delivered! As one might reason, the 3rd parties in these contracts (the buyers that are never reported by the media) are banking on but one thing, a huge increase in the dollar price of gold! In the event that the BBs are defaulted by current events or total market failure, it will then be the Central Banks (as ultimate signers of the General Agreement) that will deliver Real Gold from their vaults!
Now, back to my original point: Much of the extra gold that has been supplied to the physical markets to cover the supply deficit has come from private holdings. Truly, gold doesn't come out of thin air and neither the CBs or the mines were offering enough of it to satisfy demand. Yes, as much as that flies into the face of accepted analysis, these private Western Holdings were being sold even as the total gold market, including CB holdings was being cornered by a market that, as Another said long ago "is not as before!
Not all of these maneuverings are done by major 3rd parties. Lately, a good deal of it is done by traders and financial operators that are naturally attracted to action. These people will get cleaned out by defaults simply because they don't have anything to offer the world as a means to force delivery. I think it's called "no ace in the hole". However, any financial power that has reserves that the economy needs will be supplied or paid in an acceptable currency if necessary. If we think long enough on this we can see that perhaps next year, much of the derivatives carry trade will be forced into default. In this meaning, default is having to pay, not in kind, but in Euros.
But what will trigger this major break in the action, so as to start the ball rolling? It has already happened. When Asia started to fall many, many months ago, that was the signal that the first domino was falling. With the Euro expected to arrive in1999, it was time to break the Asian gold buying (this does not include China as they will be part of Euroland) and at the same time begin a long term breakdown of the dollar. A destruction that would carry on for several years. Most of those years have passed.
What of tomorrow? The gold loans will now become harder to repay as the money that the loans created is destroyed. The Central Banks, that largely stopped backing new loans earlier this year, have now completely stopped for fear of having to deliver their gold before the Euro is available. This time period for them has been one of also having no ace in the hole. From now till the end of the year, they will begin calling in loans (pulling their signatures) that are now seen as unnecessary. As England is not part of the eleven EMU nations, look for the LBMA to be seen as carrying heavy risk from default. If the derivatives markets fail, they will lose what risk hedges they have. This risk should begin showing itself in the dollar price of gold anytime. With China buying to rid themselves of dollars preEuro and the Swiss now buying to cover a huge mistake, the market should be bumping up to $350/$360 by year end! Remember, the Swiss are also a nonEMU country! thanks FOA
ANOTHER (10/17/98; 22:03:52MDT - Msg ID:636)
Jayne (10/17/98; 20:13:41MDT - Msg ID:624)
Jayne,----------------------------------------------------------------------------
My wisdom? It is but a small part of a large life. One should not offer to lose so much for so little. Your words consider not that life is more the value than wealth! The thoughts of all persons come and go with the morning air. Yet, one must breath the wind to live a full life. I offer you the air of history that proves the corruption of men. A corruption you will partake in, with or without a bet of life. Thank You
ANOTHER (10/17/98; 22:37:26MDT - Msg ID:637)
PH in LA (10/17/98; 13:35:54MDT - Msg ID:622)
Mr. PH,--------------------------------------------------
The Greenspan is of the BIS in spirit by day and silent by night. For many days have passed from the time that this bank was of one mind! Two factions are they that hold for control. The Euro Group is the stronger hold now. The Federal Reserve does fight "the preparations" you speak of. It is to no avail. It was said before, this money war is for the American world a "fight in retreat". In my time I have not seen the USA as on the "Level eye" with the BIS. Perhaps they worked together during the war (ww2), but that was then. This dollar, it will not die the easy death for many a strong person does still stand for this country. This is as it should be. We watch this new gold market together, Yes?
Thank You
ANOTHER (10/17/98; 22:57:24MDT - Msg ID:638)
Unomas (10/17/98; 13:52:31MDT - Msg ID:623)
Mr. Unomas,
It is unfortunate for such persons to hold the "paper stocks" during this time of history! Always the "good investment" for "the good times" they are. The future before us will change this thought for many the children of children. Every season has the special feel to the skin and this winter will bring the sand storm as not before. It is not our place to change this weather, rather to wear the correct garments. I have always found the winter, it does change much to quickly for the traveler with all clothes. These traders will not move with the speed of sand and will find no shelter in paper skins. If the gods be gracious, these seasons will change slowly, yes? Thank You
ANOTHER (10/17/98; 23:20:56MDT - Msg ID:639)
Aragorn III (10/16/98; 15:40:56MDT - Msg ID:612)
Mr. Aragorn, I read your write and this you say: "The modern use redefined the value accordingly". I can add not a word to this post. Your age is 100+, yes? Perhaps I am wrong, your wisdom, it is to die for!
Are you of the world that will use the Euro soon? I think this dollar and Euro will also find the value "redefined"!
I will be gone for a time.
Thank You
Friend of Another (10/20/98; 07:26:21MDT - Msg ID:677)
E- Mail question sent to USAGOLD!
Another,
You said on July 19,1998, "The US Federal Reserve will now have little choice but to raise interest rates as the dollar currency inflation of past years moves from "paper assets" into real things."
----------------------------------------
We hardly see this to be the case in recent weeks. Would you please care to comment.
---------------------------------------------------------
David L.B.
-----------------------------------------------------------
David,------------------ I would like to comment on this. You may already well know that currency inflation and price inflation are two different things. If your statement of "We hardly see this" is applied to price inflation in the USA today, then I totally agree. In years past the great inflations that occurred in nations with dominant currencies were not subject to markets that were worldwide in scope. Those inflations (currency inflation and the resulting price rise) were played out in a more local arena. Even the most recent example, the German inflation, did not have the moderating influence of a world economy marketplace as today. In that time, large increases in money assets were quickly followed by increases in the prices of goods and services. They had no real means of exporting their money asset inflation to other countries (sending currency out of the nation to be held as asset reserves or to buy goods for import) in order to negate a domestic price rise. Gold, as part of the world monetary settlement system helped to block that path.
-------------------------Current examples of money inflation and the resulting price inflation such as in Mexico, Brazil, Korea, etc., all have resulted because they too can not export their money assets on par with other currencies. The exchange rates, almost like gold, block their path. However, we must understand that these are not major currencies much less world reserve currencies. The dollar of present operates in a world currency system without gold, that allows this currency to be exported without restraint. Any attempted exchange rate adjustments implemented to block this movement (dollar falls and the Mark, Yen, etc. rise) runs head on into a loss of trade with the America. The result is a dirty float of exchange rates in that most Central Banks artificially keep the dollar flowing out of the US because they have on viable alternative vehicle to base trade values on.
------------------------------------------------ Using this line of reasoning, we can see how a massive inflation of dollars over many years has built up. When something does come along that blocks that outflow of dollars and even causes it to reverse, the dollar will plunge on exchange rates and bring home all of the past buildup of price inflation. Indeed, the dollar and it's price inflation will look much like Mexico and the lot. As you have seen lately, they always raise interest rates in Mexico and Brazil in an effort just to keep the currency in use. In like mind, so will the Federal Reserve raise rates as needed with little regard for local economic conditions. If the Fed can lower rates, as they just did, for a non-economic purpose (to kill off several Hedge Funds and save several banks) so to will they raise rates to save the dollar!-----------------------David, it's important to understand that Another must think with a view for the world financial framework, not just the USA.
I agree that US rates will be rising soon as the dollar is severally challenged by the Euro.
Thanks FOA
Friend of Another (10/20/98; 08:04:40MDT - Msg ID:678)
Buena Fe (10/19/98; 21:03:10MDT - Msg ID:673)
Buena FE,---------------------Hello! Yes, I agree that the Argentina gold sale announcement (see USAGOLD MK post) is no less than market posturing. The same thing happened with the Russian gold sale speculation. They did, by the way, sell some gold, but as soon as it hit the market it was picked up with ease. The media and short brokers made a big deal of it. After selling a small amount (one tonne) the Russians stopped? --------------
It's the paper gold and derivative gold markets that make move on these normal events than needed. They are so leveraged that any news at all sends them off. But, notice over the last weeks and months how these sale stories have lost impact on the gold price. It comes right back after a few days. That's because the paper markets brace for an onslaught of new paper supply that doesn't come. Lease rates are on rock bottom as only a few lenders are trying to manipulate a market that has even fewer "Qualified" players. I add that they are not Qualified because the Major CBs are not signing on anymore! Truth be told, they started slowing down the leasing game just as soon as the Euro had gained the eye producers to become an oil settlement vehicle. And no doubt that was prompted by the use of gold in it's reserve mix! --------------------------------Look for these down drafts in gold to be shallow. I think it will trade up back into the range that the Euro Group CBs wanted it be in, $320 / $360 and no higher. At least until year end.
thanks FOA
Friend of Another (10/21/98; 07:25:50MDT - Msg ID:696)
Argentine coin sale??
David Linkley (10/20/98; 18:39:57MDT - Msg ID:686)
------------------------------------
Thanks for the post about the Argentine coin sale. Why would they offer to melt the coins for sale? Everyone on the planet knows that gold in recognized coin form can be readily used to pay off debts, even large ones. My observations are: They will do the same as Russia and sell only 30 or 40 thousand ounces (perhaps 100,000 coins?) then stop the sales. OR They will melt them down anyway (without offering them in coin form) because someone is pressuring them to fill a physical void of bullion bars.
------------------------------------USAGOLD: It will be very interesting to see just how many of these coins Do end up on inventory with precious metal dealers in the USA, or anywhere. I have heard nothing about it being offered as a package to the investment community? -----------------------------------------ALL: If this is a true sale (not just market posturing) then it may be viewed as the most bullish conformation of an impending gold crisis the world has had. It's one thing for a national Central Bank to sell gold bullion and quite another to sell it's last pre-minted (old) coins in large amounts. We truly may be entering the beginning of gold bull market brought about the relentless selling of gold that hasn't been delivered to date. If the financial operators (hedge funds) are shut off from borrowing gold (even with low rates) because of performance problems, the game is winding down! When the flash point is reached, we should quickly move back to the $320 / $360 area with an over run of, perhaps $50 above that. For investors that gamble, the gamble today will be timing the purchase of gold. If the market runs far above accepted levels, before the end of the year, massive default could occur. In that climate, no one will buy or sell gold. Dynamic time lie just ahead! FOA
Coin Auction?
USAGOLD: "Little effect on the price of gold"? I'm sure you expect no downside pressure from this sale. Michael, I bet a gold auction is the last thing the US treasury wants! It wouldn't surprise me if we hear them change this to an outright gold sale. I say this because the last time open free market auctioning of gold took place was in the late 70s when the USA sold one million a month. These types of sales tend to raise public attention about gold and usually increase the bidding! ------------------------------------ I have to say again, for them to offer pre-1900 coins as an obvious type of bullion-for-debt-retirement sale must be the absolute most bullish development in the gold market. When this market does turn, it will be after every last possible ounce of physical has been offered, leaving nothing but the trading of paper gold debt. Some replies, then more on this later. I want to check on something. FOA
Aragorn III (10/21/98; 11:10:08MDT - Msg ID:700)
Starting over following a failure of a national currency...enter GOLD!
A parable that might be helpful in light of Russia's current monetary plight. I wrote this two month's ago, and Russian talk of gold and silver coins lately show's them to be perhaps on the right track...
You can't simply and easily walk around with a fully grown bull on your shoulders...you don't have the strength, and the bull doesn't cooperate. I'll use this to make a point later.
Once a country experiences lost confidence in their fiat currency, they cannot directly start with a clean slate and resume using a "new" fiat currency. A certain "proving" process is required. They must follow a specific economic evolution for their money to attain the lofty and ultimate goal of money by decree. (Though this is doomed to be a losing and temporary state of affairs.)
Perhaps we know a friend or relative who, starting with a newborn calf, would walk around with the calf draped over his shoulders. The calf was young, light, and weak, so this was easily done. As the calf aged, our friend became stronger through this regimen, and the growing calf became accustomed to this routine to the point where it had no need to walk on its own. In time, our friend would be found with a grown bull on his shoulders, and the relationship seemed perfectly natural as the bull had legs that were now too weak and untrained to walk. Our friend would be seen as very capable and kind and generous to be helping this bull travel about.
So it is with money. When man decided to take an active and manipulative part in an otherwise natural system, constant attention was required to successfully reach the end result of a fully functioning fiat currency.
Simply review the 200 year history of the American dollar and its slow (and forced) evolution/manipulation from silver and gold, to paper backed by silver and gold, to paper with an empty assurance of gold backing, to paper alone. This progression was vital. Without following the necessary progression, the people will not "carry the bull", and they would not accept paper as money.
When a currency fails, the telling signs are plunging exchange rates on the world currency market. The bull has died, and the man vows never again to become so attached. It is not possible to immediately replace this system similarly with a new man and a fully grown bull. I repeat...the new man is too weak (plus he knows better) and the new bull simply won't stand for these shenanigans. You must start it all over from the beginning. Or... let the young calf grow wild and free, and let the man tend to his business, and money will naturally be what money will naturally be. And we all know what history and natural selection has concluded in that regard...
got gold?
We are at a point where too many currencies have failed or else suffered drastic loss in confidence. They must either restart the fiat-evolution from the beginning (back to gold!), or else gravitate toward a fiat system that has not yet failed.
The risk to the USDollar, as the last man standing, is that should any country try to properly reestablish their OWN currency, the starting point would be gold. And everyone would IMMEDIATELY see "the young calf running free with an unburdened man" as a system superior to "man forever burdened with crippled bull".
got bull?
got gold?!
Friend of Another (10/21/98; 17:30:48MDT - Msg ID:703)
REPLY TO: Gandalf the White (10/21/98; 10:29:55MDT - Msg ID:699)
Gandalf, -------------- In your post you mention "us simple stupid folks". Well, there are more than a few people that are "simple" and a number of them are even "folks". I have known and do presently know these types of people. Many of them have a way of expressing thoughts and aspirations about life and wealth with such logic that it usually leaves me feeling "stupid"! ---------------------------------------------------Your question: "Who sets the "accepted levels" ? The ECB's? ------------- Much of the large scale gold leasing began with the same group of Central Banks that will be part of the EMU. The leasing expanded with the idea that the dollar price of gold could be lowered without having to put actual physical gold, from the vaults, on the market. As much as the world financial analysis hate to say it, gold is still the measuring stick for currencies. Many paper currencies are valued mostly by their exchange rates against the dollar, so the gold price in their terms is not as important. However, in order to increase the prestige of the dollar, the world reserve currency, gold (the currency) had to be devalued in dollar terms. This type of nonphysical gold manipulation could only work during the end time for the dollar. With the dollar reaching the end of it's paper currency life cycle, most nations and national Central Banks do not actually hold enough physical gold (in amounts that are relative to circulating currencies). They hold some gold, but mostly rely on the public gold markets to judge how acceptable currencies are. ---------------------------- The post of :Aragorn III (10/21/98; 11:10:08MDT - Msg ID:700) -- gives an excellent feel for the fiat money cycle.--------------
The Euro was taking much longer to create than once thought, and the 90s were about to see the dollar dropped from settlement standards. More on this in a minute. ------ In order to retain the dollar as the leading currency, it's gold price was lowered by allowing certain investors (3rd parties?) to use collateral to finance the purchase of leased gold from Cbs.
The gold was left in the vaults as leased assets and the cash created by the sale was used to add liquidity to the world financial structure. In return for this sale of gold, certain commodities were supplied in such quantities as to keep their price low in dollar terms (oil). Because oil is settled in dollars, and because it is a far larger and visible market than gold, in this action. the dollar was also further enhanced as a reserve currency.-------------------------This process alone, the falling prices of oil and gold, was enough to set off a world liquidity expansion as never seen before. This was needed because the dollar, in the early 90s had stopped expanding (read that as debt was contracting) and threatened the world with a financial crisis. A crisis that would occur without an alternative currency system. In many ways this seed was planted in the 1987 crash-----------see this as a partial reply to-- (scp (10/20/98; 11:24:55MDT – Msg ID:679).---------------------------------------------As you may now see, the original purpose of leasing gold was not to put the gold on the street, but to use it as a leverage to raise the dollar value and in turn increase liquidity, they were buying time. Many of these loans were indeed for the expansion of mining with the intention of physical gold being used for repayment. Everyone always assumed that the gold from the mines was going to flow back into the CB vaults. But, what no one questioned, was, if the gold never left the CB vaults (see my other posts) why would it go back there? No, a good deal of this gold repayment will flow through the Bullion Banks and arrive in Another account! But don't look for a road map showing the world the path, it will not be discussed! --------------- As for the gold loans that went to expand financial (paper) dealings (hedge funds and countless others) they were to be self liquidating. If the loans blew up then the CB vault gold would be delivered (again see my other posts). The escape route, in this circumstance, for the CBs was to be the Euro. If it became strong and replaced the dollar for oil settlement, among others, then the Euro could actually be printed and delivered for oil, in affect, buying gold! An action that the new ECB will conduct with it's new EMCBs. ----------------------------------- Again, your other question: Who will default and why ? ------------- With the leasing market expanding, along with stock, bond, derivatives and currencies markets, financial operators jumped into the game (LTCM) mostly because they read it wrong. These people (Andy Smith??) are the ones that helped send the gold market much lower than it's original simple purpose intended. No entity was ever dumping enough gold onto the market to drive it that low (below $320??). The leverage paper boys had figured out the game and were exploiting it. It was the Euro bickering that delayed it's debut long enough for the Shorts to get a foothold into the market and drive the paper price down. This is one of the major reasons that some CBs actually did SELL some gold. To keep the market from exploding. (see my other posts) Add to this that the Asians had started buying actual physical at these low prices and you had the makings of a disaster. A disaster in that the CBs may have to deliver more gold than they had! ------------------------------- This is the flash point that Another has described as being "at the door" today. If the Shorts ever have to start covering, the entire market, as we know it will stop functioning. --------------------- As for the "anyone" in your question: "Why will not anyone buy or sell gold ? Please explain "anyone"------------- It's you my friend, and me, and everyone that reads this post. Look back in history and you will see that when the gold price, on and off the market, is soaring, NO ONE will SELL to ANYONE!! Especially if the world reserve currency is being destroyed. --------------I think I have said enough for now. More replies later.--- Thanks --- FOA
Friend of Another (10/22/98; 09:08:07MDT - Msg ID:713)
REPLY To: Goldfly (10/21/98; 21:46:21MDT - Msg ID:708)
Goldfly, Your Msg. #708 was a great theatrical read! All the components of a good drama are revealed as the act unfolds in an opulent tent somewhere in the lost desert. We need no tickets for this play as this road-show is free and coming to every neighborhood, soon!---------------------------------------------- Your words: "WHAT -other than supply and demand- MAKES GOLD VALUABLE? What is so great about gold?"----------- Well, that question goes deep into a human need for wealth that represents ones life long efforts. We could ask the same question about houses, cars, clothes, art work and the like. Hell, people work, they produce and in exchange they want items and things. These possessions, in a surreal way are part of your life experience. Humans all die, but before that, we want to see our Stuff??!! They lord over it, protect it and try to keep others from stealing it.-------------------------- Look at what happened in Paris when in WW2 the Germans came marching in. You didn't see those boys grabbing any French currency did you? They took art work in the form of paintings, gold, diamonds, RARE COINS, collectors items of every nature. What made those Things so valuable? Besides supply and demand. ------------------Around the same time the American government was moving much of it's art work out of the White House and storing it in the Biltmore Estate (the Vanderbilt castle) in North Carolina. Why? Just because they thought that Washington may be attacked and these National Treasures night be lost? Why were these Treasures in need of saving but the dollar cash that was used to denominate them was not? ----------------------------------This takes us right to the heart of the question.
What do you, as a real person see as value, the items or the dollar price that represents their value? Is it the dollar itself that has the value or is it the "Ability Of The Dollar To Act AS The Denominator Of The Value Of An Item" that creates the need for this currency? After thinking a while, most people would answer that it is the Denominator Action that makes this currency Money! ---------------Moving further along this line of reasoning: I now ask in another context of your question "What makes dollars so special"? -----------------------If money derives it's value solely by being an asset denominator for use in commerce and trade, then why not gold? Indeed, in it's purest form money is any real thing. When individuals are able to trade with each other using actual items they grow or produce, nothing is lost in the transaction. Commerce is complete and the trade is final.
Goldfly, you already know the reason gold was used for so many centuries as money. It being a real thing that could be divided into manageable bits for trade. People came to this conclusion, perhaps a thousand years ago. It's only the last sixty or so years of paper use, that modern analysts proclaim as the history of money! They delude the public by not including the fact that our current new form of paper money has precious little historical precedent. The facts are that gold works as money and it works very well. Unfortunately, the modern, high speed world we live and trade in requires ink on paper and digital bits to extract the efficiency of the system. This is truly to everyone's benefit, for as the earth becomes more crowded, we need to be efficient in commerce. Gold can and will work very efficiently in the coming financial framework. It is a money function for the 21st century that will exploit and expose the wasteful ways of the current financial system.
------------------------------ As I mentioned to someone else, I say to you: We will continue with a paper money system, it's needed for efficiency and it's necessary in complicated trade. So do the same as others, get past it and get over it. Many world leaders have come to the same pragmatic conclusion. That does not mean that gold can not be integrated into the financial landscape, it will. So, the next time you see gold going down in dollars, remember, it's just a old currency from the past that will devalue any present money that fails to properly denominate things. --------------- To answer your question: It is the history of gold being used as money that makes it special, not the current supply and demand. In the same way that rare paintings have a history of being useful in the life experience of humans, so too do we hold a life passion for gold. thanks FOA
Friend of Another (10/22/98; 18:28:40MDT - Msg ID:723)
Reply to: scp (10/20/98; 11:24:55MDT - Msg ID:679)
SCP, --------- Your question: "Also.... could you add any other thoughts as to why a strategy that rekindled the boom in '87 will not work today? ---------------------- Plain and simple, the dollar is very late in the time cycle of paper currencies. Don't confuse this with some trading cycles you hear about. Throughout out the history of paper currencies (short as it may be), the few that became world accepted major reserves (British pound?) all headed downhill only after they reached the maximum in popularity and convertibility. Once every nation began to issue debt, settle accounts, create reserves and in general, use this major currency as a proxy for their own, it had reached it's limit of expansion. It is a natural decline that occurs in fiat reserve currency monetary systems. As sure as the sun rises in the East, the world moves on, into another money system. We have reached that level today with the dollar. Everyone expects the dollar world to deflate this currency and continue it's use in a depression racked world. No doubt, some of the bets placed today by short sellers of gold involve a deflation read of the current situation. Indeed, we are seeing the contraction effects of this in many countries. However, we now live in a much more advanced economic world than in the past. The history of major currency destruction did not have these factors to deal with. As Aragorn III wrote about platinum in his #612 post: "The modern use redefined the value accordingly"! Another sent me a commit on it. "A stunning statement that in this case can also be applied to the dollar of today." How true! -------------------------- As the Federal Reserve lowers rates, it will, in time, crush the dollar if an alternative currency is available. It will be and long bond dollar rates will rise as the result. The world will move on because: " The modern use redefined the value accordingly"! Thanks FOA
Friend of Another (10/22/98; 18:32:06MDT - Msg ID:724)
Reply to: Tyler Rose (10/20/98; 16:14:39MDT - Msg ID:683)
Tyler Rose, ---------------- I didn't forget about your post, it was a hard one. The URL you gave me took us to a site that offered a book about: "Every statement made in this 185-page book references either a legal precedent, report or letter issued by a government agency, trade publication or known entity in banking and finance. " ! I would not even attempt to go into this area on a forum. -----------------Personally, I do not think anyone has a true handle on the legal aspects of multinational interbank federal gold loans if they default. If we place ourselves into context of the events that would accompany such a period, it would be more likely that armies would be called up before all of the parties are paid in gold. Some would be paid no matter what, while most would be left to twist in the wind (I think that is a cowboy / western phrase). Let's wait and read about it in the papers. Thanks FOA
Friend of Another (10/22/98; 18:57:17MDT - Msg ID:725)
Russia and Gold?
USAGOLD, ------------------- I also find that the Russian thinking on gold to be an incredible coincidence. Just as you noted today (msg. #717) about the !970s US treasury gold auctions creating an atmosphere of attention, so do we also have the Argentine gold auction. I'm sure that the gold detractors are aware from past results that you don't auction gold it you want it to go away quietly. If they do influence the Argentine treasury, then why is this coin auction taking place? And doing so just as the Russians are about to bring gold back as money! I wonder if the use of gold by the old USSR will bring them closer to Bonn? Or is it Frankfurt or Berlin? No doubt Russia knows where the ECB and it's Euros will be located? FOA
Friend of Another (10/22/98; 19:05:54MDT - Msg ID:726)
Item!
ALL: I read this somewhere: "The US is now considering printing the old $500 and $1000 note of 1934 only using the new currency format." . ------------------ In another interesting coincidence, the Euro will also be issued in ( I think) 600 Euro notes? It was noted that these larger bills would make the Euro more useable. Is the US concerned about this new currency? Just a thought?
Friend of Another (10/28/98; 18:38:34MDT - Msg ID:831)
Platinum?
This is an interesting observation. Today, Wed. 28, the Dec. Platinum contract on the Comex fell $4.50 US to $339.10. I bring this up because of the number of analysis that use Platinum as the premier supply and demand vehicle. Many have urged it's purchase as a stand-in for gold. The reason given is the overwhelming demand for commercial use and it's investment appeal. Yet, with all of these factors firmly in place, it cannot override the paper currencies markets. Some brokers, recently, cannot obtain the metal at all, let alone coins and still no rise in price. -----------
What can we gain from this price action? The point is that Platinum and Silver, just like gold, are also subject to the pressures of a paper money market. However, where gold is a currency for THESE modern times, the white metals are an almost money created by a commercial need IN these modern times. -------------------------------- We should remember that the history of gold as money provides a use far deeper than any other metal that offers a "good story" and a short past! If we intend to hold a metal for the security of money, examine it's record of use as a medium of exchange to find it's demand in the future. Perhaps Platinum will perform as a function of it's modern fundamental supply and demand. Or, will it in the future, as in all commodities, find a new price in terms of gold? ------We shall see. -------------------------- FOA
Friend of Another (10/28/98; 19:45:24MDT - Msg ID:833)
ValuePro (10/26/98; 09:57:40MDT - Msg ID:804)
ValuePro, ------------ Hello!, Your partial post: ------ "Who's next? Argentina? Mexico (again)? How many nations can be bailed out before cash and credit are stretched to the max.? To sustain a continuing stream of such bailouts, the credit markets and monetary printing presses will have to keep working overtime leading to the devaluation/demise (via inflation) of all fiat currencies." -------------------- Yes, even my untrained eye can see that we are approaching the end of a currency life cycle. When all of the debt can no longer be rolled over, the world does not end. It moves on, into another fresh system! This current contraction will not create a deflation as it did in the past. It will involve a rollover that will balance the losses for some with the gains for others. Will your wealth balance in this event? FOA
Friend of Another (10/28/98; 20:51:57MDT - Msg ID:838)
Discussion?
USAGOLD, Thanks for the welcome! Your post # 834 shows the world to be a very busy place. It is indeed. -------------------------- Another had pointed out perhaps a year ago that a storm approaches the American shore from across the Pacific! That cold air you feel in Colorado may have arrived from Japan? The next financial weather storm (also pointed out by "A") should arrive from the South. South America! ------------------------ It seems that all of the major US trading partners that rely heavily on financial support from Washington are in line to sink with the dollar economic system. Their financial support comes in the form of a large American trade deficit. Even Japan, with it's major currency, the Yen, must have a trade surplus in dollars to prevent a political and economic breakdown. Everyone thinks the Japanese will just sell their dollar reserves and begin a new reserve currency or buy gold. They may try, but Industrial Japan is built to sell! It is not their culture to buy and consume. This same culture is prevalent in all of the major third world economies that live to export to the USA. They will keep their currencies below the dollar even if it means riding the ship down, so to speak. --------------------------
However, it is this very action of selling to the dollar that now so aggravates and speeds the destruction of this currency. The world is close to the limit now as country after country comes to Washington and asks for a larger share of the US market. A market that may not exist soon? ---------------------------------------------- As in my other post, I will expand on this later. Thanks Michael, FOA
Friend of Another (10/29/98; 08:15:54MDT - Msg ID:843)
REPLY TO: Gandalf the White (10/28/98; 20:11:32MDT - Msg ID:836)
Gandalf, ----------- Your words: ---- "could you please give us YOUR opinion on the direction of the POP related to the POG, and WHY ?" --------------------------
Platinum, today, is a good investment. And, as a thinly traded, rare metal, it will always be attractive as a portfolio holding. It will also rise in price in paper money terms. The problem is that many people have been sold on the idea that it is a substitute for holding gold. Much of this analysis comes from it's past price history in dollar terms. During this short time, (twenty years?) Platinum sometimes held a premium to Gold. Some sharp operators use this history, combined with a good story, to offer that Platinum will always appreciate faster than gold and hold it's premium. ----------- I submit that that was yesterday's news. The demand for this metal, as represented in today's offtake, is all there is. No hidden demand, no coming change in use and no future demand as a function of money. No entity is building a stock of Platinum because it will be used to back a currency or be used as an official coinage (Russian Gold Coins? Islamic Dinar? Gold Euro?). It has a commodity demand as a rare metal used in a modern application. In this limited use, if it's value rises, more metal will be found to supply the industrial need. The total possible forward demand is not that overwhelming when the commodity use is the only true offtake. Yes, coin demand is part of offtake, but these coins in private hands must be viewed as only another form of industrial supply storage in the event of greater need. Will this function create a higher price? Of course, but a higher price in terms of a typical investment in commodities. No More! With this in mind, I do own Platinum.
------------------ As for Gold, the same operators that push for a total commit in Platinum, often make the mistaken point that the large stockpile of world Gold has no large commercial demand basis. Therefore, as the holders of this metal realize that this Gold will take fifty years for Jewelry demand to absorb, they are rushing to unload it before it goes to $50 US or less! This is a good point if you are selling a leveraged idea to a customer with a limited background of reference to the history of money. This offers a possible client base encompassing the entire Western world (Except for those that have read Mr. Kosares's ABCs). ----------------------- At present prices, the entire stock of world gold (I said Entire Stock) could be sold to persons / nations that wish to remove themselves from a collapsing dollar debt financial system. At lower prices still, even a smaller handful of investors would take it all. The purpose of this buying would not be to take advantage of the commodity / jewelry demand of gold. The advantage expressed in the buying of gold is presented as: ------ transferring your wealth into a historic vehicle that has performed the function of "a medium of exchange" and done so in time cycles that outlive civilizations!
Obviously, this forward type of thinking involves motives that take into consideration the long-term transfer of wealth within a family. Not a daytrade! ------------Gandalf, this my friend, is the kind of motivation that creates real demand for a substance. A type of human need that is not presented on charts and cannot be explained in a leveraged brokers office.
This kind of historic demand for real money will reassert itself soon and will dwarf all possible supply, in ground and above. It is possible that in the future, one ounce of Gold equivalent will be commonly used to purchase twenty ounces of Platinum. ------------
Perhaps a good ratio for investment? Thanks FOA
Friend of Another (10/29/98; 09:00:41MDT - Msg ID:844)
Reply To: USAGOLD (10/28/98; 21:56:55MDT - Msg ID:841)
USAGOLD, ------------ Your words: "Unfortunately, we are witnessing the breakdown of the international post World War II economic arrangement with the dollar at its epicenter. The next question to be discussed? What will replace it?" ------------------- Michael, the entire seed of human existence has sprouted from the rain of gloom and despair that so clouds our vision concerning the future. Seldom do our kings and elected leaders plot a true course that avoids the long-term destruction of wealth. One does never wish for their assets to be denominated in the currency of a foreign nation. It is in this very fear that so many investors find the reoccurring cycle of a common world currency, Gold. It belongs to no national entity and yet it's value as an exchange medium is held endearing throughout history. ------------------ Currencies come, are brought to their limits of debt, lose (correct word Mr. G.?) the usefulness of exchange from the fraudulent imposition of exchange intervention and are discarded by people. Look to Brazil, Mexico, Asia and we see that no government can force fiat money to hold value. These people adjust there by using dollars as the lesser of two evils. In America, you will also view the currency of gold as the choice of necessity. -------------------------- As we make this journey through life, the fading dollar will be but another financial obstacle the world must scramble around in it's quest to move on. The Euro is the future, bungling bureaucrats and all, and gold will be the anchor. No brand new currency reserve system has ever evolved without Gold and the Euro will be no different. This colossal change in evaluating wealth will destroy so many assets that gold will be forced into a center stage with this new paper currency. Avoid it? We will not. Far too many conservative entities will not risk their children's / nations future on the Old Europe Order without the Old World Order of Gold as insurance. ----------- We play an old game in modern times, a game many have never known? We shall see? thanks FOA
Friend of Another (10/29/98; 10:28:53MDT - Msg ID:845)
Reply to: PH in LA (10/17/98; 13:35:54MDT - Msg ID:622)
PH, -------------- Thank you for the compliment of my old post in your old post. I would like to reply to your question also. ---- Your words: --- "Would you care to comment as to why the worldwide debt as denominated in dollars was allowed to cease to expand at this time (late 1980s)?" --------------Even in today's engineered society, it is the interaction of human wants and desires that make the world turn. In the simplest of terms, modern fiat currencies are created through borrowing (the creation of debts as assets) by individuals.
When enough debt is created that all assets have been borrowed against, the borrowing, on a net basis, no longer expands the currency. With the currency no longer functioning as an economic expansion tool, it's most useful reason for existence is lost. In this stage, the federal treasuries and CBs no longer have the power to control their money. The government response concerning local money, takes on the function of only lowering interest rates to protect the economy / banking system. Later this function is transformed by necessity to raising rates to protect whatever viability the money has in the open market. ------------ As you made mention about Japan, we also see this. They lowered rates to almost zero during the local economic protection stage, and will at some time begin to raise rates to protect the Yen as their economic dependence on the dollar drags them down. ------------------- In this light we can see that entities such as the US Federal Reserve have little power to maneuver during the last days of their currencies time life.
This cycle that began during the late 1980s was not a "created" event, but rather an inevitable transition. At first the local equities markets explode, only to be followed by an even greater contraction that usually traps investors in bad positions. The final run into a world class money, gold, usually leaves all paper investors with thoughts of "how could I have been so blind"! It seems that young people grow into an new world of finance that always returns to the lost world of simple sensibilities. thank you, PH FOA
Aragorn III (10/29/98; 15:37:25MDT - Msg ID:848)
A discussion that may be helpful for some readers...
Following is the tail end of an evolving gold and euro discussion between me and my friends known as kiwi and Gold Dancer (at Kitco). Kiwi was gracious enough to let me share his words in addition to my own follow-up. Readers are encouraged to look back at FOA's MsgID: 556 to better see how it all ties together. First Kiwi's comment:
"Date: Wed Oct 28 1998 17:04
kiwi (GD...I appreciate you comments...here we arrive at the crossroads.) ID#194311:
Copyright © 1998 kiwi/Kitco Inc. All rights reserved
I agree their are a few "rogue" fund managers who are probably long gold in a specualtive play. However the overwhelming short position ( some say 8000 tons ) has been built up for a reason a little different than pure speculation, although there are elements of this attached. These hedge funds have been using gold as money, i.e. capital, for other more speculative plays and generally lubricating the world's economies, ergo our boom.
However they have just figured out...hey gold is real money, we can't just create this stuff out of thin air, like yen or dollar. When the time comes to pay the piper somebody is gonna want real gold, that's what they have bought. The derivatives game with gold is not just like any other currency because it exists beyond the behest of government will.
If the hedge funds that are short ( read banks ) let gold get out of the cage it is curtains for them all. The derivatives unwind on gold will be so massive and sudden that the futures market in the precious metals will fold overnight locking many would be players out. It will never re-open.
The folly of using a physical commodity as a source of liquidity to arbitrage against other speculative plays is now plain for all to see, Nobel laureates can now even figure this lunacy out, from experience.
So you see the problem is there is no large volume of gold to be had at these prices, it is a false market. The few scraps that are being thrown to us lucky bugs keeps the lions at bay, if the funds that are now short would be asked to deliver this gold by a large specultive longs it would not happen, the market would collapse. So why go long into a collapsing market, you will never find a party to honour your "winning bet" on the other side?
This is why it is a rigged game and no hedge fund in their right mind will go long gold, however the hedge fund managers may just be stacking away a few bars in their back closets. This is the apalling situation in gold market at present. The western banking system has been doomed by the negilence of central bankers in the guardianship of the national treasures, especially gold, and they will pay the ultimate price.
Bottom line"
I offered this:
"Date: Wed Oct 28 1998 18:55
Aragorn III (kiwi...kudos, my good man. And kudos again! (your 17:04)) ID#212323:
Copyright © 1998 Aragorn III/Kitco Inc. All rights reserved
You made a brief comment on my post a few days ago (last friday?) wherein I mentioned the prospect of a large institution refusing to continue to "play nice with the others". You have succeeded in further baking that idea into a fine meal for general consumption at 17:04. Thanks for giving it the time I failed to muster on my own.
The only thing I might add is in regard to these short sales (gold loans) being cleverly utilized to raise liquidity without affecting CB balance sheets (as we all know, wanton inflationary practices are quickly punished by currency speculators these days).
We must recognize that the source of backing for these gold loans are the very same European banks that are putting their eggs into one basket--the euro. A successful launch means EVERYTHING to them, and they will do as necessary to ensure it. As US dollars (and others) were in great need to prop up this wobbling global house of cards, gold loans via short selling was an effective tool to create money into the system while much of the gold moved not an inch. Because a premature POP to the paper markets (and subsequent flight to gold) would be disastrous for them, an explosive unwinding of these sales prior to euro launch will not be allowed to happen. Afterwards, anything goes.
In fact, the banks likely EXPECT the rapid price movement that locks up the market due to the puny supply of available physical gold to grease the wheels.
As the banks still hold the gold that was promised on paper as a result of the short sale/forward sale/gold loan (call it whatever you like), rather than give up the gold, they will settle the short seller's default with CASH--euro cash, not the gold. This will add new euro liquidity into the world that is effectively backed by gold...100% in terms of THAT cash amount. The gold stays in the bank, and the world has a new pricing mechanism for gold...euros. A lot of 'em! Non-inflationary liquidity! What started as a means to prolong USDollar liquidity (and remove gold from investor psyche through falling prices -- remember, the euro has been in the works for years) becomes a natural (and brilliant) means to generate a non-inflationary world supply of euros sufficient to fill non-european national vaults as the new world reserve currency."
FOA--I've enjoyed your thoughts this past day. Thanks for the continuing effort.
ANOTHER (11/13/98; 09:00:41MDT - Msg ID:970)
Thoughts!
All:-------------------------------------- I received this E-mail from USAGOLD with thoughts and questions. To this I will reply and more. -------------------------------------
Mr. PH in LA, you write: "I find myself wondering how much of your understanding is based on hard knowledge and/or how much on supposition"?--------------------------------------------
Sir, in the course of human affairs, it is a mistake to accept "intentions to act" as "hard fact or hard knowledge". The books of history are well written of our society as they make plans to travel in one direction only to find a better path as time progresses. No leader or king has ever made a decision that is not questioned or perhaps changed after enacted. Your own congress does make the laws, only to change them for the better as thoughts intertwine!
In matters of finance, law and defense, orderly conduct requires a plan of action weather it be correct or not. This is the social way our peoples require, yes? Government without a plan that is accepted as "hard knowledge" by all does lead to chaos. As you consider this, I continue:
My "Thoughts" make supposition of the "hard knowledge" I possess, for with many years I know well the plans that are made! But, as written here, "as the course is set, it remains for the captains of state to sail the ship through stormy seas, even as the port of call remains the same". My years also know well how far from plan we (governments) do often blow.
Even the Mr. Duisenberg does plan the straight path for what will become our world money. It is a good path, with order, yet he knows and I know how hard the winds of war can blow! I ask you Mr. PH, when you build your financial house at the waters edge, do you accept as "hard fact" from a human builder his knowledge of the "true tide height"? Is it not the better choice to add "supposition" to this "hard knowledge" and build higher and stronger, with gold?
A currency war does approach that will bring wind and water into any house built on the dollar shore. The "captains of state" know this storm is coming, but to present it as "hard knowledge" to those with a wealth foundation that may not be moved, is of little purpose.
Much of Western wealth is built this way. It will be lost, without contest!
My Thoughts are for those of simple ways and worth, for their homes are small and easy to move. These persons are, and always have been "the wealth of nations". This new Economic Ship will survive the storm, and indeed sail into it's final port.
In that day the wealth of nations will remain intact by the actions of governments and people that trusted only gold!
more to come Thank You.
ANOTHER (11/13/98; 10:30:01MDT - Msg ID:972)
THOUGHTS!
Mr. PH, your writing continues: ------------------------
"It has often struck me that a very important linchpin to your scenario of a Euro poised to take over the dollar's reserve currency status is the certainty that the major Middle Eastern oil producers are committed to exporting to full capacity at real prices (in Euros) in direct competition with the United States' insistence on higher prices for protection of their strategic oil production capacity."
Sir, you may research for all of your days and never find a paper currency that lasted without the commodity backing. During most of the past, currencies were backed with gold. It was during your 1970s that a new backing was found, oil! The removal of gold as backing for the US dollar brought about the unified acceptance of pricing crude oil in dollars only. It was considered, in that time, that the "free market" pricing of gold would allow the dollar to be devalued in gold terms so as to represent a fair formula (in percentage) to exchange dollars for oil. In this way, the commerce of oil would create a demand for dollar use and as such the store of value as contained in crude would represent the backing. As gold would replace any lost resource of pumped reserves, the currency could be exchanged for metal if new replacement reserves were not found. A plan, as such. However, other motives lie behind the removal of gold from the dollar. Had oil been allowed to stay at the low "gold backed dollar" price, all production would eventually come from the large middle eastern reserves. Not the good strategic plan for the US for reserves in that land required the much higher dollar price for production. Thus the plan above was formulated and the OPEC Cartel worked much to the surprise of many! It allowed a high dollar price for world crude while retaining a commodity backing for the currency. Producers could, if they wish, use dollars created from positive balance of payments to buy gold at fair rates of exchange. The late 1980s show how the gold market was allowed to run wild, without order. As you say, the trap door was shut! The days of the dollar were now numbered as the European market worked to begin a new currency. They were hurt badly by the run up in oil prices that was not of their making. If a new Euro could be created that retained the backing of gold in another format, oil prices could be lowered back into Middle Eastern reserve production requirements. (I have written of this before, please see my Thoughts!) These reserves are much larger than discussed and can easily supply the world at lower prices. As you consider this I add: The formation of the Euro is a return to the Old European World Order with gold as the currency backing. And cheap oil is the agent that will allow the shift to complete. It could never be presented as such for it would break the financial system before a replacement was ready. The "hard Knowledge" of lost oil production in the US due to low Euro prices will destroy the American economy and wealth system as you know it. Also, the loss of the ability for the US to sell debt in a native currency at low rates will bring a credit destruction much the same as visited upon Asia. My friend, the intent of producers is not to flood the world with oil, rather to change the way it be priced. The natural effect will see the oil advantage for Europe and every nation that does embraces that currency as a reserve. You will not see this written but will feel the effects as they unfold. It will impact every equity and currency market, worldwide. I have more to discuss of this. Thank You!
ANOTHER (11/14/98; 18:20:55MDT - Msg ID:984)
THOUGHTS!
Mr. Kosares, thank you for your words. From your post of ( USAGOLD (10/31/98; 21:07:54MDT - Msg ID:870)), I will reply. Always, it was the intentions of the BIS for China to join the Euro world. That country is the "key of Asia", for it does "lock or unlock" all economies on the Pacific. America did make the great wager that the little nations of this region would grow large and the Japan would rule this commerce. All of this for the benefit of keeping the dollar in trade, yes? Now "The Bank" has broken Japan as they laid upon them rules of adequate financial dealings! These new rules of engagement find that "noble house" as a ship that sinks with a dollar cargo. This one ship will remove the entity of the "American Pacific Order".
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Please consider this meeting: "11th July 1998 The Bank for International Settlements (BIS) today opened its Representative Office for Asia and the Pacific in the Hong Kong Special Administrative Region (HKSAR) of the People's Republic of China. The office will serve as a regional center for the activities of the BIS in Asia. Through the establishment of its first representative office, the BIS aims to strengthen further the relations between the BIS and central banks and monetary authorities in the region, to improve the exchange of information and data, to facilitate the organization of meetings and seminars and to contribute generally to cooperation among central banks and monetary authorities. The BIS has previously operated only from its headquarters in Basle, Switzerland."
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Now the Euro makers offer the China a path to travel that does not bring the curse of dollar holdings. This day we see the beginnings of the "orient express" on modern tracks. It will carry the cargo of trade that creates the "independent economy" of Europe! Combine the oil of Babylon with the peoples of China, then add the finance of the "Old World" and we perceive a "New Order" of world commerce. Yes, we the China to the Euro "WITH GOLD"!
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Please consider as this was written after the BIS meeting : " Wednesday brought some renewed strength on recommendations that China should increase its gold reserves. Liu Shanen, vice director of the Gold Economic Development and Research Institute of the State Metallurgical Industry Bureau, recommended that the People's Republic should increase its gold reserves from the current level of 397 tonnes or 3% of total foreign exchange reserves of $140.5 billion to between 1,000 and 1,500 tonnes, between 6% and 8% of external reserves, "to prevent financial risk." The reasoning behind this recommendation is apparently the belief that China should cut its holdings of dollar-denominated foreign reserves to guard against a possible fall in the dollar on the introduction of the Euro, the single European currency, at the beginning of next year. China currently holds about 60% of its external reserves in US dollar-denominated assets, including about $60 billion in US Treasury bonds. "Compared with cash, gold is stable and safe," Liu Shanen said. He also recommended that the Chinese government should ease controls on buying and selling by individuals in a bid to boost what he described as "non-governmental" reserves. Liu Shanen pointed out that China ranks third in global consumption of gold and fifth in mine production, but only twelfth in terms of its official reserves in gold."
------------------------------------------------------------------------------------
Some still say that the new Europe will sell gold. I say, these are words that many wish for! Even the Poland does buy gold that will soon sell at $200US?
I have known these people well, they be no fools for London stories.
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Please consider these words of Mr. Milling Stanley:
"Moreover, member countries of the ECB have been firm in telling the world that they intend to go on holding gold in their individual central banks too. Germany, France and Italy - three of the largest holders of gold in the world - have made it clear they have no intention of selling."
"Europe's politicians and central bankers are convinced that Europe's gold will be a vital factor in underpinning the credibility of the ECB's new monetary unit, the euro, which they envisage as a reserve currency strong enough to stand alongside the dollar."
Sir, we will address this further at another time, yes? Thank You
ANOTHER (11/15/98; 08:03:18MDT - Msg ID:986)
Correction.
ALL: A correction for my speech in #984! This " Yes, we the China to the Euro "WITH GOLD"!" should say " Yes, WED the China to the Euro "WITH GOLD"! Thank You
ANOTHER (11/15/98; 08:32:36MDT - Msg ID:987)
THOUGHTS!
Mr. jinx44,
it has always been the battle fought by many, this keeping of one's money! It takes on many forms of confiscation over many years. I submit to you that "all forms of wealth" are the "large target" for theft. Some hold the gold equity shares with little worry for "the tax" that will surely come. The trading of paper shares will find "no market" when the "currencies war". After this battle is settled, all paper will struggle to find a new value in a new world money. Before this new value is found, the governments will reach for the "greatest vault of gold", as such, it is "the great vault in the ground"!
I think, you know not the modern mind of your leaders. They will wish for you to hold not the Euro and will encourage their citizens for gold. To these young officials of Western thought, gold is the smaller of the two evils that does soon war with the dollar! See even the "new Euro gold coin", as they make ready for a hard currency. The dollar makers will rush to offer your "gold dollar eagle" to present dollar holders as events progress. I tell you now, silver, platinum and gold shares are not the tools of this new war. All simple persons do know strategy for conflict, we hold the weapons of our enemies. We hold gold! Thank You
ANOTHER (11/16/98; 07:58:14MDT - Msg ID:996)
THOUGHTS!
Mr. Young,
In the 1990s many investors did lose site of the reality of gold. These persons heard the call of "stock brokers and leveraged metal sellers" as they offered gold as "the investment" not "gold the world currency". Western citizens purchased small amount of real metal, then proceeded to expand return with paper gold. As such, they rode the back of an "unbroken Arabian"! This "investment" represented the "wild side" of gold in the form of paper money. Paper gold was offered as real gold in the modern day perspective. Perhaps, it be the sophisticated way to impress ones piers, socially. These same did make the great gains, only to return these same into the fire of "trading". Your mind, it does also record these moves, yes?
I submit, that real gold, held as a currency, has acted no more or less than many other paper moneys, both major and minor. Open your charts of past fluctuations in currency markets, view them all. Behold how the currencies are "volatile" with some movements of greater scope than gold. Some traders debate with the ears of clients that gold is not used as money "anywhere"!
And therefore, it is not money, but a commodity for the trading. In this aspect, investors have lost much wealth to the commission of brokers that trade only metal and have no understanding of world banking of currencies. For the gold is a currency that, today, is used to buy and sell other currency, not goods and services! As such it be the "money of moneys". Small investors of simple means will do well indeed to hold the gold, in good measure, next to the native currency they possess. In time, this gold will far exceed any other wealth held by their family.
The "Yellowbird, Truthseeker and others that "think thru these Thoughts" will find no "claws of other motives" in this mind.
Mr. Young, with respect, if you find me crazy: I offer " bring before me the lion that so devours my house, for this beast produces more than it destroys ------ strange pronouncements are these as the lamb in our garden has eaten our only food"
Sir, continue on with you present flock and do count your wealth today, for the ones with THESE crazy thoughts will compare wealth with you tomorrow. Your days be well, Thank You
ANOTHER (11/16/98; 10:30:03MDT - Msg ID:999)
THOUGHTS!
Mr. Truthseeker (#988),
In the past, the US government did take in gold for the purpose to "restore the dollar banking system". The laws were changed for this purpose. Today, the US will "defend the dollar system" from "change"! This is the large difference, yes? Understand, that the present dollar world would continue if no "alternative currency was presented". In this circumstance, a move to "price all international trade in partial payment with gold" would ensue. Such would not be good for the world economy or Europe.
To this end, a Euro is created that will allow the "freemarket price of gold" to destroy the dollar once this alternative is in place. In time, in actual buying power, gold will rise in Euros but will soar in dollars!
Do consider that for the defense of dollar reserve system, the US political motives will develop as such: "For citizens to change savings reserves from dollars to Euro will be the "un-American thing" and "It will be better to hold dollars or even gold than Euros".
Sir, for a time gold will increase in value faster that the Euro will appreciate against the dollar. In this way many will move to gold thereby blocking the escape of foreign dollar holders into metal. It is the "tradeoff" of "encouraging gold buying domestically" against the "blocking of movement in foreign dollars". Many dollar reserve banks will "freeze from buying" gold in the false thought that it will return to lower prices. The dollar will slowly plunge against any "Euro reserve currency economy".
With this I continue for Mr. SIOP (#989),
In time all native American oil production will become "uneconomic" even as the dollar price of oil does proceed into the hundreds! This be seen as the simple understanding because the coming dollar cost inflation does render even this price as "too low"! However, oil in the hard Euro nations will become even cheaper, creating much lower costs of production for goods and services. It is the action of "backing the Euro with oil" by "requirement of settlement in that currency" that will allow Europe to live as the "American Life"!
Perhaps, had the US allowed the dollar price of gold to increase in the early 70s and accepted Middle Eastern oil production as Europe does today, none of this would have happened. However, the America would have received much of the hardship that Japan receives today as the result. Still, seldom do we find the voluntary destruction of over extended industry in today's world.
Always, it is in the "end of currency system" that loss is inflicted. A different time we journey thru, yes? A history lived by your parents parents. We relive old history with new eyes, as gold is held in a different light. Thank You
Friend of Another (11/19/98; 05:20:20MDT - Msg ID:1029)
E100
FOA NOTE: What most analysts fail to grasp is that gold may well sell for 100 Euros per ounce by 2002! Of course, the exchange rate between the Euro and the dollar may show gold trading at $1,000US or much, much higher! In this event, "content of chocolate" as seen below, will be the least of anyone's problems?
Friend of Another (11/19/98; 07:33:52MDT - Msg ID:1032)
E100
Aragorn III (11/19/98; 06:25:03MDT - Msg ID:1030)
Aragorn III ,
The E100 is just part of "the master plan", as Another calls it. Think about it? For the present, political posturing will not allow the issuing of a true circulating gold coin. Besides, why get to specific about it's use now when it won't be needed until 2002. At that time the entire gold, Euro and dollar markets will be viewed in a far different light. Perhaps the E100 will be used to settle outstanding or defaulted gold loans? I never thought about it until now, but Another never said the CB gold IOUs would be settled for paper Euros, just Euros?? If the E100 is created as legal tender with no limits on production ( not unlike the American Gold Eagle) and the exchange rates bring the gold content value to within a then existing 100 paper Euro rate, the Gold Euro would become the defacto world standard for money?? If you really want to get your currency circulating, just allow the gold price as denominated in all other nonEuro currencies (dollars included), explode in price. The paper Euro (100 of them) and the E100 would come into parity!
Think about it for a while? I'll be back later to discuss this more. Thanks
FOA
Friend of Another (11/19/98; 08:09:35MDT - Msg ID:1034)
100E
Aragorn III (11/19/98; 06:25:03MDT - Msg ID:1030)
Aragorn III,
One more thing. When I look back in past posts, Another often mentioned $6000 gold in Euros. It wasn't intended to mean that gold would trade at 6,000 Euros. One thing I missed was that he said was that Euro gold would eventually trade at the $6,000US value "IN PRESENT DOLLAR TERMS"!! It now makes sense. In 2002, 100 Euros could represent a dollar exchange rate of $6,000 gold. Perhaps 60US to 1Euro! $30,000+ gold was mentioned
if the entire currency system blew up prior to Euro launch! Looks like we will get past that possible problem. Consider it! FOA
ANOTHER (11/19/98; 18:18:40MDT - Msg ID:1043)
TYoung (11/17/98; 11:47:58MDT - Msg ID:1009)
Mr. TYoung,
Your speech: " Apparently Another took offense at my prior post. Such was not my intent"
Sir, I find no offense in your words. My reply to you, it was as your words to me in past "a high fast ball offered to the high fast ball hitter", Yes? I say, the thoughts a person holds is as their wealth. To share them is as sharing your private possessions. We have conversed before, therefore, please continue to share all opinions! Thank You
ANOTHER (11/19/98; 18:20:28MDT - Msg ID:1044)
Pete (11/18/98; 01:33:24MDT - Msg ID:1019)
Mr. Pete,
I do not think this Y2K problem will impact the Euro for the extended time.
Perhaps for a time it will disrupt. For the short time, I do plan for this.
However, if a great crisis develops from operations not completed as scheduled, the heads, they will roll, yes?
Yes! Thank You
ANOTHER (11/19/98; 18:25:02MDT - Msg ID:1045)
Thoughts!
Aragorn III (11/17/98; 16:57:17MDT - Msg ID:1013)
Mr. Aragorn,
I have read your thinking as it was posted. A good consideration, indeed!
May I add this:
Thoughts of personal wealth are but the "little thing" for "nation states". It is rightly so, for they must deal with the world in a "worldly manor". This "dealing", it does require the shifting from one side to the other for obtainment of end result. In all of human existence, politics has existed and it does function today as "new money" is negotiated. The "good understanding" at the BIS holds that "no new world class currency was ever brought forth without attachment to gold". Our history books show this to be true, yes? The modern politics of Western money has leveraged the world assets with debt that offers little recourse if commerce slows. These debts, held as reserves, become as paper in a world of slow business. My friend, your private savings should not be at "the risk" with need of "the government guarantee" if a recession or depression arrives. This be not the way to run a "world reserve currency". Many modern leaders know this, but the politics prevent the rapid change. However, slowly, the change does come. Often it is offered in the way that allows forward progress, with options to "reconsider rational" at later date.
As such we find ourselves today. The Euro was considered some time ago as a new "western like" currency, with little gold. It did not receive the backing of "oil settlement in Euros". From the early 1970s, oil became the backing for the dollar in place of gold(see my other posts, also those of my good friend). That mistake would not happen again.
It is, indeed well understood that introduction of a new gold related currency into the Western "no gold" world would destroy many assets and greatly slow business. Therefore, one "escape route" was created for "nation states" and another for the private citizen.
When the commerce does slow, most metals will lose the demand of business. This will be true for gold, also. However, physical gold will receive the currency demand, a demand such as never seen before. It is in this demand that the "escape route" for private assets be found. Plan journey well, sir, we will not travel this path again in our time. Thank You
USAGOLD (1/5/99; 18:21:13MDT - Msg ID:1648)
To Another, FOA and all.........
FOA's first E-Mail to me............
Mr. Kosares, This "new gold market", it is interesting, yes? The Euro is about to create "much stress" for bulls and bears, in gold! Perhaps, we discuss the past and the future? You have a "more private" e-mail address, as it be for eyes of three, yours, mine and Another.
USAGOLD (2/3/99; 19:58:08MDT - Msg ID:2186)
Previously unpublished Another on the euro from last summer.....
