Saturday, January 30, 2010

Living in a Powder Keg and Giving Off Sparks

Well, we had quite a week! Obama's State of the Arrogant speech confirmed that we will continue on with more of the same. More big projects, cool new bullet trains, and more big, expensive government. Helicopter Ben was confirmed for another four-year term, sure to be chock full of QE, both overt and covert. And Congress cleared the way for another $1.9tn in deficit spending. Quite a week indeed!

It almost seems like there is nothing at all that could stop these guys in Washington. With all the green lights, rainbows and good news, what could possibly go wrong?

It is this question that is most important to us savers and investors. What could go wrong?

Sometimes history repeats. The rest of the time it just rhymes.

Flashback: 1967

London: Nov. 19, 1967 - The new Labour government had inherited an £800m deficit from the Conservatives when it was elected just three years earlier.

Labour Prime Minister Harold Wilson proudly said the party had managed to reduce the deficit over the past three years. Nevertheless, the cost of hostilities in the Middle East, the closure of the Suez Canal and the disruption to exports through the dock strikes had put a tremendous strain on the pound sterling.

Harold Wilson

After weeks of evil speculators pounding the pound, the Bank of England had to, in one day, spend £200m worth of its gold and US dollar reserves buying back sterling in a futile effort to shore up its [f]ailing currency.

It was from this backdrop that Prime Minister Wilson announced the surprise devaluation of the pound.

"Our decision to devalue attacks our problem at the root and that is why the international monetary community have rallied round", said Mr. Wilson in a radio and television broadcast.

"From now the pound abroad is worth 14% or so less in terms of other currencies. It does not mean, of course, that the pound here in Britain, in your pocket or purse or in your bank, has been devalued.

"What it does mean is that we shall now be able to sell more goods abroad on a competitive basis."

The Conservative leader Edward Heath also appeared on television to reply to Mr Wilson's broadcast. He accused the Labour Government of failing in one of its foremost duties - to safeguard the value of the country's money.

Heath said, "Having denied 20 times in 37 months that they [Labour] would ever devalue the pound, they have devalued against all their own arguments."

But the only alternative, said the Prime Minister, was to borrow heavily from governments abroad. And the problem with this option was that the only loans being offered were short-term loans.

Prime Minister Wilson defended his decision to devalue the pound saying it would tackle the "root cause" of Britain's economic problems. He went on to say that he hoped a boost to British exports would lead to increased production and more jobs at home.

He said there would be cuts in defense spending and in some other capital expenditure programs.

Finally, he said that although there would likely be increases in the cost of some imported goods, such as food, he hoped this would not feed into excessive wage demands. [1]

A Banquet of Consequences

This relatively small (14%) devaluation of one single national, non-reserve currency in November of 1967 turned out to be quite a spark in the monetary powder keg of the Bretton Woods gold exchange system and the London Gold Pool. Within weeks of the devaluation the group of central bankers known as the London Gold Pool had to sell 1,000 tonnes of their own gold into the public market, 20 times the normal amount!

Then France under Charles de Gaulle withdrew from the gold pool and demanded US gold rather than Treasury debt in exchange for France's surplus dollars.

And less than four months after the British devaluation the outflow of official gold was so severe that Buckingham Palace had to declare a bank holiday, the London gold market closed for two weeks, and the London Gold Pool disbanded officially and permanently.

Three and a half years later the Bretton Woods system was done.

In 12 short years following the 14% surprise devaluation of the pound, the world saw the end of the London Gold Pool, the end of the gold standard, and a 2,400% rise in the price of gold. If gold rose 2,400% from "Brown's Bottom" like it did in the 70's we would see a price of $6,300 per ounce in 2011. If it went up 2,400% from today the price would be $26,000 per ounce, just to give you some perspective.

Of course my view is that we are not living a repeat of the 70's. My view is that something much more dramatic and fundamental is happening today. Even still, the London Gold Pool is a pretty good case study for understanding today's gold market.

The London Gold Pool

The London Gold Pool was a covert consortium of Western central banks, a 'gentleman's club' of sorts, that agreed to pool its physical gold resources at predetermined ratios in order to manipulate the London gold market. Their goal was to keep the London price of gold in a tight range between $35.00 and $35.20US.

London had become the world's marketplace for gold. For more than a half century nearly 80% of the world's gold production flowed through London. The "London Gold Fix" daily price fixing began in 1919 and only happened once a day until the London Gold Pool collapsed in 1968 and an "afternoon fix" was added to coincide with opening of the New York markets.

In 1944 the Bretton Woods accord pegged foreign currencies to the US dollar and the dollar to gold at the exchange rate of $35.20 per ounce. At that time gold was not traded inside the US, but in London it continued to trade between $35 and $35.20, rarely moving more than a penny or two in a day.

Through the first decade of the Bretton Woods system there was generally a shortage of US dollars overseas which lent automatic support to the fixed gold peg. But the US was running a large trade deficit with the rest of the world and by the late 1950's there was a glut of dollars on the international market which began draining the US Treasury of its gold.

Then, in one day in October 1960, the London gold price, which would normally have made headlines with only a 2 cent rise, rose from $35 to over $40 per ounce! The Kennedy election was just around the corner and in Europe it was believed that Kennedy would likely increase the US trade deficit and dollar printing.

That October night, in an emergency phone call between the Fed and the Bank of England, it was agreed that England would use its official gold to satiate the markets and bring the price back under control. Then, during Kennedy's first year in office the US Treasury Secretary, the Fed and the BOE organized the London Gold Pool consisting of the above plus Germany, France, Switzerland, Italy, Belgium, the Netherlands, and Luxembourg.

The goal of the pool was to hold the price of gold in the range of $35 - $35.20 per ounce so that it would be cheaper for the world to purchase gold through London from non-official sources than to take it out of the US Treasury. At an exchange rate of $35.20, it would cost around $35.40 per ounce to ship it from the US to Europe. So the target range on the London markets acted as a shield against the US official gold which had dwindled substantially over several years.

The way the pool was to work was that the Bank of England would supply physical gold as needed into the public marketplace whenever the price started to rise. The BOE would then be reimbursed its gold from the pool according to each countries agreed percentage. If the price of gold fell below $35 an ounce, the pool would buy gold, increasing the size of the pool and each member's stake accordingly. The stakes and contributions were:

50% - United States of America with $135 million, or 120 metric tons
11% - Germany with $30 million, or 27 metric tons
9% - England with $25 million, or 22 metric tons
9% - Italy with $25 million, or 22 metric tons
9% - France with $25 million, or 22 metric tons
4% - Switzerland with $10 million, or 9 metric tons
4% - Netherlands with $10 million, or 9 metric tons
4% - Belgium with $10 million, or 9 metric tons

And since they, as a group, were doing this in secret, it turned out that they were able to make a substantial profit in the first few years of the pool. Since they were buying low and selling high within a fixed trading range that only they knew was fixed, they reaped substantial profits and even increased their reserves as much as FIVE-FOLD by 1965!

But with the cost of US involvement in Vietnam rising substantially from 1965 through 1968, this trend reversed and the dollar came under extreme pressure. From 1965 through late 1967 the gold pool was expending more and more of its own gold just to keep the price in its range. Seeing this, France (who was one of the insiders and knew of the price fixing operation) began demanding more and more gold from the US Treasury for its dollars.

And as this trend progressed, the world was flooded with more and more dollars that were backed by less and less gold, creating an extremely volatile situation. Public demand for gold was rising, the war was escalating, the pound was devalued, France backed out of the gold pool, and in one day, Friday March 8, 1968, 100 tonnes of gold were sold in London, twenty times the normal 5 tonne day.

The following Sunday the US Fed chairman announced that the US would defend the $35 per ounce gold price "down to the last ingot"! Immediately, the US airlifted several planeloads of its gold to London to meet demand. On Wednesday of that week London sold 175 tonnes of gold. Then on Thursday, public demand reached 225 tonnes! That night they declared Friday a "bank holiday" and closed the gold market for two weeks, "upon the request of the United States". (So much for "the last ingot", eh?)

That was the end of the London Gold Pool. The public price of gold quickly rose to $44 an ounce and a new "two tiered" gold price was unveiled; one price for central banks, and a different price for the rest of us. Even today official US gold is still marked to only $42.22 per ounce, $2 LESS than the market price in 1968! [2] [3]

A highly recommended read is the Fed minutes from its December 12, 1967 FOMC meeting, one month after the devaluation of the pound sterling. It can be found on the Fed's own website, and is an amazing, priceless window into the final days of the London Gold Pool. Here is a small excerpt:
...the announcement on Thursday, December 7, of a $475 million drop in the Treasury's gold stock seemed to have been accepted by the markets as about in line with prior expectations of the costs of the gold rush following sterling's devaluation. What the market did not know, of course, was that only a $250 million purchase of gold from the United Kingdom saved the United States from a still larger loss in the face of some foreign central bank buying, notably the $150 million purchase by Algeria. The actual pool settlement for November took place last Thursday and Friday, December 7 and 8; the U.S. share of the $836 million total was $495 million. The logistical acrobatics of providing sufficient gold in London were performed with a minimum of mishaps, although the accounting niceties were still being ironed out.

Of greater concern, however, was the fact that the drain on the pool was accelerating again, Mr. MacLaury observed. Last week there was a small net surplus, but yesterday the loss was $56 million and today $95 million; for December to date, the pool was in deficit by $183 million. Some of the demand shortly after devaluation apparently represented large individual purchases by Eastern European countries, Communist China, and possibly Middle Eastern countries, although demand was more general in the last two days.

On the whole, it was Mr. MacLaury's impression that the measures taken by the Swiss commercial banks and by some other continental banks to impede private demand for gold worked quite well, although it was clear from the start that such measures could serve only as a stop-gap until some fundamental change was agreed upon. Persistent newspaper leaks--mainly from Paris--about current discussions on this subject and their reflection in gold market activity Monday and today pointed up the need for speed in reaching a decision. Mr. Hayes was in Basle this past weekend and might want to say a few words about recent developments. So far as the prospect for further declines in the gold stock were concerned, the Stabilization Fund now had on hand about $100 million. He knew of no firm purchase orders at the moment, although there was a distinct possibility that Italy might want to buy $100 million before the end of the year to recoup its losses through the pool. No one could say, of course, how many orders might be received from other quarters, but it would be surprising if there were not some. [4]

Of course the London Gold Pool was just one in a long chain of wars declared on the gold price by our modern central banks. [5] The current war on gold, led by the US Fed and Treasury, that we have been living under for at least 15 years now, is being documented - with sweeping precision - by no one other than GATA. Go GATA! [6]

Repeat of the 70's?

As I said earlier we are not reliving the 1970's. In the 70's we lost the gold standard but not the reserve currency. Today we are not only going to lose the reserve currency, but perhaps (and I say most certainly) the very idea of a reserve currency. Can you imagine a reserve that is not a currency? Can you imagine a transactional currency that is not a reserve? How about on a global scale? A global reserve? A global currency? How about a global reserve and a bunch of local or regional currencies? So many options to consider!

In the 1970's the gold market was a lot more "physical" than it is today. So while the flow of funds that went into gold was more directly reflected in gold's price, there also was not a paper gold derivative market like there is today that could swell along with demand and then rupture all at once.

Another difference was that in the 1970's the Dow was cheap compared to the decades of "passive" monetary inflation that preceded it. The Dow was the "virtual wealth" (as FOA says) of the 70's that had the great potential to explode upwards as wayward global dollars finally found their footing. Please read carefully FOA's description of this important distinction between then and now...

FOA (2001): Back in the mid to late 70s Sir John Templeton always drove his point home for investors watching Luis Rukiser's show. (how does one spell his name,,,,, we always called him Lou Baby (smile))

Sir John, living here on Layford Cay, kept saying that the Dow of the 70s was very under priced and would soar. He was the most absolutely correct person stating that then! But more into the mechanics of his perception: he knew that anyone buying the Dow and waiting a decade or more, would gain way beyond mere price inflation. Monetary inflation would eventually drive the perceived virtual wealth of US stocks ever higher. So high, in fact, that their percentage gains over price inflationary gains would be incredible. They were!

Truly, what John was referring to was the effects that simple "passive inflation" has on paper assets; especially in a "reserve currency's" domestic market. In this; real price inflation is mostly exported by importing "real goods". This happens as we export excess credit dollars to buy things. It also has another effect; some of that same exported printed money flows in a circle and joins native investor's buying of local paper assets. When this process first starts, "passive inflation", in the form of massive money creation that's far beyond real price inflation, allows one to gain "virtual paper wealth" even before the markets price out the gains. That is; the Dow stays cheap at first then eventually rises to absorb the money inflation! As long as [CPI] prices don't rise too much.

People that followed his advice, accumulated the Dow over a decade or more; buying "virtual wealth" before the fact! Stock investors made a killing by positioning their assets where this created "passive monetary inflation" would eventually end up. Even though hard money players laughed at them all thru out the 70s, 80s and early 90s! Look who is laughing now? Stocks tromped hard money plays hands down for over 20+ years! Even considering the latest fall on wall street.

My friends:

Today, this same "virtual wealth" effect has been created again and is located in physical gold bullion. I believe Sir John has already made part of my point but I will repeat it.

When a currency system comes to the end of its reserve use -- I'm speaking politically here -- its domestic market will come to a point where it can no longer export "real price inflation" in the form of; "shipping its excess currency outside its borders". This happens because internal money inflation, that is super currency printing, is increased so much that it overwhelms even its export flow. Worse, even that export flow later tumbles as the fiat falls on exchange markets.

The effect is that local "passive inflation", built up over decades and fully reflected in "Sir John's" paper assets, spreads out as "aggressive inflation" and hyper price rises begin. In this action, the very same wealth effect that was eventually priced into "John's" Dow stocks and other assets, begins a long march of being priced into real gold.