My dear friends,
In passing, I came across this private mail from Another that I do not believe was ever published. I went back to the archives and did not find it. If I am wrong in this please let me know. The circumstances under which these "Thoughts" were received are evident in the exchange. What strikes me again, as so many time in the past, is the total and complete prescience of Another. I thought to go back and find this entry after reading Andrew Rothovius’ important newsletter received just a few days ago wherein he talks of a clear cut swath between Hong Kong and the Netherlands through which will run a railroad, highway and communications wire connecting Europe and the Orient -- Marco Polo's dream and the dream of the New Europe. How often have the short-sighted among us pressed Another on unimportant price predictions (quite often taken out of context) while ignoring the fundamentally important societal developments in which he himself was so interested? Societal developments that make the price predictions insignificant in comparison. It was Another, in my early questioning of him, who laid out the important development of links between China and Europe as an important development in the real new world order. It was new to me, as you can tell if you go back through the archives and check, but unbelievable with respect to how close they landed to reality. Tomorrow, given the time, I hope to provide a glimpse of Rothvius’ important thinking not just on the China-Europe connection, but his advanced analysis on the Gulf region as well. You will come away from this much less innocent than you are now.
Below Another predicts the very situation in which we find ourselves today with respect to the euro. It was posted to me July 9, 1998.
_________________________________
MIchael,
This is the copy of a question from you. I believe you lost your file of it:
" I have a question to go with the one's below:
I have been criticized for tying gold reserves to future gold backing for the euro overall money supply. I do not see how you can increase the overall money supply without increasing gold reserves. Why? Because the currency will then come under attack by speculators, investors, etc. exchanging it for gold in the open market. Am I right on this, or am I missing something. I was critized privately for this by a professor at Princeton University who probably would rather stick with fiat money. (Could I ask you to reply to this privately as I am developing my own thinking on this?) "
This was the reply I sent you:
" Re: A FEW MORE QUESTIONS........ To: cpm@usagold.com
Mr. Michael Kosares,
Your professor at Princeton University could be right and wrong concerning gold reserves for Euro. The 40 to 50 billion "exchange reserves" in the ECB are to be as the total amount for the Euro! This amount is to back / defend entire Euro currency. There be no "set percentage". What is missed by many is this: In beginning there will be much "selling" of Euros for dollars to keep the Euro from rising much to fast. This inflow of dollars into reserves will create a very large "dollar / gold cross" buying of gold! No Euro group banker, in good mind, will be selling gold for dollars! The gold portion of Exchange reserves will increase "very much" as dollar price rises. Please note: As the all other currencies will still peg to dollar for reserve, in beginning, gold will rise in all currencies, except Euros!
The new Euro is not true gold backed or gold reserve currency! This was roll of old US dollar. The dollar did never hold gold as "exchange reserve asset", which is many times much more powerful financial tool! Few understand this! Gold exchange reserves for the Euro was pushed thru by Euro Group / BIS at request of oil!
Another
Michael,
I hope this answers your question. thanks FOA "
___________________
And so we beat on boats against the current borne back ceaselessly into the past...........G'night...all.
Farfel (03/11/99; 20:23:01MDT - Msg ID:3247)
Interpreting Mr. Mystical GOLD SHORT's Message
My own interpretation is this (although I EMPHASIZE it is merely a theory based upon a day's meditation chewing over Mr. Mystical Gold Short's "ambiguous" hostile message to me):
I think that some funds have been shorting gold on the coat-tails/advice of other funds or Wall Street institutions (or maybe even the Treasury itself?) for several years now. Owing to the nature of this concerted action, it truly has been a de facto cartel (similar to OPEC). They have been doing this with the understanding that they can make brain dead money (gold carry trade) with essentially zero negative repercussions. The big money, of course, is made in buying bonds and stocks with cheap gold loans. It's been a great, profitable game to date as the DOW near 10,000 proves. Much of this spec money has been obtained from gold loans and yen carry trade.
However, the architects of the gold-carry trade (maybe?) failed to inform other big co-conspirators about the imperative of coming up with the physical gold to cover the short positions...or suggested that it would be NO BIG DEAL to do so in the future. This assurance might have been based on the "guarantee" that most of the major CB's would have disgorged their gold reserves by this date (1999) in some kind of gold SELL PANIC that actually failed to materialize. There has been gold price weakness to date, BUT NOT gold price collapse.
Now, with the developing threat of certain CB's making huge gold purchases over the short-term, these coat-tailers are facing financial ruin??
Moreover, they are discovering that their gold carry trade "mentors" have already moved stealthily into the gold market these past several months to cover their short positions without having the decency to let them know. They are being left to hang out and dry.
So how do you f___k your cheating co-conspirators without drawing attention?"
You assure them that you will be there to support the great equities bubble just as you have always done in the past..but instead, you and several other big market player buddies (who have also been "unknowing" victims of the gold carry scam) orchestrate your own little stealth plan, specifically a MASSIVE ORCHESTRATED SELL PROGRAM into the equities market before your "traitorous" partners-in-crime have a chance to figure out who is doing the selling. Just before you pull this massive sell program, you establish or prepare huge short positions in key sectors and ready your Big Media contacts to blast negative news into the markets. Then, while the equities are collapsing in a huge panic sell, you cover your shorts in the gold markets, going long at the same time, financing all of this spec from the profits you are making from huge short positions in the general equities markets.
The major variable: just how much of Mr. Mystic's gold short position is capable of being covered at a profit? If there is a loss suffered (owing to rapidly escalating gold price on the back of a GOLD PANIC BUY), then do your gains shorting general equities outweigh the gold losses? The net result might be something of a wash for Mr. Mystic...but if nothing else, you succeed in bankrupting your former "partners in crime." aka "F___king them in the ass."
It's a convoluted theory but it is compatible with his advice to buy gold in a big way and dump all non-gold related equities ASAP.
That's all I can come up with. Any ideas from anybody?
FOA (3/14/99; 11:17:14MDT - Msg ID:3351)
REALITY?
Good day to all! I offer this as a means to consider the world, in perhaps a way not seen before. It makes use of private discussions with Another, taken place during my absence from world affairs. His words are clearly separate from mine. Will anyone recognize from where the title came? Please do interpret these words as indeed, I do also interpret yours!
"ON THE FRINGE OF REALITY"
We travel through this world with our own notions of value and worth. Often giving little thought as to what part external forces play to impact our final conclusions upon these ideals. Nor do we fully understand the concepts that shape these same ideals in the minds of others.
"Another: My friend, "this game of chess" you play it well, yes? As do I. Truly, we understand the "rules of contact" concerning gold. If one player does touch his "most valuable piece", he must move it! But, in what direction will the "king of gold" or the "queen of Euros" be moved?
Each positioning, it does create different perception of "value" for opponent."
Truly, in this light we can see that our concepts of value and worth are clearly governed through the positioning of assets by political players. They move a strategic asset to the right and all other things on the board are reevaluated. To the left, a different worth is considered. Consider now, that all pieces, in this chess game of worth, hold a changing value in the minds of people in all world economies. Oil, copper, steel, currencies, they are, everyday, priced as to their usefulness not only to the owners, but also in the strategic value they hold in the eyes of our opponents. Those with whom we wish to trade! Only the King is held as the final player. When an opposing political entity posses your king in checkmate, we lose the strategic advantage to play the game. A king of gold gives the government the ability to declare this money game void and start completely over. A move not taken lightly by the opponents.
Now consider the currencies ONLY, their daily changing worth, the value they hold in daily world trade and their value to us in our business of living life? A clear thinking person must agree with the conclusion that this is only a game. Do these paper security contracts really hold any value for your life, except in their acceptance by others in trade? If our government moved an important chess player only one space, our native currency could lose all value to others! In such an event would this item still hold value for you?
Because the trading of paper securities (stocks, bonds, currencies, etc.) have become the only avenue for world economic activity, we are all compelled to play this game of chess. Like it or not, your very net worth is every day, in play! And, as such, we all watch for the next move on the board. Each, in his own quiet way, ready to act quickly and purchase the "next paper asset" that appears to hold value in trade. That is, before our neighbor beats us to it. Think now, is this the way of the free market and the democratic order that one was brought up to expect? Your life savings, not at risk of being lost, just at risk of being reevaluated to a lower level of importance in commerce.
But people, what if? What if this game of Dollar chess was quietly, out of sight, being lost? How will you know to move before others do if you cannot see the entire board? Confidence is a strange human emotion. It is fragile beyond compare. Many confuse "confidence in ones holdings" with "confidence in our judgment of others confidence"! There is a big difference. In other words, we depend on the judgment of others to protect the maintain the value of our assets. In seeking real security, our position of wealth is safe and fair as long as we can grasp how others are valuing our holdings! Openly, in the interaction of daily markets that we see "how others value what we have", thereby instilling our own confidence. But, In doing such, we take for granted one major premise, "we can see the entire playing field and all of it's players in the same light as others see it"! It is here that we approach a truth that, paper wealth today does occupy "the very edge of reality"!
"Another: It is asked that a dollar be strong in gold? It is done. These many years gold price is lowered. Brokers stand tall and say "we bring gold down" and "our judgment be correct". They hold the mind of "young boys" in early years, yes? Know them not their work was a biding for the central banks. They will come to know "good judgment" in short time. It is asked for another knight in the game? It is done better. A powerful queen comes for our use, this new Euro. Now they ask this Euro be strong in Oil. It will be done! Need dollar continue be held strong in gold? "my friend, old trees die long deaths, but die they will if water comes not" " this rain of oil will no longer find your Washington Oak"
Today, we have come to the "edge of reality" in believing that our paper contracts (cash included) are actually more valuable than the the THINGS we buy with them! For most individuals and national governments, our net worth is denominated in contracts of Delivery. The cash in your pocket is a receipt for the delivery of one dollar. Your stocks are contracts for a share of the profits in a company. Bonds, cash in the bank (CDs included) are contracts for delivery of future cash. The only value found in all of these securities comes from selling them to someone else. A game that is played using the value judgment of another. Take your time and think slowly through this. The laws of supply and demand are muted by the accepted concept that "paper securities can all be converted into real things at the present price of real things". In the end, this is the value judgment that everyone basis their holdings of paper wealth on. The Thought that, "someone else wants my paper assets because THEY can convert them into the things THEY need at today's prices". How easily would this fragile confidence be shattered if suddenly the payment for these Things required "Things in payment"? Would this not create a realignment of the value judgment of paper, worldwide?
Consider oil? Supply and demand rules the price, you say? I say, that is your value judgment based on the supply and demand of oil as seen in dollar payment. Now, see the settlement of oil trades denominated in Euros only and require a payment of things to augment dollar settlements. Suddenly, the price of oil changes radically even as the supply and demand stays the same! Because of this and at the same time, worldwide, the judgment of the value of Things as expressed in paper contracts will changes! In this light we find that the excess capacity of our life's work, as stored in the value of paper assets is no longer worth the Real Things it could be traded for.
Here, one confronts the Reality that during our long life, we did not create as much excess worth from our endeavors as we thought. Truly, all these years the Western economies produced no more assets than many Third World Countries! I ask you, for the future, in what world class money will you hold the savings of a lifetime? And more importantly, will others judge it to have value? Will you continue to "trade gold to make more paper currency" or "will you trade paper assets to acquire more gold"? Most will agree, the choice will impact one's net worth for the rest of their life!
"Another: It is to say, "these westerners are not as rich as there currency say they are"!"
Some day you will read in the financial pages: "It is in the value judgment of paper assets that people found the lies."
"Gold, yesterday, today and tomorrow"
Thank You for reading, FOA
FOA (3/14/99; 16:17:55MDT - Msg ID:3362)
jinx44
jinx44,
Hello! Thank you also for your consideration. Your question: What keeps the euro so strong?
The Euro has not been strong, yet. The greatest hurdle for this new currency was just crossed, it was born! Every known Western power in the dollar economic world hurled against this new competitor for the reserve currency spot. Indeed, it is alive today and will impact the future economic landscape for the next fifty years, at least.
jinx44, we have to understand that in today's modern world, currencies are not strong on their own. They are made week or made strong through usage. All of the same questions you asked about the Euro could also be asked of the dollar? I state them again in a dollar context: no statement or rule that ties the United States gold reserves to any mechanism of convertibility except the current manipulated commercial markets. ---- it is only the good intentions of America's largest socialist states that back the dollar. --- The fact that the US possess 0% (how will we know???) of reserves in dedicated gold is not necessarily proof that they will give me any of that upon demand. --- California and Michigan have moved further left. Democratic socialism and its' dollar isn't a dream date for my precious daughter gold --- !!! You see, all of these apply, yet the dollar has been very strong these many years.
For a modern currency to be strong, it must be used extensively to denominate trade. Truly, that is the only value of a digital currency. But why promote a digital currency such as the dollar or the Euro? The answer lies with the modern world, it's the only way we can trade globally in an efficient manner. Then we further ask, why promote the Euro over the dollar. Ironically, the very prospect of free world trade, so fought for by the American Administration, is the condition that the IMF/dollar system cannot handle! The debt built up from all of the past, unfree, projectionist old world trade is killing the transition. The policy is to sell free trade and the narrow margins it produces as they shut down entire economies because the low profits cannot service the old debt. Do you follow the logic and the problem? This brilliant, modern free trade system and all of it's benefits cannot be implemented using the US dollar as a reserve currency. It shuts off commerce that in turn limits the use of commodities such as oil, metals, food and the like. Many hail the low price inflation in the US as a victory and ignore the intent other nations had in following "free trade". That being to promote a world economy, not just a US economy.
Enter the Euro! Understand that the increased use of commodities is a good thing. It's not just for the purpose of making rising chart pattern so speculators can sell their calls! Commodity usage creates real things and helps the lives of real people. When citizens gain real productive mechanisms, they hold real wealth. Some would have you believe that third world people are enriched by saving US treasury bonds, not true! The only way to increase world trade, with an eye on building new consumers in all countries, is to remove the overhang of "dollar settlement".
The US started the free trade movement but quickly backed away when it was realized that the US currency, backed by debt through the fractional reserve system, would suffer sever inflation in the transition. Government guarantees would require the treasury (and Fed) to print unbelievable amounts of new currency to cover the unserviceable debt that Free Trade would create! Now, Europe is going to finish the job using a new currency to supplant "dollar settlement". The ECB has agreed to allow their gold to be "marked to the market" quarterly. IN doing so, oil will slowly be transitioned to settle in Euros as the dollar is lowered in value against gold. The benefit to oil will be the increased world demand that a Euro settlement Free Trade will create. Once this train begins, everyone will jump on it. Why? Because it will benefit the largest part of the world population. The dollar will implode and gold will soar in dollar terms.
So you see, my friend, the world is changing! The evolving gold market isn't about shorts being squeezed, or manipulation by banks or lawsuits. It's much, much bigger than that! As Another so often puts it "we watch this new gold market together, Yes?" Yes! FOA
turbohawg (3/18/99; 23:21:59MDT - Msg ID:3565)
USAGOLD
Michael, please allow me to follow your lead and boldly jump into your conversation.
>TRemital....What about the Nightmare German inflation? Is that possible here in your view? Bob Prechter told me the other day that it this is a debt bubble not a currency bubble. He says there's a difference. Had some strong arguments. What do you think, my wise and experienced friend?<
Because the expansion of the money supply during this cycle of history relies on the expansion of credit, it would seem that hyperinflation is out of the question on the front end. Some quick numbers, in no particular order of importance:
The aggregate money supply is about $6T ... the currency supply is about $650B (10%), counting the extra $200B the Fed says it has stashed in case of a run. That leaves $450B now in circulation, with 2/3 of that, $300B, outside the US, or about $150B in circulation in the US.
With the value of the entire US, stocks + real assets, about $20T and US govt debt + future obligations about $20T (source: Prechter's At the Crest ...), the US would have to sell everything at today's prices to get just about even, not counting other things.
Other things: $140T in world derivative postions, with $40T traced directly to US institutions. US consumer debt: $1.3T with personal bankruptcies setting records the last few years. Margin debt at record levels (can't recall figures).
Looked at from another perspective: Total cash in circulation ~ $650B --- Total 'savings' in stock market ~ $12T ... what if everyone wants their money ?? From your News & Views --- banks have on hand 1.6% of total deposits ... what if everyone (or just a few more) wants their money ??
With the velocity of money being such as it is, credit can contract far faster than the Fed can create it. They learned that once in the '30's. In light of all this, doesn't deflation seem inevitable, recent inflationary indicators notwithstanding ??
But when the bubble pops and the credit contraction viciously sets in, the Fed's only recourse to expand the money supply then will be to print more paper dollars. And that's when hyperinflation becomes a real threat, on the back end.
Well, that's the way this observer sees it anyway. Despite being known of late for missing some calls on timing regarding the US stock market (and hitting many others), I think Prechter has nailed it.
Sorry for butting in ... I'll go to my corner.
turbohawg (3/18/99; 22:30:26MDT - Msg ID:3564)
A Query for the Knights
Still trying to piece together Another's story. Last fall, a post pointed out that the story had been constructed along the gold supply/gold demand/oil supply equation ... missing was any consideration of the gold demand variable. ET brought it up again last week. FOA touched on it for the first time upon his return the other night, but only in a general way.
But isn't oil demand critical ?? When the debt bubble pops on a worldwide scale, oil demand is going to plummet. What kind of power are the oil producers going to have in such a climate ?? Trying to reconcile the answer to this question with Another's predictions has vexed the hell out of me.
And if the oil cabal has a plan to change the oil trade from dollar based to euro based, why doesn't Another just spell it out, timeframe and all ?? Why don't the govts of the oil producing states officially announce their intent ??
FOA has made the point at least twice now that the planned move of the oil suppliers out of the dollar and into the euro is not so much about moving to a strong currency as it is about moving to a less weak currency, one without the debt overhang. But how is that going to alter the oil demand dynamic once the bubble pops ?? When the world economic engine locks up, how can they sell oil in any currency if nobody can buy it ??
After re-checking my premise about a month ago and asking myself if there could be a situation where oil demand didn't matter, a scenario has come to mind that I want to run thru the Forum.
If such a plan exists, and they were to announce it, would they not be cutting off their nose to spite their face ?? If they announced said intentions, would not all nations quickly move to the euro ?? Would that not pop the world dollar reserve debt bubble, effectively shutting down the US consumer market in particular, and sharply curtailing oil demand ?? They have no need to make such a significant policy maneuver now. They can take their dollars for oil and convert them into whatever they want to, including gold at a low dollar price. Furthermore, were they to take action that collapsed the world economy, wouldn't they be the one's receiving the brunt of the blame ??
So then, at what time would such a move have the least effect on oil demand while freeing them from any blame for a collapse ?? When would the oil demand variable be as close to a constant as it will ever be ?? Is it not AFTER the debt bubble has burst, when demand has hit it's low ?? And isn't it at this time that the transistion from one currency to another would cause the least monetary turmoil in the world ??
This scenario leads to the conclusion that the timing of the move is set not to a date but to an event, and after, not before. The dollar may actually be strong at that moment in a flight to liquidity. But the move of oil to the euro would cause the dollar to do it's best rubble impersonation. Then, the only protection for those whose wealth is dollar denominated is gold.
Does this one potential scenario not answer the vagueness of the timing question, the apparent lack of concern for oil demand, the missing announcements or rumors from official sources of their intent, and the reason for Another's continued self-assured admonishments to invest in gold ??
While much transitory thought has been put into solving this puzzle over the last few months, I'm sure there are holes in this answer . But perhaps it can serve to help us get closer to the truth (if not too ridiculous). Knights ??
FOA (03/20/99; 11:34:12MDT - Msg ID:3615)
REPLY TO PHinLA
PHinLA:
Hello! If we look back at my "FOA (3/14/99; 16:17:55MDT - Msg ID:3362)" a broad outline begins to take shape with respect to the Euro. But, when searching for the end result of this world money chess game we have to apply all of the players in the contest. Let me expand:
If we can agree that oil is the most important world commodity then we can conclude that the "reserves of inground oil" constitute the real foundation for all future commerce. The owners of these reserves are very aware that any mispricing of oil (in real terms) can and does lead to disruptions in the world trade. However, mispricing is not just a function of "the price" of oil but also how oil is priced, as in; What medium of exchange is it denominated? It was understood some time ago that the $US would indeed become "debted out" as digital currencies go. It was the logical conclusion to the world reserve money being removed from the gold exchange standard. If you have read Another, then you understand that the dollar was moved off gold, in 71 as a US strategic play to force the Middle eastern oil up in dollar price. This would allow the marginal reserves occupying friendly US nations to produce without competing against the "low cost" reserves that were soon to dominate world production. Thus giving the Western economic structure breathing room to continue functioning on an IMF/dollar based settlement system, even while off the gold standard. We arrive at the final result today, with the dollar so expanded that it is failing the "free trade conversion" the world so craves. Entire countries are economically impaired in an effort to maintain the fictional valuations of "US assets"! (again please read FOA #3362)
The strategy to counter this outcome started with the formation of the ECU (European Economic Unit). It was started in the early eighties as a precursor to the now existing EURO. As Another said before, it took at least ten years longer than anyone thought, but it's here. In no small way has this been responsible for the 18 year (gold bear market, as some would call it) upward revaluation of the dollar by the BIS. It was the longest "stop gap measure" I have ever known to exist! A tremendous success by any standard, to keep the dollar stable for such a time. Many think it was "good old American know how" that did it. Well, now we will see "who knows how" as the world unwinds all of this dollar debt!
The Euro, in and of itself will never be a true reflection of the social and economic functions in the Pan European Arena. Much the same way as the global use and valuation of the dollar was truly never a reflection of the Real America! A true world reserve digital currency is maintained by usage in trade settlement and Gold Currency Valuations. As it is, this is created through BIS manipulations of foreign exchange (dirty float) and "official money flows out of all non reserve currencies into gold (CB deals)". You have but to look at most native currency gold price charts to see how the dollar is benefited. The converse of this will show the Euro as the future stable gold pricing mechanism. However, we have never, in modern world affairs, had a world reserve currency of the current dollar scope removed from a supported gold valuation. The chart of the dollar in gold will be incredible for the short time that it is allowed to express the obvious. Then the controls will begin!
To answer your question: "Why has the Euro been so weak? One might have expected that others (as in the markets) would already be deducing the "secret moves" and re-evaluating the value of the dollar accordingly."
PH, please allow that this is not a "New York day trade", but rather a world money transformation that will affect you "down to the shoes on your feet". The current change in the nature of Arabia should be telling! I'll let Another describe, later. Also, history usually documents that the most earth moving events were obvious, all along, but no one believed them!
And, Yes, I do think that the oil markets are going for the Euro, at least in Pan European trade for now!
I will offer more a little later, thanks for reading FOA
FOA (4/25/99; 17:40:44MDT - Msg ID:5145)
GOLD?
CoBra(too) (4/25/99; 16:45:06MDT - Msg ID:5141)
Hello CoBra,
You are right about this: "The gold lease game is just another over leveraged or pyramid scheme or scam feeding the paper casino bubble"! That is exactly what some of it became. But not all of this trading is by gamblers / traders. A very good portion of it is government CB money management used to balance reserves against paper currency. Just as the days are gone when governments print paper currency outright to manage monetary policy, gone also are the days of outright public sales of gold. Even with all the discussion of CB gold sales these past few years, one has only to check the World Gold Council site and see that not that much gold was taken out of CB procession. Most of the sales were just redistributed between governments. And who is to know how much of the actual sales were purchased by other major entities as a currency wash?
Now, gold is going to be forced up by the same players that needed it down. Yes, the shorts will most likely create a major market problem as they are liquidated with Euro loans to pay off gold loans, but that is not the major economic play here! Gold will rise as the dollar gets imploded, setting the stage for a reserve currency transition. It is starting now, today, this hour, as we speak. As I mentioned in an earlier post a few days ago, the IMF / dollar engine is shutting down. Just look at M3 money supply GROWTH, straight down! The IMF must quickly find liquidity through government gold sales to support dollar debt reserves held in other countries. If not, the dollar will be destroyed in a nuclear currency event. By selling gold receipts, they can leverage the those assets ten times plus, using derivatives. That money will be used as loan collateral. Ever wonder why we never see the physical trail of the real gold assets? It's because they never move the gold, just free it up to write derivatives against it in the OTC market.
Who will gain from this? Anyone that has leveraged dollar reserves into gold derivatives reserves that will be bailed out using Euros! Not to mention that gold will soar into the thousands. I wonder what entities would have purchased so much gold?
FOA
FOA (4/26/99; 10:10:31MDT - Msg ID:5183)
M3 money supply!
http://www.kitcomm.com/pub/discussion/M3.gif
All,
This is why they want to free up and leverage the IMF gold. The other world CBs are not selling so the only way to force it out, for paper liquidity creation is through an existing IMF structure! The game continues. FOA
FOA (4/28/99; 7:04:43MDT - Msg ID:5261)
IMF
Arizona Hiker,
I had to laugh when reading that post. Someone has to have a really good brain for humor to put that together. thanks
Aristotle (4/28/99; 0:05:40MDT - Msg ID:525)
Aristotle,
I think the IMF gold sale has been worked out already. Any further public statements are just political posturing. The term "sales" is indeed misleading and true words like "leveraging assets to provide further loan guarantees" will never be used. Aristotle, gold is now the last asset and the US / IMF factions are going to have to make it rise to provide liquidity. As I said before, the BIS and it's European / other allies have (for the past year or so) blocked any further lowering of the gold price. If the US wants to protect it's remaining dollar reserve viability, (by maintaining all foreign dollar reserve debt) it now must allow it to depreciate against gold to provide liquidity.
That, my friend is the only avenue left for them! This will, as Another has pointed out, drive assets to the other new reserve system. As I mentioned to Christine, national entities will have a choice as will you and I and Christine. That being, stay with a falling dollar or move into Euros and gold.
Free choice is what it's all about, not conspiracy. FOA
FOA (4/30/99; 22:33:18MDT - Msg ID:5420)
Reply
USAGOLD (04/30/99; 10:08:12MDT - Msg ID:5389)
Insights.. FOA
Michael,
Hello again! I'll reprint the item you committed on:
"This points to the odd circumstances that require America to free up gold through the IMF so they can benefit. Whereas, the ECB has but to only let the price rise!
When one puts on a political thinking cap, that statement does say a lot! Why else would the ECB establish a precedent of routinely "marking to the market" their gold (and the gold of the Euro System banks also). Then add to that your remark of:
"becomes clear that this is a very risky business and that they are being asked to sacrifice their gold to defend another country's currency."
Suddenly, we see who's gold was really at risk, all along! Are we in the last days of the dollar, as the US agrees to politically drive gold higher to benefit the IMF? And by extention, world dollar reserves as expressed in dollar debt! Will the US be forced to drive it's own dollar down against gold in an attempt to save it's reserve status? Dynamic times, indeed! FOA
FOA (5/7/99; 8:09:11MDT - Msg ID:5699)
BOE gold sale!!
ALL:
A quick post, then I must go.
The decision by the UK Treasury to sell gold, points strongly towards the severe political pressures upon the IMF / Dollar Reserve factions! The "dollar reserve system" is truly in trouble. With the IMF gold sales in doubt, or delayed. And the EURO / BIS factions blocking any new gold. New gold cannot be found to maintain the backing of collateral for existing paper shorts and the massive liquidity they provide. The UK is directly in the middle of this as the LBMA would all but "disappear" if world dollar liquidity were to shrink from a higher gold price!
Notice what the Bank Of England said: "It also said that eligible bidders will be limited to members of the London Bullion Market Association and central banks and monetary institutions holding gold accounts with the Bank of England." Truly, the IMF / Dollar faction alliance is failing, with each now about to support it's own entities! The BOE will most definitely back the LBMA first and foremost with fresh collateral!
The beginning of this new bull market in gold will be mired with "extreme" volatility! We never expected anything different. With the ending of the largest circulating reserve currency system about to ensue, nothing less than an investment in "actual gold bullion" will work. For some time, Another (and myself) have pointed out that no one will be able to play this change using any form of leverage!!! Major gold buyers and investors know this, especially oil producers and holders of "paper gold backed by the Euro CBs"! . Today's action, will be nothing compared to the swings to come, as these moves will be "political" attacks of a timed nature. There purpose is "NOT" to destroy private "paper gold" investors", rather "to respond to an ongoing currency crisis"!
This is perhaps the "Third" reason for not holding gold stocks (see my first two in FOA (5/1/99; 21:04:42MDT - Msg ID:5465)). Each 20% gain in the XAU will be given back with the swings in the physical market. Again, during a currency crisis, hold currency, but, in a gold currency crisis, hold gold!
I will have much more on this dynamic market in a day or so! FOA
FOA (5/8/99; 20:16:12MDT - Msg ID:5772)
BOE!
ALL,
Well, by now everyone must be aware of the "open management" of the gold price. "Another" had been bringing this picture to light long ago. In puzzle form, he offered ideas, Thoughts and directions for consideration. Only a short time ago most analysts completely wrote off such "thinking" as being absolutely "on the fringe of reality"! Today, the "absolute fact" is that gold is used and managed as a "world currency" of major importance. After the BOE announcement on Friday, currency traders are grasping the concept that gold is, as never before "at the center of reality"!
Many different factions are maneuvering gold these days, and each has their own agenda. The IMF / dollar faction, many years ago, went along with Europe in lowering the gold price in dollar terms. It made the dollar look stable and enforced its continued use as the "currency of settlement" for strategic commodities. Any country running a balance of trade surplus of dollars, was free to buy gold at a stable to lower price, and partially replace the paper dollar reserves. Because the dollar is the "world reserve currency" many countries ran dollar surpluses with trading partners outside of the US. In this light we can see how the integrity of the dollar was expanded, even in countries of nonnative dollar origin!
Not only was physical gold purchased, but paper gold with distant CB backing was also accepted. Ever wonder how all of this gold was placed? You see, over the last many years, there has been a quiet boom going on in gold ownership. The sheer number of world gold buyers has more than doubled, along with the amount of gold owned! The problem is that the amount of physical gold in existence has not doubled, only the warehouse receipts.
Most of it never, ever left the vaults, as the true placement was done in receipt form. Yes, slowly, over the years, even major private bullion holders offered up their physical for "convoluted, future delivered, leased and released gold". Much of what is now held is little more than a form of gold options for "future deposit". Not unlike the "cash dollar that is supposed to be in your bank", but really isn't? As the bank only holds your deposit as a "credit" to your account, so is much of the world traded gold "only a credit of account"!
When Central Banks (mostly the European, at first) began to lease / lend gold, they were beginning what was to become "the master plan". The creation of a broad, liquid paper gold market that would ultimately undermine the dollar, in time. As I said above, initially it was offered as an "appeasement" for continued dollar use. However, even the IMF / dollar faction never expected the successful creation of another competing reserve currency, the Euro! Right up to its offering, the political money was on the side of a complete failure, 100% with ten to one odds.
Not only did they lose, the Euro even accepted a percentage of gold as Euro reserves. If that wasn't enough, the ECB also instituted a policy of "marking to the market" its gold reserves and effectively blocking any new sales or leases. These actions, as subtle and misunderstood as they were have had the effect of officially making gold money again. Yes, this new broadly traded paper gold market, standing side by side with the physical market has become a world currency.
The problem this creates for the IMF / dollar is that most, if not all of this new gold market is settled in dollars! Dollars that broke a contract with the world in 1971 and went off the "gold exchange standard" at $41 to the ounce. The same dollar reserve currency that is not supported when the gold price rises. If the ECB does nothing but stand firm by not allowing physical out of its vaults, the dollar will be trapped by gold. The US treasury cannot use gold as a backing reserve as the ECB does, because the BIS would claim it at $41 to settle trade imbalances. They have that authority and as such it leaves the US the only option of outright gold sales. However, with the dollar as "the" reserve currency, we can expect many nations to bid "aggressively" for any US gold. China, among others comes to mind! That is what America found when they tried to auction its gold in 1978. The Euro carries no such baggage.
This all leaves us in the present political situation, where the IMF entity, that was formed to replace the gold standard, is now trying to back the present paper gold with physical to prevent a run on the dollar. It is a futile effort as the ECB / BIS have grown the gold market into massive proportions by encouraging the many year expansion of holders through paper securities. All denominated, ultimately, in dollars. We will see $10,000 gold, count on it! It's the only way this can be resolved. That same figure will create massive backing for the Euro and hasten its journey into world reserve currency status. Expect most of the ECB liability for gold to be easily converted into Euros at the dollars expense.
FOA (5/8/99; 21:10:56MDT - Msg ID:5780)
comment
Chicken man (5/6/99; 18:32:10MDT - Msg ID:5671)
Christine
A very productive walk!.....why not another virtual currency like the EURO....? keep everybody in a state of total confusion.....If FOA or ANOTHER would like to comment as to "Will the Brits (LBMA) rescue the EURO ?
If gold goes to $1000 ,then the Euro would have reserves backed with 45-50% gold instead of 15%....right...?
Hello Chicken man,
No the Brits will not rescue the Euro, but the Euro may well rescue them from going down with the dollar! The BOE sale is but a small drop in the bucket, attempting a political statement that supports the LBMA with gold.
If I remember right, Another never thought that England would survive the currency change. It now looks like they will, at least, go down fighting!
Yes, the ECB system banks will be well backed with reserves, even if their dollar holdings crash! I expect they will be buying gold with dollars, in the open if the US congress does sell any IMF gold reserves.
FOA
FOA (5/11/99; 17:37:51MDT - Msg ID:5948)
The OI thread:
Gandalf the White (5/11/99; 9:07:31MDT - Msg ID:5913)
BC (5/11/99; 10:39:35MDT - Msg ID:5923)
Peter Asher (5/11/99; 13:53:47MDT - Msg ID:5935)
Peter Asher (5/11/99; 14:18:42MDT - Msg ID:5937)
Gandalf and All,
I want to expand (or repeat) about the Open Interest Posts. First, I quoted from the wrong post. It should have been #5418 as it gives a better background. Here is part of it:
"""""FOA (4/30/99; 21:59:59MDT - Msg ID:5418)
I am watching Comex gold trading now, because this should be the place where local (US based) funds attempt to reduce their exposure to any future rise in gold (perceived or other wise).
Private investment funds, that have raised capitol through any form of gold short securities, may be asked to expose their "risk". The full group of investment entities may also be expanded to include "any" other parties that have dealings or actual exposure to these funds that are short. In essence, every major player in the gold market could be looking for a way to "neutralize" their books to scrutiny. Even though your exposure may have come from the unregulated part of the OTC world gold market, if one is "hedged long" on a "politically acceptable" exchange, then your position is "politically not at risk"! The books stay closed.
So why watch Comex, open interest? If a certain political faction suddenly changed direction and wanted to revalue gold as an asset to lend money against, the fasted way to do it is to drive currency traders into the paper gold traded on comex. When looked at in this light, gold takes on a very different appearance than the commodity we thought it was.""""
I went on to talk about volume. The point of this post and my one earlier #5905 was to prepare a background for the coming major trading that will take place on Comex. It will not be about trying to take delivery of comex gold, rather to match paper longs against "uncoverable" paper shorts". As the gold market becomes more dynamic and media attention increases, most major traders that are short will need coverage on their "books" not actual delivery. In a way, what I said above.
Peter, a few dollars out of line will be nothing compared to the financial and political liability about to be heaped upon the world "gold shorts". As I told Gandalf, it is already spilling over out of the OTC trading and showing up on the gold options open interest. Small as it is at 400,000+, it will grow until that arena becomes frozen from use (read that the premiums will explode)! Then the real Comex OI will start growing. They will exercise some options for future contracts, if only to roll them (Futures contracts) over to further out delivery.
BC, hello! There is most certainly a correlation between the BOE sales and the expiration of comex futures. It points to the whole reason for the BOE sales in the first place. An announcement that this is the end of the game! They are going to take out as much of the "most favored" Bullion merchants as possible and let the rest burn.
I know that Michael (USAGOLD) does not think that England will go for the Euro, but some line has been crossed. The US is now about to drive gold UP! Please read this partial post:
---------------FOA (4/30/99; 22:33:18MDT - Msg ID:5420)
Michael,
Hello again! I'll reprint the item you committed on:
"This points to the odd circumstances that require America to free up gold through the IMF so they can benefit. Whereas, the ECB has but to only let the price rise!"
When one puts on a political thinking cap, that statement does say a lot! Why else would the ECB establish a precedent of routinely "marking to the market" their gold (and the gold of the Euro System banks also). Then add to that your remark of:
"becomes clear that this is a very risky business and that they are being asked to sacrifice their gold to defend another country's currency."
Suddenly, we see who's gold was really at risk, all along! Are we in the last days of the dollar, as the US agrees to politically drive gold higher to benefit the IMF? And by extention, world dollar reserves as expressed in dollar debt! Will the US be forced to drive it's own dollar down against gold in an attempt to save it's reserve status? Dynamic times, indeed! FOA-----------
As opposite as it seems, the BOE is selling gold to soften the dollar exit for their members, not to bring their gold ratio in line for entry! They are spliting fron the US because the gold / dollar game is lost. Now from #5699:
-----------The "dollar reserve system" is truly in trouble.
With the IMF gold sales in doubt, or delayed. And the EURO / BIS factions blocking any new gold. New gold cannot be found to maintain the backing of collateral for existing paper shorts and the massive liquidity they provide. The UK is directly in the middle of this as the LBMA would all but "disappear" if world dollar liquidity were to shrink from a higher gold price!
Notice what the Bank Of England said: "It also said that eligible bidders will be limited to members of the London Bullion Market Association and central banks and monetary institutions holding gold accounts with the Bank of England." Truly, the IMF / Dollar faction alliance is failing, with each now about to support it's own entities! The BOE will most definitely back the LBMA first and foremost with fresh collateral!---------------------
FOA (07/19/99; 20:10:08MDT - Msg ID:9204)
All Posts this weekend!
ALL:
I have been reading and thinking about many of the weekend post here. If things play out along the path that Another has outlined, this gold market is going to be a very hard one to stay with! I should have known this would be the case.
What makes us think that the fall of the dollar (or even a major inflation with the dollar still left intact), would open the door to easy profits for savvy gold and silver investors? Are we so naive (or ignorant) as to believe that our winnings would come without major risk and pain?
Think about this? What if the 1970s wasn't a guidebook for gold investing. Maybe it was only a controlled explosion in the gold price as Another offered. If so, what lies in the future could truly be the downfall of the dollar, and we will participate in a massive transfer (and loss) of wealth such as this generation has never seen Such a turn of events would most certainly come with incredible risk for anyone that would attempt to financially survive.
My views:
Anyone that tries to time this market with paper gold investments (futures, mine stocks, mine options, gold certificates, etc.) is making a play for a repeat of the 1970s markets. Or even a quick turn around of the current trend. Perhaps those are good bets.
But, what if, in the late 1990s we are currently beginning a "controlled implosion" of the dollar? A type of slow dollar debt destruction, that breaks every market that uses the dollar for settlement ? A kind of dollar squeeze that changes the psychology of foreign nationals that use it for trade. An attitude like this one from Asia::
"This dollar thing is killing us and it doesn't want to go away. Their (IMF) solution is to lend us more of the same! After all these years, it's getting to the point where we wouldn't lose that much if we just switched our trade to something else. We'll pay the dollar debt when and
if we can!"
Do you get my drift? This sort of "implosion" is a viable direction and would impact the gold market in a far different way than in the 70s. The dollar wouldn't necessarily crash quickly, just slowly be defaulted on in a transition from it's use. In this circumstance, buyers could create a major short squeeze/run in the paper gold market that could drive it's price so high, so fast, that the exchanges close from immediate bankruptcy (without any gold delivery).
OR, the world does just what I outlined above. The players on the buy side slowly back away from the dollar gold market (the entire present paper market as we know it) and allow it to short itself into bankruptcy in an effort to protect the dollar. Let's face it, the London market could "burn" as Another puts it, in both of these fashions.
Both ways, no one is going to be taking delivery of any physical gold during this era! Except for a black market, gold will have no viable market makers and no official exchange from where we "usually" buy today. As Another points out, gold will probably be trading on a new Euro exchange and that is where he gets his $10,000++ rate if one uses dollars.
Friends, this is new and chilling for me. I truly never saw both sides of this, in this way. If the market does play out in this second fashion, paper and mine gold is indeed finished! Yet, physical bullion buyers must be prepared to buy into a product that no dollar price may exist for! Indeed, before all is done, the dollar gold price could fall to the degree that Another has offered!
Again, I should have realized this because I often pointed out that what was conning is a change in wealth the likes of which we have never seen. The swings in the dollar value of all assets will be enormous. If one is right about gold, their holdings could show the same swings in dollar prices.
I must think longer on this, because, truly, I don't know what else to say!
Thanks Everyone FOA
FOA (07/24/99; 15:37:27MDT - Msg ID:9588)
Reply
SteveH (07/24/99; 14:20:29MDT - Msg ID:9584)
---------PS. FOA, the first paragraph above seems to describe what a Gold contract for oil is. Did I get it
right?
Bullion Banks guarantee or deliver gold to a bullion bank for a small fee of 1 or 2%. Most probably only guarantee gold backing in the event a bullion bank defaults. A bullion bank cuts a deal with a mining for physical gold in return for money to operate. The mine pays back the loan over time with gold plus gold interest. One or more oil countries buy the contract from the Bullion Bank for the repaid gold from the mine with dollars from oil production. The oil country now receives the gold that the mine repays. The bullion bank's guarantee from the CB goes with the contract to the oil country. So, if a mining company defaults on a repayment, the Bullion Bank will guarantee the oil country payment against the default. It may actually have to go to a CB for the gold to repay the default. This is what I believe is happening in the Bank of England Auction.----------------
Steve,
It's right in that that is one of many ways. When one reads "Aristotle's Work", it's so easy to see the purpose behind it all. The maintenance of a world fiat currency system requires a constant expansion of liquidity (more money) to keep it working. In the old days, when a borrower defaulted on a "gold loan" (that was what a dollar loan was back then) the entity that held that debt paper lost his buying power. Be it the bank or an individual, the loan security became worthless and was written off. The write-off was certain because no one could (or would) come up with the gold to pay off the loan. Eventually, the US did issue more "gold loans" in the form of the dollar ("a gold contract currency") than it had gold to honor the $35 contract. Just a plain old fraud of creating new money so someone of importance didn't have to fail (lose some of their wealth).
Today, all kinds of loan guarantees are used to back modern fiat dollar loans. If they default, someone (a national treasury) prints the money to buy the loan so no one loses anything. Usually, if the loan is guaranteed, the lending institution just lends more money to try and keep the business going. However, in real life, a fiat reserve system, just as in a gold money system, is always in a natural state of deflation as bad loans appear. So, in time, a paper money system always swells large enough to pass the point that it can create more liquidity (money).
That's what happened with the dollar reserve world. Every US treasury obligation held as a Central Bank reserve was used to create it's maximum amount of liquidity. Sometime in the 80s or so they had to start borrowing against gold as debt defaults were destroying wealth faster than the dollar system could supply replacements.
We all worry so much about CBs lending gold reserves, my friend, every other reserve they hold is in the form of lent assets! I won't find any crisp, unlent dollar bills in any of their reserve hoards. The gold represented the last asset for the expansion of the world money supply. It's lent because they can fractionalise (sp?)it just like a fiat currency. One ounce sold creates only one ounce of liquidity. One ounce lent, can create 90 ounces of paper gold and the dollar liquidity that provides. When they do actually sell it, most of it goes to other CBs. A "fact" supported by the WGC that no one wants to factor, because it destroys their argument about the CBs supplying physical to fill the deficit. Check it out, 300 tones or so over ten years is the net out reduction of gold reserves.
All of this bears out why this entire "new gold market" is SO important to the present dollar / IMF system. It's entirely a paper gold arena that really trades CB vault gold "as guarantees". Crash this Arena and the dollar is history as we know it.
thanks steve, I'm here for a while. More later FOA
FOA (07/24/99; 19:28:32MDT - Msg ID:9597)
Comment
Aragorn III (07/24/99; 17:30:34MDT - Msg ID:9591)
FOA, your continuing efforts are appreciated.
Aragorn III,
Thank you for the thank you, sir!
The revelation of a failing gold market always struck me as one with a sky rocket dollar price. It took me a while to gather the thoughts of where he was going with this. Your partial Email to a friend is a perfect expression of what is happening. Very well explained. I earlier understood the dynamics when I realized that the "plunge" would be a "end" event with a very short duration. The positioning of the market, prior to such a catastrophe, will no doubt bring six month lead times for delivery of physical. A dealer with "bullion on hand" would never sell it anywhere close to "paper reality" in such a market. Just as Another pointed out tonight, the end time paper price is something no one is going to participate in.
Conversely, an external event could plunge the dollar before this all plays out. In that situation, the shorts would shut it down in a mad scramble to close. Then we have "Bullion Bank destruction" from a soaring price. This was my "limited" conclusion. I think everyone can now see the difference between my brain and Another's!
I agree with you entirely about Ted Butler and GATA. They don't realize what they are fighting, in that the entire Western monetary system is built on the same concept as gold lending. The system will destroy itself, as it always does. Yet, we will go to war before any "manmade" lawsuit forces an end to the dollar reserve system.
Just as the WGC saw the error of their ways in promoting gold as jewelry, so should GATA change. If they want to preserve their members (GATA) lost asset values, as represented in mining stocks, they should be attacking the mining industry. Not the Bullion Banks. The quickest way to wealth recovery would be for every mine to declare bankruptcy from "impaired assets" due to low gold prices. It would jam the shorts into covering and impair the Bullion Banks before they could attach assets in court. The big time rise in gold would still shut the market, however the negotiating table would be full of "let cut a deal lawyers", supplied by the CBs, free of charge.
All of you stock owners out there would have to live with no market for your investments until this works out. I have to admit, this would make me invest in the industry. It will never happen, of course.
thanks FOA
"In order to bring back gold the london/comex gold market first has to die. That could happen by means of rising or declining gold prices".
FOA (08/06/99; 10:09:22MDT - Msg ID:10486)
Several posts.
Canuck (08/06/99; 05:29:55MDT - Msg ID:10468)
Response
Bill, The Scot, & Stranger,
As The Unknown Economist recently stated, '...let's not complicate the issue ...'
Gold is either going to go up or its going to go down. I believe Watcher and I are in the same school, that is, gold has an inverse relationship to money. If stocks, dollars, etc. (boom) gold will go down, if they bust, gold goes up.
I have 'poised' myself (cash) to enter into gold very quickly (15 minutes) if Y2K rears its ugly head. I'm, in general terms, 80% cash, 10% PM's, 10% resource.
Canuck,
I'm going to make several posts now. Please read all of them as together.
I would like to comment on your post. Most people in this era live their lives with little fear of change. As "The Unknown Economist" puts it, we are way too complicated. Just keep it simple! I agree. The majority of us can and do drive down the highway without seat belts. If we see to
many wrecks, then it's time to buckle up. On a golf course, don't worry about lightning. Get off the green only after several people have been hit, close by!
Most of the world functions in this way. Be it in private life or business, the perception is that we can rearrange our strategy "IF" things start to look bad. The reason we build on this mindset is because the odds are in our favor. Through out time, seldom do events turn so radically against us that we cannot dive for cover before all is lost.
This is the "steady as we go", "let's not go overboard", "play the odds of recent history to your favor" thinking that perhaps Stranger and several others here promote, regarding gold. It could be a good bet. But, if you follow the reasoning offered by myself, based upon the thinking of Another, we could be about to make one of those "once in several centuries changes".
When things do change to this degree, history has shown that it's always these "regular simple thinking" people that get ground up, "unmercifully"! Canuck, you are "'poised' (cash) to enter into gold very quickly (15 minutes)". That's fine, but a "fantastic financial crisis" may, this time, lock up the very system you use to function in. Your order may book in 5 minutes, but if the other side of your deal can't close, you will receive nothing! During these few times that events reverse "big time major on a world class scale", everybody holds onto what is considered "most dear". You will hear this often: " Yea, I owe you 5,000 barrels of oil. Yes, I have it, but it's going somewhere else because your deal with me is not as important as my deal with this other guy. He has something I need more, so get in line and kill me or sue me! I'm bankrupt anyway!" This is the way business dealings are resolved during war, natural disasters and major international disputes. Your, so called "lightning fast trade", is killed by a much larger breakdown involving much larger players.
Truly, I don't expect most people to change from this current line of thinking that embraces a "western style" of secure economics. If they did, it would negate thousands of years of natural human behavior. Most of the time, people will continue to play with paper contracts right up to and during the "burning of Roam". The Hunts thought they had "big" oil in Libya. They even borrowed against those assets as banks clamored to lend against these secure in ground holdings. Right up to the last day, traders booked contracts against delivery of those producing wells. Then, in a split second, it was nationalized. All gone! The same will be seen with gold stocks one day. Traders will buy them right down to .05, and still say, "I know it will come back with the demand for gold because the asset value is in the ground". Heard this before Carl? Gold goes from $100 to $10,000 during the crisis, and someone bigger (the local government?) then the shareholders says:
"Yes, I have it, but it's going somewhere else because your deal with me is not as important as my deal with this other guy. He has something I need more, so get in line and kill me or sue me!"
None of this is anything new. It's just that most "westerners" haven't been defaulted on recently, in a big way. Think about it. FOA
FOA (08/06/99; 10:16:30MDT - Msg ID:10489)
Several Posts
Golden Truth (08/06/99; 01:19:34MDT - Msg ID:10457)
Sparks Fly Over GOLD Pegged At $200.
http://www.nationalpost.com
This article proves the tremendous tug of war that is going on to have two extreme views like this.It proves something is terribly wrong with GOLD!
I have to come back to F.O.A comments about how he disagrees with Another over the Market imploding or Exploding. It seems even the experts can't decide either way it should be very interesting to watch. Another says implode, F.O.A says explode, in my simple and humble understanding of the events to be played out.
GT,
Yes, I got hit right between the eyes when Another put this reasoning to me. Anyone that does not have a firm grasp of this "new gold market" is going to need a lot of guts and conviction to continue to hold even physical gold as this plays out. It could go either way, but the downside will hammer the current "secure trade and paper mentality" of most Americans. (see my last post to Canuck)
Most traders / investors are just looking for a little new inflation or some type of Y2K disruption to bring gold (and gold stocks) up. The process of moving away from the current gold market to a mostly world physical market could have the effect of driving down the quotes of London gold. Because, every physical dealer and trader buys from someone "upstream" from himself, we must look to the ultimate creators of the "gold price" to see how it's made. At the very top of the food chain, are all the menders of the LBMA, most of the major banks of the world. Practically all of their price setting function revolves around the paper trading of "allocated or unallocated" bullion accounts and the cash settlement of future delivery contracts. All marked to the market and settled in dollars. If the world begins to move away from "investing in gold" using dollar settlement and towards outright physical delivery (as represented by vault certificates) settled in, say Euros???? I think such a process will bring a shrinking liquidity into the dollar gold market along with lower quotes for "contract gold". Just as one bids the price of bonds down from $1,000 par to say, $300, not because the yield isn't good, but because the principal may never be paid.
Because "this new gold market" operates in a kind of parallel universe, most "western traders" will not see the dynamic at work. It will appear on their computer screens as falling gold prices on the world dollar market and increasing premiums on physical gold. If the London price is $100, and your dealer sells it at $650, the press will say that the premiums on coins have risen to $550 because of gold horders (or something to that effect). It will come across that anyone that buys gold at $650 is getting "ripped off" (english pronouncement) because everyone knows that the true gold price is set in london at $100. This is the arena that the mines may get dragged into. Forced by the bullion banks to sell into London in much the same way they forced NEM to hedge. Today, LBMA controls most of the world mines. Believe it!
So, I hope this is understandable? FOA
FOA (08/06/99; 12:08:37MDT - Msg ID:10498)
Last of several posts
USAGOLD (08/06/99; 09:16:08MDT - Msg ID:10480)
" I also believe that each of these currencies will be linked in some with gold. The euro serves as a prototype for the currency of the future. Stretching out the implications of such an international exchange rate system, gold owners who have assiduously exchanged dollars for hard metal over the years will be major beneficiaries of such a system. The dollar price of gold would have to be substantially higher than what it is today to make the reserve system workable, just as a much higher price than $35 was necessary to make the post-Bretton Woods floating exchange rate system work."
Michael,
Good report. I agree, In some way, gold will have to be brought back into the money system. Only, the current gold market will have to die first. That process could take London gold way up or way down. It's taking longer than I thought to play out, but it's starting to crack now. This should get real interesting! FOA
FOA (8/10/99; 9:34:11MDT - Msg ID:10809)
Steve, (just thinking):
I wouldn't think of it in quite those terms. Gold is an international savings account that spans every generation through out history. Even the use of currency as a warehouse receipt for gold is a short lived experience compared to gold. Further along, compared to the time line of gold, the use of paper currency "by itself" is an experiment of this current era only. The young people that have grown up during this period can not be blamed for seeing little use for gold. The only reason they continue to follow this current paper trend is the lack of major loses from currency destruction. No one ever forgets the impact of a "money wipeout" upon their life's savings. Once experienced, the discussion once again returns back to the "damming factors" of unbacked money use.
When we follow the politics of world finance, it becomes clear that the "present system" players are only fighting to keep what they have. This "present system" inflates their portfolios with "fictional values" that would not exist outside government fiat currencies. Yet they believe these assets were well deserved rewards, received from implementing prudent trading practices. The ideals of gold do not rob world investors of their holdings, rather it correctly denominates these assets at much lower values. It's like them using an unrigged scale to weigh the beef. It shows them as having 10 lbs instead of the 100 lbs they really think they had. In this light we should understand that they (world traders) don't lose in the transition. They didn't have the extra 90lbs in the first place so why must we think someone is taking a hit?
So, will the use of gold take down the system? No! The "present system" will be "taken down" by the very same players that participate in it. Their own human nature will drive them to dump their 100lbs before it's weighed on a true scale. Recent history is full of examples of people destroying their own paper currencies in a race to offload it on someone else before it's weighed. "Quickly now, exchange your currency to the next guy so he takes the loss!" Such is life.
FOA
FOA (8/10/99; 19:56:56MDT - Msg ID:10858)
Comment
http://www.gold-eagle.com/editorials_99/hickel080999.html
Golden Truth, reading yur post and "just thinking":
Golden Truth (08/09/99; 14:47:03MDT - Msg ID:10756)
TO F.O.A, MSG I.D: 10737
I agree that Confidence or "lack of" could drive the GOLD to new lows. If i understand this correctly? Are you saying that who would want to buy "Paper GOLD" if ther is no physical GOLD to back it up? There for the paper price drops which then creates this "invented" World spot price for GOLD?
I had this thought pop into my mind just now about "Cheese Cake" It goes something like this "the price of cheesecake is dropping because they say no one is buying, I say it is dropping because many are buying" ANOTHER?
GT,
The Cheese Cake thing came when others lost the trend of Another's Thoughts. Some time back (perhaps way back) he offered something to the effect that "gold is falling in price because so many investors are buying it". This was a real lost effort on some readers that didn't understand the full dynamic of the lending business. If I remember right, in that time the LBMA and the BIS both wanted gold to continue trending down. Yes, they were working together, but for different purposes and different final results. World investors were buying physical gold in volume, so these government entities pushed even further into lending to free up more physical from private holders. It had the effect of lowering gold's market price even as more buyers emerged. No one could understand it then as the full manipulation story was still mostly hidden. Another was talking to a larger audience then and didn't worry that a few didn't grasp it.
Today, the dynamic has changed with the now obvious differences of intentions between the factions that are controlling gold. The Dollar/IMF/LBMA group are clearly in trouble as their portions of the lending business is much larger and in need of a constant new supply of CB vault guarantees. They were hung out to dry after the Euro birth and the Euro/BIS people blocked all further gold sales. A political double cross? We could talk for hours about this! (before you go any further, I hope you have read my last dozen or so posts) Anyway; the gold price as we know it, is created by the LBMA. Without a further supply of CB lent/leased gold or outright sales to Bullion Merchant members (BOE sale), most of the fractional reserve dollar gold loans cannot be closed with bullion. We are seeing the beginnings of this effect in the current rise of lease rates. This is the reason I urged the purchase and delivery of physical gold, several months ago. If you search my posts, I offered that major players were "grabbing the gold and running like mad".
"Another" counseled later that the gold market, as we know it was in danger of failing. In this case, failing means less and less major players are offering bids for future paper in the top tier markets because the gold can't be supplied. This loss of bids allows the paper price to fall further as present paper holders also attempt to sell. This is the "EXACT" reason that gold does not respond to the major financial events of today! Believe it! Local downstream physical dealers, because they use the Comex and LBMA paper market as a price creator, continue to sell gold at lower prices even as buyers come in droves. This brings me to MKs question of physical supply. I get to it in another post.
SteveH offered a very good timeline of these events on the Gold Eagle site. See the link above.
We are headed directly into a storm of events that are being created by the downfall of the dollar as a reserve currency. Gandalf the White wanted to know when? The BIS is letting the dollar slide down a slope it was going down anyway. So my answer is: Any day, my friend, any
day. FOA
FOA (08/12/99; 08:03:10MDT - Msg ID:10994)
One Post!
Good day everyone:
There is so much going on right now I cannot possibly keep up. So this will be my one post.
Canuck (8/11/99; 5:35:12MDT - Msg ID:10885)---------Question, funds currently invested
through RRSP (401K?s in the US) do not allow ownership of much other than equities, or in some cases bonds."
Canuck, some people use CEF? Next best thing?
Julia (8/11/99; 9:25:06MDT - Msg ID:10897)----------Hi FOA, Didn't you say once to watch the COMEX to see this new gold market played out? COMEX delivery intention breakdown? What are Issues and Stoppers?
Julia, I said watch Open Interest figures as they will most likely surge into all-time high territory (400,000+++) when an uncontrollable run starts. Comex is the only visible arena that paper shorts can cover in when they can't get the real metal to close trades. Because Comex mostly represents cash bets by longs, the shorts can use cash equity to establish long positions as a means to offset their paper sold position. It's won't close their exposure, only cover it. The OI hasn't spiked yet, but I think it will, big time. As for the local jargon, it just indicates who is locking up real metal deposits. Not much left there, as I think GS is positioning for Mr. WB!