Anyone that has accumulated physical gold over this past long period was doing the exact same thing Dow buyers of the late 60s and early 70s were doing: ------ saving "wealth" as unpriced "virtual wealth" stored up over that "passive inflation" period. ---

As "political will" begins to impact the economies of the US,

our old "virtual wealth" that is no longer in the form of "passive inflation" nor limited only to the currency, and is openly displayed in our vast sea of paper assets values including stocks & bonds--------

must now be defended in the open with official printed money flow.

The "virtual wealth" in gold, saved over years by patient investors, will also be priced to market in this process.

Never mind that during the Dow years the paper gold market could not work in parallel with all the other asset gains; it couldn't. Hard money players, trying to somehow play the Dow's game, never caught on to what was happening. Instead of buying "virtual wealth" by saving real gold; they brought leveraged bets that gold would be priced correctly during the "paper asset" years.

Obviously, this "trade" failed our hard money investors as the waves of profits from other paper gains and derivatives leverage were employed against every long bet on gold. Not only that; the "virtual wealth" in gold was never opened for them with the super price inflation they all thought was coming during that era!

Now that the paper game is about to stop for the Dow, it will also cut off the leverage of gold bets. Just as the real game begins.

The reason for this is that our massive, decades-long gains in our stock markets did not bankrupt the leverage in the money system. Where as any massive rise in physical gold values cannot be priced into "derivative gold" without crashing the system.

Remember; in political inflations, money is printed to save the assets as they are currently priced; not to create new loses by saving the leverage that's countering their play!

This paper gold market will be cashed out at prices far below real bullion trading so as to inflate further the books of the Bullion Banks,,,,,, not destroy them. At least this is how the US side will proceed.

Michael Kosares--

In this perception USAGOLD has been guiding its clients, and now the world, in much the same way Sir John did decades ago.

"Buy what has value at the greatest discount and waits for the politics of money to price your new savings correctly"!

The politics of wealth today is centered around gold bullion and only gold bullion: that is where the wealth and power will be manifested: this is where the gains will be! To bet on the rest of the hard market, is to bet against the coming inflation making your asset whole!

Place as much of your wealth in physical gold as your understanding allows and save this "virtual wealth" of the ages today: waiting for it to become real wealth, priced correctly in the market place, tomorrow.

Make no mistake, the wealth is there "but only there in bullion"! Because a free bullion market cannot be denied or controlled

--- when it stands between the opposite goals of political powers! ---

In this: it will separate from the politically crushing reality the current dollar based paper gold markets represents. The premium on bullion will soar!

The "Political will" of old world Europe is about to help make our investment real. For myself, a large percentage of my wealth is being saved by going with the evolution of paper moneys: not against!

This trend is visible now and based on the forward flow of human affairs, not the backward rules of money theory!

Our future is today; if not just around the trail!

Sir Douglas; aka FOA

your: Gold - Trail - Guide

What could go wrong?

What could go wrong is that the producers and savers of the world, those with the most to lose, might just decide that the US dollar under the governance of Obama, Geithner and Bernanke is no longer a safe store of wealth for any length of time. This includes both physical dollars and digital "electron" dollars as well as ALL non-physical "dreams" denominated in this symbolic unit of account, both debt and equity, stocks and bonds. If the dollar is deemed unsafe in the time dimension, then so is anything and everything else denominated in dollars that does not include the built-in safety hedge of also occupying the three physical dimensions!

The key here is time. The difference between the two primary functions of money (transactional medium and store of value) is time. It is the amount of time one is willing to hold onto a currency, or any paper proxy for physical goods denominated in that currency.

Of course time is a relative dimension. So the differentiation between a purely transactional currency and a wealth reserve is up for valid debate here in the theoretical realm. But in the real world we would expect to see a sign if the trend was heading in this direction.

I suppose you could say that a preference would emerge for shorter terms of holding versus the longer ones. As FOA said in 2001, "Are you worried that our 10 year bond, the new bench mark, will soar and squeeze off any recovery? Don't! We will just remove it from use and move to the 5 year,,,,,,,, to be replaced later by the 2 year,,,,,,,, to be replaced later by the 6 month,,,,,, 1 month,,,,,, 1 week,,,,, 1 day,,,,,, then,,,,,,,,,,,,,,,,, CASH!"

What FOA was talking about eight years ago was the government's "statistical efforts" to mask the market's evolving preference for shorter terms of holding dollars. In the ensuing eight years it has not played out exactly that way. But one would still expect to see some visible indication if global dollar preferences were heading to the short term. Or to put it another way, "to the here and now"!

For the really big money, "here and now" cash accounts in insolvent banks that are only guaranteed up to $250,000 are a poor option. But there is no such guarantee limitation on Treasury bills. So for the really big money we might expect to see a rush of funds into the shortest end of the yield curve, the 1 month Tbill. And with such a rush, we should expect to see the value of these bills soar as the yield falls to zero, or even possibly less than zero!

You see, for the really big money, it might be better to receive ALMOST all of your cash in 30 days if the system were to implode during that time, than to only receive $250,000 back from the FDIC. Of course you can always just keep rolling over your 1 month Tbills as long as the system doesn't implode. But as long as you, Mr. Really Big Money, see implosion as a possibility, it's best to keep your funds as close to the here and now as possible!

So what might we expect to see at the very end of this? How might it all end? As the pictures so graphically illustrate, it can't end well.

My friend and fellow blogger Sir Topaz has a few ideas...

The Stock Markets expected, will be (are) the first skittle to fall here IMO. At approx 10% the size of the Bond arena, you'd expect this segment of the Market-place to be jettisoned first.

As the days (and weeks perhaps) wear on, we're likely to see the intensity of this "flight to the Here 'n Now" increase in magnitude.

The Precious Metals (price) will capitulate along with the rest of the general Market ...and this price capitulation will ultimately lead to a point where there's NO METAL on offer at the price.

An acquisition opportunity par excellence ...for those amongst us who fancy themselves as being uber-astute and ...."not one minute too late"

You see, when all this is done ...and the dust has settled, it WILL BE - all about the Metal!


[1] 1967: Wilson defends 'pound in your pocket'
Lessons From The London Gold Pool
R.I.P. - The London Gold Pool, 1961-1968
FOMC minutes 12/12/67
The Early Gold Wars


costata said...


Lucid, cogent and compelling. Great post. Thank you for your tireless efforts.

A big thank you from me to Topaz for helping to clarify my understanding of how the markets would exhibit the contraction of time preference for the USD.

S said...


1. Was it not peter fischer (Blackrock now I believe) who jettisoned the 30 yr auctions to "save the gov't money? i believe he is also the gent who encouraged the treasury recently to up the amount of TIPs on auction. the question is if this was the natural progression down the curve why bother with such a recommendation considering your funding mismatch? Otherwise was the motivation to try and mask the volatility on inference of current monetary policy - elimination of M3 for example.

2. read the piece on gold lease rates and not sure how vault cash to insolvency to gold lease rates? perhaps you can expound on that a bit?

3. The problem with letting the equity market go is that you endanger the entire psyop that the market has become. the intent would have to be to scare the institutional money into the space as retail flows have been to bonds all along. tbills are already negative and we have growing direct bids to thrust the auctions. The Bond market is the us funding mechanism akin to turnign off your oxygen. It can not be sacrificed which is why the gov would rather see the market at 400 than see its legion of primary dealers go the way of the dodo.

5. is the implication here that the major banks will exit the paper and have been accruing the physical all along? I still don't see how they banks hedge themselves other than moving aggressively into a hedged fx book with pre cognition of course circa the fed.

6. as an aside, AIG has a substantial metals trading operation which has so far escaped attention. I wonder how big a player they are?

7. Interesting how another bin laden tape comes out and this time he is concerned with global warming. Seriously? Blair talking tough on iran though Germany is doing deals. The logical disruptive event here is a geopolitical one to shift the fulcrum. The Us dismissing china calls on Taiwan and the Paulson story about Russia threatening to tnk the GSEs plays into the confluencing events. Yemen and the increasing drone activity. worthwhile remebering that all those aircraft carriers are the ultimate backstop and they don;t need oil to run

Tekin said...

From Sinclair:

"Some feel that there is a plan to dump the equity market here so as to be able to bring it back going into November. That is giving these people more credit than deserved as a loss of their only shining gain, the wealth effect of the 1932 type bear stock market rally, is not easily controlled. If it and the economy go into a double dip whereby a new low could be established, it will be a really shocking low. The risk is simply too high that control, once lost, cannot be recaptured. That was proven painfully in the 30s. Once the bear market rally was over it was all toast for years. Only a world war reversed the depression."

Stock and bond market monetization is a serious option to consider imho.

Is there a chance that US government is planning to absorb this liquidity by selling the dollar holders gold at freegold prices? Some sort of open market operation where gold is the liquidity absorbing vehicle?

FOFOA said...

The Jim Rickards interview is a must-hear for any and all freegold connoisseurs and scholars. It is a full hour so set aside some time.


GATA link

Hat tip to Jeff for this one. It took me a while to find a spare hour but I'm glad I did!

Jake, the Champion of the Constitution said...

Always enjoy reading your articles. Gold Wars by Ferdinand Lips is a worthwhile read for your readers.

Jake Towne
2010 Candidate for US Congress, PA-15
Liberty, Sound Money, the Rule of Law, and Accountability

"If there must be trouble, let it be in my day, that my child may have peace.” – Thomas Paine, “The American Crisis,” 1776

jaxville said...

Good stuff happening here. Something I wish to add that those sitting on the fence should take head of...

In October 2008, public gold and silver purchases were overwhelming the ability of various (North American) mints to keep up with demand. In Canada, the RCM suspended the production of all bars 1kg and less to focus on gold maple leafs. The delivery time for GML"s started to run in excess of four weeks. Silver was out in terms of months. I was booking gold orders into late December in mid November.
My shop inventory was nil for weeks aside from items sold to me from the public. By January 2009 things began stabilizing and mints were able to meet demand, which had diminished.
My shop is a very small one relative to most bullion dealers but many were in the same boat as evidenced by premiums and availability during that time. I would hazard a guess that demand was up about twenty to thirty percent.
The point this illustrates is something I have said and held for many years.... One day, all the retail gold in North America (and possibly the rest of the world) will disappear. It will come out of the blue and it can even happen with a down day in Comex pricing. That time will change dramatically how the vast majority of people, including most gold bugs; view gold as an asset.
The time is running out to take a position in physical gold. Silver is important but gold should be your focus.

Unknown said...

11 feruary 2010, doomsday?

Iranian President Mahmoud Ahmadinejad says the nation will deliver a harsh blow to the "global arrogance" on this year's anniversary of the Islamic Revolution.

Maybe oilstop, the Blackoil Swan? Or nuke Israël, the Atomic Swan?


SatyaPranava said...

@jimmy: i don't believe it's scary at all. i think it's just talk. having the west have to mobilize globally to prepare for such an attack would be a blow enough. moreover, in any military situation, unless you hold all the cards,the last thing you do is blow tactical surprise.

i doubt anything happens on 2/11. i'll gladly watch for something huge from iran, however.

Unknown said...

@Satya: After long thinking and doing my researchs, I think it's more cowboy-talk of Ahmadineyad (if he wants nuke Israël, then he nukes it without warning). I've react too fast on this article after reading it... sorry!

Maybe the same peptalk like Muhammed Saeed al-Sahaf

And I hope the greens would win the revolution.

SatyaPranava said...

@jimmy: i think that much of the world we live in is designed to keep the masses in fear, and the article you read probably did its job just fine, or the writer of that article was paralyzed by the thought. fear keeps us from being prudent and rational, and makes us much easier to program. that doesn't mean scary things don't happen, just that they're easier to deal with when our heads are clear.

this goes on a lot in the middle east, and southern asia (since persia/iran is not arab, nor really middle east, IMHO). especially arab cultures run by the west.

oldinvestor said...


These are my thoughts on your freegold idea. I wanted to se if my very simpleminded ideas are in sync with your analysis.

I believe there are 2 main things that need to happen to fix the world’s current and recurring economic convulsions, and to set us on a course of sustainable economic stability.

The first thing that needs to happen is to extinguish our current unpayable debt. Taking unfunded entitlements, derivatives that will not be successfully paid, etc, there are Hundreds of Trillions of dollars (and other currencies) of completely unpayable debts in the world.

By “unpayable” I do not mean “hard to pay”, I do not mean “it will take a long, long time to pay”, I do not mean “governments will have to inflate tremendously to pay”, and I do not mean “growth will take a very long time to pay”

I mean it will be absolutely Impossible to pay off the current accumulated debts of the worlds debtors.

If something is impossible, then it obviously will not happen. So what will happen? There are two and only two things that can happen to extinguish a debt. Either it will be paid off by the debtor with earned debt-free income, or it will be extinguished through some form of bankruptcy.

Since I am going to assume that the former is completely impossible, then the latter is the only and inevitable outcome. Thus, it is inevitable that most businesses, states, and nations will go through some form of bankruptcy or repudiation. There is simply no other option facing the inevitable unpayability of the current debts.

Note, for this to happen, there is no need for anyone to campaign to adopt this, no need for any congressional laws, no need for anyone to agree with this analysis. Forces already set in motion, combined with the natural laws of money and the economy will make this outcome inevitable.

Why will inflation (money printing )not be able to pay of these hundreds of trillions of dollars of unpayable debt?

The debts are in the hundreds of trillions, but the practical ability to print (by large modern economies subject to the bond police) is in the tens of trillions. As happened in the 30’s, and a number of other previous debt collapses caused by accumulated unpayable debt, the ability to pump money was vastly outstripped by the much higher imploding debts.