Another said a long time ago (in one of his posts) that his (WB) silver purchases were only front running in a public company. As the cash amounts were real small for his size. His private money was moving quietly into gold. This Comex lock may indicate that there isn't any more (in size) around?
18KARAT (8/11/99; 13:10:24MDT - Msg ID:10922)
Foreign Purchases of T bonds chart----http://www.investech.com/---Has anyone noticed this?
18K, that chart tells the story. Everyone keeps asking why any entity (or conspiracy) would want to destroy the dollar? Wrong context to view the action. The dollar is being dumped because of the inflationary expansion of this US money. The debt it has created is destroying whole economies. People are moving out of it because they are looking into the future and see a currency that "will" be devalued from it's own sins! If you sell your house and move on, are you killing the neighborhood that made you prosperous? No, you sell because the crime and decay is going to lower your asset values!
Peter Asher (8/11/99; 13:21:27MDT - Msg ID:10926)----The Credit and Tulipmania Global bubble, cannot burst without destroying most paper held value. What else can they move paper money into and have value survive? On this premise is built the opinion that there will be visible Gold accumulation before there is visible equity distribution."
Peter, Yes! The gold part of this action has been going on for some years in the form of Paper Gold. Only now they will run from Paper gold first, before the physical gold bull!
TownCrier (8/11/99; 13:39:57MDT - Msg ID:10931)---Fed has no comment on Greenspan resignation rumor"
TC, it was a done deal when RR quit. Believe it!
Leigh (8/11/99; 14:42:29MDT - Msg ID:10937)---silver will be re-monetized?
Leigh, the hyped talk about silver has been around sense "forever". It's a good medium to gamble in but the real old world money always has and always will be in gold. I would go against my thoughts and bet on Goldfield (GOLD) or Homestake (HM) long before going for silver.
Orca (8/11/99; 15:20:53MDT - Msg ID:10941)---------It makes no sense that physical gold will increase, but companies that own non mined or just mined physical gold will not share in gold's value. They can hold it or sell it directly to those that want it thus reaping the benefit. Short of total confiscation by governments around the world, this will hold true... and if not, why not?
Orca, confiscation was never my term (that I remember anyway?). Does the government confiscate your assets when they tax your earnings? Do they confiscate oil profits by controlling the local price of oil as the Texas Railroad Commission did? Did they Confiscate oil reserves with the windfall profits tax ( that was retroactive backwards, I might add). In the future, if they said "to promote fair trade and protect the consumer from the fraud of a manipulated private gold market, that has artificially priced gold in the thousands, we, the G-7 propose that all mine sales of gold must be made at the London (or wherever) world market price". Did someone just confiscate a mine here? No way my friend, dig away! (just thinking and smiling, without offense) koan, I know you are reading this also (as I read all of yours too).
SteveH (8/11/99; 16:04:14MDT - Msg ID:10943)---I take exception to the extremis position that A/FOA hold to the dollar being on its last leg. Who would want this?
Steve, no one wants it, it is just a function of being "free to choose". No one wanted the British pound to fall from it's centuries old standing as a world reserve currency, but it did. And a lot of people lost a bunch of money in the process.
Also: Your post: One clarification please: "CBs mostly used gold comments to lend to the middle men while the mechanics of the market used the private stores for supply...." If you had to substitute a word for 'comments,' what would it be?
Sorry, bad word. I intended to use commitments, yet guarantees would have been an even better choice.
thanks all, FOA
FOA (8/16/99; 18:21:39MDT - Msg ID:11282)
TRC
ALL:
Aristotle: Life on Earth: Gold and the Free Market
-----------The great irony is that a Venezuelan lawyer (and oil minister) named Juan Pablo Perez Alfonso studied and used the Texas Railroad Commission as his model for OPEC, which he co-founded with the Saudi Arabian director of the Office of Petroleum Affairs, Abdullah Tariki, in 1960. OPEC from the beginning maintained that oil was a depleting asset, and it had to be replaced by other assets to balance national budgets and fund developments.----------
When Aristotle wrote his great piece (partly reproduced above) I wondered if others would like to further read the history of the TRC (actually it's called the Railroad Commission of Texas). A fascinating read that gives a clear picture of the how and why it came into being. The TRC produced "An Informal History Compiled for Its Centennial" in April 1991. They don't talk much about gold, but in a way, because the TRC has been studied and copied worldwide, it's precedent has everything to do with the future of the gold industry in our time. In as much as many of you are invested in this area, it could be important to understand. Texas "controlled" oil and gas by declaring it's production to be a "public utility".
-----------June 12, 1920 Legislature declares the production and sale of natural gas to be a public utility and gives the Railroad Commission jurisdiction. Tex. Rev. Civ. Stat. Ann. art. 6053 (Vernon 1962)(original version at 11920 Tex. Gen. Laws. ch. 14).--------
They never confiscated anything, but in the end controlled it completely. Koan says "we are a nation of laws". Yes, and those laws are created and administered by governments in the interest of people. Not always "all the people" but " the people" never the less. Even the US supreme court declared that Rule 37 was the proper exercise of government power in controlling "natural resources"! Notice they didn't say "just oil and gas".
-------April 16, 1928 First Rule 37 Case. United States Supreme Court holds that the Act of March 31,1919, conferring authority on the Railroad Commission to administer the oil and gas laws is a proper exercise of the police power of the state in controlling the development of natural resources. Rule 37 was attacked as violating of the 14th Amendment to the U.S.Constitution.Oxford Oil Co. v. Atlantic Oil & Producing Co.,22 F.2d 597 (5th Cir. l927), cert den., 277 U.S. 585. 48 S.Ct. 433 (1928)------------
Even though the Texas Surface Mining Act does not presently contain laws that apply to gold mining, it is but a short jump for the US to declare the production of gold a "public utility" and implement Rule 37 controls on a national level.
-------June 21, 1975 Legislature enacts the Texas Surface Mining and Reclamation Act and requires the Railroad Commission to adopt rules and regulations governing the mining of coal, lignite and uranium and the reclamation or restoration of lands disturbed by mining operations. Act also creates the Interstate Mining Compact and the Texas Mining Council. Tex. Nat. Res. Code Ann. '131 (Vernon 1978) [original version at 1975 Tex. Gen. Laws, ch.690, Tex. Rev. Civ. Stat. art. 5920-10 (Vernon Supp. l979-1980). Also Tex. Nat. Res. Code Ann. Chap. 132 l32.004
Just so we can read the sign post along the trail, let's see where the TRC came from. The following is indeed a general history that leaves out much of the behind the doors wars that controlled prices. I'll reprint some of their work in an effort to lay a foundation. I believe the Gold industry will quickly come to be governed in the same manner (only much quicker). Perhaps we discuss later.
-An Informal History Compiled for Its Centennial(April 1991)
THE RAILROAD COMMISSION OF TEXAS
CREATION OF THE RAILROAD COMMISSION OF TEXAS
The floor of the Texas House in 1889 and early 1890 was not a peaceful place. The battle had been joined between the railroad supporters and the supporters of Governor James S. Hogg. While he was Attorney General, Hogg had taken on the railroads, prosecuting several of them as well as the rate-setting organization of railroads, the Texas Traffic Association, for monopolistic actions and conspiracy to discourage competition. In the race for governor which he won in 1890, Hogg had campaigned for the creation of a commission to regulate the railroads.
In just a few decades, the railroads had turned from being the object of enticements by the state and many communities to being an object of derision. Why this change?
Notwithstanding Mr. Brown's remarks, Texas had early on encouraged the railroads. In 1850, Bexar county became the first of many counties issuing bonds to railway companies to encourage settlement and communication. In 1852, the State began to grant railroad companies land: 8 sections of 640 acres each for every mile of completed road. Within two years, that was upped to 16 sections per mile completed.
In the Eastern United States, the railroads followed the people, connecting already existing population centers. In most of Texas, it was the other way around. From the time of the Republic, it was a recognized policy to set about attracting settlers from back east and the countries of Europe. One way to do that was to have a transportation system already in place. But, railroads are heavily capital intensive--it took a lot of money to do the necessary grading, buy and install the ties and rails, purchase the steam locomotives and cars. Since the companies did not want to invest if there was no market--no people and no goods--the state sweetened the pot by land grants, bond issuances, and loans.
Some railroads were given right-of-ways and alternate sections of public land along them, with the off sections usually going for schools. The railroads advertised heavily back east and abroad to bring in settlers to whom they could sell land from their grant sections. To encourage purchases, the railroads sought to endow selected communities with an aura of stability by aiding in the building of sturdy courthouses, jails, and even churches.
Coming out of the boom in construction that followed the Civil War, the Texas and Pacific Railway finished construction of its railway line from Texarkana to Sherman and from Longview to Eagle Ford--a total of 251 miles--in 1873. The next portion of the Texas and Pacific began in 1881 as the line moved from Fort Worth toward El Paso, using a land grant from the State for 5,338,528 acres.
By the next year, the law authorizing land grants was repealed--there was no more available public land.
In the decades after the Civil War, the people of Texas began to recognize the power railroad companies held. Dirt roads for wagons were rough and most were short. The state had no navigable waterways. Railroads were the only way to ship materials in and products out. The major railroads had formed an organization, the Texas Traffic Association, which set rates at whatever level it was felt the traffic would bear. One result was an arbitrary cast to some rates: one railroad shipped lumber from East Texas to Nebraska for a lower rate than when it was shipped from East Texas to Dallas. M. M. Crane, a prominent Texas political leader of the time described the situation. "The owners of the railroads were like many other people," he said. "Having the power to charge what they pleased, they were never overly modest in fixing their compensation."
Such abuses and discriminatory rates primed the people of Texas for change. Let's take a more detailed look at those early Texas railroad years and trace the path leading to effective regulation.
---------EARLY TEXAS RAILROADS------
[from an early(ca. 1940), unpublished Commission manuscript]
The Republic of Texas granted the first government charter on December 16, 1836 to the Texas Rail-Road, Navigation and Banking Company. The company soon dissolved without any stock being sold or a single mile of track laid.
In 1838, the Brazos and Galveston Railroad Company was granted the next charter which included the provision "Congress...shall have the sole power of regulating rates of tolls." Later charters required "good and sufficient causeways" at road crossings, signals with locomotive bell and steam whistle, brake upon hindmost car, "good T- or U-shaped iron rails" of defined minimum weight, and the provision of connection between intersecting railroads.
The great difficulties attending the construction of the first railroads caused many of the early charters to be forfeited for failure to fulfill the conditions of the charters. The first company to begin actual railroad construction was the Harrisburg Railroad and Trading Company which was chartered January 4, 1841. Construction had progressed to the extent of some grading of the right-of-way and the contracting for some cross-ties when the project was abandoned because of lack of funds and the "threat of invasion of Texas by Mexico." On February 11, 1850, a charter was issued to the Buffalo Bayou, Brazos and Colorado Railway, the successor of the Harrisburg Railroad & Trading Company. Grading was begun the following year, track laying the next, and by August 1, 1853, the first twenty miles of railroad in Texas was in operation between Harrisburg and Stafford.
Despite the relatively early date at which the operation of the Buffalo Bayou, Brazos & Colorado Railway was begun, the Texas Legislature had already enacted rather comprehensive laws pertaining to railroads. On February 7, 1853, the Legislature approved, "An Act to Regulate Railroad Companies." Its provisions included requirements for annual reports, legislative regulation of rates (allowing a 12 percent profit), directors being liable for debts, fixed regulations covering uniforms, crossings, facilities, bells, etc., and allowing the state to purchase railroads.
The recognition of the people of Texas that railroads were urgently needed to carry forward the development of the State is reflected in the subsidies which were granted the railroad companies, subsidies of both land and the use of money from public funds at a low rate of interest.
Although much of the early legislation regulating railroads was adapted to control inherent abuses in a monopolistic form of business enterprise, the administration of the laws left a great deal to be desired. Since there was no agency especially created to administer the provisions of the Act to Regulate Railroad Companies, the railroads generally did not comply with the regulations. As the abuses of the carriers became progressively worse, especially after the Civil War, various groups were organized for the express purpose of fostering regulatory measures to which the railroads would be directly amenable. One of these groups was a farmers organization called, the Patrons of Husbandry, commonly known as the "Grange", organized in 1873, and having a membership of 40,000. The Grange directed its attack against the "fearful rates of freight," "profligate and greedy management," and "efforts to control legislation, influence courts or override law and justice." The agitation of the Grange resulted in a resolution calling on the Constitutional Convention of 1875 to prescribe a remedy to eliminate the abuses of the railroads.
The character of some of the constitutional provisions points significantly to the nature of some of the abuses practiced by the carriers. And it also indicates the increased ability of the peoples' representatives to cope with the problems of railroad regulation.
However, as sometimes happens in the passage of new laws, there was a very considerable lag in time between the enactment of the regulatory provisions and the effectual implementing of them by the government or one of its agencies. As yet no agency or commission had been created and especially charged with the responsibility of administering the new regulations. Although the setting up of a railroad commission to administer the railroad laws had been recommended as early as 1876, the recommendation was strongly opposed by some interests, especially the financial backers of the railroads, who considered such legislation hostile and branded the proposals as "injudicious interference with business by legislatures."
After much agitation the office of State (railroad) Engineer was created in 1883, but the office had no power to order or compel obedience of the laws. Its function was to investigate and make reports to the Attorney General. The office was destined for failure, and after two years it was abolished. Bills calling for a railroad commission were passed by the House in 1887 and 1889; however, the Senate refused to pass the bills on the grounds of constitutionality. This objection was circumvented by the adoption of a constitutional amendment authorizing the creation of a railroad commission. With the last obstacle out of the way, the Legislature passed an act creating the Railroad Commission of Texas in 1891. The fight for its creation had taken sixteen years. Some say it was the
predominant political issue of the time.
[The Caption from the Act Passed by the Texas Legislature in 1891]
An Act to establish a Railroad Commission for the State of Texas whereby discrimination and extortion in railroad charges may be prevented, and reasonable freight and passenger tariffs may be established; to prescribe and authorize the making of rules and regulations to govern the Commission and the railroads, and afford railroad companies and other parties adequate remedies; to prescribe penalties for the violation of this act and provide means and rules for its enforcement.
---ON JAMES S. HOGG, CAMPAIGNING FOR GOVERNOR IN 1890----
Hogg campaigned with awareness that there were more common people in Texas than any other kind, and he suited his merchandize [sic] to the market. He was a great commoner.
He knew the dirt farmer's soul, and which allusions grabbed his mind. Hogg was earthy in his speech, inventive in his epithets--though "by gatlings" was the worst he essayed when ladies were around. Hogg was a flaming reformer on the hustings, standing against everything the embattled farmer hated, inventing some things the farmer had not yet imagined. But Hogg was no fool, nor was he really radical. He was a flamboyant, but deeply folk-conservative man; he knew how to survive in party politics, whom to fight, and with whom to make a deal. He was a hoeman champion, but no farmer himself; he ended up quite rich. Hogg had a keen mind, and he proved it more than once in court against some able outside legal talent. Above all else, however, in the public eye he was a stump man.
On the stump, he could hold a crowd of Texas farmers for hours, blasting railroads, bloated capitalists, insurance companies, gold; he extolled the simple life and the virtue of the men who tilled the soil. He threw off his coat and worked up sweats; he dropped his suspenders and splashed water over his brow, got his second wind, and went on to new heights amid cheers. Hogg and his railroad commission plan won by a huge vote.
Fehrenbach, T.R. Lone Star: A History of Texas and the Texans. New York, American Legacy Press, 1968. pp. 620-1.
----------THE "RAILROADS" IN THE RAILROAD COMMISSION-----
Within a very short period of time after its creation, the Railroad Commission cut the rates railroads were allowed to charge. Almost immediately, the Commission was taken to court and placed under injunction. It was not until 1894 when the United States Supreme Court ruled that the act creating the Railroad Commission was constitutional that the lower rates were put into effect.
In the meantime, in 1892, the railroads made an unsuccessful run at having the legislature abolish the Commission. In 1893, the Commission was granted statutory authority to regulate issuance of railroad stocks and bonds. In 1894 the constitution was amended to change the office of the three Commissioners from appointive to elective, with six year staggered terms.
The Commission's responsibilities included:
1. Administration of laws relating to the railroads of Texas.
2. Determination of passenger fares, freight rates, and charges for all classes of commoncarriers in Texas.
3. Holding public hearings.
4. Receiving of reports, making investigations, and keeping of records regarding fiscalstructure, valuation, revenues and expenses, and train, terminal, and traffic service of Texas railroads.
The legal focus of the Commission was on intrastate passenger and freight activities within the borders of Texas. Interstate moves fell under the jurisdiction of the U. S. Interstate Commerce Commission.
NOTE: John H. Reagan, first Chairman of the Railroad Commission, had been instrumental in the creation of the federal commission in 1887 while he was serving as U.S. Senator from Texas.
When the Commission was founded in 1891, there were some 8,700 miles of track. When the railroads reached their peak in Texas in 1930, there were 17,500 miles. Following World War II, increasingly goods began to travel by truck and people by buses and cars and the miles of track began to shrink.
Over recent decades, the role of the Railroad Commission in the regulation of railroads has changed, moving from economic regulation to safety regulation. The Federal Railroad Safety Act of 1970 vested rail safety responsibilities in the Federal Railroad Administration. In 1983, the Railroad Commission began a cooperative process with the federal government, implementing a rail safety program. The Rail Safety and Planning section of the Transportation/Gas Utilities Division monitors the state's rail lines, inspecting railroad equipment, operations, and track. This section also maintains the state's rail planning program and oversees the use of federal funds for track rehabilitation projects.
Under provisions of the 1980 Federal Staggers Rail Act, the Railroad Commission recognized that it could hold only a passive role in rate setting. In 1984, the Railroad Commission ceased its historic role in economic regulation of the Texas rail industry.
---------------OIL AND GAS---------
Shortly after the end of the Civil War, the first purposeful and successful attempt at drilling for oil in Texas occurred at Oil Springs, near Nacogdoches in East Texas. In 1866, less than a decade after Colonel Edwin Drake's 1859 Titusville, Pennsylvania well brought America into the age of oil, Lyne T. Barret struck oil at 106 feet. Oil had been found before in Texas, but it was either through surface leaks or when drilling for water. Alas for Barret, though, the greater volumes and lower producing costs of Pennsylvania oil beat his Texas oil. As a result, he abandoned the well.
Then, in 1894, the beginnings of the Texas age of oil were realized by the first major discovery--Corsicana in the east-central part of the state. Then it seemed like it was one discovery right after another. The first true boom came from the 1901 Spindletop gusher of Anthony Lucas. Working with a salt mining company in Louisiana, he had noticed the gentle mounds that raised the surface of the Louisiana and Texas Gulf Coast. He recognized these as salt domes--natural traps holding reservoirs of oil. Spindletop was not the last of the south-east Texas fields. More followed.
The next cluster of discoveries was in North Central Texas between 1902 and 1920--Petrolia, Electra, and Burkburnett--and, during that same period, and a little further south--Breckenridge and Desdemona in 1918.
Throughout these early years, whenever a boomer came in, oil seemed to cover the surrounding lands. The pressure of some of these wells was so great that it was days before the flow could be controlled. In the meantime, oil soaked into the ground, or ran off in nearby creeks and gullies, or was directed into nearby pits that were hastily dug. Even after the flow was controlled, pits were used for storage or vast open tanks. The results were inevitable--waste and pollution. While pollution may not have been a concern in those early days (oil was a sign of wealth and adventure even if it was in a creek), waste was. And, a fire roaring from one well to the next, engulfing one tank then another, was an all too frequent occurrence.
While the Texas Legislature in the later 1800s and early 1900s had passed several bills relating to the use or conservation of the state's oil and gas, a familiar thing happened--very little or nothing in the way of observance. Laws without enforcement or with enforcement only through the courts had a tendency to be ignored. As each discovery occurred, more waste occurred.
Other problems cropped up in the infant industry. Transportation was one. To have substantive value, the oil had to reach its markets--the refineries. Early on, miles of tank cars were pulled by steam locomotives. Then, pipelines became the choice in many regions. However, if a company owned both a pipeline and wells, the tendency was to take from its wells and ignore surrounding wells owned by another company. In 1917, to prevent abuses, the Legislature designated oil pipelines as common carriers and, more importantly, give jurisdiction to the Railroad Commission which was already regulating a transportation industry--the railroads. By 1919, the Commission was also granted jurisdiction over oil and gas production. It was at that date the Oil and Gas Division was created.
Regulation did not truly take hold until the 1930s and it was a struggle all the way. The East Texas Oil Field was discovered in 1930. Unlike many other fields at this stage of industry development, the East Texas Field was taken over by a multitude of small independent operators, each racing to put up a rig. Derrick touched legs with derrick. Each well was produced wide-open. The price of oil crashed. More critically, it was felt that the natural water drive of the field was being lost. When the Railroad Commission tried to step in and cut back production, action began in the courts and, at one point, State military forces were called in to regain order. It was several years before courts and the State Legislature were able to settle on the position that the Commission had the right to prorate production--to conserve the state's natural resources, to protect correlative rights, and prevent pollution.
Since the 1930s, the Railroad Commission has held a leading role in the regulation of oil and gas, one that has been recognized throughout the world. Even though production has been declining over the last few decades, the state still produces more oil and gas than any other state. Indeed, if Texas were a nation, it would rank as one of the top ten producers. Today, there are some 241,000 active oil and gas wells which produce an average of some 1.7 million barrels of oil a day and 11.5 BCF (billion cubic feet) of gas a day. The Commission's Oil and Gas Division tracks that production and ensures that it follows allocations that are calculated each month. In addition, through its ten district offices, field inspectors visit the wells and facilities across the state to ensure compliance with Commission rules and regulations. Increasingly important, the division works to ensure that the water resources of the state are protected from damage by oil and gas field activities.
FOA
FOA (08/17/99; 12:16:06MDT - Msg ID:11339)
Reply
Cavan Man (8/16/99; 19:52:39MDT - Msg ID:11289)
FOA
What are your thoughts on the Goldman Sachs event as it relates to our favorite subject?
CM,
Our present gold market has evolved into a paper trading arena. It didn't just happen overnight (meaning the last several years).
During most of the 90s the actual demand for gold was easily covered by selling paper gold to those that wanted "a gold portfolio". Contrary to current thought, most of the major buyers of gold (investors that put 500,000+ into it), don't buy coins, bars or fully paid for warehouse receipts. In this "new gold market" they put 20% into some form of paper gold derivative that theoretically can deliver a half million in gold and the other 90% into interest bearing instruments. They then proceed to tell everyone that they have gold in their portfolio.
This is why the current and recent past demand for gold has not impacted the actual physical price. The majority of the paper gold market is a cash market that circumvents the buying of real gold. The demand is satisfied because short players can sell a paper gold derivative without having or needing any gold, just a large cash deposit will do. In addition, it also works because gold investors are willing to hold and roll over this paper as long as they perceive that the short could buy gold if delivery was ever asked for.
As long as some gold can be delivered and it's price is down trending, over time, a mindset is developed among investors that this paper gold market is "the physical gold market". It's not! A true physical market, buying coins, bars or holding fully paid for warehouse receipts would totally overwhelm the physical supply today. Converting just the current new demand for paper gold (not considering anyone trying to move out of old paper gold) into physical, would blow the market sky high. It hasn't to date because the demand is hidden as it is channeled into paper supply.
I tried to comment on MKs question about where all the new gold is coming from. Currently, new mine supply is covering industrial and coin needs. Any additional physical gold needs are covered by private investors slowly scrumming to the "new age" trends and holding gold derivatives instead of their real gold stock. This process has been ongoing for some time.
Every industry observer keeps tabs on the "so called "big supply deficit". I can tell you that deficit is almost nothing compared to the demand being covered by paper gold. Forget the shorts running for cover, that's the small potatoes angle followed by the trading crowd. The real move comes when the current world gold market, operating as the "real physical gold market" breaks from default! Once it's discredited all that demand will then funnel into physical gold and lock up the dealer network for some time (perhaps years) untill price can balance demand.
Yes, we are a nation and world of laws, and because of that the courts will be loaded with gold owners that ended up with just "the obligation of another to supply gold". We saw in my bit about the TRC and how they evolved into something different from what was started. The same can be said about the gold market. Evolution: The breaking of the dollar obligation to supply gold: the need to create an equal exchange medium for oil supplies: then the use of no interest gold to generate liquidity as cover for destroyed dollar reserves. These real life politically inspired manipulations have brought us to today's approaching destruction of our world gold market. Not the rambling commodity supply and demand conjectures of traders.
What of the GS comex gold grab? First here is a part of an earlier post: FOA (5/26/99; 20:00:20MDT-Msg ID:6766) ------My friends, the choice is now "clean" and "clear"! The writers of paper gold "outside" the Euro realm are cornered with the lack of available gold! Completely!
--- Presently, from inertia, they still control the "paper price" in the dollar / IMF arena, but they can never convert it into gold. They must do what any cornered being will, continue to create (short) contracts of worthless nature to protect their position. At some point, their market will suffer a total collapse and cease to function. It will happen no other way.-------------
CM, Several months ago and some $20 higher I said that gold would go no lower and physical would become hard to obtain in quantity. I was wrong on the price because I did not fully understand Another's post. Later he pointed out that the actual process of this market failing would
bring on the discounting of paper gold against physical. I didn't believe it at first, but he has to know, he's in the middle of it.
Now I know he was right as there are no large blocks of gold to be purchased. Anyone wanting a few hundred thousand ounces must wait for unknown delivery. As everyone begins to hold onto whatever gold they have (and buy more), the outstanding paper will be forced to revert to cash settlement. Much as the dollar prior to 71. No gold delivered, you just settled for cash, the dollar cash in your hand. Only, this time, the settlement cash will make a run for gold. It's started.
Truly, we watch this new gold market together, yes? FOA
FOA (08/17/99; 19:25:53MDT - Msg ID:11368)
Comment
http://www.iht.com/IHT/TODAY/WED/FIN/ecb.2.html
Aristotle (08/17/99; 13:49:23MDT - Msg ID:11349)
Aristotle,
Your writing along with Aragorn's helps enormously in expanding the view of this subject. It is little wonder that the general public is confused from the hellacious interpretations from the media. Even the news reporters understand but tiny bits of this and that is applied out of context of the big picture.
Below is a good write-up about the Euro. It offers the very reason why it will outlive the dollar.
------''Since the internationalization of the euro, as such, is not a policy objective, it will be neither fostered nor hindered by the Euro system, the bank's analysis said.-
The ECB is clearly not playing the "trading" game. World movers want the Euro to move quickly up and down, so as to profit in their derivatives positions. That is the real reason for criticism. To their credit, the ECB did not sell the Euro when it opened too high and they didn't buy it when it went too low. That practice alone will win massive support for this currency when the dollar is broken with a high gold price. In that time, using the Euro for trade and accounts will look no different to Americans than it would to Canadians using dollars. In truth, the Euro will look much better!
FOA (8/18/99; 16:25:54MDT - Msg ID:11486)
It looks like GS is following the concepts I presented from Another. Sad as it is they are selling short all the various paper derivatives attached to gold that their capital will allow and at the same time buying physical Gold. Others have been doing this prudent arbitrage for some time, only now it has become visible and the street is in total denial! The play they are following is easy to understand, as the present paper gold market is going into discount with no way to arbitrage it from the opposite direction! More later FOA
FOA (8/18/99; 21:41:40MDT - Msg ID:11496)
comment
St. George (8/18/99; 7:05:07MDT - Msg ID:11440)
Hello St. George,
I'll comment on your questions in order.
---Query to FOA: Sir; I would like to know what percentage of arab oil's physical gold holdings is actually in the hands of its owners? ie. within the respective owners national boundary as opposed to being in a vault "overseas" in NY or London etc. --------
SG, I really don't fully know. My understanding is that much of it is spread between Europe (Swiss?), London (that may have been changing the last year or so) and New York.
The following is a political answer that is more than troubling and confusing for most. For the sake of deep interesting thought, I'll throw it out here. No need to discuss, just think about it. A 007 type mind is needed to grasp it fully. Hard trading commodity types usually roll over with this one.
The first thought most westerners derive from this is that "oh, well, we have the gold so we'll just keep it if they don't give us the oil"! I don't often state this in writing, but I have to laugh at that joke of a thought! You see my friend, in this world black gold is far more valuable than yellow gold. It's just that very simple. For our lifetimes, the majority of the two most important items for commerce will both remain buried underground, gold bars in NY and oil in the ME. Another often said that "oil and gold never flow in the same direction". With that statement, most of us close our eyes and imagine a barrel of oil crossing the ocean while a gold bar sets in an airplane heading for the desert. In reality, as long as the worlds largest pool of oil is under that sand, their gold deposits are safe in almost any government bank. Long standing protocols state the obvious: if the oil runs out, the gold is ours; if the gold runs out, the oil is ours! They get a warehouse receipt that says the gold is shipped when and if wanted, we get a warehouse receipt that says the oil is shipped when and if wanted. Stated another way, they keep the hostage and demand that we hold the reward?
Well enough of that, this market is hard enough without adding more.
Your conclusion:
---------I believe this is an important fact to know for it will help answer the recurring theme/ question on this forum of WHEN? Assuming that there is increasing fear of defaults on paper gold contracts, are we now witnessing the owners of physical gold held overseas "backing up the truck" and taking their money home? For it is a matter of "trust in your banker" Finally, as gold is repatriated, the ability of the bullion banks to use this gold and engage in fractional reserve gold banking would seem to end and would answer the big question of WHEN?-----------Your comments are most appreciated. Thank You.
SG,
This new gold market is a vast sea of paper gold IOUs. We can divide the owners of those receipts into two groups, owners with major oil reserves and "everyone else". Because the world is so much more dependent on oil than it was in 1971 (the last time gold loans failed), oil producers will get their gold "no matter what"! Dam the citizens rights, war to the infidels, burn all books, but oil will flow! The only real problem for this failing gold market is what to do with the "everyone else"? I suspect that investors will lose their respect and money in the paper gold market when they see the premiums on physical gold rise in a major way. If any person knows WHEN people will come to their sense, I reply as Another did "I would bow low before that knowledge".
Remember, even as Rome burned traders inside the city were still buying and selling houses. As the foreign armies were "pounding at the door", merchants gave runners orders for new supplies to buy. Nothing has changed. When / if gold closes in london at $50, someone will still say that you should buy it there because it's a better value than wasting your money on $6,000 gold trading in the alley. And a better deal than $6,000 in the alley would be that gold mine for a nickel.
FOA
FOA (08/19/99; 10:38:23MDT - Msg ID:11535)
As long as the physical community had supply and continued to price it's product based on Comex / London, I would buy (take delivery) whatever physical was offered in size on the off market at ever falling prices. Sell the LME or future dates on Comex then start taking delivery on spot month as other supplies dry up! Look at how slow it's arriving now. In the old days, several million ounces would be there in a minute. Warren Buffet would have to have a piece of this new action?
Why doesn't some big player call the shorts? The Bunker Hunt fiasco is still fresh in their minds. If anyone tries to call for "big product" on the paper exchanges the regulators will just revert to cash settlement. So there is no way to play it against them on a large scale. It will all end when no supplies arrive for the front months. The whole thing, London and all will go to cash settlement just as the 71 dollar did. The end of the gold market as we know it? So far it's following Another's thoughts. Ideas from anyone else??
FOA
FOA (08/20/99; 12:46:41MDT - Msg ID:11630)
Open Reply To Mr. M.
I must reply to this private letter that was sent to me. It was written to Cage Rattler by Mr. Martin Armstrong.
Date: Sun Aug 15 1999 07:28
Cage Rattler ("Gold was a store of value throughout ancient times, however money NEVER was!" - M Armstrong) ID#33182:
Copyright © 1999 Cage Rattler/Kitco Inc. All rights reserved
----------Dear Bob:
You are making the opposite mistake of Karl Marx. Marx assumed that everyone in the private sector was corrupt and therefore that property held in the hands of government would be fairly managed. Marx never accounted for human nature and it doesn't matter if control over money is private or public, both have historically tended to exploit it for personal gain.
Money is ONLY a medium of exchange and it is NOT, and has NEVER BEEN a store of value. Gold in itself has been a store of value as demonstrated in Korea and Asia. Gold was a store of value throughout ancient times, however money NEVER was! These are two separate issues that should not be confused.-----------
From FOA.
To the contrary, Mr. M, these are two separate confusions that deal with the same issue! Your assumptions always conclude that the values established in a public "marketplace" represent the private views of the majority of people. In other words, if someone trades anything using the marketplace price and using the accepted mediums, the mechanics of that trade must also represent the mind set of the person. Through out history, it rarely has. Your view is further skewed with the "control over money" issue. The world has always assumed that the "people" want someone to control the money, be it public or private.
When one looks closely into the private actions and reactions of people during various civilizations, the mindset of the majority (the average citizen) was always that we don't need "money at all". Just let us alone so we can trade our things. The modern argument of the Public vs Private "control" always found the banks as representative of the term "Private" and the government put forth as "public". The "free market citizen" was never considered as a viable contender to pick the trading medium.
Banks, long ago assumed the roll of making and controlling money for private interest because they saw that the "free citizen marketplace" seemed to always use gold to trade with You say:
-----Money is ONLY a medium of exchange and it is NOT, and has NEVER BEEN a store of value------
The problem with this is that in the old "free" marketplace, these people never thought of there use of gold as using "money"! It was only a "thing" that most of them found to be the best item to trade with. For them (again average people) gold held it's own particular independent store of value just like anything else they owned. Indeed, in their mind it wasn't the "medium of exchange" money concept of the bankers in a later time. I submit that even the term of "money" in the early bible was not in the same banker context. Back them it was more closely associated with a "thing of personal value" that could just as easily be "used" as traded. Therefore your statement,
---Gold was a store of value throughout ancient times, however money NEVER was!-----
does not present a valid conception for comparison. It was the banks that, in the assumed roll of creating money for commerce, decided to make and control the "CONTENT OF THEIR CREATED MONEY". In this action, by no means did they represent the perceptions of people who can be depicted as the third party in this debate of control. Yes, banks were owned by private interest, but that should not imply that they presented the private viewpoint. Yes, the people did use the created money (both coin and paper receipt) for trading, but the mindset of that early evolution did not hold that this "bank money" was solely a "medium of exchange" Rather it was a receipt for a tradeable item of use. The "medium" only concept came into play as the banks lent out more receipts than they had or they could not collect upon failed "real gold loans". That excess of gold receipts in circulation could then be perceived as the "medium of exchange modern banking concepts refer to". We then clearly proceeded to the era you next present ( as it is explained in reverse):
-------- The Greeks, Romans and everyone along the way ALWAYS and WITHOUT EXCEPTION played with the gold content of their coinage which led to Gresham's Law - good money drives out bad money. Whenever money was debased, older issues of higher metal content were hoarded. They then ceased to be MONEY (medium of exchange) and became a (STORE OF VALUE).--
With the clear viewpoint that I presented above, we can see that this next statement does not apply to a post contraction "free market trading arena". Rather it is the present conjecture, using the present thinking in a prosperity mode mindset that assumes the private and public terms as the only viewpoint. They are only two parts of a three part society.
-------If you think that a return to a gold standard in some way will eliminate these issues, you are wrong! No matter if it is the private sector or the public sector, whoever ends up in charge will always play games. -----------
Indeed, if a true free market in gold was established and all gold was coined and sold into the market place, games would still occur. However, new concepts for hard times would require mines to make all coins to conform to set standards and pay their taxes to governments with the same (however high that might be). In addition, they would pay their help and buy supplies with the same. Private stores of gold (both government and private) could choose if they wanted their bullion coined or not for a fee. Yes, the value of gold would gold very high compared to real things, but it did that long ago, before banks called it a "medium". Anyone that owned gold would be rich. So what? Anyone today with a lot of cash is rich, again so what? Gold money is spent and loaned and in general always circulated. Just as in the early days before banks and gold was just another thing of wealth, but not the only store of wealth in a persons portfolio of things. Yes, Banks and governments would fail and go bankrupt as they always did. Yet, the money supply would never be changed because of their failures. People that loan gold money would learn not to count that asset loan as part of the money supply as today.
Further on you state:
-----Gold is a store of value today - but it is NOT money. It is NOT acceptable to pay your VISA, rent or to buy food unless on a barter basis. Only dollars ( money ) is acceptable in the US, and now Russia while it may be yen, marks francs, deniers or whatever in other nations.-------
Again, you assume that gold is not money because it is not accepted as "the medium" in the Government / Bank operating economic system. I submit that this perception represents a short conclusion. If we extend the thought we find that no government or bank said that gold was not money. They only decided to not "use" gold as "legal tender money". Both of these entities chose to pursue this route because they wanted to create more "money" than was in existence. Something they could not accomplish it using a money that possesed a "store of value".
As I pointed out, the "citizen" and their trading are the "private free market" that the world economy is and has always been based on. This market place does not need "more created money" as it worked fine using the old "store of value gold" as long as the market could increase or decrease it's purchasing power as measured against all goods and services. Banks and governments fought hard to stop this function because it took power away from them and returned it to the economy.
As a result, history proves how poor of a job government and bank paper money has done without using gold. Your description that follows is an excellent example of the battle between the first party governments and the second party banking systems. The third party private person will be impacted from this abuse of the money system, however, our heart was never in it. Your words:
----- I simply disagree with your interpretation of 1929, the Fed and the wildcat banking era. Your view of anti-central bank was shared by Andrew Jackson who was bitter because he had lost money and was turned down for loan in his youth. When he became President, he destroyed the Bank of the United States and with no central control, the entire banking system quickly fell into trouble. There are countless "broken bank" notes that collectors can buy today from every little one-horse town in the country. Some were in the hands of local politicans who quickly exploited the system and bankrupted their communities. The Constitution specifically prohibited the States from issuing money and because of the hyperinflation of the 1700s.
You are also misinterpreting dictating private investments with restrictions of asset class and leverage. You now have a perfect example of your no interference policy for the private sector. Long Term Capital has just blown up by leveraging positions to the extent of $1 trillion. The
uncontrolled activity of this one hedge fund is going to disrupt the free markets everywhere in ways you have not yet even noticed. There needs to be a rule of law that establishes the basic guide lines. It should NOT expand into regulation of every aspect over investment. What an individual does with his own money is his own business. However, when institutional money is gathered and used at the discretion of fund managers who buy into the latest hype like Russia, then allowing this type of investment to be carried out with ANY restrictions whatsoever, is extremely dangerous. LTCM is a significant threat to both bonds and stocks right now. A few other funds are now rumored to be in a similar position. Such unbridled leverage threatens to bring down a lot more than anyone
suspects. I think there will be investigations and a whole new set of regulations that will come out of this debacle. The Fed is currently calling around the street in an attempt to assess the damage. There will come a day when you will see that the proposal of that I have made to merely regulate asset class will be far more attractive after the next set of regulations come storming out from all government bodies that will seek to restrict every aspect of investment. What they don't understand - they ultimately kill.
Your argument for no regulation will not even be seriously considered by any government body I have ever testified before. In reality, there may be no way out, because the people themselves will demand action because they have lost money in stocks caused by hedge funds in Russia and interest rates like LTCM. They will in the end bare the blame and a host of new regulations will spring forth in an effort to appease the people who demand government action.
Martin Armstrong
From FOA.
Sir, I have commented on your thoughts because it is important to present the flaw in this perception. Some of your analysis is in the context of a rebuilding of the government / banking financial system after a great contraction. It places little support to gold as a choice to preserve wealth during this event as gold will not be in demand.
I submit that you have misread the historical attraction to gold that private citizens impart upon this metal. The human factor always has and always will gravitate to using things as trading items. We were born a people of earth with senses that touch, see and feel for value Weather our trading things can be considered money, a medium of exchange, legal tender or a store of value, was never the issue. Governments and banks made them an issue so as to circumvent our value of trade for their benefit.
As such, when the next downturn threatens to destroy the perceived values created in fiat currencies and securities, people will then circumvent these modern concepts and return to trading the most convenient things. History, not modern computer research, has shown that we will return to gold.
Thank You for your time. FOA
FOA (8/23/99; 21:10:00MDT - Msg ID:11896)
Comment
Hello Aristotle, this talk is sent to flow past you, not at you. I'm using a part of your very good post to make a few comments. Your part is in ---- marks.
Aristotle (8/18/99; 9:54:21MDT - Msg ID:11457)
And this was from my Aristotle (8/15/99; 18:35:22MDT - Msg ID:11214)
----- Doesn't it strike anyone as significant that this Gold was not acquired on the spot market, but rather through the odd route of using futures contracts? If you have explored the link I referred koan to, the analogy here is that Goldman Sachs has only thus far succeeded in getting themselves a fistful of paper dollars in the 1920's, and they have announced their intentions of walking down to the bank to have these paper contracts honored with real Gold. -----------
Ari, I'm going to ramble a minute then get to your comment. It's a testimony to how many major gold players (not talking about GS) use some form of future delivery paper as the real thing. They don't really want to hold real gold as that would require "buying it for delivery". Because paper gold only requires 10% to 20% (or less) to hold, the rest of the money can be put to better use. They pick up the future derivatives (I'm talking about all the various gold arena's) and hold until it moves somewhat close to delivery. Then, before delivery, they sell and run further out. All of this is done with a mind set of "we are only holding this gold as a hedge against our portfolio, so paper will do fine". This thinking has, over the years, progressed till it represents most of the major Western public investment money.
With this view, is it no wonder that the large bullion houses rule the paper market. It's easy to sell (short) the outdated derivatives because all that is needed is cash! As the market slowly falls, the short equity requirements become nonexistent. To the advantage of the houses, the longs practically always settle up in cash and move on. The large funds don't want the trouble of real gold so they continue to play this game of "let's bet on the gold price and see who is right"! Today, they are learning a painful lesson that the stated price for gold is established by the same derivatives that they don't want to exercise. In their world, they are convinced that massive physical gold is but a phone call away for shipment into certified warehouses, so the derivatives price must truly reflect the real market.
Today, anyone that is "blind in one eye" (Another's favorite) should be able to see how easy it's been to maneuver gold lower without impacting physical. As I pointed out in other posts, it's the private Western stores of bullion that have been slowly fed in to fill most of the physical deficit and replaced with derivatives holdings. In essence, a lot of conservative entities have brought into this new gold market and now hold derivative gold as the real thing. Truly, their trading up has helped to legitimize this market as this "Old Physical" was delivered to some who demanded it.
Add to this, the enormous number of completely new investors that have entered the gold arena as paper players and we can see just how large demand is. When this market fails, those who traded "Old Physical" are going to be head first into what ever physical market is left (or newly established). To fully grasp their ability, one must realize that they were just "hedging" a much larger portfolio against some future problem. If the world markets begin to falter at the same time that the paper gold market begins to unravel, "extremely emotional money" is going to be moving, big time!
All of the above has nothing to do with the huge international government and private bullion investors that hold and move gold as a currency. During a breakdown, whatever gold they do control, will be "locked down" for the duration! Believe it! Like I said before Yhey will reply
something like this:
"yea, I wrote calls on my bullion, but things have changed and I moved it (fraguently) out of your grasp just in time. So send your army or sue me"
Build this dynamic into the size of the Yen carry and Gold carry trade and you will understand it's impact.
Back to your comment: You bet it's "significant that this Gold was not acquired on the spot market". Even if they (GS) are acting for a client, they, as a LBMA member should have easily been able to secure spot bullion. I can tell you that they are no longer acting out a long term plan to support the dollar by lowering the derivative gold price. RR is gone and Green S is right behind him. The US official stance is about to change reguarding gold because the entire IMF system is comming apart. The action and price in gold look like the same "low gold / dollar is good" maneuver, but it's not. In reality, their open physical purchase is a defining picture of a failing gold marketplace. They aren't just going to hold this unmanageable position that is simular to those 1920s dollars and watch them devalue. They are out to make something as the paper gold market is discounted into oblivion. Your analogy is correct in the comparison, but there is little they can do. Just as everyone was trapped long ago in old "gold loan" dollars held outside the domestic US market, only one course remained. Short the dollar for all you were worth. It did plunge for some time, back then. Today, with the whole market in denial about what the true price of gold is, common sense requires one to sell paper gold short if it cannot deliver. Who in the hell is going to arbitrage it from the other side. Will someone put 500 million long and go to court to settle? What if they Bunker Hunt it? You're out, big! I think this falure is going to make Y@K look like a walk in the park. We shall see.
This is the hailstorm of events that GATA is leading gold stock investors into. If the present gold market explodes to the upside in a paper covering run, it will shut down every major bullion bank in the world. It cannot be allowed to happen. I think most readers know just how that will play out. Every bit of financing arranged with just about every mine in existence will be locked down, as in collateral seizure. Without an established (read that official) gold market (none will exist for some time), no mine will be allowed to sell to anyone. Place yourself in the context of events, the governments will be trying to grapple with the failure of most of the currency markets, let alone hold together these banks. They are not about to let some major underground equity just float off and be sold as the stockholders wish. Think about it?
Aristotle, a different view from a different perspective for everyone to see. You fully well understand all of this much more than even your finest posts show. (smile) FOA
FOA (8/24/99; 8:15:06MDT - Msg ID:11928)
Comment
Aristotle (8/24/99; 4:22:15MDT - Msg ID:11917)
Things are definitely getting interesting!
Is Japan's current absence from intervention on the forex markets (as seen in recent-past operations to maintain strength of the dollar/yen) also symptomatic of the end-game you've hinted at in that passage, or an unrelated affair?
Aristotle, more thinking placed on the table.
End-game? It could be, it just could be. There are so many different windows to view this event from, it makes it difficult to stay in context while discussing the "why's" and "what for" of the various players. Most of my last post to you was given looking through a window at the typical American investment professional. For so long they reached for the "leveraged play" as an avenue to hedge with gold. In their mind, because the recent record of gold indicated it's price would always rise in the face of currency inflation, they didn't need to hold it, just gain from it's rise. Their use of paper is understandable because almost every portfolio in America is some form of derivative, not direct deed in hand ownership. Be it stocks, bonds even the currency. Sense derivatives are only bookkeeping assets that indicate a value in something else, the concept of paper gold worked fine to balance risk. Indeed, on paper this balance has worked because the bulk of the portfolio that was to be hedged has performed very well. The risk side of the equation has yet to be tested.
Only now, eyes beginning to open as to what is happening. Yes, the massive dollar currency inflation has exploded worldwide and inflated financial assets only. However, what if the risk they hedged against, real price inflation, will arrive during the destruction of the derivatives market before it devalues the dollar. The markets themselves may fail and no longer function in their ability to offset risk. We are seeing this in the Yen as it's dynamics is crushing the Yen carry trade.
Eventually, there trades will become so far under that they cannot be unwound. The same is happening in the paper gold trade. The very vehicles that people use to manage risk are the items that will fail, bringing on the financial destruction. Now we see why there is no gold of size out there, even as it's derivatives are sold down. Worldwide, real gold inventories are being locked down as players perceive their predicament. The dollar reserve currency arenas offer little to lock down. How do we "get physical" with the Yen?
Going back further in time: In this fertile ground was born the beginnings of the BIS maneuver to expand the ownership of gold without increasing the demands on physical supply. It solved several problems and yet ironically set in motion the eventual destruction of the dollar from it's own weight. Real gold could be diverted into areas that kept the system alive until the Euro was born (low price of oil in dollar terms). In addition, because the dollar is but a unit of confidence, a spiking "real" gold price (perhaps on a black market) would someday create a stampede out of that currency. That is why a new currency, of size was needed to receive that flow if the world economy was to have any chance to survive. The Euro didn't arrive to destroy the dollar, it was created as a place to run when this present system falls. That is why it's so important to the middle eastern oil producers. The MEast, China, India, eastern Europe and Russia will all eventually fall into the EMU, if not in reality, then from actual trade transactions. The ECB has made it plain to everyone that they will not restrain the Euro up or down. This clean float will be the very reason everyone runs to it, especially the up side of the equation. Every Euro critic in America will be among the first to buy it when the dollar starts to fail.
The events surrounding the Euro and gold have yet to begin. The entire dynamic is only just coming into sight for most thinkers. When Another spoke of gold and oil backing the Euro, it made little sense and still doesn't completely add up in the current context. Later, with the dollar / IMF system coming unwound, the same writers that speak of the Euro as "just another fiat currency" will be discussing how it's only so strong because of ?????? We shall see.
FOA
--- Interesting snips (Martijn) ---
About a year or two ago, that is all everyone talked about. The facts, to "eagerly address the obvious hard question, is that Asia was buying with both hands. All of the WGC figures point that out. Go back and review their (and any other gold news letters) articles for the 96, 97 era. It's all there. Every gold bug looked to Asia and India to ignite the next bull market. It didn't happen! This massive physical buying was on the verge of destroying the liquid supplies that backed much of the modern paper gold market. Without a liquid market, gold in dollars would have exploded, wrecking the dollar's credibility before the Euro was born. The BIS stepped in and stopped supporting the Asian currencies. An effect that broke the ability of these countries to buy gold.
-/-
In 1869, Jim Fisk and Jay Gould tried to corner the Gold market, and for a time, this notorious duo succeeded. It is a fascinating story, that is relevant to what is happening in the Gold market today.....
... to protect this hoard, Gould paid $2 million to two shameless attorneys to lock up in litigation the assets of the NYGE and countless brokers, as well as to defend the pair from the 300-plus law suits subsequently filed against them. Some of this money also went to Boss Tweed, who through the Tammany Society controlled New York City's finances and politicians.....
-/-
FOA (8/24/99; 8:57:04MDT - Msg ID:11935)
Reply
Golden Truth (8/23/99; 23:17:41MDT - Msg ID:11910)
F.O.A i,am guessing you mean the P.O.G would be allowed to rise? So if every Bullion bank in the world can not be allowed to shutdown what does happen???
Cavan Man (8/24/99; 6:32:30MDT - Msg ID:11922)
FOA 11896
I share GT's question. To paraphrase; "the bullion banks cannot be allowed to fail". I posted several days ago wondering if the "crisis" could somehow be managed or negotiated. I realize that was naivete but still I wonder. Why can't the market be manipulated to let the air out a little by sacrificing a few innocent lambs (none innocent really)and controlling the damage as the POG moves upwards? If I understand you correctly, that doesn't appear to be an option as the "damage control" will consist of siezing collateral (mines)in the event of default. That is a logical progression of cause/event but almost too difficult to believe!
GT and CM,
From my standpoint, most of the gold paper market will revert to forced cash settlement at the last trade! That's for long investors only because it's the inability of the shorts to deliver that will precipitate this. They will be taken out and shot because the CBs will be clearing the deals. If it's dropped to $100 and established trading markets halted worldwide because of sudden delivery demands, everyone will settle at $100, cash and walk away! People that are waiting to sell their hedged gold into their counterparties (mines included ABX?? to the BBs) would have to sell their gold at the new settlement price. Remember, when big international bankers are in trouble on this grand of a scale, the rules are changed into the banks favor. Always has been, always will be.
Understand, that the BIS clears all trade in CB gold. If that gold is tied up in private Bullion Bank deals, it will come under their rule. The BIS tells the Government what needs to be done and the Governments tell the mines. In perspective, this will be happening in every industry, worldwide, not just gold. Everyone will lose some skin.
Perhaps, now we can see why any capital that's left will be pouring into real gold if it can be found anywhere. We don't have to believe it now, unfolding events will drive it home, soon enough. Thanks FOA
PS. ORO, keep writing. Great mind.
FOA (08/24/99; 20:04:14MDT - Msg ID:11995)
Reply
RAINMAN (8/24/99; 10:46:24MDT - Msg ID:11953)
--------Working for a large bullion bank , I know for a fact that a lot of Gold accumulated by Middle eastern investors is regularly offered for leasing purposes. This baffles me. They are negating the very reason why they invest in GOLD by lending it with the risk of facing a default by their counterparts. Maybe FOA could give us some of his insights about that fact.---
Hello Rainman,
I can't help you there. Another may if he sees this??? My view of that is much the same as yours, it's baffling. I would also have to ask the question, "who is helping who" in that situation? Perhaps the BB needs some gold? Fees are also a consideration, as in who gets them!
FOA (9/1/99; 21:12:43MDT - Msg ID:12639)
Reply
Peter Asher (8/31/99; 22:35:25MDT - Msg ID:12542)
Peter,
Thanks for not only reading my post, but for understanding some of it. It's interesting how well we comprehend our own thinking, yet never really know if anyone else is following the same trend. That's why I'm happy to see others offering their viewpoints. It broadens the conversations and allows everyone, in their own way get something from of it. Right or wrong, at least we pick up the drift of all the many discussions that occur here.
Your comments about my #12506: I'll rearrange your words a little.
Does your (statement) describe the same phenomena and event as my #8841 of 7/13.
FOA said: ----Just as most men will not hang themselves with a rope, the shorts that actually create the quoted price of gold today, will not trade it higher. In fact, I believe they are trying to gather physical gold (taking delivery everywhere) while it still trades in relation to the low derivatives price.-----
Peter said: ------I believe they will continue this control of the POG with impunity, until their cohorts have completed the trading activities necessary to protect their positions. They do not have to buy physical gold to do this. As negative sentiment holds the price of gold down and leaves all rallies suspect, larger quantities of long future contracts can be purchased without pulling up the price of physical. The same leverage that created massive short positions will also serve to acquire the longs. It is the writer of those long contracts that is caught short by the breakout. The purchaser has locked in his cover price for a small fraction of the funds that would be necessary to buy the physical. Squaring off the short sales then becomes merely a technical financial matter. Provided, of course, that the 'System' is still in place.-------
Peter, I went back and read your post to better understand it's direction. First, let me further expand on the thought I presented.
The understanding I'm presenting here, is offered to explain why so many are off base and confused about the current gold price. Because I too am "Western" my thinking was also skewed towards a big short covering blow-out, where all "paper would burn". It seemed the only outcome, the markets would lock up and close down as the price of bullion went sky high. That was how Another offered the original thoughts, as he tried to get everyone to see how out of whack the real market was. What would have been required to set off such a run back then? Anyone large enough to buy spot physical gold as an "open order" on the world dealer market. Perhaps, several oil states working with several CBs could have offered, say, a 10 billion book priced above the London fix. It would have been all over with, as anyone with short exposure would be shut down from margin calls as gold zoomed in price. That didn't happen, probably because the market was in the process of entraping itself with false perceptions. Most of the real gold was corrnered anyway, so let the world have it's way!
As time has passed, our gold pricing has seemed to become more irrational. Other important analyst are starting to look for different explanations also. Today, Another is no longer "on the fringe of reality". However, there was always more to it than just politically manipulated markets.
The lower we go the more questions crop up. Why does gold still continue to drop in the face of statistics that show massive demand and ongoing supply deficits? Why does it hold here at $250 when this range will obviously destroy most supply from the mines? How in the world can it go even lower when everyone is buying it?
The answer lies in our perception of the modern gold markets. Back in the late 70s and early 80s, anyone "big" that wanted gold simply brought it "spot physical" in "allocated" form in London. The gold was there for delivery if wanted. Others brought through large world class dealers.
Further out on the limb, one could buy Comex "spot month" or "near by" and take delivery of a warehouse receipt later. When large orders went into the paper market, it had a major impact on the price because the price was tied to a "good probability" that real gold may be called for. Paper buying, back then scared shorts because the longs that brought for hedging and investment purposes, really did take delivery quite often.
Time has gone by and things have changed. I won't get into the political why and what for because that's Another story. The gold market evolved as needs and perceptions changed. Through out the late 80s and early 90s the "need" to use gold as a "security" hedge expanded tremendously. Far more players entered the market to secure a "gold hedge" than physical off take statistics indicated. The physical side of the market was becoming less and less important as players became satisfied to hold the promise to supply gold from someone else, instead of the actual bullion. Mine supply and scrap was becoming more a product for the jewellery trade and bullion coins. The market then evolved further as large gains from booming world security markets pressed portfolio hedgers to commit less money for gold hedges. Even though the demand for paper gold was exploding, derivatives were allowing investors to tie up the same exposure with less cash. If they could go a little further out on the limb, away from "deliver ability probability", they could still hold gold using less working money. After all, the world was doing fine as even the worst of problems seemed to be handled by the IMF team. The real need for physical gold was always in the "total currency default / inflation" arena and that seemed light years away. So, over time, the gold market matured into it's present state. Today, by far, most of the holdings of gold are represented in derivative form. Little more than a bet with someone else about where the price of gold is going. You put up cash, someone else puts up cash and both of you watch the exchange price indicate how you will settle up later. Settle up in cash, that is! The "good probability" of someone wanting delivery was fading away.
What is the problem with all of this, you ask? It's the trading of real bullion that still must set the price of all of these outstanding derivative bets, yes? Well, not really.
The end work of this process has found the 3,000 or 5,000 ton per year real bullion market, is little more that a sea shell on a fifty mile beach. Everyone on the "gold net" already knows how much LBMA trades and that is small stuff compared to the other unseen world markets. The debth and liquidity of the paper market moved the bullion trade into the "pink sheets". Needless to say, today, the famed "closing bullion price" is set by the cash commitments that bid for derivatives, not the cash that bids for bullion. In the old days, really big traders would arbitrage any such paper overhang against bullion by calling for delivery. Today, with the paper market so large, any such power play would find most traders taking delivery of gold as the market is sold out from under him. Besides, this new market perspective works against any long traders because none of the present "derivative gold demand" wants delivery! They only want to settle in cash, because taking delivery would require selling their other "better performing" investments. The mindset today is that gold is only an insurance hedge, as such "an increase in it's price will settle up in a cash delivery to me, to offset my other risk of cash impairment to my portfolio"! To further develop: "I don't need physical gold, I only need to participate in it's price movements"!
In complete satisfaction of the current trend, derivatives fill the bill for this current gold market. Clearly, we can see that this new market is not "fraudulent". There is nothing wrong with players pouring margin money into the short side to create a demanded product! It's has evolved into a cash game. This is where GATA is fighting a war they cannot win. Gold bugs (of the last few years) were viewing the present market using 70s eyes. Indeed, they were investing in an industry that was losing primary demand for it's product, even as "the need" for that product was exploding. This new gold market found a way to channel the "modern need" for gold's attributes away from physical demand and into paper supply. You simply can't create a short covering run if none of the current (insurance) longs want to take delivery. Even worse, as this trend was further developed, more and more old private physical holders were selling their gold and holding paper instead. Add to that Western dollar supporters wanting their currency to look good, and we have paper gold supply that's also used as a form of positive currency intervention. Anyone investing in the gold industry, expecting bullion to explode from all the new demand was truly disappointed. For every new Western gold bug that wanted gold for insurance, there were five paper sellers to supply him with all the gold insurance he needed, at a fraction of the cash commitment.
Peter, (if you are still with me) this is only the end of this act, not the end of the play. We have been standing on the trail and looking at where we have just travelled. Now, let's turn around and look forward.
Everything we just discussed was what "Western Gold Bug Eyes" didn't see! Most have read my other posts and have seen how Another has cleared the path without pointing the way. My above is a broad overview without describing the full political involvement. Just as everything is in constant movement and change, so too is the gold market. The recent evolution in the world currency scene has set in motion a new sea change of events. The same dollar/IMF world that created the seemingly endless wealth for American investors is now entering the end of it's historical timeline. The tremendous debt that purchased our lifestyle, is slowly being revalued world-wide. Every tick against the dollar currency is translated into more sales by foreign holders of that debt. Soon, the par value of that debt will begin to fade as the negative trade deficit of the US works it's evil ways. At the same time, for the first time sense the dollar overruled the Pound, another currency has been created that is equal to the task. The dynamic of changing world reserve currencies is also going to change the dynamic of the gold market. Once again, the needs of investors will redirect the method of using gold. As the wealth effect of the Dollar/IMF system goes into reverse, the process of receiving your gold hedge insurance in dollars will be perceived as a risk. At this stage, all of the past demand for gold that was channelled into cash settled paper derivatives will suddenly reverse it's trend. Slowly, more and more of a percentage of settlement will be asked for in real gold. As delivery fails from increased demand, existing derivatives will be dumped upon the market place in an attempt to cash out. This very process will: First dry up all gold supply and lock down any existing private stocks. Second, cash biding on the dealer market will become convoluted and reflect only gold's currency value. It's economic / industrial use will be priced totally out of the market. Third, what was once the world price making market for gold, will become useless for delivery as it's contracts are defaulted on and discounted in price. What price could the world gold price be set at, using these defaulted, bond like securities? How low does russian debt trade?
Peter, using your analogy about how the traders may be buying gold paper long, could be correct for this moment in time. But, as you can see, if the above plays out, they will be in the same boat holding nothing but a ticket for court. I bet, most of the smart ones are slowly looking for available gold, not more derivatives. I believe that in fits and starts, all paper gold (any comex paper outside of spot month) will be sold down. Driving the perceived physical price lower until no more can be delivered. Then, a general default will begin, destroying the entire gold industry as we know it.
As in conclusion to my earlier post, I hope to later describe the trouble this will visit upon the mining industry.
Thank you for considering this, FOA
PH in LA, some post! We will talk here later, across this USAGOLD forum river, that is.
USAGOLD (09/03/99; 15:13:20MDT - Msg ID:12765)
From Holtzman....
Tomcat said in (9/2/99; 11:22:58MDT - Msg ID:12671) that "the problem with using backwardation as a signal is that the spot POG is determined from paper gold transactions (thanks for this reminder, FOA)."
Holtzman here,
The measure you seek is not Spot, but Street.
You've correctly said that Spot is a creature of the Derivative world. It's the Paper price of a gold futures contract to be settled during the present month, and almost always to be settled for cash rather than for delivery.
As a result, it's no surprise that Spot POG is a better indicator of the Paper market since it is itself determined by constant repetitions of FOA's analogy of the two neighbours betting over the fence. Perhaps one in a thousand participants in the daily setting of Spot POG plans to buy physical gold or sell it. The other 999 participants are merely there to bet on it and claim their winnings in some other currency.
Put another way, how many people at a racetrack are attempting to buy a horse? If you want to know the going price of a physical horse, don't waste your attention on a racetrack.
If you want to know the going price of physical gold, don't waste your attention on the paper chase. And it's pretty obvious where we should look to find the going price of physical gold... I mean, after all, our very conversations here are being hosted by someone who spends his waking hours discovering that price.
The cash or Street price of gold is the number of dollars (or pounds, or euros) you take out of your wallet and hand to your friendly, neighbourhood coin dealer in return for a one-ounce Krugerrand.
Why a Krugerrand? Because it's the least numismatic, most commonly encountered, least lovely form of gold. It has no numismatic premium and no jewellery premium and no patriotic premium. It's even less attractive than a one-ounce 9999 ingot from JM or Credit Suisse.
That makes the Krugerrand the perfect unit of measure for Street POG. Its only special quality is that it contains exactly one ounce of gold (mixed with way too much copper).
The only thing which would disqualify the Krugerrand would be if suddenly coin dealers were willing to sell Maple Leaves or Eagles for less than Krugerrands. But to deal with that case, interpret Street POG as the price of the cheapest one-ounce coin available for sale at that moment.
The backwardation signal you seek will be when you see Quantity 100 Krugerrands selling on the street for significantly more dollars apiece than the Spot POG quoted by the paper markets that day.
A Krugerrand will always have a little premium built into its price (hi, I just bought these coins and I'd like to sell them to you without making any profit at all on the sale... my, that would be daft).
As things now stand, a month ago when Spot POG was quoted at $260, I bought a single Krugerrand for $268. That's within the range of normality. We're not in backwardation yet.
Let's say that Spot POG drops to $200 (easy, stomach, don't turn over now). What will a Krugerrand cost on the street then? If Spot POG drops no more abruptly than has been its wont in recent months, there's a decent chance Michael and his fellow coin dealers might then be able to profitably sell Krugerrands for $205 each. In that case, we're still not in backwardation and the shorts are still in control.
But if you see Spot POG drop to $200 while a Krugerrand selling on the street never falls below, say, $230-$240, hello new gold market. That's backwardation.
I think maybe the hardest mental hurdle for people to clear in understanding Another and FOA is this notion of two gold markets occurring simultaneously. There's an historical example (and it's Western :-) in which very much the same thing transpired...
In 1864, the USA and the CSA were reaching something of a stalemate in their war. Contrary to what most Americans learn today in (the winner's) school system, had but a very few decisions been made differently, the Confederacy would have won.
This, by the way, is why we see so many Americans (descended from both sides) re-enact Civil War battles over and over. How often (except on Monty Python) have you seen re-enactments of Pearl Harbour? The only battles worth replaying are the ones that could have gone either way.
In any event, to the average person living in Either the USA or CSA in 1864, the near term future was incredibly unclear and terrifying.
In the pre-war USA, national government funding was handled by the levying of import/export duties. The IRS was not yet a glimmer in politicians' eyes. For a nation at peace, duties provided sufficient income to run a minimalist national government.
In time of war, however, expenses magnify dramatically. Both the remnant USA and the new CSA needed to acquire vast funding very rapidly to raise an effective military. The both of them did so in the time honoured way: they borrowed the money. Have a peek at Lincoln greenbacks and Confederate paper money sometime. They are promises to pay the bearer with gold and/or silver at some significant time following the cessation of hostilities.
These documents were by no means the equivalent of today's Federal Reserve Notes (try redeeming a $20 FRN for a St. Gaudens sometime). No, Civil War paper banknotes were the equivalent of today's Gold Futures Contracts.
Oh, Lincoln greenbacks and Confederate dollars passed from wallet to wallet during the Civil War years as if they were currency, and in the first year or so they were regarded as 1-for-1 equivalents of coin. But as 1864 drew nearer, something odd began to happen.
"Howdy, I'd like to hand you this crisp $1 greenback in return for ten silver dimes change."
"I'll give you 8 dimes for a paper dollar, not a penny more."
Realise this happened in the North, in the remnant USA. It happened too in the Confederacy, but modern people remember it there only in association with the final default on paper which happened when the CSA government was extinguished.
But the sole difference between a Confederate dollar and a Lincoln greenback was that one paper issuer was still in existence in 1866 and one was not. In 1864, no one could confidently say that either government would still be there a mere two years hence.
Notice that, in this regard, not much has changed since then. In 1933 for US citizens, then in 1971 for the rest of us, the USA government voided its obligation to pay gold for paper dollars.
If you hand me silver or gold, I won't care whether the symbols impressed on it are from a reliable government, an unreliable one, or a defunct one. But if you hand me paper, I'd better be firmly assured the issuer will live long enough to pay off this debt to me.
Another and FOA, by saying wise people should avoid paper and only hold physical, are indicating that they expect the LBMA and Comex Gold Contract documents will go the way of the Confederate Dollar (or maybe more appropriately the pre-1933 paper dollar).
At the very least, they're saying the risk is so substantial that one should not be standing too near the fault line should the quake come sooner than predicted.
What the both of them are describing is an official Paper Spot POG (and its kindred future months' POGs) which may well plummet to $200 or even, as Another allowed some time ago, perhaps $10. Realise, though, that Another is by no means predicting that Michael will be able to profitably sell Krugerrands at $10 each. Far from it. What Another and FOA are anticipating is a situation much like the paper money situation in both the USA and the CSA in 1864: how likely is it that the paper contract you're handing me today will be redeemable for any amount of gold by this time next year? Tell you what, I've got a spare ten bob I feel no desperate attachment to. I'll buy your one-ounce IOU just for kicks. If LBMA completely expires, I'm out only a small amount. If LBMA unaccountably fails to expire, I've struck it rich.
Meanwhile, those of us with less of a gambling inclination will sleep more soundly holding physical. After all, a silver or gold coin remains silver or gold even after its issuer expires.
The one point of Another's and FOA's that I still don't entirely follow, however, is their contention that all mining stocks will go down to zero along with the Derivatives market. Certainly, any mining company which ties its future earnings to the paper market has also tied its future stock price to that teetering mass (Barrick, for example). And certainly, a low tide drops all ships, so that even those mining companies which are not involved in the paper chase will still suffer in the stock markets.
However, I have some difficulty seeing All mining stocks world-wide being extinguished utterly. Maimed, perhaps, but no matter how much trading turmoil occurs there will still be well-identified veins of gold ore sitting below ground, just waiting for someone to consider them valuable again. Yes, some of them may become nationalised. Yes, others will end up being sold at fire-sale prices. But I can't break myself from the notion that, much like the airline industry, the strong will survive and absorb the weak.
I'd dearly love to hear from either Another or FOA their thoughts on why they feel that not a single mining stock will survive. Or have I misunderstood you?
Yours,
I.V. Holtzman
FOA (09/06/99; 20:56:39MDT - Msg ID:12946)
Gold Mines: Little more than paper derivatives of gold!
From Mr. Holtzman #12765:
------Put another way, how many people at a racetrack are attempting to buy a horse? If you want to know the going price of a physical horse, don't waste your attention on a racetrack.----------
Thanks Holtzman,
To develop this further: -------------If you ever want to "use" the fine qualities of a "physical horse", don't plan on gaining those qualities by owning a "horse farm"! True, the best avenue to gain exposure to the "profits" (and loses) in the "horse producing industry" would be from the ownership in shares of said farm. However, any viable industry, incorporated into today's fiat currency inspired markets, depends entirely upon those markets to channel profits and increased equity values back to stake holders.-------- Even if the financial markets function, is it valid to compare the real wealth of owning a horse with the increased value that comes from the business of producing such an animal?
From horse stables to automobiles to gold mines, it's important to understand that the ownership of any industry is not the same as owning it's end product. ---------Every industry's established "worth" is not only "just a derivative" of the value of it's end product, but is also a "derivative" of the "efficiency" and "continuation" of the world financial system that creates the marketplace for that product.---- Better said: Your ownership in a company may be real, but for others to value your ownership realistically, it requires a functioning efficient medium of exchange. The beginnings of the first waves of currency inflation allows that function to upprice real producing companies. However, historically, the end breakdowns in fiat money systems along with the rules / laws of the land, have always destroyed the efficiency of any industry to provide a product, no matter how valuable that item may be. Gold mines, like any other service, must operate within the official money system until that system is completely destroyed. That includes abiding by all laws and official declarations the governing society may bring forth.
Preserving wealth during such times provides that the more clear and clean the ownership, the more likely one may control those assets. Again, even if the financial markets function, is it valid to compare the real wealth of owning gold with the increased value that comes from the business of producing gold?
We walk the trail of common logic:
If you needed a new car, would you buy General Motors stock instead ? Of course not! Why? Because the average citizen has first hand practical experience in the use and need of their car. The notion of owning the industry as a proxy for the car is quickly discarded as ridiculous. Still, some analyst would have you believe that one should hold gold mines as a proxy for gold.
I believe this flawed investment logic has become the "default" norm of most "western investors". While everyone understands the attributes for owning a car, few today have practical experience in the use of real gold as a money asset in their personal lives. For that matter, the analysts that promote this "proxy concept" are in the same boat. Let's face it, none here have never had to view gold as the "only savings to survive as a representative of their wealth"! Nor have we used it as "money in trade" on a regular basis. So, how could you, your broker or anyone else refute the proxy concept?
Heard this pitch before? Perhaps in a different format?: ------" The price of light trucks are going sky high due to world debt problems. So put most of your money into Ford stock and as little as possible in real trucks. Then, because of the way their production is leveraged to the "physical product", their stock will rise 100 times over the price increase of the "truck product"! After that we can sell some of the stock and buy hundreds of the trucks for later use when the money goes bad and times get tough. It's a unique concept inherent only in the automobile industry that few average "physical truck buyers" can grasp or understand. I have clients that have made millions doing this the last time light trucks rose in price. Ford is the best of the bunch because it has all the reserves already "in place" to supply "physical trucks" to a needing world. As such we can presume that those reserves constitute a value that will never be lost during hard times. -------- Compelling? Isn't it?
Of course we could be talking about the gold industry also.
Yes, it's a financially viable concept. Gold stocks "should?" rise as their product soars in price and brings currency profits to their bottom line. Because it's happened before in other industries and has repeated this cycle recently, mines must go up in the next bull market in gold, right? Well, maybe not!
We can see the long road behind us:
Read #12471, 12542, 12660. In those we find my reference to "physical gold advocates", "fiat money advocates" and "investors somewhere in the middle". The "in the middle" thinker looks back and sees a gold market that has responded to a kind of business cycle. To them, from the early 70s onward, gold moved up from typical supply and demand issues created by the ebb and flow of our inflationary fiat system. The next cycle should take gold up to $400, $700 or even perhaps $1,000. The dollar will remain the worlds premier currency and the US fed will again raise rates to cool things off. We create yet another cycle. Gold stocks will again be the prime beneficiary as "sophisticated" money moves from the world equity and currency markets into the shelter of "reserves in the ground".
Now, I would like to point out that this gold cycle has only been around, in this present form sense the dollar began it's withdrawal from being a gold loan. That's not very long in this gold world, when one considers how far back it has been in use. For us to draw conclusions that this dollar / gold cycle is of a lasting, repeating nature is stretching precedent to the limit!
Understand this: For countless years, mines have sold their product at established world gold prices. They may sell where and to whom they want, but the price was always a function of government currency valuations. The free markets that direct gold into jewellery and such have never set it's price. Rather they have always functioned under the currency / money use as the value creator. One way or another, the government sanctioned established marketplaces of gold have always been under control and in evolution as the world currency structures have changed.
During this time the establishment gold price has not always benefited mine profits. During the 50s and late 60s gold was largely unprofitable to mine. Yet, we find no evidence of mines selling gold outside the "official" marketplace price in an effort to circumvent it's perceived obvious low price? I submit that in the past and in the future, they will always subject themselves to the "established official" gold price, come what may. Any breakdown in the present dollar financial system that results in the failure of the "official established" derivative gold price will find every mining concern selling their production into that market price regardless of profit. To bypass that channel, the mines would separate themselves from the fiat banking establishment that they depend on to function in this world. Even though the "street price" (thanks Mr. H.) of gold soars within the small dealer network, it will be viewed as somewhat "Black-market". Mine selling into that arena would invite laws with "immediate" and total retroactive taxation of those profits. Or worse, production limits could be fixed upon all mines as a means to prevent the same gross profit margins. Perhaps in the same way as the Texas Railroad Comm. controlled all US oil profits. Further, such a breaking away from supporting the official gold market by withdrawing physical supply could bring on the total closure of what established gold markets that exist. To that extent, mines could find themselves selling all gold production to the official CBs for who knows what price.
Can't happen, illegal, you say? When it comes to gold, nations, governments and Central Bankers change the rules quite often. One has but to look into the laws of every nation to find that " emergency currency flow controls" always include gold! You see, it's never considered money or a reserve until a crisis strikes. Some examples of past illegal actions:
1797 Napoleonic Wars. Bank of England suspends gold payments.
1917 US prohibits gold exports.
1919 UK prohibits gold exports without official permission. UK now off Gold Standard
1919 US gold exports permitted again.
1925 UK Gold Standard Act Currency convertible but only in amounts of 400 oz. Export of gold permitted again
1931 September UK abandons Gold Standard.
1933 US convertibility suspended ($20.67/oz). Export, all transactions and holding of gold forbidden.
1934 US Presidential Proclamation makes dollar again convertible to gold ($35/oz)
1939 London gold market closed on outbreak of war.
1954 London gold market re-opens after World War 2
1968 London market closed at request of US government.
1968 London market re-opens 1 April and now fixing in US$ for first time.
1971 US$ convertibility to gold suspended.
1973 US proposes further devaluation to $42.22/fine oz.
1975 US abolishes restrictions on citizens buying, selling or owning gold (formerly needed Treasury licence).
The above may not seem like much now, but it wrecked havoc upon many investors. Of special note: Was the gold market was closed between 1939 till 1954?
Onward:
Over the last few years, we have seen how the gold market is failing to act out it's past precedent. Many investors write this off to government gold policies that must soon end. Be that as it may, the process continues without regard to "past gold cycle logic". I point out that the lack of new mine supply did not prevent the low real prices prevalent during much of the 50s and 60s. Will the shutting down of most world mines prevent a low "official gold price" today as many think? Not in the broad political scheme of things.
But what are they thinking as this process is worked?
Would a dealer "street price" in the thousands change things? Not if the only recourse is for private money to move into Euros! The crisis policy will be to maintain the official gold market with low priced mine supply and allow the physical dealer market to run with whatever private stocks that arrive. Remember, the present financial system has a need for new mined gold to flow into derivatives at a low price to support the paper market. The same paper market that keeps oil behind the dollar also holds the dollar together. As of today; To further pull existing "old gold" from portfolios by forcing the street price down now invites a run from the dollar. A high physical "street price" will at least keep the dollar in play when price inflation begins.
If the paper gold price rises from it's present level, will gold stocks follow? Probably! But what if that rise ends quickly as the gold market begins it's next "official" failure run?
We make camp and rest here:
Looking outward:
The next money breakdown will not be a typical inflation cycle. The dollar has reached the end of it's "currency inflation" logistics as it's local debt load now only expands as foreign dollar debt is devalued from par. Yes, there will be "super inflation", but it won't be part of a "perceived" next cycle that extends from the lows of the last go around.
The ECB view:
Because gold continues to be the respected "currency of nations" in each currency block, our physical gold must be withdrawn from honouring the long standing dollar based "derivatives gold market". In fits and starts, the entire gold industry as they know it will fall away as the dollar is destroyed through local US inflation. Because history has never witnessed the destruction of a fiat world reserve currency, many world industries and businesses that grew up within this US system will suffer as investors shift holdings. Any industry that finds it's value from a dollar derivative marketplace will be in disarray. Therefore, we must allow the Euro to float on it's own and thus guard the Eurozone from the shattering effects of this.
To conclude:
Consider how you hold your gold as "we watch this new gold market together.
Thanks for reading, FOA
FOA (9/8/99; 19:02:38MDT - Msg ID:13085)
Reply
Cmax (09/07/99; 19:59:17MDT - Msg ID:12996)
Cmax, Hello and welcome again!
Thank you for sharing your present thoughts and very relevant earlier posts. Did you read Holtzman #12765? His excellent post was able to create a nice perception for physical gold, "street gold". A well written analogy that allows the average investor to grasp what I believe will be a new, much larger market for gold world-wide. It also generates a real understanding of how the "street price" would differ from all other established markets. He used the 1864 American civil war to demonstrate how two issues of paper money (as in comparison to paper gold?) were discounted in common circulation. It is a tremendous help to anyone that reads it.
In any event, I believe most of the lesser developed countries will be in the forefront of building a high "street price" for physical gold. Especially China! For them (some Chinese are very, very wealthy), price was never the real consideration, rather it was the enormous amounts they had to bring in well ahead of any supply disruptions. Hence their buying patterns over the last many years. Many very large buyers were moving gold through Hong Kong, before and after the take-over. I believe, far more gold has already entered that country than public figures show. It will not be available at any price when the storm hits. They already have the gold! Any move to announce an open bid, using dollar reserves would be after the fact. The oil producers are very well in the same situation. I think it was the poster "GFD" (hello GFD!) that noted China the other day. He also pointed out how "street gold" could shield many citizens outside the Western block from the extreme fracture that is coming. Y2K will be something to behold, but it will be a side-show when the modern gold market breaks!
Again, thanks for reading from Venezuela and write when able.
FOA
FOA (09/10/99; 19:21:43MDT - Msg ID:13266)
Comment
Hello Tomcat,
Tomcat (09/07/99; 22:11:23MDT - Msg ID:13003)
FOA
Dear FOA, thanks for you post #12765. I was reading it with great interest and then hit a set of walls that stopped me cold. If you would allow, I would like to ask a few questions.
You said:
--------"Would a dealer "street price" in the thousands change things? Not if the only recourse is for private money to move into Euros!"----------
Tom, this statement is an observation of an evolving dynamic. The years have gone by and it's late 1999, today, not yesterday. When gold does break to the upside, it's going there without most of the "Western gold paper market". The Mines, CBs, Bullion Banks, and Exchanges will all be mired down, working out a failed IOU gold market. It almost has to! Listen to what most of the respected industry analyst are now observing: "a huge short squeeze is coming that will break these evil shorts". It's absolutely true, but the real physical world we live in will deliver an entirely different scenario than what most expect. Tom, just as ten people can't physically possess the same ounce of gold, nine of them are going to court to make the others perform what physics will not allow!
We will not see a simple resolution (over six months to a year) of an accumulation of paper gold that has taken a decade to build. The result will be a completely failed and untraceable "IOU gold market" groping around as the "street gold" dealer market goes completely through the roof.
This will be happening during nothing short of total "trade warfare". Politically, no one over here is going to shut down "street gold trading" because it would invite people to move into Euros as a safe haven. You have read my other posts and understand the logic behind this position. Consider the "very clear observations of CMAX #13186". Here is someone that understands the dynamics of foreign assets and money during uncertain times. He states: " In all cases, when rigid or "virtual" exchange controls are applied to ANY money, the "street price" always runs the official price out of the market.". Without the blow off valve of an "official black-market", everyone runs before the act! Without physical dealers like USAGOLD, dollars would more quickly leave the country for the next best world money, Euros. Currently the same thing happens with dollars in other failing countries.
-------"To further pull existing "old gold" from portfolios by forcing the street price down now invites a run from the dollar. A high physical "street price" will at least keep the dollar in play when price inflation begins."--------
Almost the same answer for that one. Except the reference to the fact that for the past many years, old gold, in private portfolios has been in the process of being sold as the owners brought paper gold. The remaining old gold stocks would be traded for Euros if the Street price is frozen Mr. CMAX also considers the old gold question.
----I don't see how a low "street price" could cause a run on the dollar. In fact, I thought a low paper or street price for gold would help prevent a depreciation of the dollar.----
Again, don't hold still, time is running past you. The IMF story is part of this transition I wrote of earlier this year. The IMF / Dollar block is out of time. Europe has blocked the "low gold" deal of the past and it only continues from inertia. The US is caught in a quandary as they need the price of gold to rise NOW so as to find liquidity for it's foreign reserve debts. However, if the traditional paper gold exchanges allow gold to rise they will implode themselves. Hence, the US is abandoning the LBMA and England for a high physical gold price. Read that: "street gold" like the kind in the IMF vaults!
---And finally, a question about your last two words. What is an '"official"failure run'?----
Slang for, official paper gold price is going much lower!
Tom, just read this and watch the world turn. Another would say, "time will prove all things"
Thanks, FOA
FOA (09/13/99; 09:09:03MDT - Msg ID:13518)
Reply
ORO, Some things I know.
This work started back in 1988, not long after the 87 crash. Important people were asking some very serious questions about the timeline of the world monetary system. They expected a longterm evolving report that would expand ongoing events into a format of true life context. A context to be understood at all levels of economic exposure. In other words, it had to do a better job of explaining the (then) recent illogical swings of world economic affairs and the effects of those swings on various national economic groups. Were we progressing into a new, better age, or was our system responding in a death like downtrend?
Because the questions grew from a fear that the world economy would indeed contract in the future, leaders wanted to know how one could retain the most wealth during such an event. It was thought that if the basic extended family blocks of a nation could survive such a collapse, savings intact, those nations and their children would be a benefit to economic affairs of the future. In effect, negate a possible return to the Dark Ages of European history. Our time frame was outward some 20+ years. I cannot offer the full report or it's complete ongoing analysis. But, the effort you have seen to date is one of sharing somewhat for the common good of all.
In a search for reasoning, they looked first, not only at the most broad perspectives, but ones that had the effects of history for confirmation. Often the record of historical human reactions are the only precedent that can refute the use of modern day financial theory. Especially if that Theory is in a "practice for proof" stage that might last for a generation or more.
1. They found one absolute repeating event that shaped the lives of countless individuals. It's effects upon the destiny and life directions of recent society had no equal. That one most striking and frightening observations was of the failure of paper money. With irony, we stood here in the middle of 1988, a time of advanced thinking using higher education for guidance and could easily document that no paper money ever put into use had ever survived. Weather backed by precious metals or in stand alone form, not one lasted! Yet, we were hip deep in an entire economic world that based and denominated it's wealth upon the further extensions of "fiat paper money".
2. The second major observation was in the evolution of what debt is. From the very beginning of time humans have borrowed and owed, from and to each other. During most of history, the period of time between a debt owed and a debt paid was looked upon as "a period of risk". The accepted longline historical concept was that the item borrowed may not be returned to the owner. In addition to this view it was ingrained that the primary real loss came from not being able to replace the "item" lent, not the secondary loss of not receiving the medium of exchange. Yet in today's world (1999), the "thing" that is usually at risk in a debt is the currency. Modern common perception stands that no one should have to accept these loses. In concept, governments nurture these perceptions only because they "can" replace the currency with ease. Yet the actual physical structure of the debt (the economic good that the loan was based upon) is never regained. This engine alone is a major force in the destruction of currency systems. It's effect is to shrink the platform that creates real wealth and expands the financial instruments who's value depends upon that platforms continued function. Indeed, it is a complete conflict to historical, natural human interactions.
From these two grand perspectives we view the unstable trend lines of our modern economic structure. It is from this present structure, that many entities, both large and small now attempt to retreat. But, in order to transport wealth with assets intact, they had to understand these money dynamics as an ongoing breakdown of our economic system. A breakdown that ebbs and flows with a political posturing that makes this journey very uncomfortable without a stable, longterm grasp of the process. As the river Nile floods and withdraws in it's endless rush for the sea so to will the energies of paper currencies be eventually absorbed into the ocean of history.
Onward:
Michael Kosares of USAGOLD knows well the very early coins of gold. Money coins that by their very existence today prove victory over the past creations of mankind's fraudulent commerce. The value of these coins now reflect an even higher value as art. Another minor means of wealth transportation that has historically outperformed money gold.
But, in distant times past these same coins performed a far more noble roll. They remained the only existing money stock after "major economic societies failed". This particular function of gold is not important for 99% of time that economies function. One small evidence of this is present in the old Gold standard. With ragged inefficiency, paper currency circulated as gold deposit receipts along with gold coins during the course of normal financial dealings. However, after we endure that once in a "several centuries failure", the gold money stock becomes the vital building block of the next generation. History has shown that during that brief time, the owners of every ounce of gold provide the only efficient medium of exchange that rebuilds the marketplace. In transition, these latter day gold owners never rule the financial world. Rather they perform the act of energizing a dead economy by transporting buying power into the next expansion. The history of past human interaction was never one of hoarding money so much, as it was that of trading to gain life's things.
Life goes on.
Viewpoint:
It was pointed out that one need not invest in gold to negate the effects of an inflation. All we have to do is buy real things that increase in currency value faster than the loss of buying power. True, in that light gold is but one of many things that should keep us at least even. However, we are in the process of experiencing a "breakdown" or at the very least a major change in the entire financial system. Not just an ongoing inflation during a phase of a longline expansion. Our goal for certain individuals, is to show this dynamic at work as the real life events unfold and document it's progress. For private individuals that read these pages, historical purpose and present day logic will build further support for the holding of physical gold as these events reveal the true season. In this light I offer Anothers direction given some many years ago, "in this special season, let others buy things to hedge their present worth, let us buy gold in support of our future generations".
Onward:
After reading ORO (9/8/99; 8:24:51MDT - Msg ID:13029), I wanted to at least be more direct in offering this ongoing discussion of events. You do a wonderful job of writing and I often find my information is just a reword what is said:
---- "In order to gain action from people, one needs to provide a timetable for the events (within my nephew's lifetime, mine, my parents' or my grandparents', or before the year turns, any time now...). This is the kind of support that I myself required before I was willing to accept the need for putting resources into "gilded insurance". The same need for support with numbers and charts that I am working on filling is needed to induce the financial pros to give their clients direction. The issue is a patriotic one. Small business America will not survive without small capital hoards. The same problem they had in the depression. The reason for the length of the depression, was the confiscation of gold. The inability of small businesses to find capital pools in an atmosphere of credit unwinding, and the simple death of the money supply in lew of the indestructible gold that was confiscated was the cause for an extra decade of suffering. The only way I see to avoid it is to convince people to build these pools now or end up working for a foreigner for the rest of their lives, since only foreign pools of gold capital will be available (India, perhaps Europe, Arab countries, Asians from countries that managed to pick up the pieces most quickly)."--------
ORO, on these points I completely agree. However, all that is left to drive the last remnants of this world engine is the "American Dream". The leverage to attain that "Dream" is presently stretched so far that any withdrawal back into reality will implode the dollar with amazing speed. The time may be already past for any large scale building of gold stocks based upon reality. But, still the effort is not lost.
Also:
---- "The key to the numbers is that set of numbers that quantifies the issues. Particularly important is the understanding of how the international dollar system works, how leveraged it is, how that makes it susceptible even to small shocks, how a dollar collapse in international markets would play out in the US. Once the arguments and the numbers are shown and it is possible to convince a professional of the dangers facing the dollar both as reserve currency and the currency of the US, only then is it possible to make the argument for gold as anything other than another paper airplane to ride in the markets. Perhaps you will start a presentation of the qualitative issues regarding the dollar (rather than gold), interspersed with the data you may want to quote. I am currently working on the data to show the details of the situation."-------------
Onward:
The best indicator one could find to advance the warning of a reserve currency breakdown is the fall away of price inflation after decades of local currency and debt expansion. To observe the history of paper money is to view it's constant loss of value as expressed in the price of daily things. Weather backed by gold or nothing but "a dream", no world economic power has ever let it's currency increase in value for the long term.
The only way any currency can, in the short haul become price inflation neutral is through the demise of it's competing moneys. This effect is seen as an increase in the holdings of one major currency and the corresponding sale (increase in trading velocity) of the displaced foreign money. In the case of the modern world reserve currency, the dollar, we look to the net increase of foreign holdings of US treasury debt. The proxy for holding US cash.
(Note: A table of this recently appeared on the Investech web site. I cannot reproduce it. Perhaps someone else can.)
From 1979 through 1994, the increase was always positive, but never in fully manageable amounts. From 1995 till mid 1998, the accumulation exploded off the chart as money competitors became the spending currency and the dollar the holding currency. It's well documented how this effect has kept price inflation in terms of the local US markets from rising. However, this long trend also had the effects of denominating almost all world debt in dollar terms. This was seen through out the 90s and is considered the end time event that will break the dollar. Because the local American economic structure has always been finite, it cannot defend it's currency with the exchange of real goods nor represent the value of the debts of the entire world. The downside, not discussed result of this will be the complete destruction of the dollar as a reserve currency. This begins as an attempt is made to reverse the dollar holding process. The same chart above also presents a massive decline in net foreign US debt purchases beginning in 1999+/-. The trigger of this action was the successful establishment of a larger competing reserve currency, the Euro.
Because a world reserve fiat currency can only represent the tradable value of it's local economic structure, the world markets will now devalue most all debt based upon the dollar. This effort will begin a real "catch up" phase on the US price inflation front, even as dollar debt is burned with a vengeance world-wide. This loss of the dollar vehicle will also bring the destruction of many contemporary derivative markets that priced commodities for their value as trading items, rather than their traditional good use.
More in a later time. Thank You FOA
FOA (09/13/99; 18:52:08MDT - Msg ID:13574)
Comments!
Cavan Man (09/13/99; 09:43:46MDT - Msg ID:13521)
FOA
I do not read "important people" wanting to know as being academics of any stripe. Am I correct?
Cavan Man,
To the best of my knowledge, the ones that initiated this were major oil producers. Strange as it may seem, the very first questions came from a US natural gas producer in 1985+/-. Later the initiative came from outside the US. Again, all of this was some time ago.
Leigh (09/13/99; 10:10:48MDT - Msg ID:13526)
----- if our policy makers were heeding any of this, we wouldn't be in the fix we're in. The Europeans and perhaps others, it seems, are doing a better job of protecting their economies and citizens. Our leaders are fiddling while the dollar begins to burn.-----------
Leigh, I think that every economic block lives out it's own timeline. These things have occurred through out the human existence. Even when gold was in use as money, I might add. Who is to say that Europe will not be in the same situation 50 years from now? Each generation has to find it's place in the life cycle of currency events. Ours (if I live long enough) finds us in the beginnings of a transition. Those before us were perhaps in the middle and found the turmoil of nations as the striving to save what gold standard existed.
Obviously, gold plays a major roll in transporting ones savings across the stormy seas. That's easy to say for those that possessed gold even 60 years ago, much more so centuries ago. The more recent owners did not lose money in banks during the liquidity crunch of the 30s. Yes their gold was taken by law, but their wealth was largely intact if it was held as gold "in hand" (or gold certificates "in hand", as the dollar was). The function of physical, saved the day.
Today, savers face a unique circumstance. Never before in history has a generation grown up essentially using a world fiat reserve currency. Many of our present elected officials are but a decade or two more in age than the mass of humanity they govern. I wonder how many of them are a good study of economic currency history?
----When you said, "Our goal for certain individuals--------
As above to Cavan Man.
---This last post of yours was so sad for us Americans.---
Perhaps yes, or no? People in many countries have managed through currency turmoil. I think many Americans will be a quick study in this area. Many still retain the "spirit that won the west" (Farfel?)!
TownCrier (09/13/99; 12:49:24MDT - Msg ID:13540)
Russian govt signs ruling on 7.5 euros/tonne oil export duty
TownCrier, I don't think we are far from the usage of Euros to price oil. Later the settlement in Euros will be seen as a "natural progression". It's interesting to note how the oil prices have firmed only months after the Euro has found it's base line. Most will write this off to luck. However, this Horseman is riding well in the saddle. Michael, if this rise continues, can a dollar problem be avoided? We shall see.
thanks FOA
ORO (9/15/99; 11:40:11MDT - Msg ID:13683)
FOA futures selling
Thank you for putting out this observation that
---They will try to cover their liability by selling as much "long" "in the distant delivery" gold paper as possible before the market fails.
as a result of gold account owners request for full allocation.
The banking principles are
1. lend long
2. borrow short
3. have a lender of last resort (CB)
When applied to the gold market
1. the lending is to trading desk operations of the BB's firms, hedge funds, miners. Probably in that order on size of positions.
2. the borrowing is from private gold accounts moved from allocated to non-allocated. Large semi-private physical possession hoards physically moved to the market (Saudi, Kuwaiti, Vatican, Western old money, former dictators of Asian, African Latin countries etc.). Finally a small ammount is physically moved from CBs.
3. CBs appear as guarantor for some of the more important accounts.
So far they have a 0 exposure to the price, but have high exposure to default, particularly from leveraged borrowers. Which is why 3 came about in the first place. Both the CB guaranteed and the non-guaranteed accounts are hedged against the problem of default by the BB trading desks dynamically obtaining supply commitments (buy long futures, calls etc.).
When a borrower (e.g. LTCM, Armstrong) is not capable of buying on the market and the news of this makes the depositor base nervous, they would offer increasing interest rates to depositors to keep the account. No different from going to the money markets to borrow short term funds there, rather than from the CB (who charges way more on lending, 5%+, than they do on guarantees, under 1%). The 1995, 1997 and 1998 lease rate spikes are related to this. A short while later, the gold arrives on the market and prices plunge.
Subsequently, the evidence of high lease rates in a flat market is that the markets are not recieving new gold, nor are they supplying new gold as there is no buying for the allocated accounts, but borrowing from other holders. These could be the CBs. The Swiss and Dutch were actually lending physical (rather than providing deposit insurance), in 97. The returns on the leasing are consistent with the kind of loan shark rates one would charge a distressed client. If some of the original frightened depositors were comforted or new ones found, eventually the gold will fall into the market. The high long open interest on the part of the "commercial insiders" and the enormous overhang of calls at rather high implied volatilities shows that it is BBs that are on the long side, in hedgeing their commitments to depositors calling up to tell them to fully allocate their accounts or even physically withdrawing. The announcements of CBs that they will lend no further, is a "stop pestering me, I don't care about your troubles" signal to the BBs.
The fact that NEM was let off the hook (their debt) by supplying calls at the $385 price from 1995 shows that the bullion bank's response was not to sell futures but to buy them. The hedge funds and bank trading desks are the ones doing the selling as part of their speculative activity.
If they are trying to build up reserves in the expectation of further withdrawls/full allocations, thent they would buy physical and sell long dated futures. This activity will reduce the time premium on the futures and appear as a backwardation, particularly with higher lease rates in the out months and years, where the rise in lease rates has been much less pronounced. The fact that the lease rates are very much higher on short term futures, indicates that leases are indeed being rolled over and the BBs and their hedgie clients have not been going to the market to cover, as the price is flat.
The fact that the short term lease rates are so much higher indicates that there is another bear raid coming and that the steady state in the market is being retained through new leasing sources while reserves are not being built aggressively. Speculative sentiment being so bearish, is bringing fresh short commitments that the commercials buy to hedge the possibility oftheir client's defaults.
Remember that these are banks, and they will not own gold outright, ever. They will build reserves (as you indicate they might) but they would rather than roll-over loans. They sell futures and calls for the time premiums, they buy to protect themselves from borrower default. No time premium indicates no fresh sales are coming from long physical short futures (the typical Arab position).
Morgan is probably borrowing either to sell to Armstrong's account or to have the gold in hand when Armstrong's loan comes due and it can't be payed off.
1:39 ET - bear raid in progress.
FOA (9/15/99; 13:33:18MDT - Msg ID:13692)
Reply
RossL (9/15/99; 10:39:50MDT - Msg ID:13679)
FOA clarification please
FOA in 13672 wrote:
-------I would like some clarification on this, since it seems you are predicting much mayhem in the paper marketplace. I assume the word "they" in the above quote refers to bullion banks caught short in a squeeze. By selling into the distant paper markets, they (BB's) would just be postponing the day of reckoning while they were confident the manipulation game could be resumed after a spike in the POG. Or is it your implication that they (BB's) wish to commit fraud by intending to default on these paper obligations when the paper market collapses? Settling the obligations with paper money while sitting on physical gold?-----------
Hello RossL,
I think your term "Mayhem" will fit just right. How long will it take for us to evolve into that condition? Could be "right now" or "over many months". My view is that we are progressing into a convoluted state. Are the BBs doing anything wrong? No way. They are operating in the confines of the system as it is set up. I think, Another was, all along, trying to imply that this perception of manipulation as seen by the industry and investors was really the reflection of a "false perception of what our modern gold markets had become". People thought they were working an investment angle based upon the usual "supply and demand" concepts with a little "gold is money / inflation hedge" thrown in. The whole market has changed. The problem was that every time some $50 million asset investor walked in the door with, say one million to place in gold, he had to wade through something like a used car lot of derivative sales people. Never mind the guy has 49 mill still in his pocket, he was labled insane to put the whole 1 mill into physical gold. Use our products to hold this much in .............and then we can.......and don't forget the gold shares....and!!! You get the picture. The exact same happened to guy that had an old storehouse of physical.
Anyway,,, the selling we are seeing that's blocking the price on the established exchanges is the effects of the industry adjusting to a change in the marketplace. People win, people lose and life goes on. You and I would do just the same financially, as soldiers in a trench do when it's all falling apart. When out of bullets, heave your helmet at the enemy.
Any financial entity that is involved in the paper gold game will be buying, selling, hedging everything in sight, in any possible combination to raise liquidity if they are under siege. "Boys, forget how this will play out tomorrow, we must save today"! ORO knows how it works.
Ross, this will not play out exactly as I see it. Football games are fought all over the field, never won or lost where one referee threw the flag. Another only tells me where to look. It's up to us to make sure we see the whole field.
Thanks FOA
FOA (9/15/99; 13:37:30MDT - Msg ID:13693)
Reply
PH in LA (9/15/99; 11:16:33MDT - Msg ID:13681)
Question for FOA: When you posit "buying in the outer paper contracts" to cover the problem here in the present aren't you suggesting a spike in those contracts? Wouldn't that blow up the whole game just as well?
PH,
We are not dealing with just the Comex futures. There is a whole world of paper trading that goes on off markets. You never can tell if someone is neutralizing their trades in another arena? Unfortunately, it is true that the human reaction to a death in the family, is to grab control of as much of the family business money (or gold) as possible before the courts (or sec) lock everything up. We were not born saints. You and I have been there and seen that. No?
Again, anyone that holds rare coins or physical will stand outside the risk and view all of this as an interesting motion picture. Probably the best run of a screen play any of us will see! Anyone that starts a relationship with the USAGOLD will be dealing with a solid group for an enjoyable financial lifetime. Believe it.
Thanks FOA
FOA (9/15/99; 20:01:19MDT - Msg ID:13709)
Comment
ORO Msg ID:13683)
ORO,
Excellent write-up! I have a few other observations that may be considered.
Your post:----------Morgan is probably borrowing either to sell to Armstrong's account or to have the gold in hand when Armstrong's loan comes due and it can't be payed off.--
This is the same thing that happened when several other small funds (no media news for them) went down. Their gold carry trade was covered by borrowing gold and paying short rates. Usually these deals eventually get signed off for year term at the then high monthly rate. The problem is that the borrowed gold position has to be carried indefinitely by the bank. Someone (gold lender) keeps a "loaned gold" account open with them and the bank keeps paying interest. Recently, these sort of things are becoming more common and the banks positions of borrowed gold to cover lost gold is growing. The LTCM deal is still out there, draining someone that has borrowed gold to cover that lost item. This is where a rising lending rate can become very damaging as these "rollover loans" get repriced. Now the Armstrong deal may develop another "long term" gold loan (200++ tonne??) to cover more un-returned collateral.
Your post:----Remember that these are banks, and they will not own gold outright, ever.
True, they don't own gold because it's not part of their job description. Also, balancing risk is common business as they trade off income against outgo. But, they cannot hedge the risk of them having to "calling physical" from a paper market if the paper market can't deliver! Yes they hedge the price as long as the futures function, but these "loan loss" accounts are for real gold that someone will want back some day. And this is now a growing bank loss position, not some deal with a fund.
Here is the area of real risk to the market creating power of the BBs. The gold loan accounts not backed by the CBs can blow up if major currency swings destroy the hedge funds. At some point, thousands of tonnes of "real street" gold would have to be borrowed by these banks in order to return it to the private owners. Funny how a private owner of wealth will lend it to an institution for a business deal (no matter how risky it is) as long as the bank stands behind it. Yet, people "cut and run" if they think they are lending to a bank to cover it's loses.
Like I said in my #13672: -------'Weather the BBs borrow it (creating a huge liability for themselves in the process), or buy it from a physical dealer, it must be in "block form". Spot, paper, IOUs will not do. -----
The high lease rates may be attracting enough interested parties to roll over loans, or they may not. If rates keep rising as the YEN gets stronger (as they appear to be doing), it will signal a changed situation in the Gold carry trade. The simple Arab gold positions that work a trade for interest are way to small. (I never acknowledge these because it confuses the oil/gold issue). To support a growing default in the BB trade will require the heavy depth of the government (oil) positions to save them. These (the real oil/ gold positions) will do nothing without ECB / BIS backing.
Let's let this cook for a few weeks. If the fallout grows large enough, no amount of paper hedging will cover the calls for real delivery. I bet GS hits the OCT contract for more material ( if any is left by then).
Thanks for discussing. FOA
FOA (9/16/99; 10:40:45MDT - Msg ID:13775)
Reply!
PH in LA (9/15/99; 20:48:44MDT - Msg ID:13711)
Unfounded rumour? Question for FOA (and others)
FOA:
is no one going to even bring up, much less comment on the idea making the rounds (heard at a large, well known gold retail brokerage) linking the 200-700 ton (possible) shortfall about to be defaulted on by Princeton International with a rumoured Swiss offer to cover the deficit with leased metal?
Hello PH,
Sure, that will work! While waiting for the time to sell our gold, we can make some return on it by lending it to several BBs that are already paying loan interest on over 1,600 ton of previous loss covers. And yet if the YEN just stays where it is, some 2,200 tonne more would also be at risk. Don't mention what will happen if the YEN goes to 60?????? UH-OH, did I say all that? Must be another of those silly rumours going around.
It all just goes to show you how small these gold sale announcements really are. Not only that, why these real gold sales are happening at all. The BOE sales are only a stopgap measure to keep the system operating. They knew they didn't have anything close to enough gold to reverse the trend. Hence their banging on everyone's doors for more sales. I tell you the IMF "new deal" was a "MAJOR" reversal for them. The members of their gold association are going to be paying on mountains of reclaimed gold debt if someone doesn't hurry up and sell some physical before the paper gold market fully crashes.
Does anyone here see what I'm talking about? Is it no wonder GATA is barking up the wrong tree, thinking that the hedge funds are going to start a big short covering rally. The CBs and the BBs would take them out and shoot them before allowing these funds to cover outright. Oh, a run could get started, but it will quickly die.
Yes, the gold was sold and is owed to someone (mostly not CBs). But, if the funds lose the money created from those sales, the BBs and FED banks have no choice but to cover the bad gold debt. Still, at some point even they are way over their head! The whole gold price making system will have to fail and shut down completely before they would allow those loans to be market to a real "street gold market"! They will Mark those loan losses and carry them at $250 or lower to retain bookkeeping assets. Then keep paying interest to customers that won't have a dream of getting their gold back. Then shut the market down and the street price will zoom! Just wait and watch, it will all play out.
With all of this in the background, gold option investors really think their broker will be able to match sales and credit their accounts with profits???
"Hello, Mr. Broker, now that the world gold market has collapsed, I have decided I want to take delivery. Here is my money, please deliver the two Jan $360 Comex future contracts that my option says I can call. After that I want to exercise one $360 future for physical and close out the
other for cash.
What did you say? It's all shut down? But my coin dealer says gold is at $3,247.17 an ounce. I've got good profits on this trade. What, call the SEC and the CBT? I don't want to talk to them, hello,,,, hello,,,,hello???
PH, how's that for a silly rumour? (smile) Have a good weekend, all. I'm gone for a while. FOA
FOA (9/19/99; 20:23:17MDT - Msg ID:13947)
Comment!
To ALL:
A few more parts to the puzzle may be falling into place. We might even say that the next act in the play is starting.
It's a foregone conclusion that the IMF has been forced to revalue their gold. Most everyone gives the US congress credit for this action. True, they did make it clear how the voting would go if a "sell gold" proposal came before them. But, the selling of gold was only one part of a larger proposal to further fund the IMF. Given the terrible record of "good money down the hole", not only was the single debt relief provision for poor nations at the center of the funding debate, so too was the question of the existence and need for the IMF in the background.
The current problem facing the IMF is in justifying more member commitments that allow the continuation of their operations. It can be looked at two ways: 1. They either are in a squeeze for funds because the extraordinary failure of their policies now require much more money. OR 2. They have been put in a squeeze, more so because major member contributors will no longer support a policy of maintaining foreign dollar debt at the expense of nations outside the IMF/Dollar block.
Indeed, politically one must wonder; why support a system that is built upon a "strong dollar" policy for the benefit of only one country? This rift was opened wider during the last two years as the very "strong dollar policy" that flowed from the US, is the very catalyst that has helped destroy the assets in nations now absorbing most of the IMF flow.
A major item that has been part of this US support structure for the dollar was the G-10 policy on gold. The falling gold price, as seen in the world reserve currency has contributed immensely to the ongoing settlement of all trade in dollars. Indeed, the very continuation of the world trade system. Leading the dollar support component of trade was the use of crude oil settlement in dollars. That one item required practically every nation on earth to buy dollars (or at the least run a positive dollar trade balance with other dollar holding countries) to pay for oil. (NOTE: this post assumes the reader has retained the knowledge presented in the USAGOLD Hall of Fame posts)
If a low gold price (indicating a strong dollar) could induce an overflow production of oil, then oil prices in dollars would fall. A steady, neutral or falling price of oil was always an indication that the settlement of oil in dollars would continue side by side with the purchase of BB leveraged gold securities. In addition, the continued physical function of the established world gold markets was paramount in holding this oil support for the dollar. When the day comes that the paper contract gold markets are seen as "in question", the flow of oil will slow and it's price in dollars will rise. From early this year, this process has begun.
The beginnings of this change was born in the success of the EMU. With that Euro creation, the ECB/BIS has slowed, stopped and now reversed it's support to lower the price of gold in dollars. In effect, for them, the worlds reserve currency position is now slowly changing towards the Euro.
Every day, new evidence emerges that shows Euro liquidity becoming as deep as the dollar with little threat of "dirty float" interventions in exchange rates. The fact that Euro interest rates have remained below the dollar rates indicate this currency's long term perception of strength.
The ECB can now slowly phase out dollar reserves as the Euro assumes more of the world trade settlement function. A function in and of itself, that will further lower the dollars world need, use and therefore value. Because the US still runs a trade deficit, it still ships a surplus of dollars to most countries. In today's new Euro world, the dollar exchange rate will eventually be forced to fall enough to balance this flow. Further, a falling dollar will release ECB dollar reserves as fair game to buy physical gold from any and all entities. However, this buying will most likely be through the BIS and member CBs, not the over leveraged LBMA or world gold paper.
In addition; Because the Euroland external debt is very low compared to the US and they posses a positive trade balance, a rising price of gold reserves (in Euros or dollars) will support their currency with extra reserve value. Their policy of marking gold reserves to market (on a
quarterly basis) and eventually establishing a "true physical" marketplace offers every enticement to get the dollar (and Euro) price of gold higher. Because this process creates a unique reserve benefit, not used in the old gold standard. they will never officially back the Euro with gold. Rather allow a new "free market" in physical gold (not paper) to supplement their currency operations. The efficiency of modern trade require a digital currency. That need alone will always support the use of a currency. If gold can trade beside paper money, neither will drive the other out of circulation (as old money gold coins did to paper gold money) as long as they can each seek their own values. ( a very interesting concept??)
During the last several years, the dollar established gold exchanges created more paper gold than existing gold could ever cover. All done in an effort to create additional world support for a strong dollar. The middle of last year, it became apparent that the successful Euro launch would,in time remove most of the major physical (sales and lending and lending guarantees) support from this marketplace. The result was an IMF/dollar move to sell the physical gold of others into the paper gold arena. In as much as this supply would help, the continued further building of "fractional gold paper" has completely overwhelmed any ability for large physical stocks to cover it. I believe, the BOE sales have been part of a last ditch effort to salvage their London gold operations. Truly, the last round fired in this final battle.
Today, all roads point to a break-up of the world established gold pricing system, as settled in dollars. The IMF gold hoard is constrained to stay in place from lack of further world support for the debt of the dollar block community. The US has changed it's view of gold and views this IMF holding as the only asset that can still be used to support their floating dollar debt overseas. They did this because when a chain reaction of defaulting on foreign dollar reserve debt begins, the dollar would quickly crash!
In choice, the IMF must either release/sell their gold back to the original countries that committed said gold into the IMF, or revalue and use it as money. I think the USA congress knew they needed that gold to remain in the IMF system. They used the "gold fire sale hurting debtors" story as a political ploy to block the gold returns. Let's face it, IMF members would have been glad to return unusable dollar reserves into the IMF for gold. Especially with the ECB thinking of buying other CB gold through the BIS using Euros! In any event all now know, the IMF gold path has been chosen. This will become the trail of no return for the dollar.
Each new revaluation and money usage of gold will bring further reductions of member dollar support for IMF operations. Perceptions will slowly change, especially when oil is seen priced better in a gold "friendly" currency. In a reverse of policy, higher gold will bring cheaper oil. With each further IMF budget reduction, gold will be revalued again higher to create more reserves. One has but to grasp that this is no longer subject to SDR (also a dollar/IMF creation) paper calculations. This is the absolute revaluation of physical gold for official world debt settlement. The SDR articles will slowly die in this atmosphere. As will the Arabian currency link to SDRs. Perhaps a link to the Euro or complete EMU will occur?
Today, gold has just become set free as "money". In time, officials will review their need to "lend" gold for a return, where as they may "revalue" gold to create a increasing reserve source. As gold rises, there will be "no contest" in this conflict of thought.
With physical gold being quickly withdrawn from a position of support for the established world paper exchanges, the imbalance will become very visible in "lending rates". As these rates rise, the gold pricing market as we all know it will grind to a halt. I am sure it will be closed for "renovation", use your best imagination. In 1968, on 15 of March, the US asked for the closure of the London gold markets. On 1 of April it reopened, fixing in dollars for the first time. This time I expect the official dollar gold markets will not reopen for a long time.
It was pointed out to me that our great world gold market is the most liquid it has ever been. The members have many reserves and even insurance companies to back them. I completely agree! They will not fail one investor with the lack of cash settlement for all remaining, unsettled claims.
The dollar/IMF block of countries will print whatever money is needed to clear out this arena. Just as the US, once before called in gold and settled up in "local gold backed cash" because the foreign dollar gold loans had failed , this time will they call in "real gold paper" and settle in "absolute fiat cash".
Some say gold will be confiscated! I reply as in the "Bear Joke" about two hikers confronting a bear. I don't have to out run the bear, says one to the other, I only have to out run you. My friend, in that day of gold turmoil, I will hold my gold and have but to only outrun you! For people with goods to sell will SEEK MY GOLD FOR ECONOMIC TRADE, not the government collection man.
Buy physical gold to hold. In the time to come, this money in the hand will out perform any investment you have every known. Few today accept just how high physical gold will rise. Be a part of the "physical gold advocates" and tell a story your grandchildren will grow tired from
hearing!
(large smile)
Thank You for reading FOA
FOA (9/21/99; 10:01:04MDT - Msg ID:14042)
The Road to $30,000
PH in LA (9/20/99; 12:33:17MDT - Msg ID:13984)
India's Gold Plan: More Reckless Abandon by the IMF
Where will it all end?
PH,
Everyone is holding up the new India plan in the light of BB gold loans. Don't be so sure it's headed in that direction. Banks in India can lend currency against gold holdings. It's not entirely viewed as a currency asset, but it is seen as a worthy collateral to be held as reserves. As such they don't have to lend gold to make a return.
Watch the physical gold import figures and we should see that no major bullion is leaving that country to satisfy world BB paper. The IMF and LBMA would love to paint a picture showing India gold flowing out to balance loans. Especially now that they are trapped. No. The India
operation is going to fit well because the new Dinar offers a different context for that part of the world.
I look for China to flow in the same direction. Absolutely huge amounts of gold were brought into China over the last several years. Yet, these physical flows were not reflected in official Hong Kong bookings, nor were they placed into the Central bank of China accounts. They were holding there cards back from US / IMF eyes just in case they needed to dash for the Euroland economic arena. These people are sharp and can play us for fools in the financial chess game. Just like the India scheme, that gold will not be lent out for IMF / dollar paper. Believe it!
Several large traders brought this gold some time ago through the LBMA when paper was still exercised. Most likely they used the BIS to move that gold. Hence their (BIS) new offices in HK.
It's going to end, PH. But some gold assets will not work during most of this change. We are,
"On the Road Now"......... FOA
FOA (9/21/99; 11:03:13MDT - Msg ID:14050)
The Road!
Aristotle (9/20/99; 15:51:33MDT - Msg ID:13995)
"I hope he has no similar qualms about allowing this particular one to hang on the walls of the HoF."
Hello Aristotle,
No qualms! We can now watch how the oil price rises in fits and starts as the paper gold markets slowly unwind. I would dearly love to see gold run on the established exchanges. Even a $20 or $30 move would really make them sweat as the public guns money into leveraged gold, trying to ride the price increase. Even so, the banking system will most likely sell the public all the gold securities they can buy. They can sell them derivatives to the limit of fiat money creation, in an effort to satisfy paper gold demand. But they can't deliver gold. Watch the OI on Comex and their Options exchange. Just as ORO presented, the BBs and most paper traders are only interested in laying off risk, not owing gold. As the "modern goldgugs" pile in, so too will the players. All in an effort to balance accounting risk without delivering gold.