There is another and more important reason that printing money can not extinguish debt. The term “printing” is a misnomer. Every dollar or other unit of currency is currently brought into existence by a process of borrowing from some central bank entity. It will seem odd in the extreme when one fully grasps that the governments of the world have abdicated their responsibility to create and regulate their own currency, and instead borrow at interest their own currency from central banks, but there it is.

In other words, every dollar that is “printed” or monitized instantly starts earning interest payable. I call it starting the “interest rate clicking time bomb ”

This is the central fact guaranteeing that debt will inexorably build to unpayable levels. Every dollar that is issued starts to accumulate debt. To pay this accumulating debt, yet more interest earning dollars will need to be created somewhere in the system. You can see where this is going.

oldinvestor said...


This brings us to the second thing that needs to happen to fix the world’s current and recurring economic convulsions, and to set us on a course of sustainable economic stability.

Once the unpayable debts are cleared away, we must start over with some form of sound money.

The key feature of this sound money is that it does not come into existence through a process that simultaneously creates the interest rate clicking time bomb .

It is only in this way that the inexorable growth of debt will not lead to the periodic crises that revolve around unsustainable amounts of credit (debt) ballooning to the point that they shut down the system.

There actually is a well developed school of thought that delineates how to do this Google the terms “debt free money“, or “sovereign money“.

In short, what this school proposes is the sovereign state directly take back the ability to create debt-free currency and simply spend it into circulation through the ordinary operations of government.

For those who are not familiar with this school, two objections immediately spring to mind.

The first objection is the issue of backing. In this scenario there is nothing actually backing each unit of currency. How can this be sound money? We must separate the two issues of Backing. One issue is being able to exchange a unit of currency for its backing with its issuing government. The other issue is its “backing” being a mechanism to force the issuance of currency to be limited, thus forestalling inflation.

Being able to exchange a unit of currency for a unit of whatever backs it is really of little or no importance, as one can easily take any unit of currency to any number of private businesses, and exchange it for any units of potential backing one may like (such as gold, and at a significant premium to any official rate of exchange).

The real function of backing is to limit the issuance of currency so that it will not lead to runaway inflation.

This leads us to the second objection, that debt-free money will lead to over-issuing of currency and thus widespread inflation. In the past where this has been tried, it has lead to hyper inflation because politicians could not resist unlimited money creation. Indeed this was one of the original motivations of the Fed and other central bankers, to isolate the temptation to over-issue from politically elected leaders and thus attempt to have some limit on issuing.

We have seen how that has worked out, but the key point is that we must not confuse the legitimate objective of putting a reasonable limit on issuing currency with the unintended(?) consequences of issuing a currency with unpayable debt appended to each unit.

oldinvestor said...


We need to have a limit on the amount of currency in circulation in order to prevent debilitating inflation. We also need to have a mechanism of issuing currency that does not involve the creation of simultaneous debt. How can we accomplish this?

There are several potential means. One could simply mandate through regulations that governments issue debt-free currency, and do it in a strictly controlled way such that it does not accelerate into inflationary amounts.

Theoretically this should be possible. Probably the best way would be to put this in the form of a constitutional amendment to insulate it from popular political swings.

I personally feel that theoretically this would be the best way to resolve our monetary dysfunction. However, there is the issue of practicality. What is the chance that this would happen politically? I feel that the chances of such a constitutional amendment passing is slim to none, considering the interests that benefit from the current arrangement.

Thus we must turn to options that have a reasonable chance of adoption.

Here I find the freegold ideas proposed here to be interesting. The key point I find appealing is that there appears to be included a mechanism of automatic adoption. As I understand your proposal, there will be a natural movement by individuals, once our current dysfunctional system naturally devolves, to use Gold as a store of wealth, and their local currency in the course of everyday business, with the value of gold revaluing in order to take up the store of value function of money, and the local currency taking up the function of everyday commerce. Please forgive me if I am oversimplifying here.

What I have perhaps missed is the mechanism you envision in the creation of that currency. It would seem to me to that if the envisioned creation of the currency was still through a mechanism that involved the borrowing of it into existence and the maintenance of the interest rate clicking time bomb, then the credit and debt cycle would seem to remain in place and result in another credit contraction depression at some future point, regardless of the wealth preservation function of gold that you envision.

I hope to hear from you here and clarify this point.

Unknown said...

@Satya: Yes, I realise that. I understood the global banking system and the power of the (corrupt) system. I know that the Arab countries are runned by the West and his 'printing power' to buy, create and design fear by indoctrination and suggestion (like Noam Chomsky's books, very good and clever literature).

And understanding the banking system (how does the printer works) is knowing how to handle and to survive the system.

Unknown said...

@Satya: And you would like this brilliant article



FOFOA said...

Hello Jake Towne, Champion of the Constitution,

It looks like you have quite a run ahead of you! Best of luck. I will be pulling for you, as I see Mish is, and Judge Napolitano. Keep up the great writing and don't forget us anonymous little guys when you hit the big time in 2011!


FOFOA said...

Hello jaxville,

Thank you for your comment. I can confirm your observations with my own personal experience from October 2008, specifically the 9th and 10th.

Many people don't understand how a gold dealer works in a volatile market. The dealer's stock is not necessarily his own gold. In some cases it is obtained with credit. But in any case, the dealer wants to replace his stock as soon as possible after a large sale. So on busy days he will be in constant contact with his supplier locking in a price to replenish whatever he sells.

When I buy gold from my dealer, it is not the difference between what he bought that specific piece of gold for and what I paid that he calls a profit. It is the spread between what I paid and what he can lock in right after I leave.

During normal times he will often have an equal number of buyers and sellers coming into the store and will not have to call his supplier very often for quotes. But when the sellers stop coming in, then he relies heavily on whatever price his wholesale supplier is quoting him over the phone; a price that can change dramatically during a single day.

On October 9th, 2008, I remember that my dealer only had gold Eagles in stock and he would not let them go for less than $1116 because his restocking price was something like $1066 from his supplier if I recall correctly. There were several of us in there at that time, so he was not just quoting this to one sucker. Then on the next day, October 10th, 2008, he wouldn't sell his Eagles for less than $1,259. Again, there were several people in the store.

I've never seen anything like it before or since. It came completely out of the blue. On October 9th the PM gold fix was $883.50. And not only that, but it had just FALLEN $20 from the 8th! On the 10th it went back up $20 and then on Monday the 13th it dropped $70 to $831.50 and continued on down into the mid and low $700's!!

It is my suspicion that the next time this happens it will not revert back to normalcy the way it did in 2008.


FOFOA said...

Hello oldinvestor,

You asked me to compare your Thoughts on freegold to my own.

On your first point, impossible debts, I would add that the debt mountain cannot be settled in satisfactory terms at today's prices. By satisfactory terms, I mean real (physical) terms to a percentage satisfactory to those that hold the debt as their wealth reserve. In this sense you are correct, it is absolutely impossible. But debts can be inflated away as long as they are denominated in the inflating currency.

There are two specific risks to fiat debt "savers"; default and currency risk. You seem to be focusing mainly on the default risk, but in a way, currency inflation is also a de facto default performed by the monetary authority rather than the debtor. So on this point I would say you are technically correct.

Your second point is; "Every dollar or other unit of currency is currently brought into existence by a process of borrowing from some central bank entity."

This is not entirely true. Monetary base, or base money is not borrowed into existence. It is printed. Through Quantitative Easing the central bank can print raw base money and purchase troubled or non-liquid assets from anyone, including commercial banks, the GSEs, foreign central banks and even the Treasury. Ultimately this process will likely extend to pension fund and other entities as well.

This process removes the illiquid assets from the marketplace and replaces them with printed cash. Another form of "unborrowed printing" is these currency swaps with foreign central banks. Theoretically all of these processes can be reversed if the Fed has enough determination to do so (and contractually sets it up in advance). But practically, they will never be reversed. In fact, they will likely be accelerated.

When I speak of base money (which is true "here n now" money, the cash in the ATM's etc...), notice that in places that experienced true hyperinflations like Germany and Zimbabwe, the entire money supply quickly became base money while broad money categories (CDs, MMMFs, even bank credits; the kind of money that is "borrowed into existence") quickly faded into insignificance and then disappeared altogether.

This is exactly what FOA was talking about in this statement: FOA: "My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationists get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms! (bigger smile)"

Your third point is sound money. On this I disagree with you. Not that sound money would not be a good thing, just that it will not happen. And anyway, I am not advocating a Quixotic assault on money. I am simply observing the change that is happening and how to profit from it.

You say that only through sound money can the "inexorable growth of debt" be controlled. But I see another way. Through the natural separation of monetary roles in the minds of men which is happening today. This has nothing to do with new laws or agreements. It is simply the repudiation of fiat-denominated debt as a store of wealth.

Debt grows because people with savings are willing to buy more and more debt and hold it as their savings or wealth. This cheapens the fiat and creates relaxed standards in lending because the banks know that the loan papers can later be sold for a profit to the savers. This process is true for pension funds that hold CDOs as well as for the PBOC that holds Treasuries and agency debt.


FOFOA said...


Your fourth point is "debt-free or sovereign money". On this subject I have no qualms. We could certainly use a change in our fiat system. And under Freegold it doesn't really matter if the fiat is debt based or created from thin air by the government.

On the issue of "backing", under Freegold, every currency unit will be backed by gold through the free market. You can always sell your fiat for gold. But the price of gold floats. It is not fixed like it was during the gold standard. If you are a "super producer" who is able to earn more fiat units than you need to live on, then you will buy gold at the current price. This will store your earned value for later and protect it against the uncertainties of fiat. On this issue your explanation seems right to me.

On the issue of controlling currency inflation, this will be automatic when there is a free floating gold price. The only thing that separates a fiat currency from becoming toilet paper is the amount of time people are willing to hold that currency. The first people to be affected in an inflation are those who hold it for the longest time, the savers, the super producers. The earners and spenders (people living paycheck to paycheck) are the last to be affected.

So in the early stages of inflation the tendency of the savers will be toward shorter and shorter holding times. The alternative; gold. In the later stages of an inflation the earners and spenders will also alter their holding timeline. In Zimbabwe's hyperinflation workers would be paid twice a day and take breaks to run out and spend their money before returning to work.

It is this dynamic that will counterbalance the printing government. In order to thrive, the government will need to strike a careful balance with its rate of printing, its taxation through inflation. The government's goal will be to encourage activities that can be taxed at the highest rate. Those activities require investment so sheer printing has a definite point of diminishing returns for the government as it drives investment capital into hiding.

Under Freegold these dynamics will become very clear to the government. Today they are shrouded by the level of market control afforded to the US banking sector through the exorbitant privilege of management of the global reserve currency. Without that privilege, some things long hidden will become crystal clear!

You referred to what I call Freegold as my "proposal". But I don't view it as a proposal at all. I am not asking for any Constitutional amendments or new treaties, or even any new laws or changes to the fiat and debt system. My "proposal" is not a proposal at all, it is simply "my observations". My observations are that 1.) the dollar will lose global reserve status, and 2.) as a result of this it will no longer have the ability to manage the price of gold. Everything else flows from these two observations. And supporting this unstoppable flow is the political will of 75%-85% of the world that is presently preparing for exactly these two eventualities.


FOFOA said...


Lastly, you asked about what I envision as a mechanism for creating a new currency. I don't. The fact of the matter is that we may not get any new currencies. In transactional use it doesn't matter the final valuation of any currency unit. The dollar can fall quite far in real value and still function in its transactional role. It really doesn't matter if we end up with a new debt-based currency or keep the old one, if we get a "one world currency" or if we just have a bunch of local and regional currencies. What matters is that we won't have a "global reserve currency" because after this crisis gold will shine as the reserve asset par excellence. Just look at the central banks' balance sheets. They contain currency debt and gold. One will go down in value and the other will offset the losses by rising. In the end there will actually be a net increase in many of the CB's reserve balances! The lesson from this will be very clear for all the world to see in the near future.


Richard B. Spencer said...

Fantastic article!

bizbroker said...

I own some GLD and SLV. Do you think this is a bad idea because it's not physical bullion? Is there some gold/silver fund that you think is safe?

Unknown said...

FOFOA alluded to the excellent recent interview of Jim Rickards by Eric King.

I also highly recommend Rickard's profound referenced article "The scorpion, the frog, and Goldman sachs" which ends thus;

"Wall Street likes to say, “what’s good for Wall Street is good for Main Street.” That’s the scorpion talking. What’s good for Wall Street is good for Wall Street. Never forget it."

This truth is elemental. All else is a charade, a child's fairground punch-and-judy parable. No one really believes it. Everyone is waiting so see what comes next.

Anonymous said...

To Dave Hawkins:-
Yes ...and No!
Then again, if it's in Dollars you're thinking, you'd probably reverse those answers.
It's all to do with what function you want and need your "metal" to do Dave.
In a "benign" circumstance, I would suggest the latter may be the case ...but in such times, their $-performance might disappoint.
In a volatile environment (as we're in currently), you might expect a good performance (price-wise) ...but fall at the last hurdle due to dysfunctional market dynamics.
Above all IMHO, Gold and Silver are the Systemic antithesis ...and should be viewed as such ...uniquivocally!

Michal said...

FOFOA, an excellent article!

Also, a nice video to watch - hat tip to Jim Sinclair.


costata said...

Dave Hawkins,

GLD and SLV give you zero entitlement to physical metal.

Some ETFs offer a "guarranteed entitlement" to metal. Using one of these funds to hold your metal comes down to one question: Do you trust them to honour their commitments?

If the answer is NO, then IMHO you have to have direct ownership of physical metal preferably in your possession. A second best might be secure storage.

FOFOA, would you trust, say, VIA MAT to store metal if you didn't have a safe place to do so?

S said...