With Western thought so ingrained in equating the owning of a "gold price" as the same as owning gold, "this new gold market" will supply them until it fails from it's own weight. All part of "The Road To $30,000". I once expected a huge short rally to break the back of the "gold bear".
So too have most other gold investors. Over many years, now, it never happened as the need to preserve the dollar system was more important than the gold industry itself.
We are clearly on track as the oil producers revalue crude by forcing the dollar prices up, way up! Eventually, the resulting bad debts denominated in dollars will overwhelm not only the IMF but the entire US financial structure. With the Yen killing Japan and leading that region into a further economic contraction, that portion of the currency derivatives trade will become a "black hole" for the US dollar and it's equity markets. Oil will have no choice but to eventually be much more favourably priced in Euros as the process evolves. All of this happening during a backdrop of a crashing paper gold market and a soaring physical price.
How long, oh lord? Obviously, it will not happen within a "gold traders time span". Most will be crushed in their short view operations, if not actually consumed as their asset holdings are revalued. Anyone, (GT?) that can buy physical and hold through out the devastation will financially outlive an army of their trading contemporaries. But, therein is the failure of Western thought as it cannot contain both the loss of the dollar markets and the skyrocket of physical gold in one mind. Aristotle, we can see the concept as;
"if the price of bread is $50.00, what would the price of gold be?". Not the other way around.
We are "On The Road"........... My friend. Believe it!
FOA
FOA (9/21/99; 11:26:23MDT - Msg ID:14054)
Comment
FOA (9/21/99; 10:01:04MDT - Msg ID:14042)
PH,
One more point to clarify my post. When I said: "Banks in India can lend currency against gold holdings". I meant that they can use gold somewhat as reserves to make new loans. Just in the same light as dollars deposited in US banks pay interest, but also create loan reserves to earn that interest. Of course, the gold deposits in India will carry a local "gold price" risk, but it's all a function of the internal market. We'll see. FOA
FOA (9/21/99; 11:26:23MDT - Msg ID:14054)
Comment
FOA (9/21/99; 10:01:04MDT - Msg ID:14042)
PH,
One more point to clarify my post. When I said: "Banks in India can lend currency against gold holdings". I meant that they can use gold somewhat as reserves to make new loans. Just in the same light as dollars deposited in US banks pay interest, but also create loan reserves to earn that interest. Of course, the gold deposits in India will carry a local "gold price" risk, but it's all a function of the internal market. We'll see. FOA
FOA (09/23/99; 16:22:28MDT - Msg ID:14217)
Comment
ORO (09/23/99; 14:18:53MDT - Msg ID:14205)
---The first is an indication of paper coverage which may cover them from small moves but will beinsufficient if the "big one" happens and swipes the equity of their hedge counterparties.-----------
ORO,
Considering the location of our "currency transition timeline", I think the G-7 meeting is going to make or break most of the world markets. If the Yen is allowed to run it will clean out most of the carry trade players that work our currency / debt markets. In addition, because most of them are also part of the "speculative" gold carry crowd, all of them can't possibly be fully hedged with quality counterparties support. This casino has run for so long that good paper is considered as "on par" with any Mexican bank!!
I bet as little as a $30 run in gold will "LTCM" the whole London market. When you consider the derivatives LBMA trades every month, there isn't enough "real equity" out there to cover them. Even if it wasn't already "somewhat" encumbered" by other derivatives.
The figures of what a Yen and gold move would do to the market are truly staggering. I'm afraid you are right in that the equity markets will decimate the gold mine stocks. Long before my function ever kicks in, most every perceived form of wealth will be attached or sold before this is over. With this bear hot on our trail, surely someone must be slower than me? I hope!
FOA
FOA (9/25/99; 14:29:40MDT - Msg ID:14367)
Comment
To ALL:
When a person tries to protect their assets against the effects of fiat money, what are they really fighting against? The first inclination is to say "rising prices". Yet, it's much more than that! Most everyone agrees that interest in the bank never covers the loss of buying power brought on by price inflation. Especially the "after tax" return. It's the same old story, played out decade after decade. We must "invest our savings" (or become a day trader?) because the money will erode in value! Even at 3%, price inflation can eat away at any cash equivalents.
But, price inflation isn't the only story that impacts us. Rising prices come and go, but money inflation continues to effect us without fail. So why do people feel better when price increases slow or stop, even as money inflation runs ever upward? The good feelings usually evolve from the effects that money inflation (increases in the money supply) has on financial instruments. These assets take on the very same characteristic that the rising prices of goods once exhibited. They run up in currency price.
During these periods of "less goods inflation" another sinister form of mind set lurks in the shadows. Credibility inflation! Yes, it has been here many times before as every fiat currency alternates it's effects upon the feelings of the populous.
Fiat currencies must, by definition always expand in quantity. Their continued usage and acceptance is always obtained with the bribe of "more wealth to come"! Without that bribe, humans would never fall for holding a debt to receive the same goods in the future if they could get the real thing today. Human nature has always dictated that we buy what we need now instead of holding someone's IOU to receive it later. That nature is only changed through the "greed to obtain more". Like this: "I'll hold my wealth in dollars currency if my assets are going up. Later those increased assets will buy me a better lifestyle as I purchase more goods and services than I could buy before".
This is the hidden dynamic we see today and the exact antithesis of the past price inflation's. Just as destructive as "goods price increases", "credibility inflation" impacts our emotions to "hold on for the future", more is coming! In every way, "credibility inflation" is just as much a product of an increase in the money stock as "regular price inflation is. As cash money streams out to cover any and all financial failures, we begin to attach an ever high credibility to the continued function of the fiat system. In effect, the more money that is printed, the higher we price the credibility factor.
Onward:
ORO, the GDP is one of the great deceivers in the Fiat money world. During the last century (??) or so, some form of GDP has always been used to measure the great mass of human endeavours. Yet, through out this time, some form of fiat currency has always been in effect. Even during the Gold standard, fractional reserve banking expanded "gold note money" more so than the "gold money in existence. Prior to 1929 this effect, if not creating outright "price inflation" during a time of Gold standard policy, was creating "credibility inflation" in the minds of investors. Using the backdrop of a growing GDP, people brought into inflating financial assets and ignored these signals as evidence that the fractional currency system was failing. Even though the dollar contained a policy statement to supply gold, back then a gold loan was still only good until everyone asked for gold.
The same thing is happening today. People destroy the currency structure by thinking it can deliver more than reality will allow. Instead of all debt failing slowly with each upward march of price inflation, prolonged "credibility inflation" snaps all at once as investors try to suddenly revert to a "buy now mentality". The inability of government authorities to contain the fiction of "good debt" is usually the feature behind the investor mood change. A currency run induced by an IMF stalemate would qualify as just such a function change. The "snap back" into a sudden "real price inflation situation" caused during this stage by a currency failure always breaks the whole structure. We approach this end today!
Further:
The GDP has been the relative gauge to mark all other measurements against. Even so it's numbers reflect little more that the result of an "expanding fiat money supply". Yes, there have been recorded downturns in GDP, but these contractions would have been worse if measured in real (gold) money. In opposite fashion, expansions paint a much brighter picture as all financial liabilities seem less a threat if held against a rising GDP. I submit that the GDP figures offer little more than a way to entice investors to increase their "credibility image" of our monetary system. Fiat moneys are always on a long term upward expansion, and they can hardly do less than bloat the picture.
Someone I know said; "your wealth is not what your money say it is"!
What should we be looking at to see the real picture? Be back a few hours from now.
Thanks FOA
FOA (9/25/99; 19:11:59MDT - Msg ID:14375)
Comment
ALL:
When it comes to silver, I agree with all of you. But then "along comes reality"! Many of the current analysts persist with their analogy that "silver is used to make change and small transactions". A concept I completely agree with, only if we sink to that point? The valuations placed on silver will mostly be established by the kind of "currency turmoil" we experience.
Look at today's US paper currency. It's all dollars and yet $100 bills are used readily right along side $1.00 bills. It seems that we found a way to create ever smaller denominations of dollars to satisfy the demand for making change. I don't see anyone carrying around Canadian currency for the small purchases a US $100 would not work for.
My point is that gold has in the past and will again in the future be broken down, "if needed", into alloyed coins for the very smallest of transactions. One can easily carry a one gram gold coin that is made the size of a quarter. Even a 1/10 gram will do the trick. As Mr. Gresham points out, someone will always be around to create money change. Be it in silver or gold, the most efficient money will rule the day. In the worst of war like conditions, paper money is traded. German marks were spent as the booms fell!
My question of which is more affordable $100 in gold or $100 in silver? A poor man will accept and use either that is offered, no contest.
Again, the future demand for "Metal money" will be established by "how the currency markets evolve". I believe (and have written on this before) that through out all that is to come, US dollars will continue to circulate as will most all the established currencies today. "Come what may", we will use them for whatever value and efficiency they will offer. Just as the much lesser moneys of the world presently circulate, while their citizens hold dollars, gold and silver, so too will we act in a similar fashion.
The question for our immediate future is in what form will you hold metal money to represent the "bulk" of your tradable wealth? As all the currency and economic turmoil swirl around us, the pressure will be to not only hold reserves that will not be at risk, but hold them in the largest "tradable form". Gold and it's high future price will certainly fit that bill. Again, contrary to what many think, when the dollar falls off the reserve currency tower, most everyone will still be getting paid in dollars. Yes, they will be greatly devalued from price inflation, but buying your gas with dollars will still be a weekly chore.
The future will see the Euro currency as the value reserve all other currencies will trade off of. Beside it will trade a "free gold" market denominated in Euros. The implications of this will be for US nationals to continue using dollars while holding gold (or Euros?) for a bulk, risk free tradable reserve. One can see that in this picture, the purpose for silver is greatly diminished, no?
Got silver? Don't need it, cause I got gold!
We shall see, back in an hour or so. FOA
FOA (9/25/99; 20:31:48MDT - Msg ID:14388)
Comment
Gold Dancer (9/25/99; 18:36:32MDT - Msg ID:14373)
Silver/Gold/
Hello Gold Dancer,
I think I paralleled some parts of your thinking. Thanks for offering your reasoning.
Goldspoon (9/25/99; 15:37:33MDT - Msg ID:14370)
Some have suggested confiscation....possibly. --
Goldspoon,
I think the confiscation item has always been blown completely out of proportion. Some even go as far as saying that there is no use in holding gold if it gains a lot because it will be taken away from you. Then in the same context, it's offered to buy gold stocks to gain from a more reasonable increase in the gold price! In addition, for the same reasons they see silver as an item that will not be touched. One has but to review "Holtzman's "More Than One POG" #14297" to get what is his beautiful rational and reasonable retake on what confiscation would really mean:
--------If during an emergency the U.S. government were to declare Spot POG to be $50, and if Homestake Mining were to begin selling gold privately at a higher Street POG, the U.S. government could very easily make life unpleasant for Homestake.
By contrast, the government would have a much more difficult time coming after you and the handful of gold coins you've anonymously buried in your back yard. Most likely, they simply wouldn't attempt it. A wise politician never frightens his citizens too much, most particularly during emergencies. A government can achieve its goals by oppressing the majority owners (few in number) of a desired commodity while graciously allowing the minority owners (vast in number) to retain their property.
The confiscation in the U.S. in 1933 was along such lines: the government's intent was to take direct possession of the vast majority of gold within U.S. borders (common gold coins) by pulling them out of circulation, yet not overtly injure citizens who had sentimental or numismatic attachments to specific coins. There weren't any jack-booted thugs banging on Americans' doors after midnight in search of every last gold coin, and I can't imagine any present or future administration doing so either. It's far too expensive to be worthwhile... not to mention that it's fartoo likely to start a revolution (or in your case, re-start one :-).-----------------------
Thanks Holtzman, incredible job!
Again, if you think silver is going up because of currency turmoil, is it reasonable to believe it will increase as it did during the 70s style Hunt fiasco? I'm not sure that event wasn't but a one of a kind move. Everyone considers that performance (the only one we have had ) as an example of how silver moves when gold goes up. However, it's entirely possible that that gold move was but a minor side show and in the future gold will dwarf any percentage rise in silver. We didn't know silver could move like that until it happened and we may find that few will understand how gold can outperform everything in the future. As I offered earlier, the coming currency transition may render the "many present reasons" for holding more silver than gold useless. Especially if currency stays in circulation as the demand for industrial silver falls from a economic contraction. If such is the case, the percentage move will fail to match gold.
I know many own silver. I offer this as a balance observation. Good luck to all of us, may we all win! FOA
FOA (9/25/99; 21:11:01MDT - Msg ID:14392)
Reply
Leigh (9/25/99; 19:36:56MDT - Msg ID:14378)
Do you think silver is worth holding as a commodity, the way you would hold platinum? Don't you think the prices will go very high as silver reserves as depleted? Or do you think gold will rise the highest?
Hello Leigh,
All of the investment attributes for these metals are conflicting. On a commodity basis, silver would be the best. Warren B. brought it in his company name expressly for it's industrial prospects. He views it in the same light as a stock investment. I doubt he took it for any of it's monetary reasons.
Again, invest to make a return. Take your best shot. But for today buy gold to preserve what you have during a global dislocation of currency systems. Because the future may play out as I have outlined, gold will out perform (on a real basis) most any past investment made during the last 30 years. Not because it's a good investment with great prospect demand, but because it will again perform it's ages old function as the worlds money. Something it hasn't done in stand alone fashion for perhaps 60 years?????? That return to money use in this modern world is the attraction that drew in the Giants, in whose footsteps physical gold owners now walk. The rise will make most people feel very foolish not to have purchased at $1,000 while it was cheap (smile)! We shall see.
Thank you and good day FOA
FOA (9/27/99; 20:03:37MDT - Msg ID:14642)
No time, one post only!
USAGOLD (9/27/99; 15:07:02MDT - Msg ID:14618)
Why did they do it? Why do the Europeans want the price of gold to rise? Why didn't the U.S. and Britain stand in their way?
Michael,
That's a good one. I think they are following the rough outline we have talked about. If you have absorbed most of TownC's (Europe) news today, several things come to mind.
1. England is doing what Another thought, moving from the dollar system into the Euro world. Let's face it, they are "lost" in their current position if the US economy contracts and Euroland grows internally. Europe has made it clear on several occasions (including today) that they are a closed system. Yes, the world can trade with them, but the conditions are better on the inside. England no longer has the same ties to America that their political dogma suggests. Every day Europe more becomes their family through proximity, if nothing else. Hey, the Euro tunnel may have been a bad investment, but it has finally tied the isles physically to the mainland!
Their push for EMU is right in line with their completion of bullion sales. Don't read their sales as a reserve balancing act, like Belgium. The BOE is indeed trying to clear out some bad paper before their move. Like it or not, when England, Swiss and the middle east all tie to Euroland (through EMU or by trade), the LBMA will become redundant. I bet in five years or less (mostly much less) the ECB will sanction a major bullion association of it's own. The time frame here is much too short for the LBMA to clear out the paper it took them a decade to build up supporting the dollar.
2. How can the US stand in the way of rising gold? It's only been the (needed) continued use of dollar that constructed the "Low Gold" paper markets for oil. The US mostly used it's currency powers to augment the plan as others carried it out. Now with the successful birth of the Euro, many other nations are scrambling to at least build a backup bridge into that arena. The US is not blind to this and will certainly not commit it's gold reserves to buy in it's own currency debt from it's competitors. If someone is about to kill you, you don't offer to pay back your debt to them before they act!
Neither do I think the Fed (or treasury) has been trading paper gold. If the right entities wanted to expose this (the US is very open in these regards) they would get their hands on those items and exercise them in a very visible way. One that followed the paper trail with the media in tow. Weather the FED brought gold to fill the order or used Fort Knox, it could be seen. Besides, with Congress so obsesses with not letting our gold flow into other hands (or however the IMF deal works out), one whiff of Fed gold commitments would blow the whole story.
3. The ECB announcement was used to close the final door, in public view. They now have the Swiss and English on their side and it's time for gold to become Euro Money. Let's see if the ECB / BIS don't eventually arrange for the purchase of most of that gold. Goldfield and Anglo may eventually have some big bidding competitors the next time around. No hedge funds allowed next time. This last auction was done with the full knowledge of this ECB announcement in the background. No wonder the bidding was over subscribed just in the last minute.
The US stood quiet to this dollar killing move because they now need gold to rise also. This concept was quietly circulated around Washington this past spring. Now with this new ECB move, you can bet that the IMF is going to lose it's funding (from everyone) on a systematic schedule. IMF gold will be the only equity the US will have to continue supporting the international dollar debt (and therefore the integrity of the dollar) for the time being. Note: Did they lob off of the term "FUND" from the IMF name because funding is being phased out? (don't laugh, Washington is nuts)
I look for the US economy to drag down Japan, Canada, Mexico and all of our major trade partners as foreign dollar debt slowly fails. India, the Middle East and China will all create a new "Orient Express" trade route with their old European partners.
My take on it Michael..........We are on the road FOA
Also:
Goldspoon Msg ID:14620,
Golden Sun is some stud, right? I know you are having fun, good stuff my friend. I bet KOAN could kill me for my luck. Here I grind on silver all day long and Gold supports my words almost as if I knew what was going to happen. (smile) Bet silver goes up a dollar tomorrow in good faith for the Silver Kings!
Looks like everyone made a tonne of money on gold stocks! Good for all!! Even my Goldfield went up! (I hate it when it does that!)(smile). Me and the "Bullion Boys" at USAGOLD FORUM will just have to settle for our little 5%.
Make what you can because the game is all over, people! If you are happy holding after tax profits from the mine shares, that's good. But, physical is going "shortage" big time now. Bet there is major 5 and 10 tonne order flow through the BIS right now and it's looking for 30 day full allocation. If it doesn't hit the CBs desk for filling, the scramble is on. So, during the next many weeks or few months, your profits won't find much "physical street gold" around at a price you're willing pay. Indeed, the paper gold price we all follow may crunch down hard as this unfolds. Buy it if you think it's the same equivalent, I know it isn't. Lot to think about, no?
PH, yes, we are on the road!
I can't wait to see how those 400,000+/- gold options work the Comex price with no gold in the warehouse! I heard they will be serving "Bear Steaks" for lunch on the trading floor!. Later, everyone's beef is going to burn!
Don't know when I'll be back? FOA
ANOTHER (9/28/99; 16:15:40MDT - Msg ID:14770)
Reply
USAGOLD (09/17/99; 21:11:52MDT - Msg ID:13862)
Another, my friend,
I have missed our discussions in recent months as it seems that you and I, both, have been occupied elsewhere. Much has changed since our last exchange(s). I sense that our friends at the central banks have begun to worry about their outstanding gold, as should the private lenders. The Dutch central bank felt it necessary to call off the dogs by saying they are no longer an easy mark. And now Japan tells us that they will buy if the IMF should want to sell -- a gold poor island nation in the East with too many dollars and no longer enough time. So is lending gold at 4% a good deal? Or should we consider anything we lend at that price, "lost assets"?........Is the golden intention floated by Japan today as important as I think it is, or something to be discounted? I remember your words of wisdom on England...a lost land. I remember your words warning us of the state of the LBMA which is now so apparent. What next? my good friend. Is this "a night to think about gold?" What say you about Japan and Europe and the future of gold?
Mr. Kosares, we speak again. This gold market, it be not as before, yes? For six years and a time, we build the "alliance". Now all join and say "no more" unfair currency. This day I stand with Europe on ground that is stable for the future of our children. Ground made hard with gold that moves "no more"! Your dollar will now fight the "good battle" on it's own. From early this year it finds no support from "cheap oil". Soon it will find no support from "oil settlement".
Without the "good backing" that comes with others "holding dollars", the world must now settle dollars in a true gold price. It is time, gold again becomes the money our fathers knew. It's dollar price will run now. Fear this as the banker is afraid of his creditors, for it now runs long my friend and stops only for the destruction of its market. From the days of our youth we see not again a market such as this. All will soon race for the bullion metal and few will walk away with gold. Your mind does consider the "right number" for gold yes? I say, add that ten times and this you will pay if one waits.
Japan? With no trade how will a nation supply its oil? The oil that built them does now break them. Buy gold we say, years ago, hear us they did not. The yen eyes and ears always face across the pacific. Even as their future was thru Hong Kong to Europe. Now this yen will fail a nation that forgot how it's sun still sets at their backs.
Sir, the bullion in the many thousands will change the common landscape of your land to as rocks and bushes. It will also grow the most green lawn for holders of Euros.
May many flowers present your home in the good light of old wealth. The old wealth that we find in the new value of gold!
Thank You Another
FOA (10/01/99; 20:11:14MDT - Msg ID:15148)
Comment
All:
I just finished reading all the posts today and must say that this is a wonderful group. It's not just the information that's presented as it's great to see it all assembled. Rather, it's good to see everyone offering their feelings (not just their projections) as this market evolves. It's becoming impossible to discuss with everyone because so many people are entering here. Each with their own slant or take on the day's moves. Very, very good! Michael has created a "one of a kind".
Gold always has been an emotional subject. Especially if you buy it for it's future monetary value instead of trying to quickly trade it for cash. I know there are traders here. It's seen in their cool style and council. For them gold is but a quick paper liquidation and "if I ever need to" it's "off to USAGOLD" to purchase. Hmmmm.
Yes phaedrus, in your world "it ain't going to happen". The failure of paper, that is. But please consider that I move in a different world from you. No, not the high speed "connected" "mover" environment. Rather it's a world attached to a timeline of "ages old" events and "reoccurring human nature". This realm exists today in the minds of a people you will mostly never know. Yet, they hold the very destiny of our modern currency system in their hands. Intelligent, sharp, and filed with "the simple Thoughts", they do very well understand the western differences of common sense. Up vs down, rough vs smooth and most especially "I have" vs "they owes"!
Presently, in your world, the concept of holding "paper gold "they owes"" can and does gain the great percentage returns you reference. I expect your ability to trade will move you quickly ahead of all others before you when the time comes. Then again, it strains credibility to suggest that one could "out trade" every other player when "lightning strikes in the night". I think I saw a movie where it was counselled "a man's just got to know his limitations". I have been given a view of this storm and my feet are not that fast.
My message (as an extension of Another's) is for the ones that are so very slow. That's me, too! We are doomed to trod the slow path as do the giants, because, in the end things go up faster than traders can revalue paper. Funny as it may seem, all of us will most likely again meet the "fast traders" though our location in the race will somehow change.
Imagine, if you will the logic of Another:
"This world be still round, my friend. And days have changed with modern toys for boys to play. Though they circle the earth with much speed, full circle bring them but one step "behind me""
Some people may not like the connotations that presents, but boy, it sure keeps my brain clear.
ALL: The end of this currency game will see people trading their hearts out only to use all their winnings to buy the same amount of gold (or much less) they could have purchased in the first place. They did the same thing in Rome, still fighting over economic contracts as the war raged just outside the walls.
Trading IOU paper will never create more gold for anyone until they liquidate and buy. Mostly we don't and what we usually truly gain is only more paper with an "attitude" to prove it. It is against human nature to expect anyone to leave a paper crap table while they are ahead. Millions and millions of gamblers try to convince themselves and others that they can do it. 99.9% of them never have and never will. It's a siren song as old as time itself. It's the same in the modern stock markets. When the game "truly" ends, few walk away with what they thought they had.
We are on the road of returning to the natural, true monetary values of gold. Values that will not be the one ounce for a suit some still proclaim relevant. It value will be magnified 100 times by the modern advances this society has created. Some will lose their jobs, some will lose money, but the world will not end. Babies will be born and employers will employ. Only the yardstick for measuring wealth will have changed. As events unfold this truth, Another will respond to reference this journey we all will travel. Truly, "events will prove all things".
Thanks ALL FOA
FOA (10/07/99; 07:40:11MDT - Msg ID:15741)
Comment
Central Bank Cheating!
Central bank policy is never offered to the public in it's true context. They can't afford to! Open directives that involve "historic" changes are usually never interpreted successfully until their "real life" effect is truly seen.
When the ECB, Swiss and BOE all made their announcement, it was publicly taken in the current context of falling gold prices. When I posted "it's all over people", my response was in reply to the future. A future that evolves an escalating gold price environment, the very conditions that the ECB statement would create and was aimed at controlling.
This agreement was more of a commitment to "continue" a certain amount of gold supply "even as the prices rise". Understand that; When an important body states that they are ready to slow an approaching forest fire, every else immediately starts preparing for a fire. Even if it's not in view yet. It should have been obvious that during a surging price period, most (if not all) CBs would stop selling gold and call in lease guarantees! Such a move would lock "all" the markets instead of creating a "controlled burn" of the dollar.
Watch these events as they unfold. True, there will be cheating! However, that cheating will take the form of "CBs buying gold" (and hiding the transaction as well as able) to balance their sales. If the Swiss do sell, we can bet their selling will be delta neutral. Their most likely move will be to commit their gold into the EMCBs in exchange for Euro type derivatives (even if sold for dollars). If anything, the effect on the markets will be to cut physical supplies, in complete contradiction to the ECB / BIS directives.
Mosel, our problem today is not so much a rising price, rather the lack of physical to close outstanding contracts! You are right, dollar liquidity can and will be expanded to cover "bookkeeping defaults", but it will only "extreme" the physical defaults as private lenders demand their gold back! Your deep mind will burn in overdrive as this plays out. I'll keep the fire extinguisher ready to cool off the grey cells (smile).
FOA
FOA (10/07/99; 19:12:16MDT - Msg ID:15803)
Reply
USAGOLD (10/07/99; 15:18:27MDT - Msg ID:15788)
The Monetary Triangle
------------From reading your most recent thinking as summarized in Msg#15713, I get the distinct impression that you believe that the Europeans have mandated their version of closing the gold window, thus making gold dear for any purpose, the settlement of gold carry trades being the most severely affected. Some have said that this event of September 26th by the European central banks ranks in the annals of monetary economics with Nixon's closing of the gold window in 1973 and letting yellow metal seek a free market price. Following the Nixon decision, we had ten years of dollar devaluation. On the other hand, the European closing of the gold window could lead to ten years of euro appreciation against the dollar -- the exact opposite of the 1970s U.S. experience.--
Hello USAGOLD,
To the above---- "Absolutely"!!
I don't know if the timeline will be that long (ten years). The dollar will most likely fully collapse into some form of controlled inflation with exchange controls and all. ORO (#15721) wrote a good outline using Another's, trying to conceive the form of a new currency structure without the current dollar system. Today, in the middle of all of this, the pressure is indeed on to increase the value of gold "in all currencies". Make no mistake, no one wants this, but the majority has accepted that this is the only way out from under the dollar.
You write:
----At the same time, if you superimpose a chart of gold in euros over a chart of gold in dollars, a startling observation can be made -- one that graphically shows how much the world of international money has changed. The movement of gold in both currencies is nearly exactly the same! Having watched the Asian contagion unfold and run the graphs on several sick currencies, there was one relationship that always held true -- as the currency depreciated against in gold, so it depreciated against the dollar. This led me to believe that once the euro was established as an international reserve competitor to the dollar that when the euro went up against the dollar, it would be able to buy more gold. I waited to see if this would be the case and am somewhat surprised to see a new phenomena -- as the dollar has depreciated against the euro, both have depreciated against gold.
Michael,
Continuing from my above: It's going to be a two phase operation. For the Euro to continue gaining credibility against the dollar, it needs a rising gold price in both currencies to build the Euro perception. In this stage they don't want the dollar exchange rate to collapse, but rather draw trade flow settlement into the Euro. It's expected that a steady interest rate policy and the lack of aggressive intervention will place them in a better light. But, most importantly, a rising gold price will detract from the dollar on a world basis more so than it will the Euro on a Euroland basis. Using points we have covered many times, the ECB will have more than enough resources (read that dollars on hand) to keep a firm bid under gold. This act of bring in gold as Euro reserves (not currency backing) and cannot help but undercut the dollar's world position. Especially now that the world dollar gold market is "on the ropes" and about to drive the dollar gold price to the sky.
Their item about commiting gold supply to 2,000 tonnes was a farse. Yes, the supply is needed to controll the burn, but a gold rush will cause much greed to retain the bullion. The BOE may continue, but all of them will cut and run when the gold price starts to rise. I bet they still sell for show but hold a backdoor deal to retain the metal.
Your words,
----How do you interpret this new phenomena -- this new and to my knowledge unique triangular relationship? Does it not give Europe the opportunity, to issue bonds to finance whatever Europe would like to finance including the military, public works projects etc without damaging the euro's credibility or injuring its market? And by this, do not the Europeans solve a sore problem -- getting their new currency into circulation (something you and I have discussed before). If so, this could be a clever political/economic move indeed and might answer the questions why Europe made the September 26th Gold Sunday announcement as they did when they didn't have to. In other words, at the beginning of 1999 EU launched the currency. Now EU is going to get it into circulation internationally in the form of bonds held in national treasuries. The next step will be make it stick. At that point, I would agree with you -- Europe could become a gold buyer unloading unwanted dollars perhaps through the unwinding of the gold carry trade.
Wouldn't it be a total irony, if the gold carry trade turned out to be little more than a detour that brought us the back way to the same place....gold being used in international settlements as the currency of last resort?-----
Yes sir to all of it!
This will process over one to two years. Or does it work out into the new 5 year plan of the ECB? We shall see. The dollar crisis should be worked over by then. Perhaps our much needed time frame to work gold into the thousands?
Once the Euro begins to see a run for it's currency (next year or so?) the gold price in Euros will stop rising as fast as the dollar gold price. Simply stated, the dollar/Euro exchange rate will halt most of the depreciation of Euros against gold. This is the second phase that Another spoke of long before the Euro was even born. Here we see gold at perhaps several thousand Euros, yet in the many many thousands of dollars. This is why it was so important for them to hold ECB committed gold paper. Euroland could later lock a low oil price using high gold as partial settlement. It will be a spectacular boom for their economy.
Michael, it's world class history in the making, Yes? Thanks FOA
FOA (10/11/99; 18:29:33MDT - Msg ID:16084)
Comment
SteveH,
Tell Leroy to watch oil. We are going to know that the political game has shifted to Europe if the producers cut production again in response to opening the "strategic reserve". If that happens, from whatever level gold is trading at that time, it will explode. After that, this whole story will come out.
We watch. FOA
FOA (10/11/99; 19:24:47MDT - Msg ID:16092)
Reply
PH in LA (10/11/99; 18:25:20MDT - Msg ID:16083)
Platinum Lease Rates
While you are here, can you say anything about the exorbitant lease rates currently being published for platinum? Three-month rates are up over 9% to 68%(?) today. Sounds like time to start leasing out my platinum Visa card. Any takers? Yet through all this, the price has not really reacted.
PH,
Goldspoon's Platinum horse is something else. I drugged it when he wasn't looking and it still ran?
We all have to look at the metals rental rates with a questioning eye. During normal conditions, such high platinum rates (and even gold rates a week back) would indicate severe "risk" in loaning out metals. Today, all of these rates are way out of any "operational contract usage". I speaking of major volume usage here, not the small dealer fabricator level. Let's call it the "money gold" arena!
Anyway, the entire metal funding market is practically frozen in low volume. The rates could just as well say 200% and wouldn't mean anything.
Right at this minute, rates aren't moving the markets because all the "workouts" to cover the exposure are concentrating on the "bookkeeping" side of the equation, paper gold and to a much smaller extent paper platinum. If the firms cash capital isn't enough to cover the "workouts', then someone must go to the physical markets and outright "buy physical" or "borrow physical". Here is where the "big sweat" is happening "right now"! For many months there hasn't been enough excess physical supply for buying to cover any "non rollovers", so they borrowed it against the firms capital base. Now, no one wants to lend "new" and everyone wants to at least convert to a "self liquidating" term. So, if you read my post (yesterday?), if "official" money doesn't come in and cover the loses or sell down the paper price, the workouts are going to fail, big time! In that event the rush will be to buy physical because even at huge rates, big risk is keeping supply small for lending.
Now to answer your question, the Platinum lending market is small and physical owners are watching gold (sorry for that Goldspoon). If gold breaks to the upside, now, it will cascade into an avalanche of wiped out lenders (the actual physical lenders and the naked short kind) and kill all credibility of the lending market. For the next two weeks or so if gold doesn't fall , forget the rates, we have escalated far beyond any point of significance for them.
Spot buying and selling of physical is still happening. Even though some bottle necks are there. However, once we move a little further over the edge of the cliff, physical may freeze up too! Note: I saw where some mine management's are now "actively" working with the BBs to try and work out a process to get the price of gold down! I wrote that this "mindset was coming soon" in one of my posts not long ago and someone over here thought it was "out of order". In other words such private discussions would never make mainstream! It did!
On the road FOA
FOA (10/11/99; 19:54:41MDT - Msg ID:16095)
Reply
elevator guy (10/11/99; 19:02:16MDT - Msg ID:16091)
am I to understand that Gold Fields is uniquely positioned to weather the onslaught of dollar devaluation, due to some bullion holdings? Or am I delusional, thinking that any paper investment could outperform gold, as the rug is ripped out from under our world of financial instruments?
Hello Elevator Guy,
Gold Fields LTD. (GOLD) bid for physical at the last BOE auction. They even got some 12% of it. To my knowledge they were the first mining company to openly support the "bullion advocate" community by buying gold instead of just optioning more of it. Yes, they do have a tiny hedge. It is nothing for them. Their actions were openly out of line in the BB sector.
I purchased their stock and presented then as an example of a gold mine for "bullion advocates" to purchase. Symbolically, I burned the stock to indicate I would never sell it at any price. In some cultures, burning a property deed means you will never sell the land. I believe a good number of physical gold owning entities are and will follow this concept in support of Gold Fields. In addition, any other mining company that buys in it's hedge by purchasing gold will see the same activity. Perhaps a bit late now.
EG, sometimes we do things not to make money. Better to support what is right, no? I walk in large foot prints, come what may!
FOA
FOA (10/12/99; 20:32:26MDT - Msg ID:16195)
My turn to Comment!
canamami (10/12/99; 16:18:35MDT - Msg ID:16174)
Bad Day for POG Anyone care to speculate as to why?
Hello Canamami,
Yes, I'll have a word. But first to all.
I found an old Another post(see below)written for him in Dec. 1997. In it he described what may be about to happen today or perhaps during tomorrow's tomorrow. Surely it is a council given to high profile people of means. Entities that can't turn on a dime what it took a lifetime to build. Yet, even us regular people must walk the same road of reason.
My purpose for showing it was to point out the longevity of gold and how it transports wealth better than paper. Anyone that purchased bullion around the $360 or $370 range at the time that post was written, is only down some $30 to $40 and is currently in an atmosphere that may even erase those loses. Yet during this past time span, gold options, futures and leveraged contracts savaged an investor's account. In addition, most all mine shares were crushed and some disappeared all together. Ironically, some mine shares may now suffer if gold does rise. Insult heaped upon misery?
All the while, a bullion holder was in total control, never waiting for the annual report or the unsettling news. Truly, they were holding an asset that could "run like the wind blows" when the storm clouds gather. With a full understanding of gold money dynamics, they were all the while expecting a greater real return with less risk. You see, for most conservative investors and portfolio hedgers, gold only needs to make one real run in a lifetime. Indeed, in some crisis circumstances, even running in place will win the race and be more than one could ask for! Gold works, because the history of paper money has shown that the timeline of every "extended family" suffers through at least one such world crisis. During these times wealth holdings of most every other asset is lost or impacted beyond one's years to repair!
Today, I believe we stand right at the edge of one of those moves. A gold move that will more than justify ten, twenty or thirty years of bullion accumulation. Unfortunately, most Western minds will not or cannot imagine gold ever running so far, so fast. So they grasp for leverage in every form of gold paper, even extending that reach into Platinum and Silver. I, and a few others of "Western mind" now fully see this storm and anticipate it's unruly effects on all asset classes.
--------------------
Canamami
If we look at the last few days, Dec. gold trading during comex hours has bottomed right at $318:
Low
10/12 $318.00
10/11 $318.20
10/08 $318.00
It has done this as oil has crashed from liquidation of paper traders. Yet, gold does not fall as it should. It doesn't fall because the supply of crude is being cut further and the oil futures are about to reverse this drop. This is a public statement that goes far beyond OPEC considerations. It points to a transition of economic structure such as we have never seen. The risks to world wealth that this change will bring will now drive major portfolio adjustments.
I think massive physical gold buying has arrived in the form of "full allocation" demands from all gold depositors and lenders. Those demands will now fracture our modern gold markets. Be they from Hong Kong, The Middle East or Europe, these present bullion holders are buying more gold by recalling their paper derivatives. Truly, a gold run of world class proportions laid upon the steps of a failing price fixing arena. These demands constitute the "exercise of a corner" on gold that has long been in place.
This demand will now not only make an end run around the carry trade, it will gun the price so fast that most all "working gold contracts" without "official guarantees", will fall into negotiations and litigation. This corner will crack the markets because the ECU/BIS has said "make it so". These effects will now be seen in our entire financial structure.
Is this a good viewpoint to hold? We shall see!
So today was a good day for gold, if you are a bullion holder, that is. A good day, indeed!
thank you FOA
Date: Sun Dec 07 1997 18:45
ANOTHER (THOUGHTS!) ID#60253:
Will we have "Deja-vu" again?
Some people have followed the gold market from 1970. Some have followed it all their lives, depending on when you were born. Some say they were right, as the market has fallen and they held "no gold". They council from experience and a short life.
But, some have traded gold from times before. Those who trade with the sun know we will never have "Deja-Vu" again. This market is unlike anything from the past. And those with a "short life" of investing will learn from this coming future as gold will show their knowledge was limited to where they stood on the mountain!
Unlike the past, this market has an end. And this end will not be for those who have waited to buy! They see this bottom at $100 or $200 or $250, and they will buy at the turn as no fool should have held from $360! But, I say they will buy only paper if lucky!
All should make ready and be holding metal only, as the turn will move $100+ the first day and $200 the second day as comex is closed! It will trade no more from the 3rd day on! The gold market of your youth will be no more! For those who were smart from experience not to buy at $400, will look at $600 as "the deal of a lifetime".
To close,
Try to live in this outcome and see how different the world will be. It will not be the end of all things, only the changing of most things in "western thought". The "Digital Currencies" will still trade, but we will value them as not before. Anyone who has sold gold they do not have will not be allowed to cover that position. Anyone who has brought gold they do not have will not be allowed to cover that position. Many will lose all they have in a world without honor! Looking back , one will ask, "how could I have thought that noone wanted gold, when more of it was being brought than existed"?
Indeed, more gold than exists or will be produced in the next ten years! And some say, "only a fool would say the market was cornered". During that time, a gold stock in the hand will not trade on an open market! And the government of the country, of the land, of the mine, will no doubt speak with you of new taxes on GOLD!
A year has passed as the winds of change have started to blow. Waste no more time on paper gold, you have suffered enough. Play paper games no more, as the future of your family waits a decision.
FOA (10/13/99; 20:05:55MDT - Msg ID:16279)
Comment
Strad Master, welcome and glad to see you here!
ALL,
Today was a good day for gold, again. It looks as if the beginning realignment of the dollar against the Euro is beginning to affect the financial markets.
I have seen several write-ups by our well paid "bold bears" Mr. Smith and Mr. Arnold. They certainly do have a good understanding about how Euroland values gold. An understanding that, in their reference of experience must span all of twenty years+/-?? Truly, their full life comprehension of assets must have never seen total loss due to war, economic failure or political injustice. Why else would they so boldly speak for an entire continent of people and the official monetary stance of their leaders.
These "paper boys" would have the EMCBs sell off gold because holding more interest earning dollars will back the Euro more effectively, right? Conversely, even a fool would see that the US should then print more of it's currency and buy the debt of any higher yielding countries. Why miss
out on all of that return by just "holding the ability to print money and not use it"? Their concept would see a printing press as an asset with no return.
Again, the "paper boys" are following a path that's made "sensible" because in their lives they have most likely not been defaulted on. Gold does not pay a return as a reserve asset because it isn't lent like the currencies. Lend it out and it's at risk, just like the currencies. Hold no unlent gold (or paper money) and you have no reserves outside of risk.
It begs the question; why not lend out all real assets? Lend out every thing that's held in quantity, the chairs, books, lights, bricks, food! Get a return on everything useful? If it's usable, someone will borrow it and pay a return. Truly, young boys always look smart until the world makes fools of them. They pretend to speak for the masters as long as followers listen to and act on their concepts. I think that, this whole group has entered a play written by oil and the BIS. What they are about to experience is "the last act".
Today, the real ECB masters have brushed aside these loud youths as concern for their Euro Gold takes precedent. As the need to hold an "unlent currency of world class" becomes undeniable, the "paper boys" will suddenly mature into "grown wise men". With new jobs perhaps? and much poorer for the ware?, no doubt, but wiser in the future, never the less.
Presently, the US holds (percentage wise) little foreign exchange currency because it's position is one of setting interest rates on the world reserve currency to effect it's value. The years of being the major trade settlement currency allows such a luxury. Negate this position in it's present economic condition and the US will have to face severe inflation. I believe, investors world-wide will attempt to run from the dollar by buying gold. This fear is manifest in the ongoing success and advancement of the Euro.
If the "paper boys" (above) even half way understood this position, they would see that it's the dollar reserve holdings of the EMCBs that are "dead assets". As the Euro ascends to the world reserve position, it will, like the present US dollar, be able to affect value through interest rates alone. Foreign currency reserves will begin to fade in importance. Indeed, what good are interest bearing dollar reserves when the country of origin is running a trade surplus? How does one use a dollar (and it's interest) if the trade flow never flows into the US? Indeed, how does one effect a "profitable interest return" on dollar reserves if it takes a major devaluation to reverse said trade flows?
If one does not buy goods from America then a further rebuttal asks; if the alternative to buying goods is buying assets, then why invest more money into a foreign country if your own is growing faster?
If Euroland begins to run as a currency transition tears apart the Dollarland, our "paper boys" will find that the only "dead asset" in the EMCBs reserves may just be Dollar!
ORO, I read your ORO (10/13/99; 17:12:48MDT - Msg ID:16267)------ and vote for a combination of (2) the severe devaluation of its currency both at home or abroad, or (3) the default of external debt, Russian style. Also add extreme foreign exchange controls aimed directly at the
Euro. One of the reasons internal "street gold" will run so far! Question, when do your posts stop getting "better" (smile).
Thanks FOA
FOA (10/14/99; 9:20:06MDT - Msg ID:16318)
Comment
Strad Master (10/12/99; 23:48:43MDT - Msg ID:16216)
---- My first question, though, is this: If gold should rise to, say, $30,000 per oz as FOA predicts, how, at that time could one's gold holdings be unwound? For what? $30,000 in paper money? Or would the actual gold bullion become the only negotiable currency? If so, what good would a one oz.buillion coin be? It can't be cut apart into small pieces with a pair of garden shears. Beyond that, Goldbugs are notorious for holding onto their physicalholdings long past the time of maximum return. ----
(((NOTE: Strand: I find it interesting that goldbugs have become "notorious" for bad moves when their present universe has only existed some 20 years? and the lady has not sang the song yet?)))
You continue:
---In fact, I'm sure that some older people who post at this forum have held gold through several (albeit relatively minor by comparison) upmoves in gold only to kick themselves for not having sold at or near the top.----
(((Note: I know people that have been buying through this entire span of time! True, they have timed their buying on a cost averaging basis, but that concept has made then almost even today. In the believe it or not department. Ask MK about "cost averaging" using a fixed dollar amount. Then I suggest you see the show "Rollover" with Jane Fonda. You would not believe how true it is!)))
Hello Strad,
I'm going to ramble on a bit, so I hope this helps your perspective.
Back in the early oil days I was very close to some of the largest oil men in the country. When in Texas we would visit at the country club and shared a lot of our perceptions. Usually over a poker table. Looking back, I find their (and mine) viewpoints had much in common with the gold outlook today.
When oil went from around $3.00 to $5.00 everyone that had local reserves thought they had made a fortune. You wouldn't believe how many sold off not only their storage barrels but their best (lowest cost production) reserves for cash. The feeling was that oil had just zoomed in price and would quickly go back down. The percentage gain on those leveraged assets was simply huge.
Then oil went up to around $8.00! Good god, we were so stupid to have sold. What a bunch of buying fools out there. Those idiots buying $8 are going to get killed. Everybody knows the major producers can pump for $1.00. Oh well, it just a political thing.
When oil hit $15, some of them knew they had missed out on a train to $20. But they still thought oil would one day return to around $5.00. So as not to miss out completely many of the early sellers jumped on the Natural Gas wagon, using everything they had gained from their first sale. At first this new move made money, big time. Then something funny happened, oil soared and later returned to a more normal $18 to $25 range, but gas plunged from the higher supplies. The "oil boys" turned "gas boys" lost it all. Even into today, gas has never returned.
Truly, they used the silver vs gold concept, thinking the more leveraged natural gas would out run oil and regain their fortunes. It made sense as gas (like silver) was more industrially useful and "CHEAPER". You might even say it was the "poor mans oil" (smile)! Also: Just like silver, gas proved to exist in much larger amounts that the "statistics" demonstrated. As it's price "coat tailed" oil, it brought out the massive increase in production that wasn't needed as long as oil was available. Incredibly, this was the exact same story for silver. All the stories about people buying silver as gold went up saw them sell the silver and keep the gold because people just didn't need both of them. The same will happen when gold runs this time. People will keep the high unit cost gold in their vaults, use the digital currencies for trade and sell the silver as it floods out of the woodwork.
Onward:
You see, oil in the early 70s is like seeing the prevalent gold concept today. The perception was that oil could never go up from the $1.00 production range into the $20s (just an unimaginable increase to those in the business) because such a price would flood the world with production. It was thought that there was so much unfound oil in the world that every home owner would have an oil drilling rig in their back yard at $20+. Just as $10,000 gold will have people taking gold from sea water.
Here is where reality gets in the way of concept based on perceived conditions. Yes, the $20 and $30 oil did bring out the rigs and production soared. But, even at the higher prices, the world found uses for this great new gusher of oil. The same human traits that dictate that "you can never have enough money in the bank" also said "we can never use too much oil"! If all the oil reserves in the world could produce at $2.00 then the price would return to $2 plus a profit. But, we want and use all oil produced from fields that pump from $2 cost on up to $30. Gold and oil are not like any other commodity, because under the right circumstances, people find both of their qualities useful and can never get enough of them at any price. It seems we accumulate assets until we die?!
The "paper boys" try and paint a picture of gold like "old oil men" looked at values "back then". They were wrong and so are the "paper boys" today. The Smiths and Arnolds of the world try to convince us that the supply of gold is never used up and creates a glut as it grows. They say that unlike oil that is consumed, gold holdings have become a stockpile that refining cannot use up. I bet these guys would have also sold their oil reserves in the mid 70s also.
Where they miss the boat is in their assumption that people will get enough gold. Not if it's money, they won't! People do consume money just like oil, rather it's just in the form of "savings consumption". Gold, just like money has an "unlimited demand". Again, have you ever seen anyone that said "I have too much money and have no more use for it". "No, don't give me any more of that cash, I've got a glut of it now, go away"! Yea, right!
Often, we read where people say, "oh what am I to do with all this gold if it hits, $30,000?". Funny how Bill Gates never says "what am I to do with all these MS shares". Well, you too will act like anyone with to much cash or assets, just stash it away until you need to spend it. The old "what will I do with all this high priced gold I can't get change for" logic just doesn't compute when dealing in reality? Ever see someone in a flea market rolling around a cart full of $100 bills,,,and frantically trying to unload it because it buys so much and they can't get change? Help me out here, am I not seeing something?
I'm afraid that even the very poorest of people have a better grasp of spending and saving value than some of the "big time investors" present about gold. (I'm talking about the brokers, Strand)
Onward:
Anyway: The amounts of gold in vaults today is no where near enough to represent the only circulating world money. It would have to be priced at $++++++ to do that. So, if mine production can continue, the world will take any and all they can produce. Be it 3,000 ton a year or 10,000 a year because the demand for money (even a parallel supplement money) is unlimited. Personally, I would take all of it (smile) and let the rest of you keep the paper.
The reality of this is that people hold cash in banks as it is lent out and earns interest. If no one lent their cash and just saved it (like gold) to spend in later years, it would take an enormous amount of paper money. This is why the US goes to great lengths to identify gold to the public as a commodity, not money. They want you to know that it must be sold as soon as it goes up. Trade it, don't save it. Most Western investors have brought into this and are going to pay dearly because of it. Again money demand is "unlimited". The same will be true for gold. As people begin to buy gold as a currency supplement, to be spent "as needed", the price could reach enormous levels.....and be seen just like oil............a useful asset you just can't get enough of.
On the road.........FOA
FOA (10/14/99; 13:34:56MDT - Msg ID:16349)
ASL
I see where Ashanti Goldfields (ASL) is down and discounted from their takeover bid?? Michael, something is very wrong with this picture. I heard one of those rumours (???) that some banks could be actually buying out the gold loan package so as not to force margin. If yes, some major backup money is being applied for free here. This could get explosive is someone decides to "cut and run"!
FOA
FOA (10/14/99; 14:09:03MDT - Msg ID:16353)
More on story rumours?
The CB of China is rumoured to be in the background to take delivery of ASL gold, without holding the BBs to further margin? Put this in the FWIW department. I won't say anything more unless this is confirmed. Perhaps their talks for WTO is involved? Oh well, we shall see.
FOA (10/14/99; 15:13:31MDT - Msg ID:16357)
Comment
canamami,
Thanks for taking the time to offer your thoughts. This is indeed a giant chess game that will keep everyone guessing on the sidelines. Interesting about the CNBC question.
As I said earlier, I'm going to bid on some bullion during this break (if it turns out to be a real physical one) and may add some platinum to the mix. I offered before that My mix had some silver (small amount) and now I must buy some of "the other white metal" just to keep up with
Goldspoon. If it falls some, I'll have it.
Now if only the spreads on (all) the metals will fall some, we just may find something. I have my doubts that this is a real pullback because every large player is looking to not only buy metal for cover, but to also buy time. In addition, some real long "hard hands" are into adding any physical they can get as this proceeds. We shall see. FOA
FOA (10/15/99; 7:22:14MDT - Msg ID:16431)
(No Subject)
ALL:
This big break in the US markets is going to force all parts of the carry trade to cover. If they don't, they will be "the walking dead" as their books will all go negative. Look for all the currencies to run against the dollar, big time, especially the most heavily used "carry", the yen. The run to safety will see the Euro first (as the dollar will be sold for position squaring), followed by gold. Physical gold being the most lopsided carry instrument, will be in major demand. Mostly physical because this crisis will immobilize most "bookkeeping" hedges. This run should continue for some weeks! We watch all these new forces together, yes!
FOA (10/15/99; 14:50:00MDT - Msg ID:16479)
Reply
See 16465 for his full text.
Yellin' of troy (10/15/99; 13:03:53MDT - Msg ID:16465)
FOA -- the demand for gold is not insatiable
-----What you are missing is the distinction between wealth and money. ---------
Oh Yellin of Troy,
Your modern thesis comes from a viewpoint that wealth and money are different. I had the same debate with Martin Armstrong. His whole basis for de-wealthing gold was built upon the modern man concepts and how he stood higher than his brethren of old. From the beginning man traded wealth, not money! We brought things with things and found little need for a different concept of wealth. Gold became the wealth item that was most efficient to use. It was only the modern (modern for that time) bankers that said it was money. Your modern paper started as a contract for wealth in storage, then proceded to become a digital receipt for the completion of commerce. Today, it no longer holds the title of contract and is failing in it's ability to effect digital trade.
----- And while there is certainly considerable benefit and joy in knowing that you *could* do something, isn't the value of having gold to spend much reduced if you not only never actually spend any of it but are bound and determined that you never will? -------------
Cross the globe many times my friend. During your travels observe how spendable gold has become in every nation on earth. It is an old wealth/money that still buys anything. Black market, white market or no market, one can exchange gold for currency privately or officially at any time and any place. There are some on this forum that like I have run the world and know this currency well. Your pronouncement that power can prevent a peoples from maintaining wealth and spending it in gold simply does not stand-up to history, past, present and no doubt future. Even when the US stopped gold usage, most of the world continued to use it. Some of my forefathers were also "against the law" in those times. Find me a better reason than supposition?
-----Have you sold everything you own, turned it into gold, abandoned your family, and taken to living in the gutter with your bag of gold hidden in your underpants? If not, there are things you prefer to their price in gold. And I don't imagine your present holdings of non gold assets are unimprovable; wouldn't you buy more if you were richer? Whatever your level of wealth, you only want some of it in gold. And even if you are an incredible miser who only wants to caress his gold, there's a limit to how much you can afford. You're not infinitely rich, and you can't get richer by forgoing your dinner and deodorant for gold, and your fairy godmother will not bring you free gold every day.-----
Indeed, I must ask the same question, for it is not I or my friends that walk your alley trail. Our gold is for the preservation of wealth in a world that is lacking "contract honour". Truly, it is the future that we defend against, not the past. Every investor gains and maintains his winnings during the here and now, not the past. Default is before us, therefore protect the family by owning real wealth now. All of the great families of old brought freedom from failure using gold a part of their wealth. We doubt they considered it as their day to day money nor do I. Our times have changed that concept. You, and humanity will continue to use the digital currencies as money for needs. Just as in the past, the difference between retaining what you have and giving up a good portion to the fraud of currency is gold!
-----The key point, and the fact responsible for the wealth of the modern world, is that you can expend your money on *investments*. You can use some of your gold to build a widget factory, or buy one, or if you don't understand widgets you can be a passive shareholder or a lender in an outfit run by somebody who does, or you can lend to a banker who knows how to find and oversee such people and will spread the risk. Or you (or the banker) can lend to someone who wants to anticipate his income, for example to acquire a house, and is willing to pay for the privilege. However you do it, you can expect to get back, eventually, more money -- more gold, if that's money or if you insist -- than you started with. The whole thrust of your argument was that there is no limit to how much money you dream of, you want as much as possible. But then, if you have a huge stash of gold, more than you have any intention of spending, more than you could ever suddenly need to spend, why not apply some of it to getting more? If you would never refuse a free gift of gold, why refuse an offer of interest on gold sitting idle in your vault, for which you have no other present use (and derive no other benefit) anyway? The sensible thing to do is to keep on hand only as much money as you might actually need or want to spend (before the investments pay off) -- this is your demand for money, and it is finite and indeed rather limited -- and direct the rest to where it will be most useful, most productive, most profitable. And the people you let have it aren't going to put it all in their vaults and just revel in its glitter -- how would they be able to pay you your interest? They need your money for expenses: They can't sell any widgets until well after they have paid a lot of suppliers, secretaries, and salesmen a lot of money. They do need to keep some cash on hand, but only some; their monetary needs are limited just like yours, except that they are trying to reduce outgoing interest payments instead of increase incoming. The secretaries don't put all their wages in the piggy bank, either; they spend most of it. No one's pile of yellow is a black hole; each economic actor has only some limited target for cash on hand, and the sum of all these is some definite aggregate demand for money, not a bottomless pit.--------------
Oh Troy,
Again I say, the demand for money is unlimited! I never said that it would not "circulate"! Into the great economies of the future will flow our gold. Yet, we will lend it or spend at our choosing to buy things. Be they investments or pleasures our wealth in gold will circulate most freely. For every person that works 10 hours instead of 8, his two plus efforts will make demand for gold. So, how much is too much? The world has never seen this end and I hope it never does.
------Of course, if gold is grossly underpriced, it can be a very fine investment itself. If you believe others will soon come to understand its merits and correct its price upwards, then you can increase your buying power, your wealth, for the future by merely buying and (for a while) holding gold. In some circumstances this could be both safer and more profitable than that uncertain widget business. But this is a disequilibrium, a temporary condition, and the whole (expected) gain is in the correction. You can't perennially suppose that gold is on the verge of an upward surge that somehow never happens; such expectations would be irrational and you wouldn't make any profits. --------
No, no! Gold is not grossly under priced, far from it. I say that gold is grossly under used! People have been defrauded into using paper as money instead of using gold as wealth in trade. How can the price be correct when no paper money can define wealth? No person knows the true wealth of gold. It's value will increase with usage in trade not trading it for gain. The true advantages we attain from gold are found in it's transformation in use. History has shown the most stable money was always gold itself, not the modern currencies. Paper will come and go as nations persist, but gold holds the value through it's own usage, not the digital numbers we give it today.
---- And of course gold is not totally secure: The price does fluctuate, the lock on the treasure chest can be shot off, and let's not forget that one of the great inflation's in history happened in gold and silver, after the Conquistadors. In fact, at the prices you are foreseeing, gold would be not only a low return, risky investment, but a risky, unstable money, susceptible to a near total crash -- see my post yesterday. So the wealth will go (mostly) into more productive uses than gold. This is a case where as soon as you are proven right you have to change your strategy. ------
As Another said, we only limit our view by choice as our feet place us on the mountain. Consider your alternatives during the time and space these events unfolded. In context, gold would have been the choice of most every actor in the play of history. We do not look for a return that is created by accepting risk, rather gold becomes wealth of "least risk" in a world gone mad. In every war weapons must be used. I look through the pages of time and order the timeless one, gold.
-------I won't deny that there are cultural influences at work here. If you live (or your ancestors, whose ways you follow, lived) in a country where invasions, political upheavals and injustices, pogroms, and similar unpleasantnesses must be expected, factories are too easily burned or confiscated, and you will prefer concentrated, universally saleable gold, which you can run with.---
Truly, a testimony of the time of the US civil war! Perhaps a time of confusion to be revisited, yet without war?