Listneing to Geithner today it was striking to hear him reiterate again and again that the US depends on the "confidence" of the rest of the world. the following link makes the same point (

I am curious about your point that freegold is in essence a floating store. In many ways you could turn your argument about derivatives being a sponge to suck up liquidity on the notion of freegold. I am not making that argument, but I am struck by the idea parsing that seems to happen when you consider freegold vs. a standard. They are the same thing in all reality. One way or another the two beocme linked with fiat a function of gold. That is a standard and something that simply can not be tolerated in a pure form. Wall street feeds off opacity - just look at the action in the corn and soybean and timber markets over th past two weeks alone! Any kind of standard is by definition limiting.

I would point out that in the just released QDR 2010 the Defense Department had a tidbit in the back of alluding to ensuring the funding mechanism for the US remains open as it is essential to nurturing the industrial complex. It is further interesting that the Defense Department explicitly said that fostering certain defense complex industries must be a goal of policy.

The intial point on confidence goes back to the post about derivatives. I belive Geithner made my point about the confidence bubble and the QDR adds the punctuation point.

costata said...

FOFOA et al,

Re: Perth Mint and Aus Gold Production

A link to an article from Bron Suchecki's blog. (BTW he works for the Perth Mint.)

"The Perth Mint will acquire full ownership of the gold and silver refining business in Perth and Johnson Matthey will acquire full ownership of the platinum and silver brazing alloys business in Melbourne."

"It is a move I am very excited about as it gives the Mint direct control over the refinery’s output, which is typically between 300 to 400 tonnes of gold a year."

"The substantial physical inventories needed to support this throughput, and the Mint’s own stock, have been backing Depository client metal for many years. All this acquisition will do is change the refinery’s inventory from being listed as a metal receivable in the Mint’s financials to being a directly owned asset."

"This should increase the comfort factor for many Depository clients even though it doesn’t really change the fact that their holdings have been, and always will be, backed by physical."

And this from:

"Australia's gold output is expected to rise by 13% to 246 metric tons during the 2009-10 financial year ending June 30, largely thanks to the start up of Newmont Mining Corp.'s (NEM) Boddington mine, the Australian Bureau of Agricultural and Resource Economics said Tuesday."

"Gold exports from Australia are expected to fall by 6% to 412 tons during 2009-10, reflecting lower volumes of imported gold that is refined in Australia and then re-exported."

IMO the excess of exports over local production leaves plenty of headroom for the acquisitions by the Giants that A/FOA described. This is especially so when we consider that the headroom was probably even greater during the period in which the purchases were made.

Ishkabibble said...

"S said... fofoa,

Listening to Geithner today it was striking to hear him reiterate again and again that the US depends on the 'confidence' of the rest of the world."

The very fact that the US has to reiterate the importance of global trust and confidence is proof of its absence. One does not inspire faith by talking about how, in the absense of said trust, the US will fail.

Michal said...


in addition to costata's question about ViaMat - what do you think about storing one's gold with BullionVailt w.r.t. FreeGold scenario?
High liquidity might be an advantage - the only (obvious) shortcoming I can see is that the gold is not in your possession (but you own it nonetheless). Do you think that is a disadvantage important enough not to use it if one is certain of FreeGold coming?
For my part, I do not think so - precisely because of the property rights on your gold - but I would very much appreciate your expert opinion on the matter.

Thank you.

FOFOA said...

Topaz on FreeGold

Unknown said...

@Costata: Here the reaction of Doug Casey on VIAMAT.

SatyaPranava said...

btw, jimmy...a pretty scary article, though backed up by some seemingly solid figures. thx

S said...


Per your comments on physical, could you comment on the best strategy in your view for buying coins -- i.e preference and least chance of beijng ripped off. Wuith the Tungston articles and the global Mint's haltiong production, the question is why if they have an incentive to cheat on the bars and in the fx market would they be forthright in the coins market - provided they too have a freegoldesque soltuion in mind (or inevitability). In other words, why eagles vs. krugs vs. maples etc? Difficult to get a read on what is oficially sancitoned and what is not.

Unknown said...

On Harvey Organ a report about the possible backwardation on comex!

Desperado said...

For those of you in the market for gold, Tulving has an interesting variety of small gold coins on special offer. They have Sovereign's, Napoleons, Ducats, Vreneli's...

Tulving Specials

Desperado said...

@Fofoa (or anyone else...), On the recent Jim Rickards interview he said something that I have been mulling over for a couple of days: "If a country wants to devalue their currency in gold terms, all they have to do is print money and buy gold". This concept made clear a scenario I have been thinking of where countries entering into trade wars devalue their currency against gold in order to avoid "competitive devaluations" with other countries.

Switzerland currently has problems because the frank as gone way up compared to the Euro and the dollar too. This is already having a negative impact to Swiss suppliers to, among other branches, the German automobile industry.

Switzerland has reportedly intervened in the FC markets to keep the Franc from rising too much against the Dollar, now they are under pressure to devalue against the Euro.

It would seem that Switzerland could simply start printing Francs and buying gold. Later, she could simply sell the gold to soak up the dollar.

This would seem to be another aspect of freegold, and also an easy way for countries to force a devaluation to help balance the external trade deficits.

oldinvestor said...

Is currency debt? Some perhaps not?

I have been thinking of your insistence on holding physical in the realm of gold, and it does make perfect sense. As you say, all forms other than physical in your possession are really only paper gold, someone’s promise to pay, and thus a form of debt.

But what about currency? Most forms of currency we own are similar promises to pay. Think of your bank account, a money market fund, your brokerage account, a bond. These are all someone’s promise to pay you dollars, not actual dollars. There is actually language in you bank account fine print that allows the bank to withhold payment of “your” money under certain circumstances. I am sure some of you have heard of the recent regulations allowing money market funds to refuse redemptions under certain circumstances.

However, the is another form of currency that is not someone else’s promise to pay, and that is actual dollar bills. These are altogether different. They are not someone else’s debt (though they have probably been involved in a debt transaction somewhere along the way). If you cash your paycheck and take delivery of actual dollar bills, then you do in fact hold currency that is not a debt. It is only subject to someone’s willingness to accept it, but of course that is also true of gold, as with everything else.

I am seeing that there is a great similarity to holding physical gold vs. paper gold, and holding actual currency rather than “digital paper money”

In any form of banking crisis, which I see as inevitable, the digital paper could be instantly frozen. Actual currency would be instantly scarce. This lack of actual currency would make it more valuable.

Think of the average person, their rent or mortgage must be paid, their utilities must be paid, they must buy food. All these things are denominated in dollars, but a deflationary collapse makes dollars scarce. My parents went through the great depression, and when the bank holidays were declared they lost all their savings. People were frantic for dollars. Both Hover and Roosevelt pumped like mad at the beginning, but to no avail.

So just as there will be a disconnect between paper gold and physical, there might also be a disconnect between digital paper money and actual currency.

The main difference of course is that one can not print gold at will, and one can print paper dollars. But printing vast numbers of actual $100 bills is very different than “printing” digital dollars. The amount of ‘dollars’ in digital form is vastly more than the currency in circulation. There may come a time when actual paper money kept as a reserve will prove useful just as keeping a longer store of wealth in gold.

So on your pyramid, the level just above gold is listed as (federal reserve notes-paper money). But most people limp into one basket the money they own as their bank account, their money market account, their brokerage account, etc, and yes, also the few paper dollars they happen to have in their wallet.

This pyramid does not differentiate a promise to pay currency from actual currency itself.

Do you think there is enough of a difference to make that distinction and would you recommend a fund of actual currency as well as a back up of gold?

costata said...


Re: Storing Gold

Just to clarify. I raised the storage issue in response to the question from Dave Hawkins. I imagined you might have some strong views on the subject (smile).

For the noobs IMHO if they only take one message from this blog you will have done them a big favour. That message is "get out of paper and into physical right now".

Personally I wouldn't be comfortable with anything except physical gold under my direct control.

The safety deposit box appeals even less if it is with a conventional bank. If I could not store gold closer to home I would sooner go with a self storage unit. I'd fill it with a load of secondhand furniture to create hiding spots. If it was prepaid annually in advance it should be reasonably safe.

Thanks for the Doug Casey link Jimmy. Such a great big world. So little trust!

S said...

old investor
"In any form of banking crisis, which I see as inevitable, the digital paper could be instantly frozen. Actual currency would be instantly scarce. This lack of actual currency would make it more valuable."

In a bank holiday scenario and since there is no hard peg, the currency is almost certain to take on new form (Amero, inside/oputside). Therefoee holding paper currency is NOT a solution and has no resemblence to holding physical gold.

The idea of using your printed dollars (overvalued) to buy anything is in effect devaluationa gainst the basket of commodities. Look atr the chart of copper price vs. inventory. It is ahistoric. Printing money and buying real is expropriation period. In the past it has been in the form of oil and asthe ability to fleece foreigners the only place left is to turn the gun on yourself.

FOFOA said...


The best filter for bad coins is time and circulation velocity through established dealers. Personally I prefer face to face transactions over the internet even at a premium, but that is not an option for everyone. If you don't have any gold yet then don't worry about what kind to get, just find a trustworthy and established dealer and buy whatever he is selling in the 1 ounce and less size. If you already have a core holding, then I like Maple Leafs because they are pure gold in a highly recognizable package. But I think it is important to have a variety which is why I emphasize that the source is more important than the item. For this reason I would stay away from Ebay.

I also own a set of Fisch gauges.


Good point on the self storage! This is why I emphasize that the decision of how to store your wealth must be a personal journey. Search the internet for ideas but don't rely on only one source.


Here are a few questions to ponder. The thing central banks and governments all have in common is that they always cause malinvestment on a huge scale. They print and distribute money stupidly and unevenly which causes malinvestment across the board. Malinvestment is government sponsored economic growth that can only succeed with continued government sponsorship.

If a central bank and/or government all of a sudden started printing money to buy gold, what would be the net effect on an economy rife with malinvestment? Would you classify the purchase of new public gold with printed money as "finally a good investment"? And where would this newly printed money flow to, how would it spread out through the economy, as opposed to "normally targeted" government expenditures?


Anonymous said...

oldinvestor -
Yes, your thoughts on "money" ring true for me also. The "other" form of "dead-set dollars" are of course T-Bills/Bonds Yes?...
...and if we look at the "spreads" in this arena, we can discern an increasing move into the Cash proxies end ...rather than "holding" ...and perhaps get caught with, the further-outs.
Your points are well made Sir.

costata said...

FOFOA and everyone,

I am reading Jim Willie's latest piece.

He is describing Freegold (without the title) and events unfolding exactly as A/FOA predicted. It is surreal.

IMO this is a must read, if only to steel your resolve to stick to the Trail (smile).

"Breakdown In The Gold Market"

FOFOA said...

Thanks Costata. Isn't it neat to see how true Thoughts propagate naturally?

Here's a question to all of you. Can you detect any connection between this story and gold's evolving role?

SatyaPranava said...

FOFOA, that's so strange...i've referenced that artist for years, because 11 years or so ago, i was with a friend in NYC and her family was buying some of his work (a gallery all/mostly devoted to him). i could never remember his name...just kept asking about italian sculptor named giacommo or soemthing. no one had any clue. just an interesting note.

Jimmpy said...

...the much-talked-about Giacometti figure . . . took off like a Roman candle, with multiple bids erupting in the packed salesroom.

At least four phone bidders tangled for the prize, as did several seasoned dealers, including New York private dealer Nancy Whyte, who went up to £23 million before dropping out, connected via cell phone to her anonymous client.

Giacometti, Mona Lisa or Gold

Unknown said...

Hello FOFOA,

Had finally time to read your super article. The London Gold pool looks like the reverse of the Hunt's wrong bet on silver (manipulation for higher prices on wrong times and too big to sell all silver before the crash...).

Also nice sites:

Looks like the author has the same thoughts as you with your reverse pyramid.

S said...

Unknown said...

Goldprice is going to crash... Already -4% unbelievable...

Any comments? Is it the papercrash or real goldcrash?

Anonymous said...

Ahh Jimmy -
In markets as opaque as Gold and Silver, things are NEVER simple, such that they can be explained by one-liners.

Unknown said...

@Topaz: thank you for the nice link!

bizbroker said...

Thanks for this excellent article.

costata said...


The Giacometti might be an example of the A/FOA predictions for the price of works of art in the final stages of the process but it is also an extraordinary work.

Are you aware of any other reports of art auctions breaking records?


Jim Sinclair seems to think that it is program trades and weak hands being cleaned out (yet again) also reflected in stocks and commodities. I guess the software says sell you sell.


Thanks for the link. I notice the silver gold ratio sitting just under 70:1. I would have thought industrial demand is somewhat inelastic. Is there a supply overhang or is this just paper games?

To add insult to injury, right on cue the AUS$ falls out of bed. A cruel blow to my latest gold aspirations.

FOFOA said...

Topaz & Jimmy,

Regarding the Hunt Brothers story, I wrote a post in 2008 based on that very article. Here's a quote from your link:

"The Circle K cowboys flew on three specially chartered 707 jets to Chicago and New York, where they were met by a convoy of armored trucks during the middle of the night. Forty million ounces of silver was loaded onto the planes, and they immediately flew to Zurich, where they were met by another convoy of armored trucks."

In the comments under my post it was brought to my attention that 40 million ounces could not fit on three 707's which I confirmed in my World Aircraft Encyclopedia. But 4 million ounces could. So I contacted the author, Larry LaBorde about the discrepancy and he admitted I was probably right. So I changed it to 4 million in my post. Just an interesting little anecdote to the story.

It's a fascinating tale and would make for a great Hollywood feature film. You can see my post at the following link:

The Story of The Hunt Brothers


Anonymous said...

I wasn't aware you'd already featured Larry's article. It's been a fave of mine mainly as it was written from "close to the action".
Like all (most) writers, Larry was prone not to let facts get in the way of a good yarn it seems, as your excellent sluthing revealed.
cos -
I don't care too much what the "price" of our beloveds do ...but I grimmace in agony when looking upon the current Ratio ...aarrrggghhhh!
Please speak of the Ratio ONLY in my absence. I'd rather just bury my head in the sand all Emu-like if it's all the same to you ;-)
...and the $A-bleeder? ...can't wait for $US0.50 ...and neither can our Tourism/Exports etc.
Pity it all has to end!

costata said...


Interesting observations about the ECB and Euro from Chuck Butler in his Daily Pfennig.

"Speaking of Trichet... I have to admit that when he was handed the ECB President job, I was not thrilled... Wim Duisenberg, had guided the ECB with a strong steady hand through its initial "lack of credibility" tag at the ECB's infancy, and soon had traders around the world, believing in the ECB... Trichet was a French Banker, and as such wasn't held in the same high regard for being a hawk, and a central banker that would provide price stability, like the Germans, and Dutch... But he has done a very stellar job, in my opinion... He has guided the EU through some difficult times, and still the EU's currency, the euro, remains stronger than the dollar by quite a margin...

Yes, I'm quite aware that the "margin" has been shrinking, but it did in 2005, and 2008 too! Only to see the single unit, euro, rally back... And rally because of the credibility of the ECB, for its ability to provide price stability..."

Anonymous said...

Just read your linked article re: the Hunts ...and mu sentiments exactly.
Larry also was forthcoming enough re: the Ag weight issue.
Several years ago I did some (small) business with him (his Southern General 1oz Ag Proofs) ...and found him to be most accomodating ...FWIW.

Unknown said...

@Fofoa: Thank you for this interesting article of Hunt's brothers. I'll surely read it this weekend!

Mike said...

anyone have an opinion on gold latest market action?
is this as planned. the paper price collapsing and now creating physical supply problems. not in gold coins but lbma bars.

costata said...

Competitive currency devaluation, alive and well.

"Two dealers in the region said they saw franc-selling orders under the name of the Swiss National Bank on the EBS trading platform. The central bank was bidding for euros at CHF1.49, far above the spot rate of CHF1.46, they said.

"I've been in the currency market for two decades, but this is my first time to see the SNB doing intervention in Asian time," said one dealer."

FOFOA said...

Hello Mike,

"anyone have an opinion on gold latest market action? is this as planned. the paper price collapsing and now creating physical supply problems. not in gold coins but lbma bars."

Yes, the price of gold took quite a dive, huh? But we must remember that "the price of gold" in today's world means "paper gold promises". And these we expect to dive to zero in the end.

It is good that you differentiated between coins and large bars. I think you may be on to something. This surely is where Freegold will be first sighted!

Clearly there are physical supply problems right now. Have you checked the LBMA GOFO rate today? It is .1275%, the lowest it has EVER been in the absence of a proximate backwardation event, which has only happened twice in modern times.

Isn't it interesting too, that the euro seems to be at a crossroads of sorts? I wonder if there is any connection.

In 2001 FOA said: "One day the ECB will be moving their quarterly "marking to the market" of gold assets to using a local Euro Zone spot physical price."

Hmm... what effect would that have right now? And what precedence is there for such a bold move? Let's look back to Another, circa 1997...

Once again the ECB is acting in a way that lends credibility to it being a true hard backer behind the Euro currency system. The ECB is taking an international, long term stance to managing their money and the dollar faction hates it. They hate it, because such a policy position is no longer open to them as we are forced into a super inflationary direction from which there is no turning back...

Mr. Gresham asks: "The "Giants" you speak of are usually buying the large bars... Is there a limited supply for them to get, and only through the large brokers with their "private wealth management" programs?"

Another answers: I would say the BIS is best broker, always...

We can find one entity in this modern world that firmly holds that gold is "the real money amongst moneys". That entity is the BIS. They are the only bank in the world that can buy physical gold and become financially "stronger" with this act. [This was before the unveiling of the new ECB's MTM-gold concept! So now ALL the EMU countries (including the PIIGS) JOIN the BIS in this novel position.]...

The BIS will not allow the distribution of all gold to settle [paper] claims...

One day gold will start up and BIS will deal with it the only way possible!..

You will not see 80% or more of the gold deals. If it was done with all to see the discount value would be lost as the world price would explode. This is not the realm of any public "wall street". At one time it belonged mostly to the Barron. Now it is large with the BIS and super rich. Wars will be fought over the lack of "visibility" of these dealings...

...the governments will form some kind of real gold market. Perhaps, the BIS will make the market for the world, in much the same way as the LBMA. Understand, the new gold physical market will be not as a commodity, but as a free currency!..

Now the BIS transactions do create a gold market that is "not as before"!..

I don't think the BIS wants to be seen as a currency destroyer so they are doing the buying quietly...

In effect, the BIS now has it's hand on the gold valve and is controlling the contract filling flow at will...

The fact is that they (Euroland) have the gold in the BIS system (never really sold it outside) and do not care what happens to the prices of contract gold expressed by the US or LBMA marketplace. Those contracts (as the gold currency they represent) (SDRs?) will eventually fail..."


FOFOA said...


Hmm... Seems like the BIS has something to do with gold.

Here's what we know right now; The euro today has both real problems and PR problems. It certainly will not let its currency zone crumble, one way or another. (See: Jim Rickards interview) The big question for me is; will it attempt an IMF-style bailout?.. or will it play its 'ace in the hole' right now?

Will it form a separate market for gold, based on physical delivery, run through the BIS, in order to satisfy the demand of those giants who were forced to take non-physical delivery in the paper gold market? This would seem to be a panacea for all the euro's ills. And right now seems like as good a time as any in the euro's short 10-year history. And for the PIIGS as well. Portugal, Italy, Ireland, Greece and Spain... who combined have more than 3,200 tonnes of gold! At Freegold valuations they are no longer PIIGS, that's for sure!

Intuition tells me to keep my eyes open. Perhaps something has already begun in the dark corners where CNBC cameras dare not go.

Here's some more FOA:

"What if me and a thousand others came up with a 1 trillion in cash and used it to lock down paper contracts to deliver us 1 billion ounces of gold. The paper gold market has the means to match our commitments dollar for dollar. I mean, they could put the money up, not gold in a vault, and get on the other side of us,,,,, margin to margin.

OK, now we stand face to face. Even if we had enough free cash to pay for delivery,,,,,, what jurisdiction would let us settle; England, US, South Africa, Canada,,,, who? No, we would be told to cash out and buy our gold on the tiny physical markets. In a Hunt like joke,,,,,close out would come and we would eat it, big time. Even if we broke even, how exactly would we exchange our cash for metal in the tiny bullion markets without driving the price to the moon?

The reason I play this out, in text, is for others to understand that there ain't gonna be a run up in paper gold. That market is a derivative style currency support and it was never set up to be a big time delivery machine. Its control will end when the currency system, it's built on, fails and takes the "virtual" gold market price with it,,,, to the floor! But, long before that plays out, the real bullion markets will get extremely thin and build up a huge premium to contract settlement. It will do this because some financial disorder will invalidate, and most likely, force an official deferral in physical delivery; indefinitely. From there the show will proceed."


FOFOA said...


What happened to your blog? It and your profile are gone all of a sudden.


raptor said...

Ok guys what about a following hypotesis... I have 1 Quadrilion dollars.. OK I'm joking ;), I have alot of money...alot..
I know all fiats are going into oblivion..
So the problem I have to solve is how do I buy gold on the tiny gold market w/o driving price to the moon.. btw I'm also patient guy I can wait 10y.

So I make the following plan...I use half of my money in the right moments to short the market until I can take physical delivery on with the other half of the money..
It is non necessary to do this just once, I can do it on smaller scales over abit longer timeframe..

Yes I will lose let say 20-30% of my paper-money now, but what is this compared to my purchasing power after 10y.

Shanti said...


Reading your latest comments, this one popped up spontaneously;

One of Europe’s founding fathers – Jean Monnet – once said: “When an idea meets the needs of the time, it ceases to belong to its creators and becomes more powerful than those responsible for it”. And he added: “There is no such thing as premature ideas, there are only ripe times that one should wait for”.


Mike said...

your answers are never what i expect and that's what's great about it.

i remember you said that the gold price will go down to $250 on the comex/lbma but the physical exchange will be much higher, and very exclusive and will be very very limited (most exchanges won't be seen).
so as a small guy during this time frame, what if i wanted to sell gold for whatever you think the small coin dealers will also be paying $250 or much higher when selling to them.

i suspect that because dealers make money off the buy and sell spreads that once they can't get anymore gold from their supplies there business model will dry up very quickly and will not honor the paper exchange price and will instead create a new price of how short the supply really is.
we know that a lot of retail investors have bought coins but no one is really selling them, i don think people will sell them for half today's paper price.

also what is you opinion on gold mining shares?
is physical better in this scenario as we are in as this isn't the 70's scenario.
i think mining shares will be better to obtain as we get closer to the currency destruction (gold paper price floor).
all sectors in the stock market will get sold off as the derivative's and currency's get destroyed.

EG said...


I have been reading your blog for sometime, but this is my first time commenting. Excellent blog, I must say.

In this post (, you mentioned:

"The COMEX gold price, which is really just the price of paper, may drop to $200 or lower before trading is halted."

Now we saw the price of physical somewhat decoupled from paper when the price fell to absurd low levels during the 2008 crash. Even right now we have these so-called $50 premiums for physical coins etc. Do you think they will allow the CRIMEX paper price to fall to such low levels ($200) - resulting in "premiums" skyrocketing to hundreds of dollars - as to make the worthlessness of the Gold futures obvious to everyone involved (and in the process lose legitimacy of their paper market and the pricing power it affords them)?

Also, ANOTHER said:

"Watch in absolute wonder as the demand for oil plunges and it's price goes thru the roof. Yes, oil stocks will crash with the markets. And gold? You will never know it's price. It will stop all trading as it slices thru $10,000+."

Was Another referring to physical prices or paper prices?

Jeff said...

interview with shadowstats' john williams

interview with john embry:

FOFOA said...

The race is on for Greece before the ECB exits
by Gillian Tett

"To most casual observers, it might seem as if the main reason why Greek bonds have recently tumbled in price is that investors have suddenly, and belatedly, woken up to the dire state of Greece’s fiscal problems.

But that tells only part of the tale: another factor that has also been hurting the Greek bond price is a subtle, albeit geeky, discussion that is quietly underway at the European Central Bank in relation to its collateral policy...

In the eyes of many Wall Street players it now seems entirely logical, if not inevitable, that Greece will eventually default on its bonds or exit the euro, given the underlying fiscal maths.

To many European bankers and politicians, however, the focus on raw numbers misses the point. To them, this story is not just about economics, but politics, and the determination of a generation of leaders traumatised by the second world war to maintain European unity, almost at any cost. And as the price of Greek debt has tumbled, and yields have risen, doughty figures at the heart of Europe are increasingly likening this to an “attack” on the euro, on a par with, say, the attack on sterling launched by George Soros two decades ago. The potential for some form of political backlash is running high."

costata said...


I think one of the traps that many commentators fall into is assessing things with the wrong frame of reference for price.

As A/FOA pointed out repeatedly there has been a paper "price" and a real price for many years.

What if JP Morgan has been getting the "insider" price all along? Buying from their "hedged" lap dog Barrick at US$300 per oz and able to sell at, say, US$6000 per oz because they could supply tonnage.

Re: FOFOA's comments to Mike about the underlying gold backing of the Club Med EU countries. How about we take this to its logical conclusion (informed by A/FOA)?

The BIS knows the real price of gold. Are they as worried as the market about these countries' collateral or are they applying the real price to their gold assets?

Wouldn't it be a laugh if the ECB and BIS were setting up (some?) of the lenders for a low ball offer while they get a backdoor pledge of gold collateral? What would these lenders get for their trouble? Euros.

In the same process they could deliver the coup de grace to the CDS market, if that is their ultimate intention. FOFOA could this be another way to use the conversion to contract settlement in Euro "neutron bomb"?

Consider also while this "Greece On The Edge" farce is running its course the ECB gets a bonus or three:

1. They can put a scare into other EMU member Governments and those who aspire to EMU.

2. The fall in the Euro gives their exporters some timely relief.

3. EU citizens get more time to wake up to the need to have some gold.

FOFOA said...

Secret summit of top bankers (in Sydney)

"THE world's top central bankers began arriving in Australia yesterday as renewed fears about the strength of the global economic recovery gripped world share markets.

Representatives from 24 central banks and monetary authorities including the US Federal Reserve and European Central Bank landed in Sydney to meet tomorrow at a secret location, the Herald Sun reports.

Organised by the Bank for International Settlements last year, the two-day talks are shrouded in secrecy with high-level security believed to have been invoked by law enforcement agencies.

Speculation that the chairman of the US Federal Reserve, Dr Ben Bernanke, would make an appearance could not be confirmed last night.

The event will be dominated by Asian delegations and is expected to include governors of the Peoples Bank of China, the Bank of Japan and the Reserve Bank of India..."

Sir Topaz of Sydney, where are you when we need you?

Mike said...

FOFOA....would you be able to answer any of my questions i left you?

your answers are never what i expect and that's what's great about it.

i remember you said that the gold price will go down to $250 on the comex/lbma but the physical exchange will be much higher, and very exclusive and will be very very limited (most exchanges won't be seen).
so as a small guy during this time frame, what if i wanted to sell gold for whatever you think the small coin dealers will also be paying $250 or much higher when selling to them.

i suspect that because dealers make money off the buy and sell spreads that once they can't get anymore gold from their supplies there business model will dry up very quickly and will not honor the paper exchange price and will instead create a new price of how short the supply really is.
we know that a lot of retail investors have bought coins but no one is really selling them, i don think people will sell them for half today's paper price.

also what is you opinion on gold mining shares?
is physical better in this scenario as we are in as this isn't the 70's scenario.
i think mining shares will be better to obtain as we get closer to the currency destruction (gold paper price floor).
all sectors in the stock market will get sold off as the derivative's and currency's get destroyed.