---If your society conceives of wealth as primarily something to display to show everyone (including yourself) how rich you are, gold will serve admirably. If, furthermore, commercial activity in general is felt to be less than honorable and "money-grubbing" is disdained in favor of status-grubbing, if interest in particular is considered sinful (even if evasions are routine), then the daydream of heaping up illimitable gold will be a lot more popular than in a more Modern (and especially American) society.------
Your description of the USA today, no doubt. I have seen your country use it'd dollar currency in this very same fashion. All the while grinding the average citizen into a more lower position. Mostly they wear their gold in the form of a house too large and a car too expensive. All the while forsaking the debts they build and can never repay.
-----But even Victor XXI had to spend his gold on paying his soldiers, without whom he wouldn't have kept it long, and had to borrow more. And a society like that, or a person like that, will be, in the long run, comparatively poor and unable to afford much gold.----------
My friend, life goes on with or without us. We will live out time in a manner that fate prescribes. Truly I have seen my destiny down this trail we walk. And travel it we shall, as a group or alone.
On the road to $30,000,,,,,,,,,,,,,,,,,thank you so much for your most excellent works FOA
FOA (10/16/99; 16:23:27MDT - Msg ID:16574)
Comment
http://www.decisionpoint.com/DailyCharts/00goldDXY.html
Once again I ask everyone to take a good look at the above chart. I offered it some days ago as a witness to what is about to take place. To date the dollar has fallen and US stocks have begun a revaluation that is far from over. Both of these trends will continue as the whole financial system changes it's tools of valuing assets.
The gold chart shows no signs of falling as would have been the case in recent years. Yet everyone sees this recent slowdown in advancement as a sign that the BBs are again working the will of the CBs. They are not! Indeed, is the fall in lending rates a sign that fresh gold is being supplied to cover the shorts? I tell you the lending arena of the gold market is frozen in loses.
Today the lease rates offer little direction because none of the major gold sellers have covered or intend to if they can help it. Yes many of the paper shorts have covered, but the thousands of tonnes of gold contracts have yet to be made whole for the "originator".
Is this how the game is played? Consider this as you watch the gold charts.
Two types of contracts exist in these numbers that will create the crisis. These are mixed in with "clean" deals. Yet they (90% of the short gold) create the real demand that will drive prices much higher unless the paper markets are sold into oblivion.
First, some are held by actual gold lenders (mostly private entities) that are now demanding a speedy end to these relationships. Mostly this gold was put "in play" not for the low returns but for the "fees and favours" bullion would generate. So, in order for these lenders to be made whole the gold must be purchased by the dealer in the open market or it must be borrowed from someone else to complete the transactions. The "BB dealers" have the option of arranging this return as able. Presently they are doing neither as they wait and assess the situation. This process is a game we now play as they wait for gold to fall and new supplies become available. All the while the lender sweats his position.
Understandably, they fear for the return of their gold at all. If defaulted on, they will most likely receive a cash payment that theoretically could be used to replace their gold. Still, if this process begins, a mad rush to buy gold using "default payments" would telegraph a full crisis into the trading arena. Gold would soar long before any large portion of bullion could be brought.
Second, many contracts are outright "naked short" in that it's the contract creators responsibility to supply gold when the term ends. In this position, usually gold was never lent or sold into the marketplace. The deal was little more than a play on gold falling with the writer risking the firms capital to profit making the difference in the gold price. Often a long time physical holder brought his fully owned bullion into this play and received most of his cash back plus a contract to receive gold (unallocated??). His gold could be sold outright or held by the bank as partial reserves to cover the writing of many other "naked short" contracts. This was the real engine that sucked private gold into the "supply for fabrication" deficit. In the process paper gold was sold to drive the prices down. All of the new investment demand for gold was supplied using a glut of paper instead of physical gold. Unbelievable as it may seem this is where Another said years ago that gold was falling because so many people were buying it! What seemed nuts then is understandable today.
In any event, the holders of these contracts are the ones that will be demanding "allocation" as they withdraw their investment funds from the falling stock and financial markets. Just as above, the physical markets are so tight that in order to close these deals, gold must be borrowed. That is if lenders can be found!
Onward:
We have entered the largest gold bull market in history. The Major world central banks have made it extremely clear that this bull will run as never before. Michael Kosares pointed people to the WGC site for an explanation of the recent "agreement", yet no one must not have read it for they still talk about CB and BB lending. People, it's not happening! This small lag in the price spike is only about shorts in major trouble trying to assess how they can bail out. Here is a partial breakdown of the parts we should grasp. See the site for a full write up.
http://www.gold.org/Gra/Pr/Wr991006.htm
World Gold Council Review of:
The Washington Central Banks Agreement on Gold 26 September 1999
--First, it is an explicit signed agreement among the European central banks, which goes well beyond earlier 'clarifications' about their gold holdings by central bank governors. -----
----it has been signed by each central bank governor, all of whom (except the Bank of England) have legal responsibility for their gold reserves.-----------
During the recent fall in the gold market nothing was said to clarify to the public. All of the "official deals" were done for political reasons. Read our USAGOLD HOF site for background. Once the Euro was born, the reasons to drop the price of gold were removed. However, during this entire, multiyear operation, an enormous "sideline play" of selling gold developed. These people never would openly give their reasons for "coat tailing" the fall in gold. None of them understood why gold was falling and still don't. We can understand why they continue to think gold will fall as they have bet the bank on that outcome. The very ones in this sector are the same entities that will suffer the most as the IMF/dollar world is destroyed. For them it's going to be a double hardship.
Today, the ECB/BIS has "openly stated for all to see" that gold will fall no more! It is indeed interesting that we spent but a few months below $280 and will now zoom through $500 in no time at all. Note these next items:
--It is our understanding that the Agreement will be monitored by the Bank for International Settlements (BIS).-----
---The International Monetary Fund and Bank for International Settlements are to abide by the 'spirit' of the agreement-----
Perfect!!!
---The US has already announced its intention not to sell or lend gold and Japan followed suit the day after the Agreement was announced.---------
The US had changed it's position on gold in the early spring of this year. Those that still think the US Fed is selling any form of gold short just do not understand how this market has changed. Waiting for the price to fall as "official sales" or "lending" confirm the recent price action will find you on the the outside of a bull market.
---In addition Australia has said it will not sell any more gold, and South Africa is unlikely to sell part of its reserves given the government's vehement opposition to the UK sales.-------
----bringing the total amount of official gold covered to 85%.--------
We have but to wait and watch as the pressure rises under the price of gold!
------We understand that the quotas are not transferable, i.e. if the Swiss decide not to sell 1300 tonnes in the next five years but instead only 1000 tonnes, then no other institution can sell the remaining 300 tonnes.--------
So, how does one prepare for the coming historic bull market in gold. Follow in the footsteps of the only correct Giant in South Africa. Read the Gold Fields report presented here in partial review":
http://news.24.com/English/Business/Companies/ENG_161017_727173_SEO.asp
---Gold Fields said on Friday it had completed the repurchase of its gold hedge (forward sales)
position.---------
---it seems inevitable to us that higher, if not much higher, gold prices are possible.----
---Gold Fields continues to hold approximately 660 000 ounces of rand-gold call options at an average strike price of R2 171 per ounce.---------
---Thompson commented: "At higher gold prices the restrictive impact on our balance sheet and the drag on earnings from a continued hedge position would limit our ability to make acquisitions and develop new deposits". ------------
I would say that these people must be the only truly progressive miners in the world. Not only did they buy physical gold at the BOE auction, they are "LONG" gold on contract! Other miners may have "bid low" to show suport, but only Gold Fields got real gold and now is long. They not only understood where gold is going, they positioned their company as a private person should in protecting their estate. We can now most easily see the other hedged miners are trapped in the Bullion Bank web as they can do nothing. These companies will no doubt go down with the ship. If they can not unwind their position today during a standing price, they will die during the coming run!.
With 85% of the official world gold holdings effectively blocked from lending and most all the private lenders wanting out of this game, how could any major forward seller close out? Price has nothing to do with it as the bullion will not be there for 5 years, if even then! These miners will now sit and watch as that gold chart (above) runs out of numbers on the upside. While everyone makes noise about how the market is still controlled to the downside, Bullion owners and Gold Fields will run with the wind of this historic "OFFICIAL" bull market. If only other miners would put on a Texas Hedge, at least there bookkeeping entries could benefit even if the bullion market cannot supply!
Good Job Gold Fields,,,,,,,,,, FOA
FOA (10/18/99; 19:58:38MDT - Msg ID:16835)
Haruko Fukuda is telling thr real story now!!!!! OH YES!
ALL: I can make but one post now, so I will reply to Michael's observations. Will try to broden some thoughts as I comment.
--------------USAGOLD (10/17/99; 9:54:50MDT - Msg ID:16650)
I can say with pleasure that the markets have become infinitely more interesting, and with no pleasure that they have perhaps become infinitely more dangerous. "Indeed, is the fall in lending rates a sign that fresh gold is being supplied to cover the shorts? I tell you the lending arena of the gold market is frozen in loses." --FOA 10/16/99
I agree with this, FOA. I think the lending rate is falling not because of a new supply of gold but because there are no takers. This gold carry trade is indeed locked up. I think many are losing their career positions over this debacle and many more are on the verge of losing their positions. The proponents of gold sales, leasing et al are in the process of being severely discredited both in public and in the professional investment community due to its burdensome excesses -- excesses which could have severe repercussions with financial firms up and down Wall Street. ( I saw one report where it was rumoured that Goldman Sachs losses at the moment could be as high as $2 billion.) It appears to me that the gold carry trade battle is now over and all that remains is burying the corpses and removing the debris from the battlefield. There will be further attempts to drag these firms out of the fire, but when the day is done, I think the gold carry trade will be taken out of the financial firm training manual and rendered a much deserved place in financial history books.--------
-----------------------------------
Hello MK,
Yes, I think we are in the middle of an extended workout. None of the BBs are in a rush to cover these (carry trade and other) bad loans because in doing so they must borrow gold to do it. There is no way they could bid the physical market. If they did it would completely dry up what gold is supplying the retail markets. If they must return gold they must borrow to do it and create same problem in the lending arena. Their image is seen on the borrow side and the rates spike. We saw this recently. So they fall back into the financial workout mode and the rates relax.
The ECB/BIS really nailed this entire play to the wall. An entire industry was built on expanding the liquidity for international traders as our Washington officials looked on with approval. The top people knew why gold was originally (starting years ago) being taken down, yet they smiled as these funds (and others) "coat tailed" the fall. And why not smile, these trades were using huge leverage to build (and support) the American market mania. The ECB said "enough is enough" earlier this year, but no one listened. I guess they thought these people (ECB) were nobodies? Then the BIS said they were going to cut it off short and the US asked for some time to work it out. Ha! They worked it out all right! Our treasury head watched them flood the gold paper onto the markets like madmen.
What amazes me is that most of these "big inside" operators create the market and really didn't know why the original gold (and loan guarantees) was being supplied by the Euro arena. I always thought they did and their stories to clients about "CBs no longer using gold" was just a "good retail story". When the ECB and the BIS told Greenspan "it done", it hit these BBs like a nuclear blast! I don't think anyone yet understands that these people are now the sole backup for an entire asset class that cannot be made whole. On the surface, they may have to make good on 5 or 10 billion. But underneath, the ECB could crush them by running gold into the thousands. That's why I say "it's all over people", because this bull is going to run the equity of the dollar creating banks into the ground. And the US FED has no power to stop it. There is no way the US will use one ounce of it's gold to support a "banking crisis" if a "currency war" becomes the result! Some think that if we have one it's as bad as the other. They should study "currency war" history, preDollar!
The BBs can go for the ride slowly (and be controlled) or they can kill themselves by attempting to cover. What a master play this has been.
-------------------------------------------
--So FOA....This new gold market; it is a free market, yes?
--In the Robert Mundell speech for which Steve H provided a link, the laureate said as early as 1997 there would be a new gold market and that central banks would look to settling with gold at free market prices. He suggested that this would occur in the 21st century. Was it last year, the gave Prize was awarded to Black and Scholes -- and then LTCM -- where Scholes was employed --promptly went under water? Now Mundell wins the Nobel Prize while the gold carry trade implodes. The former honed tools for statist economics; the latter honed tools for free currency and gold markets and a much-needed competitor for the dollar. One became the tools of the status quo; the other the tools for a new economy.----------- ----------------------
Boy,,,, Michael, I have to tell you, Mundell knew the story and no one listened! Now the whole Dollar/IMF system is in change and most of the nonEURO US trade partners have bet their entire economic society on a prosperous, buying American public. The next few years will be history to remember. By the way, any thoughts on a "Britian in the EU"? (smile)
--------------------------------------
-----In talking with colleagues in the gold industry, the feeling is that it will be a long time before the Wall Street trading firms and mining companies sanction again something like the gold carry trade -- at least to the degree that it was utilized in the late 1990s. Perhaps this was a usable idea that had got out of control? There is little doubt that the European action with respect to gold, sanctioned by Alan Greenspan who attended the Washington meeting, was aimed at the hedge funds and foreign exchange traders at the big banks. Leveraged trading was beginning to frustrate some nations' foreign policies and the mechanisms previously established to keep crisis situations from getting out of control. What good is it to try to save a country like Indonesia with fresh loans, stiff political and economic sanctions when hedge funds can easily destroy the Indonesian currency through derivative plays and leverage and undermine the intent of the international agencies. (Please don't construe from this that I back IMF actions during this Asian contagion lending crisis. I do not. I simply offer the foregoing as an explanation for the cb's actions.) So they acted to cut off the life-blood from the speculators -- the gold and yen carry trades.
The two pronged attack on the bullion banks, foreign exchange desks, hedge funds, et al co-incided with the latest jawboning by Alan Greenspan with respect to the stock market. He has to be getting a little fed up with being laughed at and ignored by the speculators whenever he warns of the excesses in the equities markets. Perhaps now they will find out the central banks still have teeth?
This all goes hand in hand and marks a turning point. The financial world has changed in the last few weeks and I think the man on the street is just now finding out that something has happened. At the moment I can say with pleasure that the markets have become infinitely more interesting, and with no pleasure that they have perhaps become infinitely more dangerous.---------------
-----------------------
Dangerous is the right word, MK! Indeed, I did little more than "extend" my context into your "just written" perception. As events have unfolded we can clearly see what this gold market means to Euroland. Traders are busy trying to build a strategy to gain from a move in gold while the very trading arena they use may go up in smoke! I know that the BIS wants gold over $400. Yet, for the same reasons they didn't buy at $280 they don't have to buy physical now. The BIS is responsible for all gold movements between CBs, it's in their charter. Few know what they are doing untill after the fact. Today, they can let the BB "paper crunch" do their work for them. Soon. How fast it gets there will be determined by how the BBs can workout their problems. I suspect we will see rental rates rise each time one of them has to slice off some capital. When this process is wide open Another said he will be writing again (above $360 should do it). The changeover of oil to Euro settlement is the next area to discuss and I am intrested to follow how this ties with gold.
On another note:: With the EU recently (last week?) accepting South Africa into a "favoured nation" trade status, I suspect that any of the SA gold shares that survive this may be left alone (just a guess). The EU needs the SA minerals as much as oil and that country may become very important to them. We will watch as this all plays out.
Also to ALL::: Everyone is down on Bill Murphy for the wrong reasons. They don't have to do anything but continue to discuss this in public to be a huge success! What ever else can be done will indeed help more! Investors can and do think, read and hear much better than most advisors give them credit for. With the "right insights", they will know to move their assets as events unfold. Walking assets have more impact than standing armies. So don't discount what GATA is doing.
From my perspective, most all mines will have a rough time (not only from hedges) in this new bull. If people keep reading GATA they will at least know to run from BB controlled shares as they will be the first hit. I always say, bullion first and foremost. But, human nature as it is, the biggest and most free mines are the next place to be. They won't run as bullion will later, but everyone can't be totally in gold. It's a physics problem at these low values! So "GOOD WORK" Bill, I know the sweat is running on the other team!
Thanks to everyone for reading and discussing FOA
FOA (10/19/99; 06:24:25MDT - Msg ID:16853)
Paris and Berlin Look to Offset U.S. at IMF
http://www.iht.com/IHT/TODAY/TUE/FIN/imf.2.html
There is a Dollar/IMF faction!
---In a book published last week on the period leading up to his resignation in March, Mr. Lafontaine quotes from articles describing Treasury Secretary Lawrence Summers of the United States and his predecessor, Robert Rubin, as regarding the IMF and the World Bank as organs of American policy and the IMF as coming under the dominating influence of the Treasury Department and Wall Street. -------------
FOA (10/20/99; 17:17:09MDT - Msg ID:17014)
A simple message
http://www.decisionpoint.com/DailyCharts/DXY.html
ALL: a few things to follow as this unfolds:
Dollar chart: (see above link) http://www.decisionpoint.com/DailyCharts/DXY.html
We can look at the dollar chart today and see the the future. The US dollar has broken down and will continue this trend as the Euro becomes more accepted. Unlike times past, this trend will not stop. It will continue and in doing so impact every financial asset in Western hands.
US interest rates chart: http://www.decisionpoint.com/DailyCharts/InterestRates.html
Once the trend of the dollar is clearly established it will force interest rates ever higher. This will happen well before any obvious inflation because this time the dollar isn't falling from inflation worries. This run is caused from competition. Even though rates are now on the upswing, they will rise even faster in an effort to keep the dollar from falling too fast. True, imported goods inflation will drive rate worries also, but these perceptions will be "behind the curve" and "after the fact". Again, switching ones reserve holdings into another currency because it offers a better use function is a different kind of run "from" the dollar.
This new trend, created from a different concept will be the "wrecking ball" in the American economic system.
Gold chart: http://www.decisionpoint.com/DailyCharts/GoldSilver.html
The new bull market in gold has begun. Large buyers of bullion should have already completed their trades some time ago. Indeed, most of the major players that are holding for the currency transition turmoil have been buying for several years. This past spring ended the "easy times" of bullion accumulation. All buying now (except for small private holdings) will be difficult if not risky.
It will be difficult if not impossible to trade physical bullion during the swings of this run. Even now selling the recent high to buy the current low offered a poor return over the dealer spreads. Truly, the risk will be found in the sudden spikes created as physical is brought to return loans. Add to that the rush to purchase by short term traders that makes it impossible to "buy under your last sale".
Again, the price action will prove this is not a bullion trading market.
Gold stocks chart: http://www.decisionpoint.com/DailyCharts/XAU.html
The major shares did not lead the dynamics of this new market. Contrary to all the last 20 year history of gold shares, at best, they only kept up with gold bullion. To date, some have lost much more on this correction. The next major move up in bullion will lead the shares by an even wider margin. Some shares will fall away into legal proceedings as we run past $360 and $400. As this market works it's will, gold is destin to outperform all other investments by a wide margin. This market is not as before.
The above chart can be seen as adding silver to the list of fallen competitors. At best silver will struggle to attain it's recent high during gold's next rise. Eventually, gold will pass and much more than triple the dollar price of platinum. No other metal will be pursued as money like gold will during this transition.
Onward:
I have not offered such an outline before because the political turn had not materialized. It now has! True, the paper markets will work their effects on dollar pricing, but the now developing shortage will overwhelm even these areas. Leasing rates will rise and fall precipitously as trapped players borrow to replace accounts. Then they will borrow again to replace those accounts, never able to fully escape as the price runs away. Eventually, the rental markets will stop from inactivity. Paper markets will stop from inability to match "street gold" prices.
So, read the above charts, not as a TA trader, rather as an asset holder that follows the breaking news. As this unfolds we will be glad to own, "only gold"!
On the road..............FOA
FOA (10/20/99; 19:25:56MDT - Msg ID:17025)
Reply
Cavan Man (10/20/99; 17:28:27MDT - Msg ID:17016)
FOA
Hello. What is your personal target for $ price? How do you come by it? Have you abandoned any hope of 10K or 30K?
Thanks....CM
--------------------------------------------
Cavan Man (10/20/99; 18:42:24MDT - Msg ID:17020)
Dear FOA
Your "wrecking ball" metaphor sounds ominous and unlike your previous references to "controlled burn" and to paraphrase from a more recent post; life will go on pretty much as normal or something like that. Can you explain please?
I almost detect a hint of glee. I must be mistaken. I agree we are in deep #@$%; but, devastation?
--------------------------------------------------
Hello Cavan Man,
I expect to see gold quickly running through $360 because that is the area a great many buyers began locking in forward gold. Don't confuse these with Comex or OTC deals. These were "long term" in nature and were but supplemental to substantial bullion already held. I think some of these "buys" are now in question of delivery. If this perception takes hold, real buying will ensue buy these very persons that were to receive gold. It's mostly market dynamics at this point, because only a very small percentage of bullion can be purchased, out of the thousands of tonnes needed.
We will run well past $400, but I use this as the first area that the ECB would like gold to attain. The "controlled burn" comment should be applied to the gold markets. The ECB does not want to see a total run-away and will try to slow the gold rise. This comment is better applied to the Washington Agreement as that signed paper was really two statements that: (1.) applied to the need to sell gold in a future context (going out 5 years?). This would control the rise. (2.) The halt of the expansion of lending was what killed the current markets. Like fractional reserve currency inflation, stop the presses and banks fail. Therefore, stop the fractional gold lending and the market "officially" changes!
The "wrecking ball" metaphor is applied to the world IMF/Dollar economic structure. Not so much the gold markets. Note the charts it applied to.
------------------------
Scrappy (10/20/99; 18:26:19MDT - Msg ID:17019)
Welcome Scrappy,
I addressed the $30,000 concept a while back. It's more a projection taken during a study (I was not part of) that indicated just how much the dollar would lose "reserve use"! Truly, the price is unimportant as value assignment can take many forms at that stage of failure. Let's say, at least $5,000 in the five years the ECB has allowed.
Yes, total change is a time consuming affair. Yet, it is longer than an eternity for investors that cannot recover in their lifetimes! The major story here, is the transition of currencies. Earlier, Another was pointing to the various political leverage that made this outcome proceed. Gold, being the historic world currency of "all" resort, will benefit from this transition in that it's use will greatly expand! It's price in currency terms is meaningless as it's new value in today's modern world is made clear. No one knows where it will finally level out.
Truly, until the IMF/dollar pricing system fails, gold's paper price can run literally "anywhere" as the values indicated in dollar currency are completely false! As Another says, "time will prove this out".
thanks FOA
FOA (10/20/99; 19:58:56MDT - Msg ID:17033)
Reply
Gold Power (10/20/99; 19:33:55MDT - Msg ID:17026)
FOA: two questions
Am I correct in understanding you to say that the street price of physical gold will runaway from the printed price of COMEX gold and other forms of paper gold until the authorities realize that the contracts don't mean anything anymore because they are not shadowing any tangible reality, and then the paper gold will quit trading?
Second, what political event has transpired to enable you to say: "I have not offered such an outline before because the political turn had not materialized. It now has!"?
Hello Gold Power,
Read the USAGOLD HOF (especially Mr. Holtzman). The whole point about contract paper gold being discounted is found in his post. Also read some historic accounts about the events that transpired during the Hunt silver affair. I clarify today's future this way:
When the day comes that 150,000 Comex contract longs ask for delivery, it will not happen! Truly, it will never get that close. In the event of a disorderly market, the exchange already has in it's articles the power to declare "liquidation only trade" for cash settlement! That's means no new longs can enter, only close out.
Consider that the comex is the very smallest of the world gold arenas. If all the current bullion derivatives were to ask for delivery tomorrow, the world would be short some 500 million ounces. So, use your best imagination when looking down the long road before us.
GP, the "Washington Agreement" that was recently signed, is a first! I trust you know about it? Could someone here point this gentleman to the WGC site?
Thanks FOA
FOA (10/21/99; 05:29:58MDT - Msg ID:17060)
Reply
Netking (10/20/99; 21:56:53MDT - Msg ID:17047)
FOA - Comex paper
FOA RE: Message 17033
Would I be right in saying that the many people who do hold long contracts would be "unlucky" to loose their investment ie there will be a cash settlement/guarantee regime put in place that is likely to return them their capital plus prof accrued until when the plug is pulled.?
Hello Netking,
They can print all the cash necessary to cover everyone. But, they can't print any more bullion! Will the cash cover everyone's gains? This question is aimed at only the longs. It takes a short and a long position to create a contract. If they cover the longs + profits, will they cover the shorts + loses? It was a big mess the last time this happened and it will be bigger this time.
Note: Usually, the market makers of paper exchanges are protected so as to at least keep the exchange alive. Again, this can involve "liquidation only settlement" that favours a crashing price. (See the silver history line) Because bullion is not used, it impacts the accounts of the players, not the supply and demand in the physical dealer markets. Even so, many dealers do use the paper games to carry inventory? What will happen in such a convoluted mess? I say total market shutdown!
-------------------------------
Strad Master (10/21/99; 00:57:44MDT - Msg ID:17056)
Question for FOA
--You mentioned in your postings today that silver and platinum would greatly underperform gold inprice, yet I seem to remember from a posting of yours a few days ago something that implied that you were also holding physical silver and platinum.-----Do you think that holding silver and platinum will prove useful in the coming times - just not as spectacularly useful as gold? Or, do you feel that if someone had the choice to be diversified in all three metals (albeit largely weighted in gold) versus holding only gold and nothing else, that the latter would be the better option? Thanks in advance for your comments. All the best to you.
STRAD
-----------------------------
Hello Strad,
Yes, I do own some silver, about 1% of holdings. I recently purchased some Platinum, 1/4%. These metals will rise a lot in the future. They just will not come anywhere close to the run gold will have as it is taken into it's new money asset image. These metals are held for use and have a definite limit to their demand, subject to a higher price. No, gold will mostly not be circulated as money, just as stocks and bonds are not used to buy auto fuel at the station. However, physical gold will come into tremendous (unlimited) demand as it becomes a savings asset.
Thanks FOA
FOA (10/21/99; 07:02:42MDT - Msg ID:17064)
Comment
http://www.crbindex.com/news/story2203.html
You can bet this deal was done "off market" at a loan rate much higher than 10%. Physical gold as the interest with "down line" attachments to "in ground gold". Along with Arabia in this "ASHANTI" workout points to what is really happening behind the screen. And some people thought everything was covered because rental rates were low! Don't believe it! The whole rental system is moving "offline" to hide the effects. We must ask, from who will they borrow the next time to repay this new loan? A trap that the "Washington Agreement" has closed.
KUWAIT TO DEPOSIT 79 TONNES OF GOLD WITH INTERNATIONAL FIRMS
Kuwait--Oct 21--Kuwait's Central Bank announced today that it had decided to deposit 79 tonnes of its gold reserves with "reputable" international finance institutions. Central bank governor Sheikh Salem Abdul-Aziz al-Sabah said the bank would invest its gold through limited-term deposits, without giving up the ownership of the reserves. (Story .13467)
FOA (10/21/99; 07:45:58MDT - Msg ID:17067)
reply
Leigh,
You assume the gold is being loaned into IMF/dollar players. I could be, yet it most likely is flowing through these BBs to cover an old Euro borrowed position. It is the ECB faction that has stopped further lending and could be repositioning to "self liquidating status". Again, the major dollar BBs will get cover in this "controlled burn" if they agree to pay the "undisclosed rate" price.
This latest move shows just how much the deals are in trouble. It's obvious that most of the transactions are "off-line" because the lenders "announce" their intentions before the fact. Neither the Russians or Kuwait bid themselves a lower rate by publicly talking the deal. Rather they are asked to "Pre announce" so as to influence what is becoming a largely non investment bullion "retail lease market". Such an action telegraphs to the community that everything is OK.
Once these initial workouts are done, some of the players will be removed from the chess board and the "official bull" will run again. That is run until some more players are "taken".
We have but to buy physical (if you can get it) and watch the destruction.
Thanks I must go now FOA
FOA (10/23/99; 17:01:18MDT - Msg ID:17268)
One long post.
ALL:
I also read the article in Barron's offering Mr. Gartman's views. Thanks to poster "Number 6" for placing some of it here (also welcome to you, sir). It is indeed a benefit for all of us to find the gold story becoming more mainstream. Slowly the future effects of the ECB deal is sinking in. Still, I think most all established analyst are going to be very surprised at how this eventually plays out.
As gold begins it's rise, the numbers will verify to many traders that another bull market is intact. Each in their own way will attempt to gain from the price run. That is until the price starts to run "out of sight"! You see, the gold market began to change back in the late 80s and early 90s and that evolution has shaken everyone that followed it.
Too date anyone that has invested in gold using the "traditional" vehicles has been "dead wrong"! If I had to guess, it would not surprise me to find that 95% of these players have lost their shirts on a "net basis over 10 years". Even the shorts lost money as none of them saw gold ever falling so far. Often switching sides to catch the turn-a-round that never came.
Truly, investing in gold "as an industry" or "as a long leverage play" was not the game to be in recently nor will it be for the future. Because gold has entered a new era that will eventually find it being held as "private money" in the form of "real wealth". Something our "extended generation family" has never seen or understood. More on this in a minute.
Onward:
A very large group of world investors have been buying physical gold for many years. These people have been "dead right" on "their reasons" to buy gold. Another has said that "events will prove the wisdom of their ways". I agree with this even more so as real actions slowly prove their assessment.
On the other hand a very broad spectrum of "gold bulls" can be seen on the side of the GATA group. They believed in gold as an inflation hedge and a good "supply / demand" investment situation. I'm sure most of them own bullion to some extent, but am guessing that most of their "working money" was involved on the industry side (gold shares). Truly, this segment of the community has found their investments on the wrong side of a political currency transition that was destine to change the gold markets for the rest of our lives.
Most everyone that analysed gold from a "dollar devaluation" standpoint was sure that gold (and the producing industry they brought into) would soar from such an event. Few could accept that for the dollar to fall from world reserve status would also require the total destruction of the "dollar paper gold market". Nor could they imagine how the years preceding this would see the world flooded with "dollar paper gold contracts". Yet, as this progressed over many years we saw how the political manipulation that GATA rightly exposes was being used in a way that will "eventually" destroy the confidence in the dollar. For truly, in today's world, if one loses the ability to contract for gold in us currency then the reasons for holding dollars at all begin to fade. From a country that runs a never ending trade balance deficit, foreign dollars and the interest they earn become a purposeless hold. If dollars can never flow on a "net" basis into the US in a trade surplus situation, the end result must be a bubble of dollars with no home or value.
Political currency war as seen in simple sequence:
Build a bubble within the dollar gold market by selling paper gold far and wide. By selling paper derivatives of gold we free up official and private physical stocks of bullion to quench the demand for coins, bars and fabrication deficit. Because the world gold market is priced in modern terms by "derivative contract", flood the paper market and drive the price lower. In an never ending circle, the market expands in ownership as the price falls.
"Coat Tail" this process on the IMF/Dollar need to lower gold to support it's currency with a low inflation perception and the political will to proceed is reinforced. For those major bullion buyers of the world (oil) that would object to this, build a new currency upon the standard of a future "free world" gold price that can become a trade settlement reserve item.
Once the "timeline" of the dollar is near the end of it's mathematical ability to expand world trade, destroy this "new fractional reserve gold market" by adopting "self liquidating rules" into the official sector lending game. With this turn, oil and gold prices begin a dollar rise from which there is no return. Eventually, the world gold markets, as built in dollar reserve contract terms can no longer function. As events slowly sink in, all foreign held dollars (mostly held in US treasury form) are liquidated from dollar terms by buying physical gold and Euros. For without contract gold, in functioning form, physical must eventually be bid at any price!
In real time production, we see this beginning in the US fed buying US treasuries almost everyday in an attempt to stop the rise in rates. A rise that comes without inflation. Truly, a rise that comes from "reserve currency competition".
Onward:
For today, the modern gold investor faces a dilemma in concept! None of them have ever seen a gold market that finds it's total demand coming from buying "physical gold" as a "wealth money" asset! Buying that arrives in official as well as private sources. In their (gold bugs) limited experience with so called "free market gold" dating from 1975, physical gold buying was never the full price driver. The price always rose from, at best a 50/50 mix of paper leverage buying and physical buying.
Nor can they envision gold rising so much, so fast, even before dollar price inflation takes hold. Our total "real life" education about gold prices ($100 to $800) were all explained as "dollar price inflation" dynamics. Never was it approached as gold becoming a new parallel "private reserve asset". Just like stocks, bonds and currencies.
Add to this, the very real prospects of their "gold price making markets" falling into complete turmoil and dysfunction. Every Western investor knows how to convert and spend their stock and bond portfolio. Yet, the concept of actually selling some personal gold to a private dealer, without an official quoted market, is seen as an "end time event".
Thoughts!
During the next five years, physical gold is going to outlast and outperform not only the current world derivative gold market, but outlive a large portion of the stockholders equity in most gold mines. During the "death throes" of the gold marketplace, the dollar price could be all over the map! Simply put, most short term traders and long term paper gold (gold stocks included) investors will be eaten alive as we witness a transition unlike anything ever seen. How can one be ready for this? Some people are 80% gold bullion, 20% in the few largest unhedged mines (only 3 or 4 exist) and hold plenty of cash that is expected to devalue greatly. Their mindset is ready for gold to be priced somewhere between 0 and infinity! In other words, gold in their eyes will outlive it all.
Some writers do a wonderful job of proposing that gold is dead and holds little more use than a tradable commodity. The most eloquent poster, Mr.Yellin of Troy, has produced many fine articles that expound the current feelings of Western life as expressed in it's need and view of gold. Still, all of these concepts were built using the "American Experience" of the last hundred years or so. I submit that this has been little more than an "experiment in progress" that only now comes to completion. In the end, the laws of nature always control out destiny and the outcome is distilled into this common reality:
"The only real earthly wealth is one we touched in person as all honour is fleeting"
Further:
Is this how it works?
When a major Middle East oil producer lends it's last 79 tonne of gold into the marketplace, one should know he will get that gold back. After all they are not like you or I or the average globe trotting hedge fund. They are the oil producers for the next hundred years!
As I offered before, that gold was loaned for a "HUGE" concession that will never be made public. For the marketplace to approach them is indicative of the massive strains in the lending arena. Because these people will not lend "CHEAP"!
Understand the dynamics that are now in effect. Somewhere gold lenders and gold contract derivative holders are exercising the very limits of their "fine print" to get their gold back in "allocated form". As the brokers in between these deals have lost the ability to "control" their
counterparties, their firms must use their own capital to buy physical gold and blow up the price or "borrow" it in order to cover their old lenders. It's no contest and is done "off the retail lending market" so as to not gun the rental rates.
In the past, the news of 79 tonnes lent into the marketplace was an announcement of fresh supply to lower the gold price. Today, these announcements are for the purpose of replacing defaulted loans. It's important to understand that on an ongoing basis, these new loans do change everything as the broker now must eventually cover this new loan "from it's own book".
The present fear is that gold lenders that cannot regain their bullion will start buying on the physical marketplace as they call their lawyers to discuss just compensation. This is the only kind of fear that will compel some "expensive deal making" with people that usually don't lend.
Also:
Every central bank in the world is looking at it's reserve dollar holdings and watching this latest gold spike. I can tell you that they are closely analysing this new risk because the potential exists to cut them out of the gold market at what was perceived low prices. As the Euro gains use, dollar reserves will become a huge dead liability. Especially if the BIS is stopping inter bank gold sales!
Truly, for China the risk is clear. I expect them to become more active in buying "defaulted gold commitments" that can function except for the lost margin, even if the price paid is much higher than market. The recent deal making by a large Arabian investor will lead the way.
In some ways this action is a precursor of a two tiered market for gold. With future delivered "higher priced street gold" taking the form of "defaulted new mine production". We shall see.
Thanks for reading and discussing FOA
FOA (10/25/99; 19:53:55MDT - Msg ID:17445)
Reply
seeker (10/23/99; 18:15:53MDT - Msg ID:17269)
-----Kuwait is now lending their gold into the market, fully expecting to get all of this back. Isn't this just adding fuel to the fire? Where will the gold come from to pay this loan back if there isn't any gold to be had now? Do you see gold shorts eventually going to the comex type markets of the world trying to get gold from the other shorts of the world, or will they look elsewhere?------
Hello seeker,
Where will the gold come from? Well, we must know that these broad "official" announcements don't give the details of the transaction. Just as many gold mine (stock) owners are finding, a simple statement like "we are 30% hedged through 2004", doesn't really tell us what they did. There was a lot more to the transactions than the public report discloses.
The same is true with the entirety of the modern gold markets. Weather lending, leasing, forward selling or trading large scale OTC futures, puts and calls, our gold market is a complex network of interrelated commitments. For the most part we can just call it a huge derivative marketplace or paper gold for short.
The Kuwait 79 tonnes could be: (a) sold outright into the physical market (b) held on account for them in "allocated" form as they sign a contract to place the gold in "unallocated" form if needed (c) held in a BB account for the benefit of Kuwait as OTC puts and calls are balanced against the holdings (d) held in a BB account for the benefit of Kuwait as OTC future contracts for delivery are written against the holdings (e) sold not on the street, but directly to the bank as the BB writes a derivative contract back to Kuwait for delivery (f) too many more to offer??? My point is that the gold doesn't necessarily flow. Usually these deals are leveraged into paper gold many times the actual amount.
However, that is not what this one was about. Somewhere in that maize of paper gold above, some lenders were saying "we will have our physical" "NOW"! So, as is usually the case when a business contract slips into the crisis stage, someone in the community gets a slice of their capital taken off. The contract is filled at a big premium to market. I think we have seen (in the US news) how some of that premium was paid in this deal. Certainly, that was only part of it!
Back to your original question: If a crisis of supply erupts, Kuwait will get it's gold back because someone less important will be denied theirs! In other words, if two contracts are to be filled and gold is available for only one. The paper you hold will go without. Nothing new, as the world has worked this way from the beginning.
Seeker, You should read / learn / study more about how Comex works. They are not a gold warehouse, rather a paper gold hedging arena. If the world trading houses cannot fill an order, comex would be the last place to look for it.
Thank you for discussing FOA
FOA (10/25/99; 19:57:57MDT - Msg ID:17447)
reply
elevator guy (10/23/99; 21:30:08MDT - Msg ID:17282)
@FOA
Why will gold stocks be a risky place to be?
Hello elevator guy,
We have covered this area many times before. Simply put, when this new gold market runs as never before seen, shares will under perform bullion because they only represent the ownership of a business not money reserves. As a mining business, they must overcome the negative effects of a banking crisis, massive cost inflation and taxes old and new. Their dividends will never return the equivalent of the increase in bullion nor will the equity. Most investors do not retain a good historical perspective between government confiscation and government regulation. Production
regulation and taxation are a different control of mine reserves that greatly impacts stock values. Many stock promoters often try to inject the "confiscation issue" as one for bullion holders while ignoring this other dynamic as it pertains to mine shares. The race will be for bullion and large international players will discount the leverage of mine reserves in terms of the crisis financial atmosphere they must invest in.
Even so, some mines will be sought after as they will be perceived as the best positioned of the lot and the last to be interfered with.
Anyway, it's a long hard subject that many will pay dearly for as this transition proceeds.
We will talk again on this. FOA
FOA (10/25/99; 20:00:19MDT - Msg ID:17448)
reply
Scrappy (10/23/99; 22:13:50MDT - Msg ID:17283)
FOA
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Gold will be, (is?) the only constant common denominator amongst the countries, as the value of goods and services changes with needs & desires. It would seem to me, that the rest of the world is trying to eliminate currency based on debt, (a good plan). But, if this is the case, what is to become of the U.S.? The only currencies we have are I.O.U.'s. Will U.S. workers be paying off U.S. debt for the next century or two? Or,(more likely), will we be forced to return to a partial gold stndard, or even a nothing-but-gold economy, just so we don't starve to death? Will the rest of the world allow us to come into the new playing field 'even?' How will this all be dealt with? (bearing in mind, that about the only 'products' the U.S.A. has anymore are miniscule compared to what we import. We are a nation of paper-pushers-what value will that be in the new scheme of things?) Forgive me if I am sounding foolish-but I am suddenly afraid for all of us very spoiled citizens. Indulge me, please?---------
Hello Scrappy,
I think you are seeing some things in the right light. It would have helped if you could have lived in several other countries that carry major inflation's all the time. In this one could easily see how things are handled as your nations currency is destroyed. People do learn from others and survive the worst. It's always better if one can plan ahead!
This downturn for the dollar has been building for 20+ years. Some people say they have heard this all before and buying gold is just an old story. Well, the dollar currency has been inflated off the face of the earth during this 20+ years and it's comming price inflation will reflect that fact. The Euro is going to allow everyone to see just how much this currency has been over saved as an international reserve. Oil prices will lead the way because oil replaced the "dollar gold standard" in 76. Just as gold spiked when we went off that standard, oil will spike next as it moves to back the Euro. Physical gold will simply explode because no nation will try to stop it as this unfolds. Every Western citizen has the right and obligation to retain their life savings against such changes and gold is the historical way we do it. Even so, one must be prepared to watch our modern gold price creating marketplace be destroyed during this process. Just as Germans of the old order were told not to trust the Mark to show long term value, we must not trust the current gold price to indicate the value of gold.
Thanks FOA
FOA (10/27/99; 6:15:53MDT - Msg ID:17588)
Comment
DD (10/26/99; 20:36:59MDT - Msg ID:17535)
The diversion of paper and physical??
-----The sheeple of western thinking know only one road, the one paved with paper. This path may see the price of gold go lower or even much lower. However, this is the road to ruin, a pot hole invested ride with each flat being reinflated with a fresh blast of paper.----------
Hello DD, I have a few comments to make on several areas. Your full post hit it right on the head. No matter how much we talk about it or events point in this direction, most investors just don't see the big picture. That is: "the international trading marketplace that represents and creates our present gold price is going to break down and eventually completely fail"! The death throes of this process can and will lead to increasingly violent swings in our world price of gold (the modern paper price). In like fashion the mining industry that is financially built upon the use of these modern derivative markets will also fluctuate violently. Perhaps to a greater degree!.
Anyone that has been reading USAGOLD discussions from the beginning understands why we have come to this juncture. We have been hiking this trail "of understanding" for some time. Looking forward we can visually follow that trail to see what must transpire. On one side, if the integrity of the dollar is "at risk" from a high gold price and Euro competition as a reserve currency, then the very members of the LBMA and the banks that own them are also "at risk". These financial giants are the "who's who" that the present dollar sector that the world economy is built upon.
This IMF / Dollar group is trying to keep it's gold marketplace "viable" because in it they can work their will on the price. Until recently, making gold "LOW" was a perceived common goal in world affairs as it supported the dollar not only in perception but with cheap oil settlement on "dollar terms". This year's successful birth of the Euro has cleared the fog and exposed a different presentation of European affairs. Euroland likes gold, marks it to the market and benefits from any increase in dollar price. All at the expense of dollar reserve perception. They would more than welcome the benefits of having the world market for oil settled in Euros and introducing the use of gold as a reserve settlement asset. The dynamics of this would create lower oil prices in Euros and a resulting Euroland economic expansion build on a solid world currency. Further, it would allow a world-wide super inflation of the dollar that would wipe the slate clean of overhanging dollar debt.
Now that the ECB / BIS has sanctioned a policy that must "deflate" the paper assets of our modern gold market, the players in this arena are battling an "inverse gold paper deflation". Having flooded the world market with paper gold contracts during this many year joint Euro / US effort, the London market is now facing the equivalent of a bank run. If everyone wanted their physical gold at once, there isn't enough to cover all the accounts. Official sales and lending will no longer back this "fractional reserve" paper gold market.
To keep the gold marketplace "viable", the dollar group must maintain the appearance of "contract credibility". The only way that can succeed is for the paper price of gold to fall. Because of the "derivative nature" of many modern gold accounts, a falling gold price cancels out the potential physical demand in many accounts. This doesn't stop the "run", but it at least moves their books towards a balanced direction.
If the price being paid to buy or borrow gold to cover contracts comes into full public view, it indicates just how far the market is out of line. The more visible the "cost to cover" becomes the greater the crisis of confidence and the more it inflames the "gold account holders". Yet, even today we can see the tell tail signs of manipulation "on the gold trail". The "paper market price" and the "real price to settle problem contracts" are not the same. Large blocks of gold are loaned by people that do not usually lend. Their reasons for entering the game are stated as "high lending rates" and "a good return on assets". Yet the public rates are far lower than during the crisis. Even the US military is seen delivering a "bonus" concession that I'm sure one could consider as part of a "return for lending". At least in the view of some people. In addition the BOE is rumoured to be acting to "settle the marketplace" by selling gold. What gold, who's gold and at what price did they obtain it? They have little left to "settle the market with" because of their sales and the crisis is created because no one can find physical at today's paper price. So they must borrow! By borrowing gold at a very expensive private rate they cover the true cost of physical from public eyes. Still, any additional gold borrowing to settle accounts, just creates a larger more expensive future physical demand that must be covered on their own books. Indeed, the difference in the cost of "problem gold" is comming into view. Read all of TownCrier Msg ID:17567 After the Close.
--" Ashanti's sanctioned change in mid-contract that would allow for "margin-free trading,"---
Thanks TC! If we accept their concept of a "margin free account", then one must agree that it became "margin-free" because the cost to cover that account with physical would have brought light to the true price of physical gold today. Even in the middle of all of this we can see just how "controlled" most mining operations are. (See TownCrier Msg ID:17567 After the Close)
-----New York--Oct 26--Battle Mountain Gold Co. said it has taken advantage of the rising market to hedge a total of 300,000 ounces of production for delivery-----
Truly, many mines are dependent upon the very "paper gold" market that keeps their product cheap! If they lose the marketplace (due to a spike in prices), their assets remain, yet their shareholders are wiped out.
Again, To keep the gold marketplace "viable", the dollar group must maintain the appearance of "contract credibility" at all costs. Yet, even in the face of this massive manipulation of a paper gold system the effective use of this marketplace is coming to an end. The "Washington Agreement" has made this a reality and the ECB has the political need to force a change in direction. Like a cork being forced lower into the water, the lower the paper price is pushed, the higher it goes as the next default takes hold. And default they will as no new official gold comes into this arena. Over and over again, the swings will occur until the perception of all "contract credibility" is destroyed. We will see $360, $400 and on, yet in-between we may see $100 or $200. In the end, a pure physical market will evolve that will take us into the many thousands. However, if you plan to ride the derivatives during this process, prepare to be wiped out. I and many others are almost entirely physical while some larger players are part into major / world class "clean" mine equity. We stand with no leverage and hold a mindset that sees $0 to infinity in the paper price as the gold marketplace is destroyed.
I challenge anyone to make this statement wrong: "At the end of five years, no trader will "net out" more wealth than one that holds simply gold coins (rare included) or bullion, Physical will outperform by a factor of ten"! Keep a fictional account on this forum and prove me wrong!
Physical, buy it while you can get it because one day it's production will be regulated. We are on the road to $30,000....................Thanks all for offering your personal thoughts, FOA
PS: In time I hope to reply to most everyone.
FOA (10/27/99; 18:28:58MDT - Msg ID:17655)
Comment
SteveH (10/27/99; 4:49:51MDT - Msg ID:17585)
-----------TOKYO, Oct 27 AFP - Investors scurried to snap up the yen today on news that Japanese authorities may upgrade an official forecast ---------
Hello Steve,
Don't know how many people have called for a weaker Yen over the last few months. Yet it still goes up. Even Dennis Gartman in this weeks Barrons is looking for the Yen to fall. I understood years ago that their economy is so tied to the US that their currency would lead them into a depression prior to the dollar falling away. Truly, their financial / economic system is so manipulated it makes our gold market look "Free"! Any country that can take it's rates down to 1/2% (or 0%) and still have a strong currency, is going to go into a major downturn. Usually a nation could inflate their way out of it and bring on a falling currency. Yet, their system is radically different as it was / is built as a suburb of the US. Any upturn brings then a higher Yen that chokes them back down. This very dynamic is the poison that is killing the Yen carry trade and by association is forcing the same funds to cover their gold carry. It's been going on from the summer and has accelerated after the Washington Agreement! All and all, another reason why the Yen will not be allowed to spear head a new pacific currency unit. I look for China to side with the Euroland system before it's all over. Let's watch this action play havoc with the US marketplace (not to mention the gold price).
FOA
FOA (10/27/99; 18:49:22MDT - Msg ID:17660)
Reply
phaedrus (10/27/99; 08:41:26MDT - Msg ID:17592)
@FOA re $30,000
Just curious:
---------------------
Hello phaedrus and welcome, Here are two old post that should outline our thinking. I think your professional training may have taken you to these thought before. Thanks for discussing here FOA
FOA (10/20/99; 19:25:56MDT - Msg ID:17025)
Reply to Cavan Man and Scrappy
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Scrappy (10/20/99; 18:26:19MDT - Msg ID:17019)
-----------------------
Welcome Scrappy,
I addressed the $30,000 concept a while back. It's more a projection taken during a study (I was not part of) that indicated just how much the dollar would lose "reserve use"! Truly, the price is unimportant as value assignment can take many forms at that stage of failure. Let's say, at least $5,000 in the five years the ECB has allowed. Yes, total change is a time consuming affair. Yet, it is longer than an eternity for investors that cannot recover in their lifetimes! The major story here, is the transition of currencies. Earlier, Another was pointing to the various political leverage that made this outcome proceed. Gold, being the historic world currency of "all" resort, will benefit from this transition in that it's use will greatly expand! It's price in currency terms is meaningless as it's new value in today's modern world is made clear. No one knows where it will finally level out. Truly, until the IMF/dollar pricing system fails, gold's paper price can run literally "anywhere" as the values indicated in dollar currency are completely false! As Another says, "time will prove this out".
thanks FOA
FOA (10/27/99; 19:26:52MDT - Msg ID:17669)
Comment
Canuck Gold (10/27/99; 10:54:59MDT - Msg ID:17605)
Seeing things from a different perspective
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Outside North America, gold may make a sympathetic rise in relation to local currencies but not to the degree espoused by some in this forum. The only way that gold could move higher in relation to all currencies would be if there was a total collapse of all the major currencies at the same time. Judging by the way the ECB has rallied around gold by their declaration that it is an important component of their reserves, it seems to me that they're positioning the Euro to replace the dollar when the pigeons come home to roost. When the dollar takes the hit, OPEC isn't going to tie their oil to the dollar because it will be too unstable. They may want to tie it to gold but there isn't enough physical gold available to realistically make that a viable alternative. That leaves the Euro which, though not officially tied to gold, will nevertheless be proffered, and accepted, as the next best thing.
FOA (10/30/99; 11:13:52MDT - Msg ID:17917)
Reply
tg (10/28/99; 14:41:16MDT - Msg ID:17731)
I think you've missed my point regarding the intended Swiss gold sales. What I am asking, is why would the Swiss who I am sure are privy to similar information as FOA (because of their strong connections to the BIS)would want to sell any amount of gold Would you sell an asset if it was about to become as scarce as hens teeth and go through the roof
in price
---------------------------------------
Hello tg,
We walk for a while, yes?
The Swiss sale is a real complicated affair. There are several factions within their political framework, all working different agendas. If that's not complicated enough, these forces are interacting within the Euroland structure. So, what will be the eventual outcome and why did they "do it"? Ha, Ha! You see this modern gold market is one huge "political chess game" and a good "international murder mystery" all tied into one.
Onward:
The Swiss economy is going to have a real problem operating within the shadow of a united Europe. With so much gold held as reserves, the franc, their currency, would become way overvalued as a trade settlement item outside the Euro arena. Yes, it would balance against the Euro well, but the Swiss Franc will never become the next world reserve holding. And that would creat a problem for them. It would be far easier to proceed into an EMU and establish themselves as a dominate financial leader within a Euroland structure. This would look to be a smart play, as some of their factions agree on this, especially so when gold makes it's initial run against all paper money, the Euro included. By converting a large portion of their gold (per the sell portion of the "Washington Agreement") into Euro reserve assets, they would still gain all the benefits of a gold reserve that helps value a world reserve currency. And do this without killing their foreign trade (outside EMU) as continuing to use the franc would eventually do. We have to look at the direction Euroland is going to understand.
Look over here:
ORO, this is in the "for your eyes only" file.
Like this: Basically, the Euro structure is heading for using the "free market" to value physical gold. By holding gold as a "free reserve asset" and not an actual "currency backing" asset, gold can be used in nation to nation trade settlement without damaging the money supply. In reality it is reborn as the true world class currency it always was and independent of government treasury issues. Governments can manipulate a "paper gold" market, weather it's working as a "gold exchange standard" currency system or our present gold market. However they would not stand a prayer of a chance of working a world "free physical market". Especially the colossal "wealth money" reserve market gold would become at very high prices. In this respect it would dwarf the current trading of US treasury debt.
This is an enormous advantage over the old gold standards because, back then any country that ran a trade deficit found it's domestic money supply being drained. By treaty and international protocol if gold was shipped "outside", the local central bank had to drain cash or print "unbacked fiat" to cover the void. This process was required because each cash unit was backed by a fixed amount of bullion. The dollar at $35 / ounce as an example. This was suppose to tie the governments hands and force them to speed up or slow down the economy as the flow of gold dictated.
In reality, the in and out flow of gold worked havoc with national economies and produced boom and bust cycles. As above, rather than controlling the inflation of local currency supplies, the banks just printed money anyway and were later caught short the gold. Soon enough the
contraction arrived, even during an economic expansion built upon the real wealth of good productivity advancements. This rigid control, imparted by "fixing the gold price per currency unit" did not allow for a "higher gold price". Truly, as technological advances moved "real" GDP forward, gold should have reflected this "wealth gain" by rising somewhat in price and value as the local currency was static in price inflation. And this rise in price of gold should not have been viewed as a future price inflationary signal, as indeed it was so often the case. If gold was allowed to rise, the currency was viewed as being devalued without taking into consideration that the local economy had produced greater domestic wealth using it's advancements. This was the main reason behind the political evolution away from gold money. Countries more so manipulated gold (even into this day) as a way of protecting their currency values instead of working their money supply to match the technological and intellectual growth of their people and infrastructure.
Truly we see some of this demand today in the US. In spite of it's failing inflated dollars and the bloated world debt liabilities that come with it, investors attribute more value here than simple money policy could represent. A product of the modern need for digital settlement. Yes, if the currency is really hard, then production advances should "Lower" the local prices of things, not remain static. As such the fiat dollar is not "hard" and we have massive currency inflation hidden in static inflation indicators as the technological production advances cannot offer lower prices. Yet again, the need for an expanding digital currency to settle trade in this fast modern society is seen in the present demand for worthless fiat money. All of our modern advances would fail if we continue to use only digital currency without a "wealth money" trading in the background. This is /was so because there is no means to sepperate "good currency inflation" from "bad currency inflation" based upon modern advances. As such, a world reserve money based on the political needs of one society (the US), was abused as it purchased a local lifestyle based on debt, not hard work and good thinking.
Yes, a circulating "gold wealth money" will drive "fiat digital money" from circulation if they are denominated as the same. But, by allowing them to "compete" in free trade, gold would compliment the "Good" expanding digital currencies that are based upon "true economic advances".
Had money supply risen only nominally while the free trading gold price rose 2x nominally, purchasing power would have been retained in gold using it's old store of value function while the need for more digital currencies to transact advanced trade was utilized. Good inflation based on modern use! You see, our high tech world has given modern digital currencies an intrinsic value that gold, "trading in a gold standard" cannot represent today. As such they (digital currencies) must trade against physical gold in a format of the "Old World" wealth currency it used to be held for. Not be locked to each other.
Onward: for another view of the same mountain:
By allowing gold to seek it's historic money use value in a free physical market, it retains it's store of value function and use as an asset for some trade settlement, be it official international, commercial or private. In this function it still holds it's "honest weights and measures" (thanks Mr. Parks of Fame) use in evaluating national currencies. Of course it must regain a new natural money price level first, but after that every currency will be measured by the economy that it's money represents to see if it is holding "advancing productivity value" by comparing it to gold. High speed computer trade settlement and the bookkeeping that follows it will still impart the need for digital currencies, but in this format they would be truly free to represent the economic dynamic of each nation. Even during a rising money supply, some currencies may advance in value.
Further:
For better or worse, this is the road ahead as the Euro becomes the first multinational digital money to be held in a "modern world" reserve currency system. No longer tied to the political pronouncements of one government as the needs and conflicts of many diverse peoples will be represented. Initially, gold will rise tremendously as it regains it's "wealth money" reserve function in the eyes of private and official sectors. It has been so long sense gold was really held independent of currencies as an international currency, it's rarity will require a "reprice" (or revalue) into the many thousands in current terms. As a "world wealth money" that returns from ancient times, the need and demand for gold would be "unlimited". So too will be the use of gold as it must partially fill the voids of massive defaulted debts, inherent in our now failing dollar world.
This first run will be a benefit to Euroland as they will be called to cover the needs of many other nations that once depended on dollar based assets. But later, the world will have a reserve currency and gold to trade with and against each other. The Swiss must free up their gold by selling it for Euro reserves (in a round about way, I'm sure). In the end, weather they join the EMU or not, the ECB will eventually absorb most of the "need to sell gold" as stress becomes apparent. This settlement of many of the Euroland gold loans in Euros, will not in any way make gold less valuable. Indeed, it will keep gold liquid in the face of an initial "lock up" in contract settlement. In the end, GATA will be proven right about the manipulated marketplace. I'm sure they will be in the middle of this as the court action begins. Still, all in all, it's strange how a new faction is now manipulating the marketplace into a "free status" to benefit them. What effect this will have on the gold mines located in the lands of the losers is another tail. We shall see.
tg, I hope this answers your question (smile)!
I will return later to make some of the older replies.