S said...



One suspects that the euro attack diversion is well timed. Recall how reluctant the ECB was to follow bernanke into the rate cutting sewer. I think it was FOFOA who posted a video a year or so back that showed a media team filming Obama in the Oval Office which was interupted with a call that had Summers remarking we have a problem with the Germans. To what he was referring who knows, but the interview / PR piece ended.

One could hypothosize that the UK might find itself reliving its dark days only this time in the form of a sovereign (dollar) firewall. Whether this would be remotely meaningful/constructive is doubtful, however it would buy time -- ambrose Pritchard might have a heart attack if the ECB actually had a plan. Perhaps this would be the true test of the special relationship. The BOE has been the testing ground for Fed policy. This week's pullback of bond purchases with the caveat they could restart is a template for exactly what the Fed will say about the mortgage program, to the extent it simply doesn't just extend the buying.

A Euro resultion of some form or fashion would be an interesting tell on the future path with Iran. A Euro fix quasi fix would leave the UK and then the US naked. Military action as tonic? It can;t be coincedence that Brehzinski is challenging Obama to face down iran. Or that the US is selling those arms to Taiwan and meeting with the Dali Lama. The provocation seems calculated.

The Recent action on the heels of China tightening is the clearest indication yet that the Fed has relinqushed leadership (not to mention this weekend's meeting in Australia, which has positioned itself as a bridge between east and west).

What does Bernanke have left to negotiate with - other than cold war brinksmanship?

Regardless of what comes of the Euro situation, austerity is more than a little deflationary.

The news coming out of Japan re riots in Okinawa re basing, the arms sales to Taiwan (& Dali Lama meeting) and further pronouncements from Iran this weekend re Nukes suggest that the playing field is narrowing. Brezhinki was out on CNN with some comments re foreign policy this weekend which is always worth watching since he apparently has the inside line. He called the Foreign Policy rutterless and prodded Obama to face the Iran situation head on.

FOFOA said...

Hello Mike,

When the coin market got real tight in October of 2008 the dealers were paying over official spot, even from the public.

But you don't want to have to sell gold during a phase transition, which is why you should have some survival preparations in place, and some cash too. If you must sell during this time, expect to get a much higher price than today, but probably not a fair one for that time.

In the real world of coin trading the paper exchange price means very little. The only price that matters to the dealer is how much will it cost him to restock immediately. And for this price he turns to his supplier. His supplier turns to his supplier. And so on. This network becomes very important when physical flow is not moving fast enough. This network becomes the new price discovery mechanism.

I will tell you, Mike, even today the paper price of gold means much less than you think. This is not apparent to most of you who buy gold from APMEX on the internet, but in the real world where real goods are traded for cash on hand in the moment things are a little different.

Stores like APMEX actually operate in a little bit of a futures context. Compared to my local coin dealer, who can only sell what gold he actually has on hand, APMEX can sell gold which it has "locked in", "purchased", but has not necessarily arrived at the APMEX warehouse yet. Beyond that, it can even sell metal which it has not locked in and purchased yet. So these are two additional types of sales that APMEX can do that your local coin dealer cannot.

The advantage of this "flexibility" to you, the customer, is that for all intents and purposes it always seems to appear that they have plenty of stock on hand. Another advantage is that you will often get a little better price because of their flexibility to sell that which they do not (yet) have. One disadvantage is that sometime it seems slow to arrive. But the big disadvantage is that on that one fateful day, when the PM supply lines finally freeze up, your order will be canceled. And it might even be an order you placed a week or more earlier. Your money will simply be refunded.


FOFOA said...


This advantage offered by face to face cash transactions will become more clear as things start to break down. And the extra physical premium these coin dealers will charge over spot will separate those that get some of the very last gold from those that will not. Would you be able to fork over $1,400 an ounce if the COMEX was saying it was $700? APMEX might still be selling for $780 but your local dealer wants $1,400. What do you do? Imagine APMEX says "6 week delivery" next to its $780 price. What would you do?

It is the dealer network in the cash, 'here 'n now' market that will find the price that will draw enough gold out of the shadows in order to supply demand. This is how freegold will emerge in the coin market.

Regarding shares, I would ask you with a bit of humor, "what part of physical gold only don't you understand?" But seriously, I don't see the shares working out well for the shareholders in a freegold scenario. Neither did Another. Neither did FOA. I won't go into the reasons right here, but I think they are rather plain to see and consider. If you must play the mining shares for the "big leverage" it provides over and above physical (??), or because you think you are "too rich" and need to spread out your vast wealth to "other gold bets", then do so knowing that it is a gamble. As long as the system holds, as long as the status quo continues, there could be some nice profits in the mining shares, just like the 70's. But you never know when that might end. And when it does, you will probably not be able to exchange those profits you made into the real stuff. At least not at anywhere near par.

As A/FOA said, the real leverage this time is in physical bullion only. And after years of consideration, I have to agree.

And to GG, I believe Another was talking about physical.


Mike said...

fofoa thanks for taking the time to answer the questions and i look forward to your next article..i appreciate your comments.

just so you know based on the theory and advice i found here on this blog i converted(traded) 70% of my silver (comex bars) to gold 1oz recognized wafers without the form of converting it into currency first.
i am also trying to make the bullion as liquid as possible, no bigger then 10oz at this point with the ultimate goal of 1oz being the biggest.

topaz or anyone else...if you have any comments on fofoa's answers please reply...i would love to hear it.

costata said...


Re: "A letter from Another to me." (FOA (6/9/01; msg#75).

As you may recall FOFOA you suggested looking for possible correlations between events of the time and "A letter from Another to me." As you remarked:

"If I remember correctly FOA sat on that letter from Another for a couple weeks at least before posting it. That always struck me as strange. He teased" it several times in the regular forum but didn't post it until much later.

"(the letter) was actually written in May '01. And apparently the ECB and BIS were busy doing something in April '01."

In response to your suggestion I have created the timeline below. Where I felt it was necessary I have included some background comments on events in this extract from the timeline in order to highlight their significance.

This is part of a larger timeline that I have been working on. It covers periods and events that relate to A/FOA's discussions on USA Gold and events subsequent to their falling silent.

Part 1: All Roads Lead To China

Comment: With the benefit of hindsight we can safely assume that in 2000, the Bush administration knew that it had some huge funding requirements ahead for the military actions it was about to undertake. Japan was fast approaching the point where it could no longer be a dumping ground for as much debt as the US Govt needed to issue.

March 11, 2000, the Dotcom stock market mania reaches its peak. The crash wipes 78% off the value of the Nasdaq Composite by October, 2002. (1)

May 2000 Alan Greenspan begins cutting interest rates from 6.5%, hitting 1% by June 2003. (2)

October 2000 UN announces approval of Saddam Hussein's plan to sell oil for Euros. (3)

November 2000 Iraq commences selling oil for Euros.

Comment: By the beginning of 2001 The Federal Reserve has a serious credit crunch on its hands.

Comment: China had been negotiating to join the World Trade Organisaton (WTO) for 15 years prior to 2001. China was originally granted MFN trading status with the USA in 1979. A loophole was used to grant this status to a communist, non-free market State. As a result the MFN required annual renewals by the US President. It was dutifully renewed every year regardless of the sitting President's party affiliations.(4)

"Clinton Grants China MFN, Reversing Campaign Pledge" (May 27, 1994)

"President Clinton Thursday reversed course on China and renewed its trade privileges despite what he said was Beijing's lack of significant progress on human rights."

"Clinton in his presidential campaign had sharply attacked Bush for extending trade privileges to China in the years following the 1989 crackdown on pro-democracy activists in Beijing's Tiananmen Square, accusing him of "coddling criminals."

March 13, 2001 Meeting of the WTO Working Party on the Accession of China. Chaired by Ambassador Pierre-Louis Girard (Switzerland). (5)

September 17, 2001. Press release announcing that the WTO has successfully concluded negotiations on China's entry. (6)

November 10, 2001. WTO Ministerial Conference approves China's accession.(6)

December 11, 2001. China becomes a member of the WTO.(6)


costata said...

Re: A Letter From Another - Continued

Comment: Late 2001 China begins to purchase US Treasury securities in increasing volume. Despite the fact that China had enjoyed a trade surplus with the US since 1985 (7) apparently they had never been a large buyer of US Treasury securities.

In 1999, 2000 and early 2001 their total Treasury security holdings (8) had been fairly static at around US$50 billion. In 2000 their trade surplus with the US was around $84 billion and in 2001 over $83 billion (8)

How often have we been told by MSM pundits that China "had to" recycle their surpluses into US Govt debt?

Beginning in 2002 China's US Govt debt purchases start a gradual upward trend. By the end of 2006 China's holdings had increased by 450% over their January 2001 total and the curve was becoming parabolic (9).












Unknown said...

Funniest article of the day: Shorting gold????? By Brian Nick

EG said...

Thanks for answering my query FOFOA. I totally agree with and understand (I think :-)) the concept of freegold which and am pretty well positioned with the physical. I keep some cash for day-to-day stuff and for trading, the only purpose of which is to convert any profits that I generate into the physical. With the sorry state of our so-called "markets" today it's kinda like picking up pennies in front of a steamroller, but I am already pretty well covered in the physical armor so no worries there.

Also, I think Mike here asked about the big Comex bars vs coins; IMHO as long as there is no doubt about the purity of the Gold, it shouldn't matter whether its a 400oz bar, a 1 oz bar, a coin or your grandma's jewellery. That's the beauty of it - as long as the atomic number is 79 doesn't matter what the shape is.

Unknown said...

Another tip to detect real gold: Gold is not magnetic, use a magneto to check it. If it sticks, then it's false one...

Unknown said...

today's kunstler;

"In the meantime, it appears that nothing will stop the epochal forces underway in global finance from spinning out of control. Illusions are getting hammered hard now and nations are lining up for the long trip home out of modernity to something that will look more like the seventeenth century, if they're lucky."

Indenture said...

FOFOA: Just wondering what you think of Jim Willie's latest piece and this quote. "My expectation is when the breakdown comes, several key locations across the world will post and publish their actual transaction prices without names. They will vary somewhat. Even today, the Hong Kong gold spot price differs from the London gold spot price by $10 to $20 per ounce. This is standard, and reflects different demand levels against different supply levels. However, in the not too distant future, several key locations will herald their actual gold prices, which will be averaged, thus enabling the first true gold prices in a few decades. That day is coming, and those who stubbornly hold their physical gold & silver, do not yield to pressures, do not react to phony paper prices, they will be rewarded."

It seems to remind me of something :)

raptor said...

very interesting idea.. can you comment on this guys !

raptor said...

All governments will eventually go bankrupt - Marc Faber

USA credit rating should be considered 'junk' - Marc Faber

11/18/09 (1/2) Marc Faber on Bloomberg: Sky Will Be the Limit for Rising Gold Prices

Marc Faber - America Bankrupt Within 10 Years

Indenture said...

raptor: The idea is very powerful and does answer the question as to why China wants it's citizens to buy gold. My only problem with the conversion is if, as in his example, 8000 yuan worth of gold (1 oz.) is converted into, let's say, a 8000 yuan gold piece, what happens when 1 oz. of gold rises or falls above or below 8000 yuan? The citizen traded in his/her 1 oz. of gold for a 1 oz. gold coin with a currency value. Correct? The 'Panda Gold Coin' has a 500 yuan face value but the gold is worth 7300 yuan. This poses a problem.

raptor said...

what if they set the face value at some reasonable price, which more-or-less is guaranteed it wont fall below...

As example with $... set the face value of 1oz coin at 500$..there is 0.0001% chance of metal going below this price.

To answer my own question, may be then the gold will flee the country ;) .. or may be not cause you will always be able to sell it for the metal price.
So in effect it puts a bottom on the price..

And when the things become dire... then the face-coin values may be 10 000$..!
just thinking loud..

FOFOA said...

Hello Raptor,

I haven't watched that whole video, but realize that any legal tender marking on a gold coin is a tie between fiat and gold. It is a forced parity. Whether it stands or not is a different question. But for freegold, look for coins like the krugerrand that have no denomination, yet are legal tender at the present value of the metal.


Yes, Jim Willie seems to be tuned in to freegold and looking for the same signs as us!


Yes, gold is gold in the physical form. Get whatever you can!


Interesting sleuthing. Not exactly what I was expecting, but that doesn't mean anything. Often the unexpected is the most important.

A couple small corrections:

"With the benefit of hindsight we can safely assume that in 2000, the Bush administration knew that it had some huge funding requirements ahead for the military actions it was about to undertake."

Bush did not take office until Jan. 20, 2001.

"China had been negotiating to join the World Trade Organisaton (WTO) for 15 years prior to 2001."

According to Wikipedia, "the [WTO] officially commenced on January 1, 1995 under the Marrakech Agreement"

Interesting that you focused on the WTO. Did you see that it was mentioned elsewhere recently as well?

It would be helpful to me to have a little more analysis from you in addition to your timeline as to the significance of certain events.


"“There is no such thing as premature ideas, there are only ripe times that one should wait for”.



I suggest that now is a good time to follow While Jim may be blind to the details of freegold he is very much in touch with rapid developments happening right now. It is a time to pay close attention to things, in my humble opinion.

Unprecedented Challenges In Financial History

The Bi-Polar Moving Bretton Woods Meetings


Unknown said...