Thanks FOA
FOA (10/30/99; 18:22:13MDT - Msg ID:17930)
Reply
Some old items:
Al Fulchino (10/11/99; 21:18:37MDT - Msg ID:16107)
FOA///Post War Gold?
FOA? When you get a chance, I feel it is always appropriate to look further along in the chess game. I am nowhere near your understanding, yet I am also so much further along than I was. I wonder what strategies you see, or scenarios that will unfold, ***after*** this war. You and others may say to me, that I am jumping the gun, not having even engaged the enemy yet. I respect that view. However, it is never to early to realize that there always is another game or series to play. Thank you.
---------------------
Hello AL,
If you read my #17917 today, we get a picture of what is mostly before us. If you are new to the "goldbug game" it's to your advantage. Far too many "seasoned" players (traders included) are working this market with an eye on near term profits without considering it's powerful political and currency potential. I bet MK knows this well from his many contacts. Just look at the ongoing "long money" destruction in the gold options markets. Truly, these gamblers do not know who they are dealing with. Yes they can move in and out with profits on the spikes, but they never tell us the "net out" trade over years! Was it a sudden shift in jewellery supply and demand that stopped gold .50 short of $300 and my profits? Has to have been as no one can control gold! Oh right! One can get a better return at playing a paper game like blackjack with less risk.
As this "market destruction" process moves into better view, the swings and manipulation will only increase. Oh yes, just as in Rome with the last merchants still trying to convince the newcomers that there was unrealized value in local property; so too will options and future players show us how to "work this move". Eventually, no one will play the game and it will end there with a whole world of investors trying to collect what they never had. Indeed, many will be happy to just get back what they had!
Just as in the past, some said that the future belonged to the dollar and not the British Pound. It's the same today with most of the developing nations seeing that the Euro has a much better future for their people than the current dollar system. It's all unspoken now, but later "visible walking assets" will create a clear trail. The actual proof is being driven home almost every day by the IMF dealings. Anyone that is plugged into the pulse of the "quiet crisis" that is out there knows where this is going.
To answer your question:
Here is how it was told to me: "If one wants to take advantage "after the war", he must be unleveraged in every way, today! Major currency transitions have a way of killing both long and short leveraged plays. No one wins in paper, not because they were right or wrong on direction, it's because everyone runs from the marketplace. For local Americans physical gold will be the very best even if it eventually attracts a higher tax rate than other investment classes. It will still "net out" well ahead of the pact. Holding Euros will only benefit if you are going to have a second house "outside" or are travelling the world. If you are substantial and want to invest in Euroland later, a commercial account on the continent will do well."
All this talk about riots and blood in the streets if gold rises is rubbish! Gold will gravitate into another "competitive currency with a much higher value" just as the dollar competed against the mexican Peso. Yes, citizens will lose money, go crazy, fire their political leaders and act as they always have. But, then they do this now without a crisis.
So AL, for me it's Gold, Euros, 1% silver and some of Goldspoons platinum to save face at the forum! (smile) When the dust settles, our families will gain just as other third world families were ahead holding dollars instead of local money.
I'm sure we will address this again.
Thanks FOA
FOA (10/30/99; 19:04:46MDT - Msg ID:17935)
Comment
Simply Me (10/29/99; 1:22:51MDT - Msg ID:17794)
THX-1138
"Wasn't it just a couple of years ago (or is it still going on) where Brazilians were spending their money as fast as they could before they devalued?"
----
That's how it was in the U.S, too...in the late '70s. Only the cause was inflation (inflation/deflation...seems to have the same effect on the working man's paycheck). In those days (oil crisis days/skyrocketing gold and real-estate days), you got your paycheck and immediately spent it because, with prices going up every week, saved dollars would only buy less in the future.
------
I'm not just reminiscing. If a $30,000 price for gold is half gold going up and the other half dollar coming down, we're in for those days again...and maybe worse. Physical gold, silver, and maybe real estate (maybe some highly sought after antiques, art, numismatic items)...will be the only value holders again.
---------
Hello Simply Me,
Yes, gold went from $35 to $850 or up 24 times. What you offer above was the result. So, what if gold rises some 30 times during the next five years? Same effect, no? I submit that this time, it will not go down again. In fact, it will rise further as the world elects a new reserve currency.
Will the US no longer protect it's interest in oil or other arenas if this happens? If they don't, someone else will and things will only be worse for the US economy. No, our current lifestyle has a long way to fall before it becomes "more normal". So you won't be able to buy your running shoes for $125, that are made in a 3rd world country for $5.
SteveH once said that I talk my pocketbook. Well, perhaps it's the more realistic position than "talking your current lifestyle"? Real life feelings of national peoples create the trends, not the paper opinions of traders. Let's watch how this works out "on real terms".
Thanks FOA
Be back next day, more old replies.
FOA (10/31/99; 18:56:22MDT - Msg ID:17990)
Comment
TownCrier,
That is some good point you are making!
TownCrier (10/29/99; 19:33:12MDT - Msg ID:17861)
-----the CFTC should treat financial futures [such as those for Treasuries] in a fundamentally different way than futures based on metals, agriculture or energy." ----
----that financial markets did not rely on financial futures for price discovery---------
----Clearly, the case is clear that the aforementioned real underlying assets, including metal (gold), DO rely on the futures markets for price discovery.----
----------------------------
TC,
Everyone should read your entire post to grasp it's full impact. I took part of it to create an image.
Slowly, everyone is coming around to understanding how our gold markets got so far off track. The official determination of what constitutes "buying and selling gold" never started this way. In the beginning gold was wealth and people traded it as money. Jump ahead to the US timeline and we see currency a gold loan that didn't pay interest as it was the US dollar. You loaned your gold to the treasury and they gave you a contract stating that your metal was held until asked for. Your contract stated that 1/35 ounce of gold was owed you, on demand. Because no one asked for their loan to be repaid, the treasury just kept creating more loan contracts even though there was not enough gold to repay with.
After this "gold loan scam" went bust around 1971, they went back to using real gold again. The government allowed trading in physical in the US just as it was done in the rest of the world prior to this event. Then someone used the gold fabrication industry as evidence of a "need" to create a US futures market so suppliers could paper hedge risk. No need to make the point that this paper market was of little need as the gold industry had worked well for thousands of years without it. Indeed, another form of gold derivatives was just born. The gold market was destine to evolve again as the distinction between trading real bullion and betting against someone on the direction of the metal's price movements became one and the same. People accepted that a gold derivative was just as good as gold as the pre-1971 dollar was. We came full circle.
How could we now expect modern traders and investors to mentally see that our modern "gold derivatives" were not the same as bullion when they viewed Comex futures and options as buying real metal in paper form? Today, investors see the "intent to supply gold" (a short) as bullion in someone's warehouse. Conversely, they also see "the intent to buy gold" (a long) as the total purchase price in cash waiting in the buyers bank. Both of these perceptions are false conclusions that a leveraged contract is enforceable by law even if the collective total performance is impossible. Just as the US dollar could always cover some gold conversion demands, it's credibility was destroyed when full conversion was asked for. This is the same fuel that drives the paper gold markets today, as long as people ask for more new contracts replace old contracts the game physical supply perception works. In like form, just as currency inflation cannot stop as deflation will ensue, the inflation of modern gold paper cannot stop as a run on the vaults will result.
After the Washington Agreement we can see that this entire arena is a house of cards built in the middle of a political currency firestorm that will strain the credibility of these contracts to perform. Eventually, as these market contracts deflate the loans will fail as the physical product it's legally required to deliver cannot replace the total number of paper demands. This house is going to burn along with everyone (long and short) that's in it.
Further to your report:
-----------------------
---That is important to grasp (and is why we repeated it) because there is currently a disparity between the availability-vs-demand of real gold when compared to the abundant trading of "paper gold." When real gold can't be moved adequately at the "paper gold" pricing levels, there will be a sharp adjustment in which all hell breaks loose due to the global scale of the gold derivative markets. Read on...-----
----Traders said that rumours are circulating suggesting that central banks, especially the Bank of England, had been lending more gold to the market in the hope that lower lease rates would keep the prices down and help producers to cover positions.-----------
----With the Bank of England in the midst of a series of auctions, all circumstances and developments reveal clearly that their goal was not to garner the highest price for their gold...to convert a "sterile asset" into a great number of dollars, euros, and yen with which to draw interest.
First, you already know that gold can earn interest. Second, the pre-announcement of the sales was a sure-bet to shake the confidence of gold-holders with the hope of stemming demand and dropping the price. And third, now you see reports of them lending in the hope to lower lease rates,which in turn is hoped to keep prices down. Does this sound like the actions of an entity that is looking out for an interest to gain the best possible return on an asset that is being auctioned? Say it with me now...."No!"-----
--------when the wheels come off of this gold derivative market, the only position you will want to have is gold in hand. The dollar itself will slide right along with spurious gold contracts as it will be the denominator of those failed contracts. Oh, sure, more dollars are better than fewer dollars; but gold in hand will be better than any amount of paper that tries to play as its suitable substitute.---
----------------
TC,
Someone is trying to keep perceptions going that real gold is in good supply, even if it is loaned gold. Look at MK's report:
---------------
USAGOLD (10/29/99; 9:57:36MDT - Msg ID:17807)
MARKET REPORT(10/29/99):
------...Several weeks ago, gold bears cited the lifting of a Russian export tax on precious metals as good reason to sell the metal. That tax was extended for six months yesterday with no comment by the anti-gold group frequently quoted by the mainstream financial press.---------
------------------
Thanks Michael,
I posted right after that announcement that the Russians were the best gold traders in the world. Did anyone believe that they would preanounce their lending gold so as to drive the lease rate down for their own loss? At that time the rates were way up as all the major players were still using the public rates. They truly needed someone to scare some business into a "let's work this out privately position". The Russian statement did the trick as rates retreated, but it didn't cancel anyone's liabilities because no gold was loaned.
As TownCrier makes obvious, this huge paper market is in real stress and the signs are leaking out. Now look at the Cambior news as posted from SteveH #17867:
---------------------------
MONTREAL, Oct 29, 1999 ( BUSINESS WIRE ) -- Cambior Inc. ( "Cambior" ) announces that it has reduced its gold hedging position by 1.3 million ounces. This reduction, made with a view to improving its aggregate hedging position, results from the purchase of one million ounces of gold ( the "Purchased Ounces" ) at an average price of approximately $300 per ounce and from the closing out by counterparties of other positions totalling 300,000 ounces. The one million ounce purchase was completed primarily through the bullion markets with the assistance of various parties to the recently executed standstill agreement ( the "Standstill Agreement" ) among Cambior and its lenders and hedging counterparties ( collectively, the "Financial Parties" ) . The terms of the Standstill Agreement are summarized in a press release issued by Cambior on October 27, 1999. --------------------------
I have to ask the question: In today's context of what "gold is", does anyone know exactly what they did? Did they actually borrow that much physical gold to initially create this deal that went bad? If so was the money created as the "gold was sold for the loan" still waiting in a bank. If not, where did they get the cash to buy the new 1.3 +/- million ounces? Did the gold that was now purchased, come from a "new borrowed deal"? If so, who owes physical to who now? ---more from the SteveH post----
---------
The above mentioned purchase and close-outs are expected to generate a net crystallized liability for Cambior of approximately $33 million which will be reflected as a non-cash, pre-tax charge to earnings for a corresponding amount in Cambior's consolidated financial statements for the third quarter.
Under the terms of the Standstill Agreement, the above-mentioned liability will be treated as a demand loan to Cambior by the Financial Parties. The determination of more specific repayment arrangements will form part of negotiations with the Financial Parties under the Standstill Agreement regarding the elaboration of a plan for the orderly fulfillment of Cambior's obligations to the Financial Parties over time ( a "Definitive Plan" ) .
-----------------------
In the above, if a "net crystallized liability" is the same as the "liability will be treated as a demand loan to Cambior", then who covered the real gold cost and who is in debt now? Or was the first above statement
-------------
"from the purchase of one million ounces of gold ( the "Purchased Ounces" ) at an average price of approximately $300 per ounce"
----------------
just the buying of "paper gold ounces" to settle a physical problem with a new "bookkeeping problem"?
Truly, every investor should follow these deals gone bad and ask questions so as to understand what they are really doing. In the case of Cambior, I need someone to clarify it to me? If all the counterparties cannot clearly identify whether they are working to settle loans with "real physical gold" purchased without liability, then investor assets may start walking. When someone says they covered a hedge, the company owners (stockholders) need to know if it was a paper hedge covered by trading more paper or was a new gold loan used by a broker to supply the cover.
Just as TC pointed out above, why does the gold price need to ne so low for the conclusions of contracts based on physical metal in good supply? Indeed, in a free market everyone must lose a little money on both sides, right? If it's not free, investors may just start walking from this whole paper arena and begin to buy only physical. Or is that the reason the major market makers are so quiet.
In the case of our modern gold markets, I ask the same question that Robert Redford asked in his movie "Three Days Of The Condor";
-------"Why is everyone so shy?".------------
FOA
FOA (11/1/99; 22:04:23MDT - Msg ID:18117)
Reply
Canuck Gold (10/30/99; 22:41:40MDT - Msg ID:17946)
Reply to FOA's post #17669
Hi FOA. At last I have some time to flesh out my response. You wanted to know why I think there is not enough gold around for it to become a "viable alternative". I meant as payment for oil and I'm assuming you realised what I meant and we are talking about physical gold.
----------------
Hello Canuck Gold,
I was able to follow all of your reasoning and assumed you have read most of the background writing here about this subject. Still, there is one area that is making your calculations suspect.
Here in this part:
------(In my initial post, I made reference to the intrinsic value of gold. I also believe there is an intrinsic value for oil and I would find it hard to believe that the values of gold and oil could diverge to allow the ratio-----
CG,
I consider the "intrinsic value of gold" to be found in it's "demand usage" as "wealth money". Something no one has been able to observe in modern times. Today, gold is worth far more than the value of one man's suit, as is often proclaimed. Mr. PH in LA offered a fine post about this some time back.
Considering the modern advances in today's world along with it's massive population, one must grasp the enormous "unlimited" demand gold would have if it became a "background currency". At such a price there would more than enough gold wealth to settle trade of all kinds.
In like concept, people settle debts using the wealth contained in their stocks all the time. They just don't spend them as money. We do not find anyone using them to buy gasoline.
Like this:
""How much for the fillup? Ok $25, let's see here. I have one Microsoft share in my wallet and two IBMs. Shoot, I didn't bring any smallcaps or penny shares to make change. How about if we just use this dollar digital currency, all right?""
You see intrinsic value is found in demand and demand is a function of use, need and the retention these functions demand. In many third world countries today we can find people using their local currency as a sub currency of the dollar held in the background. It's a demand precedent already in place that demonstrates how the demand for gold will be created.
So, please recalculate your position using gold in the many thousands. I think it does work.
Thanks for the reply,,,,,,your thoughts are an education for me FOA
FOA (11/1/99; 22:07:02MDT - Msg ID:18118)
Reply
PH in LA (11/1/99; 14:40:20MDT - Msg ID:18054)
Are they "Back in the Saddle Again"?
PH,
First, I didn't thank you for the compliment given me the other day because your support was too much. Truly, I'm not very tall (smile). Your reading and writing is more than enough. Thanks so much for all you do, my friend.
In the Saddle?
With 17 Bullion Banks being forced to fund standstill agreements from their own capital, you ask
-------"Now we see that they are seemingly back in the saddle again". ------
No, they are still on the ground. So too are many other deals that the public cannot see. Truly, the price of paper gold does indicate the structure it's built on. The dealers are now largely working a vacant market against themselves. I said all along that the marketplace could go way up or (as Another pointed out recently) way down in violent swings from paper plays. We will see $360 or $400 and perhaps $200 in between. It's all meaningless because the bullion that must eventually be used to fund the contracts is largely gone. They didn't offer new airstrip improvements in K land because gold was flowing so freely.
We are entering a completely new era in pricing gold, but first the old system must die. The XAU is evidence of this as it has returned all the way back to where this rally started. Strong equity values in the gold industry require a stable marketplace to price their product. The wisdom of sharp investors in the XAU is seeing a storm in the making. They will discount the business value of the mines as a result. Even the unhedged mines are sliding. Look at silver, it didn't even retain a small bit of this advance. Indeed, silver always tries to coat tail gold, but it can't ride this new beast today. Physical gold is the only way to retain wealth as this process proceeds. If long leverage traders are lucky (and I hope they are) some event will break the system while it's on the next default spike. I did not think supplies would last for the small bullion trader, yet they still are available without a large premium? I would not count on that lasting much longer.
Anyone that isn't buying real gold and holding it until after this market fails, will be mentally whipped to death. It's that simple.
The ECB have cut the dollar gold marketplace off short. That did not mean they would jump in the middle of it and buy all of the LBMA paper gold so traders could be made whole! Why, pray tell would they do that? No, they will let the system cycle between "selling down paper and the false price it represents" and "burning up each others capital with each new, more costly default"! Higher highs and lower lows, all occurring in an ever expanding crisis. Even watching as these market creators hold certain price levels as option expire to their advantage. That's how a paper contract market loses it's credibility until it completely fails. I suspect that reserve gold flows between CB will be stopped as this gets more volatile.
Further:
Soon enough, we will look again at that chart I posted showing the dow, the dollar and gold. Soon enough, it too will begin to register the strains on the system. I think someone here posted that the dollar would rise with gold as Another (and I) once stated. No, those opportune days are long gone, now. At best, the dollar will try to keep up with the Euro, but I doubt it.
So PH, what does one do when prices run wild? There is a whole theatre of players out there that will try to tame this beast. Let's watch the entertainment for a while.
We are on the road,,,,,,,,,,,,,,,,FOA
FOA (12/2/99; 18:06:06MDT - Msg ID:20082)
An eye for gold!
After all these days,,, did Another "time" the gold market correctly? No, not for traders he didn't! But, then again, his whole message and proposition was never for a traders mindset or time frame. Indeed, his direction was for simple savers, like you and me. As a conservative group, our holdings represent the most long lasting, stable assets that presently exist. Such assets collected over a lifetime should not be lost to a world gone mad! Truly, Another's thoughts represent the values held in the old world. For many these are in competition for our hearts against the current facade of economic reality.
We now understand how short-lived the current misconception of money must be. Other fast paced modern investors have accepted that "money was never wealth" and paper currencies need not be real things to represent their savings. Lost on these "educated of the Western world" is the knowledge that "wealth in the form of real things" was the first thing humans traded. It was only later that someone labelled these things as money. As a people we once knew the special value of gold and held it beside our other tradable property. We held this gold more dearly because it made the best form of "tradable" wealth. In this context, it's demand will remain, as always, infinite. It mattered not if one had one ounce or one million ounces, as gold money was/is but a representation of the real tradable wealth you saved over a lifetime of work. How far must modern gold now climb as it is reintroduced to the world as a new "tradable money wealth"? As far as the unlimited efforts of humanity!
Truly, as gold is once more used as "wealth money", this action will again impart an unlimited value for gold in use. The more we built and created, the greater the gold value must always be in the future. Neither time or new ideas have changed human nature as it seeks to run from the modern uses and valuations of "IOU" wealth. A wealth that was never as great as the dollar said it was. As a system it could never represent a lasting "wealth of nations" as held in the account of "common man". Gold will come pouring in to fill this void.
This coming new level of value for gold is the "proposition" Another presents. A concept that is now being embraced as "something new" for a failing economic system now based upon an over leveraged world reserve currency! Truly, the old ways will not fail those that see through our modern money fog. Another once put it somewhat this way; Nothing has changed our need for real things as tradable items. And this earth is still round my friends. As I hold my gold for the money it is, traders will work all these markets as they must. With the speed of light they now circle the earth, only to find their future as but one step behind me!
Yes, Another once said that. Differently of course, but an incredible bit of insight it remains. I also accept that most "physical gold" savers will find themselves "many steps" ahead of the "Western trading community" as this plays out. This "long term gold accumulation" proposition was given some time ago, to induce conservative people to begin saving gold "now". At any dollar price, be it $600 or $10! Such direction was given in the face of unprecedented choices from where someone could make fortunes using our modern vehicles. Yet, through it all, the revaluation must come as gold will return as money to represent all of this wealth many times over. For truly, all modern wealth will be directly or indirectly denominated in gold as our dollar reserve fails. To this end, the physical gold holder will stand "one step in wealth" ahead of every worldly paper trader. Weather they trade paper gold stocks or dow stocks, real estate deeds or CDs, in the end their paper winnings will compete with the spoils of all others of "Western thought". These "non physical owners" will seek to buy what gold they can at a price many will refuse to understand. If one made a million by paper investing, he will buy no more than a million in gold. Still, for every new buyer that wishes to escape the old paper world there will be the lowly physical buyer from the past who will already possess two million in gold.
You see, there is a world of difference between saving real money as a "wealth of ages" and trying to trade this world's "paper derivatives". The lasting wealth of physical gold does not have to be "converted" into real things prior to a currencies destruction. It already represents the new holding everyone will want. The coming "Western" economic dislocation will devastate all forms of assets that are held in "contract ownership". Be they stocks (most gold stocks included), bonds, businesses or savings accounts, etc.; the loss of a major currency will consume most of the equity these paper items represent. It has happened with every currency ever created and will happen again with our dollars.
So, the next time you read that someone lost their "bet on gold", remember, they lost because they made the wrong bet. Only a "bet" of "buying physical" over time represents the FOA/A true position.
Another recently said:
"The time? These years be right for ones who save gold. One good ear knows meaning of wind in trees. The leaves come down as seasons change. Fools see falling price of gold as "death of tree", they chase it's price as leaves on the ground. Know you all, it is the season that has died.
Time will prove all things. Ones of simple thought, such as I will save the wood, not the leaf as they buy the gold, not the price! Thank You Another
I will be posting and replying this weekend. Thanks FOA
FOA (12/4/99; 9:50:30MDT - Msg ID:20235)
Notes
Hello everyone! This will be one of many posts I hope to offer this day. I'll be in and out, so my response will vary.
I suspect most of you have been in a casino at one or more times in your life. Perhaps a Bains in Monaco or one of the many in Las Vegas. It was years ago in one of these gambling establishments that an old gentleman once gave me an education about people. He invited me to sit down at his private spot and observe life "on the edge". Here is what I learned. In some ways it can be seen as a parallel to investing in our modern gold market. I adapted it a little for today's thoughts and actions.
You can discover the most about someone's character when they are losing their money. To a lesser extent we can understand their feelings as they are winning. I watched and listened as one player was winning. He gave advice and addressed how his timing was absolutely to the point.
The short term winner:
" " "All right! I just made 50% on that investment and it took only five minutes. I've been doing this all night, so all you "want to be's" gather around and watch how it's done. Before long, I'll clean them out and be rich. If you watchers are smart, you'll catch my "developing record" as it points out that I know what I'm doing. Done this before, some years ago and I'll do it again. All you other players at this table, give up on those losing hands and follow my lead. As you can see this crowd is behind me, so I must know what I'm doing! " " "
My friend pointed out: This guy had indeed beat the house before and made a bundle. Even though the crown around him was growing large, none of them had watched his play last week, or last year, or five to ten years ago. He was cleaned out several times and will never get all his money back. Just like our modern markets, the tables are rigged against him. He wins just enough to keep his hopes up. We cannot tell his record by watching the crowd. Watch the pit bosses (monsieur in some classy casinos) and the cameras instead, as they are "not" focused on him. The house isn't worried about this type of player, doesn't care what he says and neither should we.
I watched an listened to a player who was losing. I also saw that the house cameras weren't on him either. He addresses his problems in a covert fashion by looking for flaws in others, even the quiet player next to him.
The "I would be right if everyone else wasn't so wrong" loser:
" " " When this thing turns the money will come rolling in. It's just that right now the cards are wrong, the house is wrong, the waitress is disturbing me. Mostly, it's the way this guy next to me is playing the game, that is throwing me off! No wonder I can't win with someone sitting next to me playing so conservatively. He even expects to make a chunk of money, if he ever bets. And has the audacity to tell anyone that will listen! Hey, don't you know others are watching you! Your actions are affecting them as much as it is me? None of us can win if you keep playing that way. Look at this, not only are the cards coming up wrong, my gold stocks are going down again. Who do you think you are, sitting at this table with "professional" gamblers? Then there is that guy who keeps saying "I don't care, I'm betting more"! Is everybody watching this? No wonder this isn't working, these kinds of people are dragging us down." " "
My friend pointed out: He must be getting killed! Can't change his strategy because he only wants to play his "paper cards". Typical gambler; he wants to prove to everyone that they can win using the "house deck"! People like this keep the modern system going. If you think he is bad now, wait till the others start winning as his hand keeps folding. I've seen this before and it's best to move to a different table before his end comes.
Then there was the simple quiet one at the end of the table. He had not made anything, but his phones were tapped, mail monitored and weird people followed him at night. Six monsieurs stood watch on him as he played and the cameras were well focused on his game. Even though he talked funny, a few people understood what this guy was about. His actions could bring down the house, even all of Monte Carlo! Clearly, something was very wrong with this picture. I walked to the table and talked. I was seen then as the only publicly known observer that knew of him.
" " " FOA: Sir, I see that your people keep bring in "golden chips" and stacking them on the table. For years, you just sit here and watched this pile grow. Still, you have yet to place a bet.
Another: My friend, I only bet when my play will win.
FOA: Sir, how can you win if you don't play the "paper cards" like everyone else?
Another: I do not intend to play the "rigged paper game of fools". I will bet but once.
FOA: Sir, Excuse me, but you have to play if you are going to win, no?
Another: I will bet only once and that will be enough.
FOA: But sir, how will you know when to bet?
Another: When the stakes are so large the house cannot afford to accept my wager. You see, I will play "my game" in "their house". In that day, in that time they will be the ones that fold. It be for the benefit of this new marketplace.
FOA: But how can you win if this house fails.
Another: Presently, this gaming house plays with their chips and their cards. Not real are these. This action has imparted the false value on the world money many use. The closing of this marketplace will impart a new value on my holdings and the holdings of all that know what is real.
The game I play is the game "ALL" win! It is "the good bet", yes?" " "
FOA: I get your drift, my friend. Let's stay in touch as I want to follow how the politics of this plays out.
Another: We watch this new gold market together, Yes?
FOA: Yes!" " "
My friend in the booth pointed out when I returned: Did you notice how he didn't get excited or mad as the value of his chips went up and down. That's because he is not betting yet. Everyone that hasn't taken the time to talk to him thinks he's nuts for building that chip pile. They think he is losing his shirt while waiting to bet. Still they are being taken to the cleaners as the "house politics" keeps changing the card game right under their nose's. Don't think for one minute that this guy works alone. There is a huge amount riding on how this plays out. The rise and fall of nations are being bet on that very table. What a game of human interaction this is. All the other players at the table don't know that this old, little man controls whether they even have a card house to play in.Hope you enjoyed my view from this seat, FOA? "Yes I did. Hope to return in five or ten years, say 1999 or 2000, and visit again.
later FOA
FOA (12/04/99; 14:44:17MDT - Msg ID:20256)
Reply
Bonedaddy (12/04/99; 13:07:01MDT - Msg ID:20249)
FOA, If I may....ask of you.... a few philosophical questions?
What gift is it, that allows us to see our mistakes clearly in retrospect, while we remaincompletely blind to them as we walk the path to distruction? Blind to the point of becoming angry, if someone dares question our present direction? Could it be that there are certain unalienable truths? Certain rules that guarantee consequences if broken? Is wisdom truly born from pain? If you are indeed wrong in your prognostications. I will not begrudge you for your error. I see that your frame of reference is not that of these present halycon days.
Hello Bonedaddy,
Halycon? Indeed, these times will seem as such.
-- Alky-one, the daughter of Aeolus (god of the wind) was sick over learning that her husband had been killed in a shipwreck. She threw herself into the ocean and was changed into a kingfisher! The Greeks figured that she built a nest on the sea, every year around the solstice. So, for a time every year the seas were still"--
No, bonedaddy, the tranquil, halycon times we now experience will not last. Modern gold bugs search for financial refuge during these smooth times and find themselves in a tempest not of their making. They chase only the price of gold and find the ships they choose to sail upon being sunk on calm seas. In their anxiety about the future, they listen to the siren song of leverage. They board the very vessels that offer the least in stability. As Another points out, Westerners buy the price, not the gold.
They see the trail we discuss and follow only half the map. Then, when the "price" of gold fails, they visit their bitter venom upon us. Not because we were wrong, but because they want to follow their old charts.
But, how does one talk to a group, yet address only a concept of simple spirit? Buy the gold and forget the price. The present marketplace for gold does not establish it's value, only it's dollar exchange rate.
We are "on the road". The process has begun. Many once solid BB's are in trouble from this first strike. The Europeans have withdrawn and left the marketplace to drown in a flurry of "paper gold IOUs"! Eventually, the larger scope of this political game will assert itself. That being the dragging down of the dollar from it's "reserve currency" perch. But, before that must come the end of our present price making system for gold. This destruction may show itself in many faces. Here is where the "old gold bugs" cannot quite grasp it.
One of the "unalienable truths" that you speak of is that one cannot own what he does not possess. The entire dollar/debt economy is built on the exact opposite of this concept. That being, "if you hold it in contract form, you possess it's "physical equivalent". This can be extrapolated to include US stocks, treasury debt and even dollars themselves. The American Experience says that one only need to hold the "right to buy something" for such to be counted as real wealth.
This wholesale acceptance of "fraudulent wealth" has lead an entire generation of "Western workers" into saving nothing and thinking it's something! Once any tiny part of this concept is broken, it will call into question the validity of the entire "paper asset" world. Break the gold market pricing system and you will break the dollar. Break the dollar and the complete dollar based business system is market to the market. A marking that brings currency pricing in line with "on the minute supply" of real things. Not the price of things I can get in six months. The resulting dollar inflation will wreck the ability of most businesses to function at a profit. The gold business included!
This is why our present dollar based gold market does not and will not accommodate gold investors outside the physical market. The Washington Agreement has unleashed a paper flurry of gold IOUs, all running from account to account. Running just ahead of the accountants before these contracts are market to the market. The next "equity killing" gold run will soon destroy another batch of BB traders before the paper price plunges again. A vicious cycle that will continue with wider and wider swings. $100, $500 then $1,000 swings until the LBMA stops all fixings. All the while these moves will drain the equity premium from every mine stock until only the fully unheadged retain any value at all.
If you think our poster's comments were rough on me, wait until others start getting hit "Hard"! These people hate what we have to say because it destroys their investing world and therefore there professional record. As my friend said in my last post, ""Can't change his strategy because he only wants to play his "paper cards". Typical gambler; he wants to prove to everyone that they can win using the "house deck"!"" I add that it's a deck rigged against most "gold industry" investors. Another said this long ago and he "WAS NOT WRONG". This entire industry and marketplace is going to fail!
Bonedaddy, I offer a truth that most don't want to see publicly written. Not because of their concern for other's accounts, rather because it opens too many eyes! When all your money is on the wrong horse, you don't want to hear someone talking about how it's going to die. We shall see.
Thanks FOA
FOA (12/04/99; 16:31:54MDT - Msg ID:20263)
reply
Leigh (12/04/99; 15:34:26MDT - Msg ID:20261)
Question for FOA
Hello Leigh,
You know,,,,,,,, I have thought for some time that the whole issue of gold confiscation keeps being dragged out to serve special interest. It always comes across with background overtones of: "Americans don't need physical gold, so why bother with the worry". Usually the paper pushing brokerage industry and miming industry enjoy using this angle so as to sell their product.
Like this: " " "it's the foreigners that need the real gold anyway, so let's use their problems as they drive the market higher. That will benefit our paper gold holdings and we gain without thinking about government law changes" " "
See where I'm coming from? Truly, the last time the US called in gold, it was because they needed it to square "official bookkeeping" and create new banking reserves. This happened because we were on a "fixed gold price standard". Had we not been on this, they could have just raised the gold price to $100 without calling any in from the public. It would have achieved the same reserve effect. Honestly, foreign governments did not credit the dollar as worth more because the US robbed gold from someone to pay it's debts?
Then we have the precedent of 1971? Now why on earth would we now take gold from our citizens when we just denied delivering it against the dollar? Because, you say the new price today will be so much higher. Well, they could have marked their gold to $1,000 in 1971 and still not delivered it against dollars. It would have created the same reserve increase the IMF is doing today.
You see, the whole song and dance is about dollar supremacy. If in the near future the dollar reserve function is degraded, the US will have no reason to grab gold from anyone. Hell, they could mark what they already have, market to market. Say $8,000??? Those that run the US political machine will be under the same gun as you and me. Just like a failing Russia, the leaders will be getting their hands on all the gold they can buy and shooting down all laws against private ownership. Let's face it, they won't be able to ship it overseas (foreign exchange controls) so you can bet they will want a good free dealer market for physical: "right here in the go old USA for the benefit of the voting citizens ".
Leigh, the big Western money is going to run for physical as this unfolds and they will be paying up for it with inflated dollars. At prices none of us will understand.
My take on it,,,,,,,,,,,thanks FOA
FOA (12/04/99; 20:23:19MDT - Msg ID:20279)
Comment
lamprey_65 (12/04/99; 18:35:54MDT - Msg ID:20274)
Lamprey,
That W. Buffet is something else, isn't he! No one has ever played modern paper market investing as well. I think (I THINK!) he even converted he silver holdings into lending contracts. Perhaps that was his intent from the beginning. Because his holding strategy is so public, buying hard silver cheap and then lending it for "who knows what" return looked good for his profile. With the market in a squeeze after his "news break" he could have got 20% to lend it??? Again, that's just like his kind of deal.
All in all,,,,,one day, Berkshire will buy some gold to hedge their massive portfolio against international investment barriers (if they haven't brought it already). Not even they can ignore this as a risk from a market meltdown. You can bet that when that time comes, this gold will not be lent.
Every day that goes by, the Dow Stock market looks more and more like the old Japan bubble. Only they didn't have a world reserve currency to worry about. When the US bubble blows, every asset holder outside the Euro zone will be running for cover. It's not going to be nice.
On the subject of physical metal; not all Asians run from gold stocks. Some of the major investment families over there own claims as private companies. Only they market the gold to themselves as they see the bullion itself as the value, not the possible earnings of the company. Big difference from our concept, no?
Thanks for talking FOA
FOA (12/04/99; 21:34:03MDT - Msg ID:20282)
Reply
Lafisrap (12/04/99; 18:51:51MDT - Msg ID:20275)
Questions:
Do you have any ideas as to what is going on in the LBMA? ----------------------
So, if that is the case, who is doing all this trading? And why? I may be missing a lot of important information, much of it may even be obvious, but I see no other explanation than that the LBMA is a dollar/gold laundering machine. ------------------------------
Hello Lafisrap,
"a dollar/gold laundering machine",,,,,Ha Ha! Good lord, I think you have it! No, seriously they do move a lot of gold. Only most people have the wrong concept of what moving gold is all about. On the retail side they mostly set up a lot of the "big" trades of gold from the mines to the fabrication industry. They also move any physical needed to cover the industry deficit. And a lot of investment physical is shipped all over the world. Still, all of this is but a drop in the oil barrel compared to what they trade.
Practically all the fully paid for investment physical is traded without movement. Just the ownership is transferred. For what it's worth, even this small amount dwarfs the new bullion coin sales world-wide. To me this demonstrates why fresh (new) coin market sales cannot move the physical price. It does make an excellent indicator of private physical purchase intentions. Usually if coin sales are up, most likely large physical bullion is in demand also. But, coin fabrication is small compared to bullion.
Earlier this year, old bullion supply dried up and it looked like the last of the private "old stocks of gold" had finally run out. Then the price shock from the Washington Agreement flushed out some more. I've written on this before (and ORO told it better than I), but the more the old holders sell out in return for holding "unallocated gold accounts" the worse the shortage will be when the marketplace fails. Slowly, over many years, the people that now hold the real bullion that was sold to create a lot of paper gold, have literally locked up the ownership. The old liquid gold market we used to know in years past functioned because of all the private physical holders that traded it.
Now, it's all paper being shuffled around.
This gets back to your LBMA item. The old, deep private bullion pool has been replaced with a paper commitment pool. In the past, if someone defaulted, we just grabbed their bullion. Today, if they default, they just default! Again, if that big African mine does tell them to take a hike, the whole modern gold market could just collapse. This is why I smile when I hear someone question why the big funds and traders don't just take delivery against OTC paper. The question is just exactly what are they going to take delivery of?
All the gold movement is just for show. Same for comex. Sock a little gold in there and complete a few deliveries so it all looks right. It's all the same game we played with the dollar before 1971. Only when everyone asked for delivery did we find out that the world was awash in paper gold,,,,,I mean dollars! It's going to happen again, real soon.
-------------I have read that there is a world drug trade that is extremely large and traces back to the British East Indies Company, and this world-wide drug trade still flourishes, using much gold that must be laundered into dollars. ------
------Also, what is "market to market"? I am guessing you mean "marked to market". That means to price something at the price the market will pay, correct? ------------
Lafisrap,
As for drug money in gold? Shoot, I bet more illegal trade of everything is done in US dollars than gold. From what the Government tells us about the new copy machines now-a-days, they don't need to break into banks any more! They just print the stuff?? What a mess!
Sorry, Market to Market is a slang. You are correct.
Thanks
FOA
FOA (12/04/99; 22:20:32MDT - Msg ID:20285)
Reply
Peter Asher (12/04/99; 21:44:15MDT - Msg ID:20283)
FOA, Buffet
Any flaw in this script?
Hello Peter,
That could be right. There are several angles floating around. Your thought would make the best play for silver longs. Don't forget, I own a little silver,,,none of you would talk to me if I didn't (smile).
Anyway, tightening screws is not the Buffet profile. My take is that he brought long before $7.00. The price run started because committed traders knew his announcement was a threat to their hedged plays. You know, deltas all out of whack. The price worked it's way back down after he leased high (10%, 15%, 20%???) as commercials pulled their emergency long trades.
In reality, the silver he locked down was already in use, so to speak. It was held as a function of inventory. So, all he did was lock a claim on the inventory metal, then contract it's ownership back for a fixed time. All the while receiving ransom money. It fit's perfectly because that's the same play he uses to grab preferred stock of companies. If the collateral goes up in value, that's good. But, his aim is a higher return than "market" and be first in line in ownership.
He would do the same thing using Iron if the rates were right.
Thanks Peter, I have to go. FOA
FOA (12/5/99; 10:22:02MDT - Msg ID:20311)
Reply
canamami (12/04/99; 22:46:25MDT - Msg ID:20286)
1. In Don Coxe's weekly conference call, reference was made to some agreement or proposalwhereby "two zeros" will be dropped off the Japanese currency. This forms part of the "parity" notion - that one US dollar will equal one Euro will equal one yen.
Hello canamami,
Ok, fair enough, I'll take this a little at a time.
In this context we back out the flows of equity investment motives and look only at currency derivatives as official treasury debt held in lieu of cash. US debt is held in foreign countries by two classes. Some of it is private (mutual funds, citizens and companies doing dollar based business) and government (official Central Bank). Usually, the private holdings are done because someone has an idea (right or wrong) about the direction of their local currency values and interest rates (yen, Marks, Euros). Just like you and I, they may want to diversify their assets. "In times past", for every foreign buyer of US cash, their was a local (US) citizen that for the same reasons, wanted to diversify outside of the US. So they kind of balanced this flow and this action did not impact balance of trade accounts. Again, we are talking about cash flows for the sake of owning savings, not any form of equity flows.
In the private sector, it was always the business trade that built up excess dollars as they sold more "goods" to the US for dollars than the US businesses sold to them. Using Japan, the net effect of all their private companies selling into the US created a huge negative balance of trade account. For many years now, if these countries walked into the foreign exchange markets and sold these excess dollars for Yen, it would have drove the yen way up. If done early and before a large position builds up, this is the "natural way" a true fair currency exchange market should work. If the US continues to buy more from Japan than it sells, the currency markets react until the goods being traded are evenly priced.
This action would protect the workers of both countries from being exploited, even though their productive efforts are equal. Contrary to the "business community propaganda" a worker in Japan does not tighten a bolt better or faster than one in the US. Take all the technology innovations and pour it into a big pot along with natural human nature and add some cultural differences. Boil it down and we find that through the world over everyone works the same for the same incentives. Of course the business community always leaves out a "true" incentive / compensation package when comparing national productive effectiveness. Trust me, I've been everywhere and seen it all. You would not work as "effectively" and as productively in, say India, if you received the same pay they do. No, by far and wide, the real national industry productivity measurements are all skewered from "engineered" exchange rates between nations.
So, back to our currency rates. No person or nation ever extended its wealth by selling two TVs in exchange for one TV. The US knows that the road to national wealth is not in a strong currency by itself, rather it's through operating in a manipulated currency market! If your workers can tighten one bolt in exchange for foreigners tightening two or three bolts, your wealth, standard of living and voting citizens are better off.
Under the old dollar / gold standard, no foreign government wanted to see it's people tightening 3 or 4 bolts in trade for every one the US worker did. Perhaps a ratio of one turn for two could work for a while until their economies grew. But no one wanted to get locked into doing this forever, as this modern dollar standard has forced them to do.
It worked better back then as they traded two turns of the nut for one US turn and they retained a little gold wealth in the form of US dollars. Are you still with me? This is important to grasp.
------- A foreign nation traded real wealth for real wealth, even though gold was part of the wealth equation. No, I'm sure it wasn't equal, but it was close. In return, the US gave up some sovereign power over its gold hoard by allowing gold claims,,,,dollars,,,,to be held overseas. In return they still increased their living standard by getting more value than they sold, even though some of it was in gold trade.---------
All of this started the "new era" of a negative US balance of trade deficit. No ORO, it didn't show up on the official money flows because the US did send the dollars out. BUT!!!,,, they didn't record the trade on the negative side as the """gold loan"""" it really was! Yes, we shipped some bullion out, but more often than not, nations were content to leave the gold in the US where it was to back the dollars held overseas. The proof that this occurred comes in the fact that by 1971, the dollars outnumbered the US gold five to one.
So, as we can see, nations starting holding dollars and US treasury debt because it represented a wealth for wealth exchange. Nations, Japan included, were content to have their Central banks enter the currency exchange markets and buy up the excess dollars their businesses created when they sold more to the US than they brought. In that time they did not think they were exploiting their workers into making two turns on the bolt for one US turn, because they were trading most of the additional "twists" for the wealth of gold.
By 1971 the "dirty float" of currency exchange markets was normal practice until the US closed the gold backing for the dollar. Suddenly, all the dollars that were purchased overseas to adjunct the exchange rates were now worthless! The only recourse for governments to regain real wealth for all the additional "nut turns" was to use the dollars to buy local American goods. One problem though, all the dollars were collected while the gold standard impacted exchange rates! Now, with only a pure dirty float for an exchange market, any reverse selling of the dollar into the US would drop that currencies value. So, the good purchased from the US would only represent a tiny return of the wealth value these dollars were originally traded for.
It is here that the story begins to change and the world heads for a new alignment. Everyone in the world was impacted by this move. From oil producers to auto makers in Japan. Everyone lost, big. If gold had become so worthless, as most US politicians proclaimed, why didn't they just revalue what they had left to, say $2,000 and call in what dollars were out there? They didn't because in that scenario they would have drained the dollar as a reserve unit and killed the notion of dollar supremacy. Gold would have regained its exact value as money to the world prior to currency / exchange / standards. Perhaps $3,000 or $4,000 an ounce (back then) and the US would have run some real inflation.
The world Central Bankers (and oil producers) took a real hit when this all happened and it won't be allowed again. They have supported the fiat dollar standard and even helped "pump it up". All in an effort to keep business rolling until a new currency could be created. One based on several economic national arenas, no dollar reserves and a world market price for gold. As opposed to the present IOU paper dollar gold system. Even though the Euro is born, this package is not complete, but it's getting there!
Truly, You have to have been around the turn a few times to understand that no one (and I mean NO one) is wanting a larger piece of the old dollar pie. The notion of currency parity for the purpose of trading up debt reserves is something being floated by the Washington think crew!
Are these nations trying to pay up for past US military action? Oh boy, not a chance. Why don't we pay Italy for all the good the Roman legions did for everyone!! No one is worried that the US will back away from protecting its interest after it's bankrupt. Whether it's oil or national security, they will act as best as able. See ORO's post about this, it's real good. Besides, look at Russia. No money, no nothing but still out there firing away!
Also: The present paper gold market depends on new hikers entering the gold trail towards its end. They buy paper gold as some kind of stock market / investment hedge without knowing the big picture. In the past their actions would have worked their purpose. But, not in this transition. A currency exchange storm is going to sink a lot of these paper boats and kill the very assets many wanted to protect. Buy the gold not the price!
Thanks FOA
FOA (12/5/99; 17:38:01MDT - Msg ID:20347)
Reply
canamami (12/5/99; 11:54:47MDT - Msg ID:20321)
Reply to FOA - post# 20311
FOA,
-------------
Thank you for your detailed reply. Would the manipulation not have been prior to August 1971, when the US printed dollars alegedly backed by gold, but which weren't backed by gold. Once the bluff was called in August 1971, what manipulation occurred after that date? The rest of the world could have just "eaten" their loss, just as creditors always do when a debtor goes bankrupt, and accepted no more US dollars as settlement. That didn't happen. The question being: Why not?, and why should it be different now?----------------
Canamami,
The world did begin to walk from the dollar! It plunged and remained on a downtrend for several years! The US knew their option was to raise gold prices prior to 71 (just as I offered in the last post). But oil was the major problem link! Every oil person in the US knew we were running out of local reserves at the old "gold backed" dollar price. All the Middle East had to do was wait us out as they were happy to out produce and supply us in exchange for "real dollar backed gold". You see, oil was and is the real driver of all economic production.
We could have raised the dollar price of gold to settle our accounts but that would not have raised the local oil price enough to make deep reserves available. Yes the dollar would have depreciated somewhat and foreign oil would have went up, but not enough. The need for more local reserves and the higher dollar prices that could make them available is what drove the 71 gold closure. They had us and we had them.
Without another functioning reserve currency system in place, our modern world would have shut down to a level of pure physical commodity trade. Perhaps worse than the 1929 era. With every other country about to stop trade for dollars, it was the Oil group that literally saved the current system by backing our now fiat dollar with oil. This "black gold backing" took the form of accepting settlement of all world oil trade in dollars. And boy, did the world ever send them dollars! Nobody was going to walk from dollar trade as long as they had to buy their oil with it. It was that simple.
Don't think for a minute that people weren't running for gold then, either. Had the US, BIS and IMF not sold some gold into the demand the dollar exchange rate for bullion would have hit $3,000 or $4,000, easy! And that was back then, not now. Even then the gold rise was a controlled burn to show people that they couldn't escape from all these dollars into gold. It would gun the price through the roof long before the exchange was complete. Why not just write the dollar holdings off, you ask? Hell most of the average trading partners didn't hold much gold! That was what holding the dollar was for. They would have completely wrecked their entire local economic / money system if they did walk.
As long as gold could remain in some form of ratio to oil (for conversion purposes), the dollar settlement was assured. At least until another reserve system could come along. It took the US 50 years to establish a reserve currency, so if it took the "Old World" ten years that was not long to hold gold at static dollar prices. Well, it took longer but so what? In the scope of things the transition to free market gold and Euros was the only choice. Hence the 20 year time lag that gold has gone nowhere. Yet, gold was being acquired throughout this time. And it will be repriced in proportion to that time span.
A bunch of years ago, when the Euro looked to be late (very late), the drive to free up private gold holdings started. Yes, gold was being recycled by oil, just as the dollars were recycled. But, there was a physical limit to how much could be moved. For the last several years, it's been imperative to keep the price of gold down or it would kill the system. The US / IMF faction did all they could to help. But, understand this,,,,,,they never expected the Euro to work and fully well expected oil to run back into the dollar when it failed to be born! My god, when the Euro was formed in the first few weeks, we almost had people talking about shredding documents and leaving town,,,,the game is over!
Do you remember the old Hunt brothers saying about an ounce of silver was worth a barrel of oil? Well I have news for you, it was rumoured long before that that a gram of gold was worth a barrel of oil. Forget the price of gold! Forget the price of oil! If a barrel of oil flows one way gold (or contract equivalent) must move the opposite until some ratio is reached. (oro understood this and posted it). They never flow in the same direction. When gold flow is disrupted, as in the mid and late 70s, oil prices rise! When gold is liquid, oil prices fall. From the beginning of this year, after the Euro was born, gold flow has slowed and oil is up. Another was telling me over and over that gold was being cut off then. Yet, we read gold expert after gold expert, telling us that the CBs were selling it all.
Next, the Washington Agreement was announced and these same people are on the wire telling everyone the CBs are lying,,,,, "They are still going to sell it all"! I can't wait till the ECB starts buying official gold from others using dollars! With this job off the BIS back sense the Euro was born, it's been in the ECBs court to support gold under $280. They didn't this summer (we took a lot of heat because they let it fall to $250), because they were putting together the Agreement for press, I guess. When the next official move starts, I suspect the gold experts will be saying,,,,,,,"they are only buying it to sell it" Ha Ha!! Oh well.
Truly, the Washington Agreement is "the" confirmation that the currency war is in progress. The LBMA has been left "hung out to dry" as they scramble to gather any and all gold political favours can muster. We can expect a flurry of paper gold, sold into every taker until something else breaks and then the rush up. After that, another truck load of paper. All the while the market credibility slowly wanes. Forcing physical gold trade and oil settlement into Europe. Without a functioning "dollar / paper gold marketplace, gold will gravitate to the oil price until "gram parity" is reached. I expect that long before we reach parity, physical gold trading will outprice the paper market. Confirmation of the "visible" gold bull market, that everyone needs so badly, will appear when London closes for good.
For all "Bullion Boys",,,,,,, Bullion Men,,,,,, for us old guys, (and ladies) (my wife included);;; we are on the road!
For all paper traders, good luck timing the motives, needs and thoughts of Political power brokers. (smile)
I have said enough for a while,,,,,,thanks for all your time and thought energy,,,,,,,,FOA
FOA (12/07/99; 19:34:40MDT - Msg ID:20527)
Comment
PH, ORO, ALL:
A day hike off the main trail:
When I read the posts of Farfel, to me they represent the honest feelings of many gold bugs. Many of whom are caught up in a trading environment that is not playing out to match it's past format. But why did so many investors fully expect it to "play it again, sam"? It starts in the mind.
I think much of the frustration comes from accepting the "Western view" of gold values, in that "it can't rise in price that much"! Everywhere we turn conservative people consider the return of price inflation, oil shocks, economic slowdown and money security as evidence of needs to "hedge their bets". Yet, of the many who use gold as this hedge, probably 99% hold the view that gold will only rise into the $500 to $600+ range, at best. This acceptance of such a mediocre performance is what drives the gold leverage game! Hell, if I thought that all of my assets were to be protected by something that only runs up 100% in an environment of wealth disorder, I wouldn't buy it either.
Again, throughout all the endless discussion about gold's prospects, we always hear this same finite price position expressed. That being: " " "During an inflation of the dollar we can expect gold to move into its safety value range of $600+/-. This price represents its true commodity / money hedge demand fundamentals as detailed in industry research reports. Of course it could go into the $2,000 range but that would be the end of life on earth as we know it" " " There it is again. The whole hearted promotion of a limited rise. Anything higher and you are in the hard-core camp that sees world war.
This "play it again, sam" scenario is wholly supported by not only the "official anti gold" government groups, it's also pushed by the mining industry in general, to sell their stock product. I submit that this conditions investors to stay out of "gold bullion" and into leveraged forms of "paper gold". After all, if I can "time" my entry into futures, options or gold stocks, why hedge my wealth with something that can't move over %80 or so? In other words, "buy the price, not the gold" or expressed better "invest in the price move and you won't need gold". Indeed, all we are doing anyway, is trying to match dollar loses on our other wealth with dollar gains on these hedges.
Here, inside this mindset we can clearly see this magnificent evolution of "Western perception". Once a people that held great distrust of anything that wasn't real wealth, they now equate personal economic safety to anything that keeps their bookkeeping entries in balance. This is the modern feelings of life within the dollar world. Life on the inside looking out.
Further:
Ever have a neighbour that brought goods from someone in a truck, at night, on a side road? They purchased tools, TVs, stereos, anything that seemed good for them. Of course, when asked they noted that the guy selling the stuff seemed OK and he assured them he got it "wholesale" Later, this same neighbour shows up at the town hall meetings and goes on and on about all the stealing that's occurring in their fair city. (((I'm sure all of you get my drift)))
And here we have the investor that goes on and on about the unlawful writing of "paper gold" by the BBs and brokerage houses. He says, "These guys are stealing from us by writing obviously "unbacked gold paper! They offer options, futures and all sorts of derivatives! It's got to stop!" Then, in broad daylight, in front of everyone, he runs to the truck in the alley and buys some of those "obviously illegal unbacked gold calls and futures". He even buy's into the mining companies that use these same "paper promoters". Turning a blind eye to the reality of his actions.
You see, in this context gold bugs support and nourish the very industry that is dragging them down. The modern marketplace that sets the price for gold, exists because "Western Investors" seek bookkeeping hedges, not physical wealth hedges. They not only support the false price discovery of this gold marketplace, they are the reason it exists. Further, it exists because they believe real gold will not work for their purpose of hedging.
As distillers produced alcohol "against the law" to supply a demand during the American prohibition, so too do the "paper gold brokers" give the investing public what they want. It's that simple.
Onward:
It's true that the physical gold market is dwarfed by the paper gold market. Yet, the physical market is so thin in relation to total assets outstanding, even a small shift into it play's havoc with the supply and the price. Still, paper contracts, using fractional banking methods can be created to meet any demand. The key to changing the negative dynamic created from paper gold, is for investors to move from investing in all forms of paper gold and the mining industry that utilizes it the most. Encourage companies to challenge tradition and circumvent the bullion banking world by marketing their product directly into fabricators and end users. Instead of promoting their shares, educate investors as to the real valuations possible for gold using a true physical hedge marketplace. In addition, encourage investors to invest mostly in gold first, then gold stocks. Undertaken together, all of these moves would break the present "dollar lock" on gold employed by this same faction.
Unfortunately, the educated understanding of this current generation will not change without major loses incurred to their paper gold portfolios. With the ECB /BIS having all but guaranteed a "quick to the point" wholesale destruction of the dollar gold price making market. Investor education and evolution will tread far behind the fact. Until that time comes we will continue to follow the play as bewildered "paper gold" followers bemoan these days because "Sam, won't play it again"
Thanks for reading FOA
Bill, your post is in the works.
FOA (12/07/99; 20:24:19MDT - Msg ID:20535)
Reply
Bill (12/7/99; 0:04:55MDT - Msg ID:20460)
Question to FOA and/or ANYONE ELSE
QUESTION TO FOA and/or ANYONE ELSE
----------------Hannibals have managed to press the POG down to nearly what it was before the announcement. By now, anyone in his right mind has to know the POG is manipulated. The natural price pressure would seem to be up. -----------
Bill, the problem begins because you (and most everyone else) associate the price pressures on the supply and demand of physical with price pressures on the supply and demand of (comex) futures. For discussion we will leave out all the other paper gold items.
Today, we look to the last contract traded to tell us what the price of gold is sold for. Even though the demand / supply for physical may indicate "up", the demand / supply of comex paper can be altered to force the last trade "down". Truly, if most of the players don't take delivery, and I have an unlimited fractional reserve bank account, I can print contract supply well over demand. As this natural demand / supply function works it's magic, the price falls until discouraged longs fall away.
So, the natural price we refer to must be clearly understood.
------The ability to force the POG down much further doesn't seem likely. -----------
It all depends on how much cash reserves I have to create long or short contract positions. I, as a market mover am in control as long as the other market for physical can be satisfied with metal at the paper gold settlement price. To date, this is something the system has been able to do in spite of the supply deficit.
---------Any call options that were sold before Sep could be bought back now cheaper. If you were part of this manipulation. Would you not now liquidate your upside risk and reverse your position???? (now collecting profits on the way up). ------------------
Bill, the question here is our perception of risk. For the past many years, I (as the manipulator) have contained all risk thru price direction. I don't liquidate because the other side does not want gold, they only want to hedge against price. As long as I direct price through my paper supply, you hold the risk and must fold first. I don't reverse position because I hold this franchise as long as I can direct prices in a "political direction". To date that has been down.
-------Unless the huge short positions have already been covered and from the constant manipulation, that doesn't seem likely. It would seem that a huge short covering rally could be gained as players don't want to be caught in the same position as Oct.------
Yes, the game has changed from the Washington Agreement. But, this short position constitutes the paper marketplace as we know it. As long as it remains, the gold market does "price discovery" through the paper auction method. Cover the position through offsetting cash (or gold) settlements and the entire marketplace is destroyed from equity reserve loses to the members. Then we revert back to a physical only arena. In other words. No body is going to cover anything because it's like shooting yourself. Therefore, this system will have to be destroyed from a competing physical arena
that conflicts in price settlement. In other words, physical priced higher than futures. Get my drift?
Thanks FOA
Be back tomorrow.
Aristotle (12/8/99; 3:58:13MDT - Msg ID:20565)
Thoughts on the issue of TIMING IS EVERYTHING that's been discussed lately in regard to Gold
You are born penniless, but hopefully born with the potential and upbringing to become healthy, vigorous and productive. To master the art of timing requires little more than to realize that upon leaving the nest at a young age it is precisely time to start to SELL, SELL, SELL! Sell your productivity. Take the most able years of your broad middle-age to expand your skills and knowledge and to produce something the world wants or needs. Sell your time, energy, and capability to the highest acceptable bidder. Throughout your life strive to improve your special talents or capabilities, and strive to make your field of passion also your field of employment. Your only obligation is to prepare yourself for your feeble years by producing an excess during your productive years, and living with discipline so that you will have adequate savings to draw upon until the day that your spirit flees your body for a more suitable residence.