All video's of Marc Faber, Jim Rogers, Gerald Celente, Peter Schiff and George Soros.

So you could follow all of their interviews... ;-)

Shanti said...

This does not seems a holliday trip for Jean Claude......

FOFOA said...

Hello Shanti,

It seems like big things are happening right now in dark corners, doesn't it? And we can only see the shadows they cast. Like black holes of secrecy, we cannot see them directly, but they can be inferred by their interactions with visible matter! Such is the birth of freegold, IMO.

"SYDNEY, Feb 9 (Reuters) - The head of the European Central Bank, Jean-Claude Trichet, is leaving a Sydney meeting of central bankers early to attend an ECB council meeting, an official at the Reserve Bank of Australia said on Tuesday.

It was not known whether the ECB meeting was scheduled or an extraordinary meeting. There had been rumours last week, later denied, that the ECB would hold an extraordinary meeting to discuss sovereign debt problems in some euro zone countries.

Trichet was originally scheduled to be in Sydney through Wednesday for a seminar of central banks in the Euro Area and East Asia-Pacific."

Jeff said...

Regarding physical supply, I like to watch the nucleo exchange on Bulliondirect. There you can see the number of bids and asks for physical coins, bars, etc.

Currently the number of bids is huge while supply is very thin. Some categories have only bids, and no asks. I cannot recall seeing this situation in the past.

Martijn said...


Are you suggesting the Eurozone will set freegold in motion as a reaction to the Greek trouble?

Martijn said...


That time-line is a great project!

EG said...


Thanks for this info.

To all:
As I said before, right now I have some money money put aside for trading the markets and the plan is to plough the profits on a regular basis into physical bullion (I also earn my living this way i.e trading). I am now considering whether it's time to stop picking pennies infront of the steamroller (i.e. the pending implosion of the paper markets and [the subsequent] introduction of freegold) and just buy physical bullion? Are we close enough in y'all's opinion or do we still have a few years to go? I was reading in detail "the trail" on USAGOLD, and it looked like Another/FOA were looking for the system to implode as early as beginning of this decade. Considering we are now almost a decade past their suggested timeframe, it makes me wonder how close we are. To make things clear, converting my trading capital into Gold only makes sense if we are close; if we are still a few years away then I'd rather keep picking up the pennies. I know I have to make this decision for myself, but any of our thoughts would be helpful. Thanks.

dragonfly said...

You know, for those who've read Sinclair since he started his website, we've seen some pretty sharp turns and schizophrenia at certain points. Recall his ranting vis-a-vis $354 gold that was going to blow up the derivative bomb. He and Harry S. were cooperating much more closely back then and I remember Sinclair bragging one day that he knew how to make this gold market. I found it odd that he didn't walk the trail but led people off into the bush of stock speculation which always takes pressure off the physical. Sure, he covered his back by advising a core holding of physical but his real army never was the handful that could spar with COMEX and take delivery but in actuality was all the noones of the usa and how many of them wasted time with charts and french curves and such as advocated by the master of all things gold? Yes, I do think he understands how to make markets and play his part in a much larger game that goes far beyond the appearances of the day-to-day but his paternalistic posturing and emotionalism is mis-understood in my view of things and his timing prowress is poor. He missed his $1200 call twice by very big margins - Dec. 2008 and then April 2009. That's not a big deal but just highlights a discrepancy between reality and the short-attention-span perception of reality about Sinclair's mastery of the game. Does anybody else wonder about him literally dropping the schtick about the Gold Certificate Ratio thing coming to the rescue of the dollar in the final analysis. Or how about his lauding Barrick's hedging play in the early days when it appeared profitable? - a Barrick who it might be added purchased some valuable leases in Tanzania from him. Quite some funny business there regarding the fate of artisinal African miners - hole diggers basically - as can be readily googled. And his recent conversion to Martin's timing and Alf's numbers??? Is he taking his cues from Sai Baba?? I don't know about y'all but now that he's steering attention to the SDR, my hackles are up big time. Just a hunch but I doubt his royalty gold operation in Tanzania will function very well in a freegold environment. Didn't our trail guides speak to the issue of no nation allowing the free mining of money?? At best, Sinclair is a managed-gold advocate. As the great Stan Lee observed - " 'Nuff said "

EG said...

Another thing: I already have substantial reserves of physical so I'm not talking about buying physical from scratch, but just whether its time to go ALL IN, so to speak.

Unknown said...

by I. M. Vronsky

Unknown said...

Why goldprice will plunge to $800 per ounce?

Ishkabibble said...

Continuing the comments from Museice and Raptor et al.

I find it odd that China wouldn't use seniorage to it's advantage in the production of gold coins. Is there any justifiable reason the face value on a gold coin should be less than it's worth?

I should think a quarter ounce 8000 yuan coin would be better for Chinese government than an 8000 yaun ouncer. The government would be able to roll such a coin into common circulation, ensuring it's sustained value in yuan for a much longer period... instilling faith in it as a storage of wealth.

I've often wondered why nations produce gold coins with significantly lowballed values in FRNs. When one can't buy a $20 coin for $20, it doesn't instill faith in the currency, rather it does the opposite. It seems the current approach to gold and silver coinage is reversed.

I would love your thoughts on this. It seems to define logic, as it appears in the best interest of governments, gold bugs, and those who would create a sustainable economy.

Anonymous said...

I've dropped the ball recently as far as blogging goes ...other commitments and an increasingly public profile has made it necessary to "clean up my act" so to speak.
First time on the 'pute for a week ...and doubt I'll have the opportunity to participate much in the coming Months.
As circumstances dictate I'll take advantage of your hospitality ...and soil this here doormat ..svp?
Current all-out effort to usher the herd back into the "future" ...will ultimately fail IMHO!

raptor said...
Inflation ”An Old People’s Disease”

The milestones for government induced inflation are rather subtle if not embarrassing. In 1964 it cost the mint $1.29 to purchase the silver to make 5 quarters. Needless to say, that 4 cent loss was eliminated. In 1965, the government reduced the silver content in the coinage from 90% to 0% silver, and no one blinked an eye (the half dollar and dollar went to 40% silver up to 1969). .............. In the next 5 years, the bad money chased out the good. Silver disappeared from circulation.
We have traveled from the gold backed currency’s of 1930’s to the Silver backed currency’s of the 1950’s to the Copper currency’s of the 1970’s. It kind of makes you wonder what has really happened to our monetary system since the last conversion 28 years ago, when we went off the “copper standard” onto the zinc.

Martijn said...


Sinclair was also quite wrong in timing the death of the dollar.

Unknown said...

the drama continues...posts per month seem to be suffering from deflation. Trending downward. Maybe it's time to add to the kitty...

costata said...


Thanks for the encouragement on the timeline.


Thanks for the corrections. It all helps to refine my timeline.

I will provide more background info on the events that I am selecting for inclusion in the timeline. I was hesitant to overload the first extract until I got some feedback. I will also try to flag any assumptions I am making so that you can detect "confirmation bias" in case I fall into that trap.

In relation to Bush II, it should have read "incoming Bush administration". Thanks for the edit.

I think the timing issue in relation to the WTO stems from the transition from GATT. Apparently dozens of signatories of GATT had trouble progressing through the various "rounds" of negotiations and failed to qualify for full membership of the WTO at its launch.

In regard to the timeline I want to share a few thoughts with you and the other contributors to this blog.

Remember how often Another and FOA advised people to change their perceptions. eg. Stating that there was a false "reality" in paper gold and the true picture was quite different.

A/FOA's hints and revelations are, of course, invaluable. For me the big reality shift is their pricing on gold. It has taken me a long time to adjust my thinking. Once you accept that $6,000+ per ounce is not a FUTURE price but is, in fact, a PAST price for TONNAGE it prompts a radical shift in perception. Re-working the numbers to reflect the "reality" price changes things.

The other shift in my thinking has been to re-embrace simplicity. This should have come naturally to a simpleton.

By way of example; pondering what the BIS and ECB were doing in April, 2001 wasn't getting me anywhere until I asked myself: "what do bankers do?" Basically they arrange loans and collect on loans they made previously. Everything else is "a means unto an end". So I started looking for a large scale deal that fitted the timing.

Another example is the speculation about why HSBC kicked out their retail PM clients. Simple answer, they need the space.

If you recall they put a really tight timetable for relocation on some long term retail clients. HSBC isn't normally so rude. Why did they do this? Simple answer, they need the space urgently for a much more important reason (client?). Now for some simple questions; How much space? Who has the gold to fill that much space? More on this later.

Lastly, recall in the first extract from the timeline I emphasised the renewal of China's MFN status every year. The only way to ensure that would happen would be to have an iron grip on the Presidency. Only a Giant among Giants has that kind of clout. Perhaps a true Giant with a massive stake in the rise of China (or the decline of America?).

raptor said...

Simple answer, they need the space urgently for a much more important reason (client?)

]- So who is the client ? :")

Anonymous said...

I have spent countless hours during the past year searching for the answer to the following question. How did we get to where we are in the US economy and where are we going? I stumbled across your blog a few months ago and visited from time to time. This past weekend I spent hours going through your 2010 posts and comments. I discovered that most of the answers are all right here – in your blog. Thank you!

I struggle with the concept that Freegold will be the ultimate winner because every time I turn the radio or TV on I hear “buy gold”. I am a contrarian and believe in doing the opposite of what the “herd” is told to do. Many countries are now pushing their citizens to buy physical gold. What is the real motive behind this?

Martijn said...


Nice logic. I assume you have been buying Zimbabwean dollars all the way over the past years as most of the world was quite bearish on the Zimbabwean financial regime?

Martijn said...

Here is a nice read for those interested in a somewhat broader perspective on the financial system.

Martijn said...


Remember that video about the mayan calendar I posted quite a while ago?

That guy assumed that money would be (partly) replaced by trust in the not so distant future as the world would grow more ethical.

Now book has an interesting comment to it, which remarks: He examines a new currency being exchanged: trust, and its importance within the new world order.

There is also a remark on the copyright system on which I have also linked something before.

This book off course does not guarantee anything, but I felt it interesting enough to communicate.

Jimmpy said...

New one from the intrepid Fekete :

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

Nice one Jimmpy

direct sale of Treasury paper to the Fed would degrade the dollar from irredeemable currency to fiat currency. There is a subtle difference, realized only by the few.

Fiat currency is worse. Its arbitrary augmenting is decided behind closed doors. It does not need the endorsement of the open market. Fiat currencies have a short life-span as they readily succumb to the sudden-death syndrome. Irredeemable currencies are different from fiat in that they are created openly, using collateral purchased in the open market. They have a more respectable life-span. As long as the official check-kiting conspiracy between the Treasury and the Fed remains hidden from the general public, irredeemable currency may even prosper. Direct sale of T-bills by the Treasury to the Fed would tear down the curtain that hides the fact of check-kiting.

Interesting remark heh?

Jeff said...


I like the blog and I agree with most of your views. I also like to try to critique my own track record and question my beliefs.

Reading through some of your old posts, I wonder if you will comment on statements you made like this, from 12/22/08:

"One other thing I'm 95% certain of is that we will see what I am calling "hyperinflation" within the next 24 months. And I say 75% by next fall. 50% chance of it by summer. And 25% by spring. "

Now that more that a year has gone by, and you were 75% certain we would have hyperinflation by fall '09 do you believe this statement is still correct?

Thank you.

Anonymous said...

@ Martijn,

During the past year I did not buy Zimbabwean dollars nor did I jump into the stock market when everyone was saying buy, buy, buy. My "logic” told me to listen to Celente. He said to prepare for the worst and hope for the best. So I invested in the kind of hard assets that will make it possible for my family to survive the worst case scenario.

I bought goats, sheep, chickens, geese, ducks and emus. I bought a fleet of military trailers for storage and shelter. I bought 5lb buckets of whole grains and stocked a huge pantry with enough staples to last at least 3 years.

I also worked very hard to learn how to do everything that my homesteading ancestors did 100 years ago. In the past 12 months I labored to built gardens and put up fences. Then I grew amazing vegetables, made superb bread and wine from scratch, raised and slaughtered my own animals. Hopefully I’m ready for whatever the future brings …. are you?

Martijn said...


Nice work. And now, I am not that ready.

Did you cooperate your efforts with anyone?

Martijn said...

On the Feteke article:

Here is the problem. The prevailing orthodoxy is the unholy alliance between
Keynesianism and monetarism inspired by Friedman (defying the pretence that these
two are antagonistic theories). The idea that an artificial increase in the money
supply must raise commodity prices dies hard. But as my theory suggests, and as
events have repeatedly shown (first during the Great Depression of the 1930’s, and
again, during the present crisis), the presence of risk-free speculation renders the
increase in the money supply counter-productive. It causes prices to fall rather than

Perhaps that is were deflationists get their powder.

Anonymous said...

@ Martijin,

I am proud to say my husband and I have done it all on our own.

Martijn said...


Sound like some job.

Apart from the feeling of beeing prepared, did you get any joy out of it?

I can image it feels good to sustain yourself, but on the other hand it probably did come at a cost?

Would you still be happy if - and I am not saying it will - things would pick up and turn to "normal"?

FOFOA said...

Hello Jeff,

Here's a line from a more recent post: "Hyperinflation by any other name, like devaluation, revaluation, monetary or currency collapse or "the denouement of unlimited money-creation", is still hyperinflation." And the only part of the prediction that you so kindly pulled forward that still applies is this one: "One other thing I'm 95% certain of is that we will see what I am calling "hyperinflation" within the next 24 months." as the other periods have already passed.

So I believe that prediction from more than a year ago still allows another 10.5 months for one of the above forms of hyperinflation to occur. As every bookie knows, you must constantly adjust your betting lines as new information arises. I could certainly do that, but I think the above pretty well covers the current probabilities for the time being.