Part of the discipline that assists you with your obligation to yourself is the wisdom not to be duped into selling your productivity for less than what it's worth or for false promises, and don't squander your meaningful and important savings by chasing uncertain rewards for undue risk.
Truly, what is a dollar but an empty promise? A promise that springs into existance as easily as a loan contract. A promise that the borrower will one day give that dollar back, and a promise that the issuer will at any given time exchange such a dollar for nothing more than another dollar. If you are willing to sell your valuable productivity for payment in dollars (or any other fiat currency,) the quality of your discipline must either be called into question, or else you have satisfactorily called the currency into question and found it to be one in which borrowers cannot ever be allowed to default and, more importantly, the supply can't be issued (expanded) to such high levels and at a rate such that the purchasing power is eroded, or be capable of contracting such that businesses and the economy fall into a recession or depression. A careful review of fiat currencies and fractional-reserve lending practices will reveal that no fiat currency can suitably pass muster.
So there you have it. When you strive to master the all-important art of timing your investments, the most crucial time is every payday in which you are, in truth, selling yourself--selling your own time, labor, and productivity. Are you being paid-in-full on each payday, or are you accepting an empty paper promise of payment built upon the strength of and the continuation of the confidence of everyone in society. Are you worth payment-in-full? Have you ever received an ounce of honest money for a day in your life? You can perfect your investment timing by being paid in Gold--you would be paid-in-full at the very moment that you sold your productivity. But in an acknowledgement of the currency structure of the present realm, for your own convenience, take your dollar paycheck and first use it to pay your various bills to all of the others who have been duped into accepting dollars for the sale of their own products and services. Anything left over represents your excess production, and is almost suitable for saving. Since your employer probably paid you originally in dollars, it is up to your own discipline to convert this excess into Gold to effect your own immediate payment-in-full.
Held as Gold, your excess production has now become suitable for saving until the day arrives that your feeble old age forces you to become a net spender instead of a net saver. The timing couldn't be any easier or more evident! And the best news of all, with extraordinary market conditions giving us Gold these days at levels that haven't been seen since 1979, anyone who has previously elected to try to make due for the long haul with empty promises (dollars) as savings and by taking various risks for the hope of equally empty rewards (dollar-denominated dividends (if any) and capital gains or losses) in the attempt to beat inflation now has a golden opportunity to reevaluate their position and their discipline to acquire their preferred level of real savings in Gold as the honest and worthy late-payment for your life's past excess efforts. Be comfortable in your own ability to meet your life's needs, but don't rely on the dollar to be the caretaker of your savings.
Gold. Save you some. ---Aristotle
FOA (12/10/99; 7:50:49MDT - Msg ID:20685)
Reply
ORO (12/09/99; 00:38:13MDT - Msg ID:20619)
FOA - Iron Lady and EU arms - Questions of the LBMA
---------------------------------
FOA, I believe that the EU countries will find it difficult to cooperate, which is always a plus when attempting to minimize war driven monetary inflation. But as a defence system, the independent EU military may be a positive in a way not possible before. Namely, to supply the world with a military force that only operates by wide consensus and is sensitive to issues of sovereignty, as opposed to the current US/UK system that tends to act in the interest of odd humanitarian concepts and for the furtherance of the misunderstood and misapplied concepts. The world is suffering today from the tyranny of the US humanitarian conscience. Being blurry in focus and misguided by self delusions of its own propagandists (particularly of Ted Turner and bride Fonda) they may well level a country that has done no one any harm. With the example of Yugoslavia behind us, I am certain that the whole of the sovereignty minded world will obtain the needed "weapons of mass destruction" to protect against the US delusions of sainthood. I would not be surprised to find Latin American buyers in Russian, Chinese, Paki, South African, and othermilitary shows - perhaps in Europe too - looking for the very weapons they are prohibited from obtaining by the non-proliferation treaties.
FOA, do you think that this is the trend before us? How do you view the outcome?
-----------------------------------------
ORO, It's late but here goes,
It's easy to be hard on the US as we watch the results of their "mostly good intentions". No one can control the outcome of major campaigns to correct human atrocities. The process takes on the form of "management in progress". It's either "let them all kill each other and everyone close to the fire" or try to "manage a better outcome". At the very least, a "situation" degenerates into just as bad an affair as if we never entered it. But, still it's more controlled! I know, hard cold thoughts indeed, until we "walk a mile in their shoes". Truly, anyone that tries to, at best "control" the blatant effects of human hostilities assumes the position of being blamed for the whole mess. It takes broad
shoulders to carry that load and the US still stagers under the weight. It's a tough job handled by tough minded individuals who's harshness few could accept.
Will Euroland do a better job? I doubt it. Looking through world history we find these times offer a disrespect for order that's on a different scale from before. The present process we are seeing is about "as good as it gets". So, what do we do, take the next plane from mother earth?
No, we all learn to manage our affairs in the context of the world political evolution.
I don't expect Europe to dominate in this regards. Like Japan, they are constricted by their history and will tend to underweight the need to react. Just as I pointed out before, national power blocks tend to work well in the worlds eyes during the initial build-up phase of their rise in economic status. In this regards, Euroland has the best of everything before them for the rest of most persons investment timelines. Conversely, it's time to leave the dollar based assets before they are discounted from the political degeneration that must follow.
-----------------------------
You write:
You indicate that the UK has understood that its economic future is with the EU and the BIS organization, and has been dragged kicking and screaming (however muffled these screams may be) into the fold. The Iron Lady seems to have been left out of the loop, and I would venture a guess as to the Torries' being in the dark as well, all but the few in key leadership ("king making") positions.
FOA, how much of a done deal is the inclusion of the UK into the EU? The LBMA, would it be "saved" if it were willing, under the BOE leadership, to play along with the EU plan?
-----------------------------
ORO,
Trust me (smile), she is in the loop. It is a weak political figure, indeed, that allows their people to see them quietly go along in a major change. In full public view one must "show the sword" first, then "over time" we hear: " " "Well, because they put it that way it sounds more practical. Had I fully understood the positive side of this earlier we could have found positive ground. You should have been more open with me in the past so we all could have come together sooner." " " Get my drift?
The UK is no different than many other countries that have completely tied themselves into the dollar. Just like Canada, they are drained from the process and have much less to offer. The EMU for the UK is a done deal, if for no other reason that they will sink until they join. The big plus for them is their past and present ties to Europe makes it all feel comfortable, like an old chair you have used before. The only question is raised in the minds of the people. It's really a perception problem because they still think they have some major national economy and a sovereignty to go with it. In reality, the UK will have more political force and a more powerful economic platform within the EMU. Just as our California is a "state of mind", so is the present UK.
The LBMA is going nowhere. It's quickly becoming a distinct eyesore on the world bullion trade. Now that the dam has been broken to revaluing gold off the current market, their political use by the IMF/dollar faction is waning. Every day that goes by, the need to keep gold down is disappearing. In fact, any transition from the current IMF / SDR articles will negate its use in present format. They even changed the name. As the world works its way away from dollar reserves (China?) and dollar commerce, the need for liquidity to cover the old IOUs (IMF and others) will be all consuming. It's all really very simple if viewed in the right context. If denominated in the true price of gold reserves, the dollar had bankrupted itself long ago. It's only more bankrupted now as it's only a bookkeeping problem. In other words, where do we allow gold to level out in dollar terms $3,000, $8,000, $10,000 etc.? Understand, that new equity is not being created here, only marking current world dollar holdings to market. As the dollar comes off the reserve standard, they have no use at present exchange rates and will flood the US until "foreign
exchange controls are in place". The resulting US inflation will make those foreign gold reserve prices look "about right".
Note: ORO, it's the political exchange controls that will block your contention that the US will become a major "low priced" exporter. Your process would be good and a natural one except it would result in the "pooring of America" (at least politically). The US became wealthier by importing things and paying for them with an exchange rate that is "out of whack". A crushed currency enslaves a nation to work hard for less in return. History shows that every national block resists this "downfall" through money flow controls. It doesn't work, but it's the political choice.
So, Where is the LBMA in all of this? Over their heads and far too committed with supporting this present pricing system for gold. It's a system whose time has come and gone. Of course they will fight to preserve it, because without it the reverse leverage of a rising paper gold price will take everything they have. Does anyone in their right mind think they will just stand up and say; "OK, we cannot supply physical to cover all this gold debt, so we will just fold!"? No, as time goes by the physical gold market will rise as it discounts their paper. It's a real process because you will always have gamblers that hate to lose this "old leverage play". They will buy future gold right down to $10 to the ounce on the idea that something may save the program and perhaps, just perhaps somebody will supply $50 in gold against the paper. You, know the old junk bonds bet.
As the physical price rises well past the paper price, every miner and user in the world will be trying to get out of their commitments. Even Barrick now admits (finally) that above $600 they have to start supplying margin. After all this time of telling everyone that they could defer their contracts for 10 or 15 years. This goes back to my post about "Westerners" not thinking that gold will rise.
Because investors thought it was impossible for it to go above $600, to consider that long term goldlenders would not ask for margin al was nuts. If gold hit $5,000 does a lender just depend on ABX's good word?? It shows the beautiful evolution of "Western investment thought".
Again, LBMA will not be in a position to advise anyone as this plays out. Truly, this relic of London's past will be put on a shelf.
------------------------
Another question: The level of awareness of the bullion banks as to their vulnerability to a "bank run" is obviously high, the question is whether they are aware of the closeness of the end of the line.
(1) Do they understand that the EU is no longer aligned with the US in protecting the dollar?
(2) Are they aware of the gold revaluation concept for backing the Euro?
(3) Do they understand the situation which they are in regarding the consequences of the Arab Oil being pulled away from its role of supporting the dollar?
(4) Are they aware that the Oil Royal's gold will be both pulled out from further cycling through the lending schemes and revalued by the direct trade of oil for gold without 100% transit through the dollar?
-------------------------
ORO, Even a person "blind in one eye" can see a mountain. Of course they see the risk! But, if you are the last man on the front and the war is lost, you will fire your last round. Don't forget, there are a lot of major miners and fabricators that could not operate without them. They would literally go down with the ship if this doesn't change. The whole industry is built into this present gold pricing structure. Yes, the gold in the ground stays, but their whole equity structure is obliterated with this shift. The forcing of the paper price, the price they all sell to, will clean out their bookkeeping because they cannot sell into the price of officially revalued CB gold reserves. Yet, that will become the new physical price structure. Sure, they will mine again, just not on your present equity. And the good mines that are trying to wiggle free will face enormous structural tax and national royalty changes.
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Finally, do the bankers that run the bullion banking business understand that the days of the dollar are numbered? That the dollar has no intrinsic value, and that it can't obtain value from being a medium of exchange? That the quality of the cash dollar is undergoing a substantial and fundamental change from that of being, in effect, an oil receipt backed by gold exchange (at a controlled exchange rate approximating redeem ability) in the LBMA, to that of being nothing in particular at all finally trading as fully floating currency as it had before 1980?---------------
Again, of course they do! We must grasp human nature, we manage our business and then we manage our "personal affairs". Two different perceptions, right? You run your business in the current political climate as you invest your wealth for the future political climate. We have to see the fact that the gold markets have been used for the past 20+ years in preparation for the next 20+ years. Their real transition only began a few years ago. The road to $30,??? / gold begins with the dismantling of the past dollar / gold
exchange rate mechanism and everyone that trades it. For these last few years you can't see it in the price because it's in the flow. What you see and feel right now is what being on the road is all about. A period of transition.
It arrives in the cries of investors clinging to what they thought was gold, only to find it wasn't. Owning physical during this transition may not show a wealth increase until the old paper markets really start to dissolve (or then again it may?). The people who think they are going to just ride paper and transition over after they realize their leveraged profits, don't have a clue. When the discounting begins (for real), the paper markets will close and bullion will disappear. Even the physical dealers will stop for a while. You can guess where trading will start again, in the $?,??? range.
---------------
Is the gold redeem ability point lost on the LBMA members as it was lost on most actors in the financial markets? Is the "de facto" dollar redeem ability (into paper gold) - through exchange at the LBMA - a true representation of the system till the advent of the Euro?
---------------
I'll work on this later,,,,,,thanks ORO, hope all this makes the click go off.
USAGOLD: Good UK post. Will add that to the "to do list".
FOA
FOA (12/10/99; 18:23:05MDT - Msg ID:20712)
Comment
USAGOLD (12/09/99; 13:23:11MDT - Msg ID:20641)
Hello again Michael,
That was some good post. I received a lesson on Mountain Economics and learned of the driving force in Mid America. I agree with you in that Euroland will grow as a defence machine is produced. It seems that self defence is an ages old component of daily life and commerce. Yet, the process of building it is always more employable than using the products for their intended purpose.
Yes, Margaret Thatcher understands the outcome and is positioning her thoughts for the entertaining discussion that will come. We will have to watch this closely because it isn't often one gets to watch a nation "talk themselves into doing something" that helps all their citizens.
We also have to correlate into the equation that; if building a defence in Europe is economically good, then dismantling NATO will further slow this part of US GDP. If it's good for the goose, it's bad for the duck!
England knows that if they go with Europe, their political reason for defending the dollar will be gone. No reason to hold dollar reserves; no reason to support a paper gold marketplace; indeed, no reason to trade with the US. Except to sell us their beef (smile). Yes, as the UK slides into the Euro fold, others will take note and follow. America will be forced to withdraw inside itself and increasingly share the world with the world. None of this would be so bad if only the dollar was not so dependent upon others "holding it for reserves" as opposed to "using it to buy US goods.
Thanks USAGOLD,,,,,,,,,,,,,FOA
Note; I reread my earlier post and am sorry if it was not well put together. Am very involved right now. Will reply to others later tomorrow.
FOA (12/11/99; 16:21:18MDT - Msg ID:20767)
Comment
PH in LA (12/09/99; 08:21:12MDT - Msg ID:20632)
As Time Runs Out
FOA:
Today Bill Murphy writes: "Some in our gold crowd talk of settlements of physical gold. The Frank Veneroso's of the world believe the big guys are SO SHORT gold they cannot get out. That is the reason for this continued manipulation. The gold loans are over 10,000 tonnes now. The shorts are trapped. Thus the gold loans are not loans because they cannot give back the asset. Ted Butler (I Accuse) is right. The loans are a fraud. THERE CAN BE NO SETTLEMENT - what BANK makes loans on something that cannot be paid back?"
If I read your thoughts correctly, the evolution of this situation has been as the intentional laying of groundwork in preparation for the new reserve currency status of the Euro as it takes over from the dollar. If the bove -mentioned 10,000+ tonnes is truly "unrepayable" and the ultimate solution (after the collapse of the current dollar-based settlement system) is intended to be the establishment of a Euro-based gold trading mechanism with final settlement being allowed in Euros to establish it as a viable reserve currency, would it not be fair to say that the new trading/market system in Euros must be openly established soon to provide for a (quasi-?)orderly transition as this all unravels? With the public accusations now being launched at Congress by GATA, isn't time running out even faster for the Euro organizers? It seems unlikely that they would have anticipated such a developement to be coming from within the United States in this way.
What a story!
-----------------
Good Day PH! I'll build on your observations.
It has been quite a process and is becoming more open as time goes by. Even now, regular gold bugs that are high profile traders are coming around to the implications of all of this. The public is learning about all of this well before the fact. Something Another wanted to happen. GATA is doing a great service without the legal actions. If they wanted some real support they should jump on to the direction this is going and advocate a new physical marketplace. Having opened some Western investor eyes, this direction would impact the thinking of the mining industry. Before it's too late.
Still, a large segment of the Western mindset has been trained that gold should be in the $500/$600 range because fabrication demand says so. They give no thought what - so - ever about what gold would be trading at if it were supplying the demand of a pure physical market. A market that must satisfy the void created when the dealers that trade 30 million ounces of paper gold a day, have lost so much equity that they cannot quote a paper price any longer. Add to that the further demand equation of world investors "holding real gold" as a "background currency"! An action that will mimic the ESCBs in their new style of using gold as one of two currencies to settle real accounts. The IMF has already begun new action of accepting gold as a real account payment and now the Dutch follow this trend.
Under these circumstances, most modern investors cannot see the leverage that holding just one ounce of pure gold implies. Yes, everyone accepts the point that a huge domestic dollar inflation would justify a super gold price. But reject the fact that a coming currency crisis could trigger this as a sudden event. They wait for a "typical" price inflation, like in the 70s, to point the way, but it never comes. However, present the facts that the dollar has already been inflated more than enough to bring such a high gold price prior to big price inflation and they do not believe it.
On top of this already in place dollar inflation, the Washington talk is all about the Fed's current "largest expansion of dollar liquidity" ""ever""! Within this environment, create a situation that cuts off all foreign dollar holders from domestic US gold and watch the fireworks. They must chase the Euro physical markets with dollars that can't go home and are no longer needed for savings reserves.
Yes, this will create shortages (and the usual big mess), but it will also hold the goods price line to just a panic level (using the same precedent of cooking the current CPI books?). During these times, the price of foreign "official gold" will be traded on and off the books at sky high levels. The LBMA will be in a crisis and physical gold will be in the many thousands. Local gold will move at even higher levels. Again, all taking place with only 5% to 12% inflation. This is a text book example of a process that has always followed when a currency is devalued, internationally. Only, this time it's a reserve currency not just being removed from settlement use, it's being replaced as a reserve holding.
MK noted that the ECB needs to get the Euro "in use" for it to gain acceptance. Yet, the stage is being set for a virtual "run" from international dollar trade settlement. OIL, GOLD, minerals, food, you name it, it's just as ORO is following; "refinance all debt and trade into EURO accounts while the dollar is strong and liquid". Once the tide turns, the need to pay off trade financing in this different currency creates a spectacular demand, even if one does no business with Euroland.
Why do it? If one owes dollar debt that's subject to nation to nation trade outside the US, it's better to transition into Euro payments because "eurodollar" (dollars outside the US) price inflation will play havoc with your business. Opposite, if one holds dollar notes the resulting dumping of unneeded CB dollars from the ECB, China, etc. will also kill your return. In other words, no one wants to trade in a currency that is about to see its float mushroom from a fixed holding into a liquid holding on world markets.
What of all the gold contracts being settled in Euros? You bet! And the DRAW here, is that the ECB marks its gold market to market with the process, later, extending to using "official" gold deals as the market price, not the paper LBMA. When push comes to shove, they will settle Euroland gold notes at the official gold price, "in EUROS"! They can do this because their currency holds exchange reserves in gold that adds value as gold rises. The extra Euros printed to supply this demand will only fill the dollar void and be represented with gold reserves. When the dollar "paper" price starts its "final" dive into the pits by discounting its present credibility, it will drag every contract holder with it. This risk is real and will fuel the drive that demands a new Euroland physical marketplace.
Until such a market is created, miners will continue to settle their production at the dollar / IMF market price. They have to because the Bullion Banks of the LBMA and their affiliates, handle almost all mine finances. To this day they direct most miners marketing practices in the interest of "collateral security". Besides, no one is going to be selling gold into the private BIS system until they are ready to accept it. Even as the "Official" prices begin to gravitate above the paper price. Most likely a local US dealer physical market will appear that also sells "hard to find" "on the spot" physical at the higher than paper price. All of this fuelling the rush into physical and away from the risk of paper. Even mine paper.
Hope this adds a little to your perception and shows what we should watch for in the news.
Thanks PH and everyone, I enjoy this quiet time to understand your thoughts as you understand
mine,,,,,,,,FOA
FOA (12/11/99; 20:53:10MDT - Msg ID:20779)
Reply
Joey (12/10/99; 10:08:48MDT - Msg ID:20693)
FOA: Re Physical vs Paper Gold
1) To my mind, the two prices can only explicitly diverge (setting aside forward pricing considerations of course) when some of the writers of paper contracts actually default on calls to deliver and that fact is recognized by the broader market. I add the latter qualification because both
Ashanti and more particularly Cambior in effect did default but the fallout was absorbed by the financial institutions most closely involved and so a public default was at least postponed.
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Hello Joey,
Ashanti and Cambior did not fail to deliver gold, they failed to deliver margin. A big difference. Prices for contractual instruments can diverge greatly from the items they represent. Even when a bond is defaulted on (it fails to pay interest or return the principal) it continues to trade at a discount to the physical (currency in this case) it represents. I submit, that when a gold loan is actually defaulted on, it can and is often sold into the secondary market at a discount. There is always a "gambler" ready to buy anything discounted in the hope it will pay off.
Comex gold is discounted in price, everyday as players speculate weather gold "could be delivered" at the "current physical price" settled at days end. To date, these futures have mostly shown a "premium discount" because no one has defaulted "in size". Some see the "premium" of future months as somewhat of a "contango" that represents the current interest and lending rates. Yet, in reality, the pure recognition of this is that it is a "premium discount" that compares to present returns on other instruments.
Most likely, Comex would not allow the discount to go "negative" from a lack of physical delivery because the leverage is so great against their members. A cash settlement on close would lock all contracts into accepting whatever discount to physical existed at that time. In a true disorder, it could be in the hundreds, or more!
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2) Once a public default does occur, then to my mind one of two things would happen. Either, as you say, the markets would in effect shut down for a period, probably with official "encouragement" (ref pt. 4 below) and when trading resumed, gold's nominal price would be a great deal higher.
Meantime, presumably, black-market trading around the world would have worked its price discovery magic.
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Joey, I a true international default, "price discovery magic" is usually created from extremely thin volumes. In paper markets, high prices bring supply. In commodities markets, high prices cause dishording. In a currency crisis of biblical proportions, gold is held "at all costs" for things dear. History shows this as fact.
Yes, trading will resume in gold. But it will be for physical only for some time.
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3) Alternately, if the initial defaults were peripheral as opposed to occurring at the clearing level of COMEX or the LBMA, the markets might continue to function while attempting to discount the risk of further defaults. Paper contracts would then trade at some discount to the physical gold price, the degree of which would be determined by the quality of the individual issuer. Given the extravagant degree to which this de facto fractional reserve system has extended credit and fiduciary media, I rather suspect any such interim period of paper discounting would be brief and ultimately unsustainable.
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Sir, the present leverage inherent in our gold market will render any peripheral default as lethal. Even though many fractional reserve dollars will be made available to settle claims, even these dollars will be discounted against physical gold. The markets know better than you and I that "par" is an even trade when perception is lost.
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4) When the gold liquidity crisis finally does occur -- and I confess to being surprised at the continuing survival of the current farce -- my best guess is that the mechanics for dealing with it will be that most paper contracts (such as those on COMEX and the LBMA) will end up being mandatory settled (in cash) at a price or range of prices determined after much intrigue and high drama. If you like, a sort of industry wide and officially managed force majeur.
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I agree! Many gold traders will be depositing "force majeur" into their bank accounts. These loses will drive the run into physical all that much more.
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5) From that point on, any future paper contracts -- or any which have survived the carnage -- will be accepted only very warily and writers will have to regularly establish that the backing is in place. In this, I would have thought it won't be all that different to the aftermath of bank runs back in the good old days before central banks, deposit insurance and lenders of last resort. As one example, high quality, well financed miners might well choose to sell gold bonds direct to investors rather than going through the extraordinary sham of recent years.
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After the fact, we shall discuss #5 again and compare our observations.
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Well, FOA, it certainly seems the few comments I'd intended to make have grown somewhat. Always seems to happen when I start trying to explore a good, juicy topic! I hope you find it so as well and greatly look forward to hearing your thoughts.
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Thank you sir, please continue,,,,,,,,,,,,,,,FOA
FOA (12/11/99; 21:13:41MDT - Msg ID:20781)
Reply
beesting (12/11/99; 17:51:29MDT - Msg ID:20772)
Beesting,
I just wrote a full post to you and my system lost it?? Oh well.
Your question of time? I expect it will begin as the present markets start to fail. Trading will be driven to another arena. Prior to the Euro, the BIS would have been seen in the physical markets creating a premium over paper. Yet, I now think that the decision was given to the ECB and they concluded that it was politically better to allow the IMF/Dollar gold faction to self-destruct. In retrospect it was a good choice rather than be seen as the aggressor. The same holds true with the establishment of a Euro market for gold. This question was put to them in public and they denied it. Again, a smart play.
Thanks FOA
FOA (12/11/99; 22:24:54MDT - Msg ID:20785)
Reply
ORO (12/10/99; 14:19:38MDT - Msg ID:20704)
From the role of LBMA as the main conduit for gold exchange and the core of physical gold distribution, where both buyers and sellers meet incognito, there would obviously be a problem for producers to sell their gold without a location for meeting their buyers. The need to start with cash for gold trades of producers and buyers on a bilateral trade basis would obviously cause many of the gold producers problems, since they do not fabricate and have no direct connection to the retail markets.
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ORO,
Marketing concepts evolve in funny ways. Miners assume all the process of finding, mining, milling and then shipping dore bars. Who said it should start or stop there? The term mining could have only included the actual digging, leaving out all the rest.
Following this same line, why could they not have included fabricating the gold into industry standard certified bars? I know, the gold used to be shipped to the government and stamped into money bars and coins. But, after the governments "publicly" got out of the "gold is money" business, the miners left themselves open by substituting the BBs as the government arm for the process. Today, they should include the cost of fabricating the gold to industry standard and selling it directly to the end users, be they are investors or manufacturers. Let's face it, it would have been better for them to cut deals with the actual buyers of the product than let a middle man control them for the
privilege. For every ounce of gold borrowed and sold to create a forward deal, the mines could have just sold their own production with an interest rate premium. You know, the reverse of the forward deal.
Currently, in a straight deal, the gold is borrowed at a few percent and sold. The money earns interest and some of that interest becomes the premium that the mine brags about as selling over spot. In reality they are just earning low interest on their unmined ore. Yet no one talks about the interest the person loses that purchased the borrowed gold. That's right! The money man buys gold and receives nothing on it. So why can't he cut a deal with the mine to buy it's gold over the time of production and pay him an interest premium over a fixed spot to do it. Then the buyer does the same thing the mines now do. That is earn interest on the unused money until the gold is mined and sold. He splits part of it with the mine.
Honestly, it was the greed of the mine owners that stopped this. They said "we mine gold for our stockholders and will never lock in the price for such a small return". Then they turn around and entangle themselves in the same deal, except it's sold to them as a hedge for a falling market.
You see, they left the physical arena and jumped into a political game with wolves. And never knew they were being eaten up!
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The emergence of the BIS as the trading organization for cash based trading once the LBMA (mutant ninja derivative of the old London gold pool) is closed, should provide a market for the producers and buyers to meet. The transition would not be smooth, however, if the producers are allowed in by the BIS, or their CBs are allowed to participate, the producers should fare well till their home countries start laying significant royalty and export duties, and should still do well afterwards.
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Well, I think a physical market will arrive using the new BIS official price averages. Then it will transition into some ECB sanctioned Euro Physical market. Perhaps conducted by the Swiss as Beesting suggests. Still it's going to be a rough process for mined gold to travel.
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Why should there not be a way for them to trade? Would the (unhedged) producers be excluded purposely by the new BIS based market? Would the (surviving) producers be allowed to trade with the fabrication buyers? With the retail customer? PDG's old coins come to mind as one way of doing this.
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All good questions we will have to follow as this evolves.
Thanks FOA
FOA (12/13/99; 16:44:34MDT - Msg ID:20942)
Reply
Joey (12/12/99; 02:30:15MDT - Msg ID:20792)
Joey,
OK, I see how you perceived my reply. Let ne go further with you and then I'll present a different light to everyone in the next post.
Your words:
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1) You're quite right, I should not have suggested that Ashanti had in effect defaulted. Cambior, however, is as far as I can judge in a slightly different class in that they had sold considerably more calls maturing in 1999 than warranted by their production capacity. In this sense at least, they only avoided default by an effective "restructuring" of their committments.
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Again, I point out that both of these companies did not default. They failed to place more margin (cash money) behind their hedge positions. It made no difference to their broker Bullion Banks that gold was not delivered. As long as they covered their risk with more cash, the position could stand or be extended without physical. The outcome, as we all know was that they had no extra cash!
Recently, in London a big deal was made over the fact that many players in the paper gold arena were not being required to carry appropriate collateral against their short gold position. Whether they were miners, hedge funds, commercials or whatever, they shorted gold in the form of paper and bullion and this was being treated differently from all other asset trades. I submit that this practice has evolved from the past political position of supporting a lowering gold price with official gold sales, lending and most importantly "guarantees". Now that the Euro group has walked away from this position (at the absolute correct time for them), all the players in this field are left holding
positions that suddenly require much more margin, even with gold at these levels. No one is playing the gold lending game today except from being pressured from the possibility of severe risk if they don't. They now perceive this real risk in that physical gold could be withdrawn from supporting the paper marketplace by moving to physical trade only and doing so first on the official BIS levels.
Under these circumstances, commodity gold could become "super gold" and the reverse cash margin leverage against shorts of all kinds could be just enormous. The $600 "drop dead" level for Barrick could seem like the good old days of no margin exposure at all.
Now, with that in mind:
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2) In response to my point (1), you suggest that defaulted paper could trade at varying discounts to physical. As is I think apparent from my earlier post, I agree with this but believe that given the degree of leverage extant, any such interlude would be brief and the markets would soon "lock up". In your comments on my point (3), however, you seem to imply that any peripheral default would be lethal. No doubt I misunderstand your intent but these two reponses do appear to be in some slight conflict.
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Joey,
The discounts will first appear small for some time as players assess the situation and begin to conclude that default is possible. First notice day on comex will find some players actually getting bullion at a discount, but most will begrudge the cash close as not representing a fair market. They are the ones that always roll over or close out without delivery. Not that default has happened or will soon, but that it is a possible risk that will create the first uncertainty. We are "on the road " in this direction as I write. It is becoming apparent that some OTC paper gold may be at risk of forced settlement in some kind of "physical discounted price" of dollars if any "peripheral default" does show it's face. Again, I submit that the discounting of all paper will begin small prior to the real
default and this action will slowly kill the modern paper gold markets. Until! Like this:
Some 95% of the Western traders in paper gold today, do not take delivery. They are in this game only to receive the cash price gain (or loss) as a means of gaining the increases value of gold. For them, the integrity of the market is not in it's delivery ability, rather in it's ability to mark their long contracts to the market price of physical. In their perception, their only risk (outside of price movement) is that these contracts are not settled at a cash price, close to buying spot physical. This is the little known "weak spot" in this system.
If delivery of physical does become somewhat of a problem on the massive OTC world arena, it would show itself first, not in an increased price of futures over physical but in a discount of futures to spot physical. Yes, the futures would rise in price as some shorts cover and the contracts try to keep up with physical. But remember, in a real physical shortage, the world BBs that make this paper market will be selling paper to the very limit of their ability to keep the paper prices from going against them. For them, the physical price is secondary as it's the paper market that creates price discovery and controls the settlement margins. Our recent run was not how the end will appear. When the real play begins, physical (not futures or paper) will soar ($100, $200 or $300+++) the first day! The futures will try to run and then fall far away. Some in the media will no doubt say that the physical bars are trading at a strange premium to the real price of gold. It will come across that the paper price is not in discount, rather it's at par as the coins show this huge premium. I know that's nuts, but we will hear it.
This dynamic will manifest itself in the form of futures being bid to discount not only from the BBs but from the commercial traders not wanting to risk a "par" trade for what may be cash, not gold. In the end, because the spot month creates the settlement price, trading could be forced into immediate cash settlement on close before delivery and not marked to the higher physical market. Or, all futures could see a "cash liquidation" decree as trading locks. Indeed, a close that will find physical trading much higher than that cash close. Large players will understand this well before the fact and dive head first into whatever physical can be had, further gunning it's price.
This is the realm of "super gold". It's what being on the road will feel like. However, the ending of our present paper gold markets will not end the coming rise in gold. No, that rise will have only just begun.
Please read my next post, FOA
FOA (12/13/99; 19:15:01MDT - Msg ID:20954)
Comment
Mr Gresham (12/12/99; 14:04:52MDT - Msg ID:20807)
" " "Econ 675, Advanced Graduate Level Money and International Banking: Market Disequilibrium Scenarios, otherwise known as USAGold Forum" " "
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Hello Mr. G,
Ha! Ha! That is some class you are taking. One of the things Another wanted to accomplish is happening. That being, getting Western citizens to reconsider exactly what gold was in the eyes of other real people. In order for that to happen, people had to understand the evolving modern politics of gold and how it has created a "New Gold Market". One far different from the one goldgugs of the 70s had grown to know and love.
In the beginning, many readers had no basis for comparison when reading most of Another's Thoughts. Yet, we walk this evolutionary trail of gold today with eyes wide open and better able to grasp the impossible road ahead.
Onward:
I have seen one sure sigh that Westerners don't really know what has happened to their wealth. This is demonstrated when one "bemoans the loss of good times" if gold goes very high. It comes across the same every time; " " "if gold goes to $30,000 we won't have a dime and everything will fall apart" " ". Well, Another made his point that the dollar said your wealth was worth more than it really was. Let me demonstrate.
Like this:
Ever been to a high priced auction. They bring out the "Strad" violin and start bidding at $500,000. After a while it goes for $1 million flat and it's over. After that we listen to the perceptions around the room.
One guy in the back, who has 10 million cash, thinks the Strad was cheap at one mill and will pick one up next year. In fact he may get ten if they are offered. Some rich woman has 3 million and she figures her wealth is equal to three "violins" if she ever wanted them.
All around the room the feelings are the same as perhaps 100 million in assets are represented. They all equate their buying power to this one auction. Even though only one walked away with physical, everyone knows they are "strad rich" in wealth. Each goes home for the evening cognac and relishes in this knowledge. Their lifelong effort of hard work and shrewd investing has positioned them to own the wealth of many rare violins. Life is good, very good.
The one problem with all of this is that they based their "wealth holdings" on the outcome of just one auction. Truly, had they all bid, the violin would have gone for much more and their wealth would seem "not so much".
In much the same way our world of dollar assets carries the same risk. All of us stand in the same world auction room and watch the daily bidding for goods and services. We watch the prices of cars, gas, houses, clothes, etc. and conclude our wealth balances based on what we could acquire at this auction should we choose to bid. We see our economy in a light of infinite goods and services but fail to balance this with the potential of others to bid, "in mass". In this light, few have a valid perception of just how many dollar assets are out there. Indeed, without this grasp of "dollar inflation" we blindly consider out wealth and position in life using the present price structure of "things". A system in which we trade paper IOUs of infinite number for real things of finite number.
So, our belief that life is good, largely rest not on the confidence in the dollar. Nor is it in the confidence that others will value and accept our dollars. Life is good, because all of us do not "bid" at the same time! If we did, our life would not be as good as our dollar wealth says it is!
This is the deception in our Western grasp of what wealth is. Our life savings are valued at what they can buy today, even though, in reality it is based on an unknown purchase price in the future. Just as all of the wealth at the violin auction was a phantom in self delusion, so too is our present good life and bank account numbers. The evolution of a people that once griped gold for the real wealth money it was, has proceeded to the hoarding of bookkeeping entries of account credits. History has proven that once humans begin to question the value of this dollar "wealth owed them at a future unknown price" they run a race to outspend their loved brothers. Buying goods now at the "known" price quickly balances the books so no one is any longer fooled. The currency equivalents remain as a trading medium, even as real things are held in the background for value proof.
No, a high price of gold will not rob us of our wealth. It will rob us of this perception of money value that was but an illusion in the clouds. Wealth for tomorrow is found in this context for today; one cannot lose something they never owned. Buying physical gold at today's prices ($200 to $500) will not help you maintain this modern illusion of wealth we never had. But will allow us to later spend the true value of gold that presently exists today. A value few will accept or believe.
Thank you all,,,,,,,,,,,,,,,FOA
FOA (12/15/99; 19:54:05MDT - Msg ID:21108)
Reply
A large thank you to everyone that enjoyed my #20954. Fortunately for us, it is but one in a very large selection of good thoughts presented by all the writers on this forum. Later I will pick up where we left off "on the road", as we consider "what to look for in this political game" and "what to do as events progress".
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Strad Master (12/13/99; 23:12:31MDT - Msg ID:20985)
My friend, you are no doubt very "Strad Rich" in your ability to play. And yes, I did think of you when writing that piece (smile).
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PH in LA (12/13/99; 22:58:37MDT - Msg ID:20984)
PH, your statement that --------" money invested in rare works of art has no need to be invested in stock markets or anywhere else"------- carries your years of wisdom. During all the great wars, invading armies carried off little currency, bonds or stocks but fought with themselves over the paintings, jewels, rare antiquities and certainly old gold coins! Our friend "The Master" can thank the stars they, at least cannot take his "talent".
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Peter Asher (12/13/99; 21:11:36MDT - Msg ID:20972)
Mr. Aster, Sir,,,,With this one statement you have said what it took me pages to describe!!
----- "Put their money to work?" But, money doesn't 'work', people use money to buy thing to work with. The passive investor abrogates his responsibility as a capitalist, and he does so at his peril!"---------
Excellent!
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Crossroads (12/14/99; 11:18:44MDT - Msg ID:21003)
Thanks for your comments!
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GFD (12/13/99; 20:58:41MDT - Msg ID:20968)
Hello GFD, you write: ---------- The irony here is that most would not even consider going to the strad auction - they feel that they have to keep their money working so that it will be there for them in their 90's. --------------
Yes, I know. But the whole world of money is not wrapped up in Western Thought as is evidenced by asking the question; "who has been buying all the gold?" Out there, somewhere, people are buying a value that is not expressed today but will be spent tomorrow. Indeed, buying one ounce of physical gold today is like buying a highly leveraged investment for retirement. That is, leveraged to the extent that the dollar has been printed.
We can do nothing to change the mindset of everyone, yet a few will understand now. Later, if a person has even "one good eye" and is shown where to look, the progression of events will mark the trail. Of course, the price and availability of bullion will be much higher them. This is why I fill in for Another until "politics makes a grand stand" "for all to see". After that will begin the "real" bull market in "physical gold" that I believe will bring more Posts from him.
The whole reason behind this effort, is to implant what is evolving in our gold markets in peoples’ minds, before the fact. This market is "not as before" and has evolved several times during the past few years as the chess players are moved on the board. Truly, an international power and money game that gold is but one aspect of. It may very well be the most profitable investment for our time, but it still remains only one act of a large play. For this segment, the eventual outcome will remain the same, the rejection of the modern dollar based gold marketplace and its effects on all the industry that uses it.
If one knows where the fire exits are ahead of time, some will get out without getting burned. But, some still think gold derivatives (gold stocks included) amount to the same exits. When this market matures, they will find those doors locked. Even more so today than in years past, investors are finding this to be true. And the real fire hasn't even started yet!
So, don't worry about the ones that are well fixed in their overall investment mindset. They may not make a good exit, but exit they will. This world has a way of teaching old dogs new tricks.
Thanks,,,,,,,,,,,,,,,,,,FOA
FOA (12/19/99; 9:25:05MDT - Msg ID:21318)
Quality counts!
ALL:
Long ago society recognized the need to control "confrontation". The history of human behaviour demonstrated that "uncontrolled disagreement" always degenerated into its lowest form of communication. War! Too avoid this, nation tribes responded with unwritten and unspoken "rules of engagement". Early on, during individual field negotiations, generals would position themselves so their opponent could clearly see the large forces that stood behind their words. In other words talk came first, and if the rules of talking did not allow some common ground, a ruthless slaughter would follow. After some bloodletting, they talked again.
Time and death forced a maturity of sorts upon the world’s social skills. It became apparent that human existence along with trade and commerce required lawful conduct to be extended to lawful talk. Without this, the trading of coherent thought was lost at the slightest disagreement. Of course, there would always be some that required a "physical removal" because they did not wish to be part of these national, state or private rules of discussion. We witness this today on the internet.
These "rules of engagement" marked the early stages of our progression to a "more civilized society". The rules were reworked many times and eventually became part of civil conduct on the individual level. Slowly, we created private person social rules and mores that limited just how far we could take a "verbal disagreement" without evoking physical force upon each other. In addition, police were authorized to stop people from using "the verb age of location" from creating a "hostile environment" disruptive to the common good of all.
Yes, we have the right of "free speech" to say what we want "without slander", but we cannot say it anywhere one pleases if it breaks the rules of that location. We may not stand on an airport runway as we exercise our right. Highways (or freeways for the West coast), sea ports and railways are all governed by these same rules of the road that some would even think infringe on their free speech. Still, "majority law" and national law rules where and how loud we may talk. As an example, one may not use a radio transmitter so large that it blocks out all other waves, in an effort to make your point.
Every "private" communication medium has rules and laws that govern how much we may "degenerate a conversation" before it creates a "hostile environment", causes "emotional pain" and eventually impedes the flow of discussion. Again, this action is in the "common good for all", in that it affords us the other right. "The right of free choice"! Because of this, we today may choose to meet at a "town hall" or a "local church",,,,, a "gun shop" or a "protest meeting",,,,,,a dinner club or a local bar", each with its own "verbal contact rules". The law says a restaurant owner may remove a person for conducting himself "out of fashion" from traditional clientele.
Today, the same majority law allows "private rules" to establish "private meeting sites" on the internet. As a people, we may "freely choose" to occupy our "place of discussion" in accordance to its "owners rules". Indeed, the owner may fashion those rules in accordance to the clientele he may wish to attract. Using a business decision where demand creates the need, his "rules" can structure the product offered as the continued success of a site dictates. Be it at the "USAGOLD town hall" or somewhere in the back alley, our freedom of choice is not jeopardized. Nor is our free speech lost as we may go where the "level of hostile environment" meets our needs.
To date, the incredible success of USAGOLD, indicates the demand and approval for the "private rules" and "private enforcement" that govern this site. Here we stand upon a stage and present our views to tens of thousands in the audience. An audience that packs the house and overflows into the streets to hear discussion of the logical progression of world events. Not the "slanderous" accusations of week minded children. My friends, we are on this stage before Centennial clients and mature adults of this world. They pay for their seat by offering their attention to our thoughts. Many have brought season tickets because the house rules create the format they seek.
Thank YOU Mr. Michael Kosares for your "rules of engagement" and supporting our right to choose!
FOA
More on gold later today.
FOA (12/19/99; 16:55:07MDT - Msg ID:21351)
Look at it this way!
JA (12/16/99; 0:08:58MDT - Msg ID:21128)
Questions for FOA
In your post of: FOA (12/15/99; 19:54:05MDT - Msg ID:21108)
Hello JA, If you reread your post 21128, my reply will be more clear.
Our gold market is a confusing, non definable place for most people. Few have the immediate grasp of it that only 30+ years of eating, drinking and living gold can bring. On top of that, even fewer have accepted the impact that an "evolving" market can have on a static mind. Frozen in past beliefs and concepts, modern long traders have been ruined as gold crosses an unimaginable gulf of time and space to regain its roots as real money. Such are the days we witness in our time.
It would offer very little indeed, for us to stand on stage, puff our credentials and say, follow us because we know! In that crowd of "longs" there are perhaps hundreds, no thousands of gold security analysts that have lead their clients and friends down the road of "past performance tells us where we are going". Technical analysis, contrary opinion, supply and demand figures, traders commitments and yes, even future price inflation projections have left them all performing the duties of "managing their substantial, long term cumulative losses". The only group that has survived this ongoing transition are the "physical gold advocates". They have counselled against leverage and espoused the use of real gold as a long term hedge against their other assets.
We have taken a step further and proclaimed that gold should be held as "real money" in a savings account concept. A concept supported by overwhelming evidence that the world's paper currency system is at the threshold of a major change. One of such scope that it has initiated the world-wide buying of gold by large players that also hold this view. In this light these buyers of gold presently own an internationally accepted currency that is highly valued by the ECB nations as the Washington Agreement spells out. A currency who's exchange rate fluctuates only somewhat more than many others. Still, a money that has the potential to become the best investment of the new millennium. And today the loses on this physical position pale in comparison to the performance of all its derivatives.
As the world loses its decades old reserve currency system, official gold usage will only accelerate as nations mark their holdings at an increasing premium to the leveraged paper gold markets. A premium that this modern market cannot match as its magnitude will destroy their overextended equity. This process of discounting paper and building a premium on physical will become a visible example for citizen savers who wish to escape the effects that deleveraging a world will bring. International trading of physical gold will be used to fill the equity void a fallen dollar and fallen dollar paper gold market will leave. The initiation of returning to gold in an account settlement function will drive the demand of physical gold and be a benefit of common people. Background gold currency will be held as a new paper digital currency takes the stage of account settlement. I believe the evidence points to the Euro as that digital money.
But who am I and why do we say all of this? I am the voice you cannot know, therefore cannot measure. The reader must build their own understanding of this as "events build the credibility", not our words. No favour will flow to us for your success! For, we believe that it was the wholesale, blind following of accepted "Western money views" that created this generation of question less savers! They gained their understanding by accepting "past track records" and "credentials" instead of striving for their own reasoning ability. A mindset that is destine to lead to a massive loss of wealth as this unfolds.
You are offered more truth in these Thoughts than many will admit. We say that the major core Central Banks of the world are truthful when they give their gold statistics. Yet some say it was this CB gold that has covered the physical supply deficit. I ask, how can that be when the World Gold Council figures show that most of the sold CB gold has stayed in their system over the last ten years? I say that this deficit is covered from the discarding of gold by Western investors as they exchange their real physical in return for modern gold derivatives holdings. The CBs only offered political backing for this to occur. One has but to examine the LBMA volume figures that Another said would verify this trend. It was noted that this form of trading would explode if gold went below $360. It did and it did as the London pool was several years ago forced to publicly offer their numbers! Today, others declare we are spinning a tail without proof and the CBs are lying.
Even today, the acceptance that CB gold is largely transferred within their system has turned the search for guilt to Fort Knox! Again, we state that the official gold stays put. I submit that the eventual acceptance that paper derivatives are at the heart of this problem will only confirm the eventual destruction of our beloved paper gold marketplace. A change that many in the industry "do not" want to happen. Once all other explanations are exhausted, all doubt will focus on this modern over leveraged marketplace. As official gold prices begin to climb, only then will the "loss of supply credibility" begin the paper discounting phase. Investors will realize the tremendous
leverage inherent in holding just one ounce of physical gold and attempt every means to demand delivery. From these paper markets they will find mostly cash payments that will greatly discount the ongoing physical price.
I openly state that the present paper gold marketplace is not the same as the physical gold market. This will become apparent as the paper market wildly fluctuates between $0 and $xxxxx, all the while discounting an ever increasing official and private physical gold price. Yet, the "static mind" of yesterday year cannot comprehend how physical gold can be priced in the thousands while paper gold contracts and the industry that depends on them fall away. Truly an example of the impact "western thought" has had on real values in our world. The grasping for bookkeeping entries of account in an effort to save something that is nothing.
A bull market in physical gold is coming as this paper marketplace fails. Indeed, an even larger gold bull is coming after that, as "Reality" and "Modern Western Perception" converge. Here, at USAGOLD we will "watch this new gold market together". Truly, a market that is "not as before"!
More later,,,,,,,,,,,thank you for reading and thinking FOA
FOA (12/19/99; 17:47:33MDT - Msg ID:21359)
Comment
Aristotle (12/16/99; 2:20:51MDT - Msg ID:21132)
Hello again Aristotle,
In light of what is being discussed I had to offer your wise words for review:
" " " The destination in any journey is always the easier vision to perceive than the forecast of details to be encountered in route to that destination." " "
Truly the road to super gold will offer interesting encounters! Also:
" " "My best advice to anyone pondering the future of Gold is to always remember that it is a globally recognized and utilized asset, and that not every person's experience and perspective (6 billion of them!) is the same as your own or that of your neighbor. Your perception of Gold could be rocked overnight by a development in China that you never saw coming." " "
Did you know this was coming before Farfel? (smile)
Peter Asher,
Thanks for the words. With this nice meeting hall, we are all going to learn a lot about gold in the
years ahead.
Thanks,,,,,,,FOA
FOA (12/19/99; 18:40:19MDT - Msg ID:21366)
Comment
USAGOLD (12/17/99; 9:31:27MDT - Msg ID:21207)
Today's Gold Market Report: Gold Zooms Higher; Armstrong Closet Gold Bug (Literally)
Hello USAGOLD,
Armstrong is a good example of how many high profile people do own physical gold without the world press knowing it. The more money people have the more they buy gold insurance. And they do it in private, not because they are afraid of government controls, but because they want to buy more at lower prices. It's only the leveraged gold bug that bemoans the falling price because it destroys the short term bet. Just like Farfel said, if the paper players ever grasp that this is a "house game" rigged against them, the market will zoom. Still, the odds are that they will ride the paper train all the way down, without ever understanding it's a separate market.
I wish some readers would come out and discuss this without going into "overload". Myself and many other physical gold advocates are also "gold stock owners". Only difference is that our perception keeps us most fully in physical. The real gold stock boom will come after all the controls have impacted their current prices and gold is much, much higher. Then, even with official taxes and all, their profits will run up a great deal. Just not as much as current conditions will allow.
In any event, the worlds real money is into physical gold, waiting for the transition that must come. Does anyone really think the Bill Gates and W. Buffets of this world don't have a block of gold? It would not surprise me if Centennial was their broker! (smile)
thanks FOA
FOA (12/19/99; 18:59:35MDT - Msg ID:21368)
Reply
PH in LA (12/18/99; 18:14:17MDT - Msg ID:21282)
Questions About America's Gold
Ph, I think just about every other major country (outside the IMF / dollar faction) has private audits of their gold. Too date, it's mainly been the US gold stocks that have worried people because the dollar is so leveraged over this holding. I understand that the gold is intact, but they don't want to draw attention to it. Any audit only highlights how little gold is backing the trillions of dollar assets. That's the reason for the stonewall.
Too a lesser extent, any audit carries overtones of eventual dollar backing. Something the BIS would have a major say in as they could attach it at the old $42 rate. Let's be serious here, if current international law demands the compensation of German slave labour and Swiss Gold value reparations, all hell would break lose for the payment of dollar backed gold confiscated in 71. Both the official and private levels would be after any gold backing our present dollar. The only way the US gold could come into play would be with a new currency. And any whiff of that process (an audit is the beginning) would literally tank the dollar big! Well before the fact. So, good luck to GATA and MR. Turk!
FOA
FOA (12/28/99; 8:34:38MDT - Msg ID:21734)
IMF
TownCrier (12/22/99; 13:16:51MDT - Msg ID:21505)
Hello TC,
You and ORO have opened this up. Below, I reword some of what was already said and add some things. In reality, the IMF could have just accepted a cash payment from Mexico and left gold out of that picture. Then they could revalue a separate portion of gold and issue equity to the BIS for poor country payments. This would have been much too great of a shock to the dollar system as it would openly appear that "gold" was saving the dollar! No, a slow boil allows the transition to work. See below.
Also, the IMF is keeping their gold at different valuations. Profits and loses on assets need not be totally realized. Only the items mobilized. By selecting this process of "revalue after use", it sets a long term precedent that allows the ECB to "transfer" gold from it's ECBMs OR the BIS can use available CB dollar reserves to buy gold at higher rates, as needed to mark the dollar lower!
ALL:
If everyone does not fully understand the IMF gold deals, that's ok. The IMF managers, who for the most part have long been dollar advocates, are still fighting about the real meaning of it themselves! They make statements, then backtrack. Make more statements, then backtrack again.
It's the same as when a politician makes a "clean explanation about policy" on a live camera; then realizes that by making this revelation public it may end one of his departments. Then they say's all sorts of strange things trying to cover their obvious (to them) slip of the tongue. The media falls all over the stage wires, trying to be the first to offer their assessment of the meaning of official words. In the process, the news wires are filled with conflicting, ridiculous accounts.
---------------------------------------------
Like this:
" " "WASHINGTON, Dec 17 (Reuters) - The International Monetary Fund, raising cash to pay for debt relief, sold gold to Brazil this week and bought it back in a complicated deal." " "
Too put this into true life context:
Tell me this,,,,,,,,,,The last time one of you went into your bank and made a car loan payment, did any of you ever hear the banker tell his associate "Old Jim just came in and made his payment. I sure enjoy buying dollar from my customers in this fashion."
Now, in IMF context:
"Old Brazil just came in and made a payment on their loan using gold instead of paper currency. Yes, you heard me right! We " " brought " " gold from them"
----------------------------
Here is another one:
First in IMF context:
" " ``We sold slightly more than 7 million ounces of gold to Brazil and accepted it back immediately from Brazil for payment of an obligation due the same day,'' IMF Treasurer Eduard Brau said in a statement. ``Thus the gold did not enter the market.'' " "
Now in true life context:
" " " Old Jim just called and told us to use his saving account balance to TRANSFER cash into his checking account. Then he wanted us to withdraw from his checking to pay on the car loan. Thus the DOLLARS did not enter the market." " " (Didn't want anyone to worry that those dollars would be sold into the marketplace and depress it's value???)
-------------------------------------------------------
Get the picture?
By announcing these deals in this fashion, the whole process becomes lost in a twisted logic that forces us off the trail. Just as banks make currency payments and transfers "in house", they also do it with gold against currencies. And have been doing so quietly for a long, long time. The problem with the IMF action, is that it was forced out in the open by Euro advocates, "for everyone to see".
Even the congressional denial of IMF gold sales was presented as an effort to stop the price of gold from falling. In reality the IMF no longer had the support of Euro / BIS cash contributions. Without new wealth for the IMF to draw from, international dollar debts were going to fail. A process that would have quickly marked dollar assets to market. Deflation, is the word! Without new contributions, selling the IMF gold would have exposed the system. For, without gold, there was nothing else to "upvalue" for the purpose of maintaining dollar debt. And by extension, the use of the dollar as a reserve currency.
Indeed, a western public, completely unaccustomed to the thought of gold being used as money, has a hard time of grasping this. Let alone understanding it in the fashion as it is reported.
We think of dollars as a real value only because they continue to buy "things" at a relatively static price. All
thought is focused upon the amount of gold that CBs could sell and no consideration is given to the amount of dollars that could be sold. As gold continues it's journey to becoming an official "currency in the open", the public will make a comparison of outstanding dollars to "available outstanding gold". By available gold, we mean whatever gold the physical market will provide (sell) as backing for the dollar. Not how many paper gold contracts can (be created to) back the dollar, as is currently the fashion. As this understanding advances, the leverage inherent in just one ounce of gold will cause "thinking people" to run for physical, in mass! They will forget the present day need to leverage gold using risky paper derivatives. A need created because gold was not allowed to rise to match current dollar currency inflation (perhaps 18%??) Later, physical will be seen as more than enough.
Today, gold is once again being shown as an "official" wealth, currency and money asset; and it becomes such too the loss of the dollar.
Onward:
TownCrier (12/17/99; 16:36:43MDT - Msg ID:21217)
" " "Sure, the gold value would be viewed as the equivalent value necessary for payment on their loan, but there would still remain the lender's obligation to remove the principle quantity of dollars from existence." " "
ORO (12/18/99; 2:35:37MDT - Msg ID:21249)
" " The IMF, acting as a bank, can issue cash in amounts equal to booked financial assets that include country bonds and loans - and gold. Gold reserves are the only way a bank can issue cash that is not backed by debt." " "
ORO, TC:
The IMF currently holds loan paper as assets. Once paid with revalued gold, that portion of gold is held as the new asset. It replaces the portion of the loan "taken down" with that payment. So, the dollar portion of this loan does disappear, just as in a cash payment. Yet, the dollar supply is maintained as the "cash dollars" the country used to buy the gold, is used to maintain other dollar debt. That being the "fund" at the BIS that's used for poorer countries. It was essential for the BIS to pull the dollars away from the IMF bookkeeping so as to keep the dollar floating, if you will. A destroyed currency does not float against anything and creates havoc. A floating system, "in transition" can slowly reflect new values in the marketplace. All along, this has been the goal of the ECB/BIS. Transition the dollar reserve system so as to allow dollar asset holders time to hedge.
Today, this message arrives at your doorstep, on this forum. Consider it well.
Further:
Again, This process is a major blow to the dollar as it introduces gold back into the system. And does so by showing gold as a growing reserve currency alternative! By using gold in this manor, it precludes a deflation of the dollar system by slowly marking down the value of dollars by raising the official price of gold. And doing this outside the valuations of the paper gold marketplace In effect, new dollar inflation is not created, where as the existing dollar currency inflation is maintained and slowly becomes apparent in the gold price! Yes, rising official gold prices, in dollars, will eventually lead to price inflation, but only to the extent that "real goods prices" were not evident in our present world dollar money supply.
Note: The "money pump" term ORO uses to lable this is more like a pump that keeps our system floating. Again, in Western eyes, it's wildly price inflatiobnary. Yet, in reality it only turns lose the price inflation the dollar already has built in! ORO, your view yes? No?
The current dollar reserve system has hidden these "true gold prices" and "real goods prices" for many years. The above process will allow the orderly transferee out of this system without imploding the banking sector through deflation. Only dollar asset holders will lose wealth. But, as I offered before, it is wealth they never had in the first place. We own only a bookeeping entry that described what one "could buy" as long as everyone doesn't buy together. Looking closely, we can now see how "physical" gold dollar inflation will "lead" dollar goods price inflation. The end of a reserve system requires such a transition. A reverse transition most gold bugs do not expect.
All of this brings us back to the present price setting mechanism for gold. The LBMA. Their entire paper gold marketplace cannot survive a return of gold as official money. Reflecting the present world dollar inflation in dollar gold prices will wreck this market and most of the mining companies that need it as a financing tool.
As we walk this trail of gold, official gold transfers will first mimic the paper price. Then, they will exceed the market as they are labelled "premium trades". Then, the paper discounting will begin as "premium bullion" in the public dealer market no longer allows paper to be "marked to the market".
Gold, the only investment needed for the next thousand years!
FOA
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