Last December John Williams also said that the risk of hyperinflation within the next 12 month is very high right now.


costata said...


Re: HSBC freeing up space in their PM vaults by kicking out retail clients.

"So who is the client?"

I don't know. The point I was trying to make is that if you can determine how much space the retail clients were taking up you can get a line on the scale.

The following figures are presented purely to make the scenarios simple.

Let's say that kicking out retail clients frees up space for 1 tonne of Gold. If that was the case I would have no further interest. The scale is too small to be an "event" of interest for my timeline.

However, if it freed up space for, say, 500 tonnes this would clearly be significant.

The scale eliminates perhaps 99% of potential candidates. The hunt would be on for a really big client, a sovereign scale client.

It could also indicate a pending large scale transfer of gold. From whom? Perhaps A/FOA's prediction would be finally coming to fruition that US "political gold" would be "swapped" at some point .

I'm not suggesting that any of these scenarios are fact. I'm still digging.

S said...

FOFOA, if you were buying coins outside of Kitco/apmex/bullionvlt etc...not face to face in other words, any recs on best of class?

Anonymous said...

I have gained so much during the past year. We are much healthier because of the exercise and much higher quality food. Best of all we have discovered the simple pleasures that our now terminally sick society rejected many years ago. Following is one of my favorite examples.

One steamy, hot Virginia night last summer, I was outside filling one of the livestock troughs with water. I was also thinking about Cap & Trade and how it would substantially increase the cost of electricity. Covered with dirt and sweat, I took off my clothes and jumped into the trough. (It was dark and I was in the middle of a pasture.) Surprised, my husband asked what in the world was I doing. I replied that this was how we would save on electricity if Cap & Trade was enacted.

After that we spent many delightful nights together, reclining in a livestock water tank, filled with fragrant, fresh herbs. We smoked good cigars, drank homemade beer or wine and watched lightning bugs or gazed up at the stars. The accompanying music was always superb - a loud symphony of frogs, peepers and night creatures.

SatyaPranava said...

greta, sounds like you all are livin' The Good Life :) (great read, btw).

congrats to you both!

Martijn said...


That does indeed sound like something I could appreciate.

Jeff said...

Thanks for the reply FOFOA.

To follow up, did Another or FOA talk about a timeline, or just focus on the steps of the crisis? I know they were writing about these things ten years ago and more.

I confess I think we have been on a knife-edge of crisis for the last two years. It seems only the massive momentum of the dead system has been carrying it forward during that time. Rather like shooting a charging elephant which continues to slide forward on its' own momentum.

raptor said...

China buys shares of SPDR Gold Trust

Conversation is interesting that's why i posted the forum link.

EG said...


I have been extensively reading A/FOA's posts lately. It appears their timeframe was sometime after the Washington Agreement in 1999 (1-2 years seems like). After the spike up in Gold at that time these folks were looking for the show to be over pretty soon. That's what I've been thinking about - how come it has taken more than TEN years since? Perhaps the 9-11 event delayed things (which might have been the intention of the US Govt all along - as a side note, reading their posts, it all fits now - 9-11, the war for oil in Iraq, etc.) Not that it hasn't been a good thing - I would have been left high and dry if it had transpired that early. I only became aware of the sorry state of affairs right before the crash in '08. That said, I am not really sure what these guys (i.e Euro folks) are waiting for now. I mean it's not gonna be of help to anybody if their timeframe is the year 2100. Considering these guys have been at it at least since 1976, I'd say it's about damn time. Strike while the iron's hot :-). Getting the Euro adopted for purchasing oil hasn't been one of their strengths either - I mean we all know what happened to the one country that tried to do an oil-for-Euro thing - it got bombed to oblivion. The fact that nobody in the "Eurozone" even so much as peeped reflects quite poorly on them. And now we see them and their currency being hammered everyday on the PIGS issue while the US itself totters on the brink of oblivion while they sit with their hands tied behind their backs. Sometimes I doubt if they plan to do anything at all.

Unknown said...

A must read piece: U.S. bond auctions are starting to fail... The end of dollar is there?

Unknown said...

As everybody knows FED is the only buyer of that crap. Someone forgot to press a button perhaps :) Next auction will get all the demand back, no worries.

costata said...


"Sometimes I doubt if they plan to do anything at all."

I feel increasingly confident that "nothing" is precisely what the sponsors of the Euro intend to do. Just let nature take its course.

From Howard Katz:

"Thursday’s drop in gold was due to the decision of the ECB to crack down on Greece and rein in its money expansion. People interpreted this as bearish for the euro and bought dollars. But it is precisely this kind of discipline which is making the euro the world’s strongest currency. Every time they reaffirm their commitment to it the euro becomes a better currency to own (or have one’s assets denominated in)."

Anonymous said...

I think you'll find, as Time wears on, we'll see an abandonment of those longer maturities in preference to holding $Cash ...and it's proxies.
Todays little effort had all the hallmarks of intervention to "again" try to stymie the Buck upthrust.
85 DX ...and associated market debacles? we come!

costata said...


Re: Euro

Came to this via jsmineset.

"Moral support but no money, EU says to Greece"

If you read this piece with A/FOA's words in mind it all fits.


Re: Linked article above.

If your number one priority was to ensure that the Euro would be a viable and credible currency for world trade after the failure of the US dollar isn't this exactly what you, as the BIS & ECB, would do?

I note that they have also said "no loans from the IMF". I read this as denying the US an opportunity to meddle with their plans.

Tekin said...


I have been reading A/FOA for some time, and I have observed that their timeframe has been evolving. Consider the following posts:


Mar 07 1998

I expect a break above $360 to create an allout run to infinity, before year end. Physical gold should be purchased for a lifetime holding, not a trade.

Mar 20 1998

It was never the intent, for gold to fall from $320 / $360 range. The fall happened as the paper gold market is "out of control"! As physical is brought back into this range, much will be done to hold LBMA together.

Mar 25 1998

Gold will be managed back to a range of $320/$360 with much hope for participation of Euro as "the" "currency/gold" payment for oil. My knowledge is that the new range will bring a breakup to the London operation, with the ensuing run by gold to infinity.

Mar 31 1998

Gold in $320 to $360, will be a time of much concern for any and all US dollar and US dollar asset holders. At some point, oil may say "yes" to the EURO, even before it is official, and gold will break to into the thousands with no hold back by CBs. Oil prices in US dollars will explode, even as prices plunge for Euro based currencies, and the US economy will implode. The world US dollar based economy is about to change, and America will find "no point" for warships in the Gulf. I ask you now, "who will defend Arabia"?


It looks like something unexpected occured at LBMA during 1998. Gold reached 360 at 2003, after "solving" the problems - whatever they were. Perhaps, they may give a fuller account of that history in the future.

Another point is that Saudi Arabia appeared to be pivotal in their planning. Currently, Chinese not the Saudis are driving dollar out of the international reserve status - Chinese are known for their infinite patience - so it may take quite a long time. Quoting Sun Tzu: "Be extremely subtle, even to the point of formlessness. Be extremely mysterious, even to the point of soundlessness. Thereby you can be the director of the opponent's fate". Or try this Sun Tzu gem: "For to win one hundred victories in one hundred battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill".

Lastly, Europe may have underestimated US military skills (Ref the quote: America will find "no point" for warships in the Gulf. "who will defend Arabia")

Apart from timing, their analysis has been an eye-opener, their advice rock solid (buy physical), and the compounded annual rate of return of their advice has been in double digits, in dollars - which is superb for a simple soul like me. It has been the call of the century as FOFOA has written.

In this unstable world, the failure of the gold market can happen at any time, may be now, may be ten years later - who knows - therefore, being prepared seems to be the only option. What else?

Mike said...

anyone have any opinions today on the margin increases by the cme for gold, silver and palladium?

is this another attempt to fool the masses on the paper gold price or is this orchestrated for the big boys who already own the physical gold to short also and make money both ways.

EG said...


Their one and only aim is to drive out as many longs from the CRIMEX "market" as possible. Unfortunately (for them), this is a short sighted move as it will only encourage more speculators to hoard the physical thus further stretching the link between paper and physical prices.

EG said...

Reading FOA, I can't help but eagerly anticipate the onset of hyperinflation. I've been bored out of my freakin' mind for the past year. It's been like nothing happened! At this point I am even willing to go with another crash if that helps things move along. ANYTHING to get rid of this rotten-to-the-core system. The sooner we get rid of this shell of an economy, the sooner we can start rebuilding. Just collapse already!

costata said...

GG and Mike,

Re: News from CME.

Is this a step toward fulfillment of another FOA prediction in the near future?

"Even if it cannot be delivered. Long,,,,,, longggggg,,,, before these delivery demands ever fully surface, comex will state position limits, cash settlement and trade for liquidation only."

From: FOA (06/12/01; 11:23:21MT - msg#77)
A discussion

Discussion of this issue in the comments on an article by Zerohedge.


I have been accumulating some evidence that supports the theory that in the period 1997 to 2000 enough gold was shaken out to postpone the imminent crisis that Another seemed to be expecting.

The sources include the Asian debt crisis, Russian debt default, Brazil, pressure on the CB of subservient "dollar bloc" countries and developments in the gold mining sector itself.

If correct, perhaps this was what allowed the PTB to kick the can down the road.

Anonymous said...

Thank you for your kind words.

@ Martijin,
Thank you for challenging and inspiring me. I think I’ll start my own blog to share my story. It would allow me to sow a few simple seeds that might inspire others to do what we have done. The end of the life we have all known is near. Like the story the Hank Williams Jr. song “A Country Boy Can Survive” tells. I believe that it will be “us” country folk who survive and proper.

Greyfox "It's the Debt, Stupid" said...

Per Jim Sinclair on 2/11/10

"Dear Comrades In Golden Arms,

I sent an email to you awhile ago saying "This Is It," when it wasn't apparent.

Now, I am sorry to say, THIS IS THE END because it is becoming apparent.

Everything stands on the foundation of CONFIDENCE which is cracking rapidly."


Greyfox "It's the Debt, Stupid" said...

More good news for freegold.
Per Marc Faber:

Picking up where he left off in his prior Bloomberg interview earlier this week, the author of the "Gloom, Boom and Doom Report" continues his bashing of the governments of all developed and overleveraged nations, which he claims will sooner or later default on their obligations. This could be the most scathing critique of the fiat-money system to date, which is the primary cause for the facility with which governments have accumulated untenable debt loads.

EG said...

@costata, Tekin:

Thanks for your views.


I hope he's right. I've noticed Jim has a tendency to exaggerate a bit at times, but in any case it's about damn time! BTW, from his posts it doesn't seem like he's aware of the whole Euro thing (ala A/FOA).

costata said...


Re: China's purchases of US Treasury securities.

This is an addition to the timeline I submitted earlier (Part 1. All Roads Lead To China).

For the sake of argument let's assume that the BIS and ECB negotiated a deal with China in 2001 to step into Japan's shoes and become the leading buyer of US Treasuries. My contention was that part of their payment was a fast track to full membership of the WTO.

Maybe they also received a deal on "catastrophe insurance" in the form of artifically cheap gold courtesy of the manipulation of the gold market.

As per my earlier comment I have started re-pricing figures disclosed in the events in my timeline using A/FOA's "real" gold prices. I realise there were a range of nummbers mentioned US$6,000, US$10,000 and so on. I guess no one could be certain at what point and at what final number the paper system could be purged.

In 1998 Another replied to Aragorn III about some calculations A3 based on anticipated Euro issuance and ECB gold reserves. This gave a ballpark price for gold of US$56,000 per oz.

Additions to the Timeline:

(2002 China's purchases of US Treasuries begin to rise. By 2006 the curve is becoming parabolic.)

China reports official reserves of 600 tonnes. (1)
China ceases reporting gold reserves after 2003.

China reports official gold reserves increased to 1054 tonnes "by the end of 2008". (1) The report is issued in April, 2009. The Chinese official making the announcement added that "China has reported the change in its gold holdings to the International Monetary Fund (IMF)". The inference is that China has quietly acquired 454 tonnes on the open market.

July 2009, China's holdings of US Treasury securities peaks at around US$790 billion (2) and are reported to have declined modestly by November, 2009.

To fully insure China's holdings of US Treasury securities with 454 tonnes of gold requires a gold price of US$54,000 per oz. If I recall that figure is within the range of your probability analysis.



Extract from Another's exchange with Aragorn III

"From Aragorn III: I recently posted the following for the Kitco Gold Discussion Group. I would be grateful to know its merit under the scrutiny of ANOTHER.

Date: Tue Jul 21 1998 20:19

Aragorn III ((THOUGHTS!) by ANOTHER...I certainly DO like the way the numbers play out) ID#212323:

Gold is effectively revalued to $1,800 per gram, or equivalently $56,000 per troy ounce ( ballpark figures ) . Perhaps that sounds preposterous to you, but I submit that it is not.........."

Unknown said...

@ Greta,

Kudos on your decisions to prepare with the garden and with animals. Both of which produce and reproduce. Gold is not the only hard asset.


Do you believe that gold will still be SAFELY negotiable if it hits the Alf's number range? It seems to me that someone holding gold would become a target if or when word got out. It would be nice to have considering its value but almost impossible to use.

FOFOA said...

Nice sleuthing Costata. Maybe Another would have replied back to you in a similar way...

ANOTHER: Mr. Aragorn, I offer my "Thoughts" to all and encourage persons to think, consider and discuss this new gold market. During our journey in life, it will be the "world events" that truly "fill in the blanks" as this "economic drama" unfolds! History does shown, that over time, wars are won with an ability to reconsider, and to move and change course. Perhaps this war of "money" is not located on the fixed ground of past thought, but will be waged in the fluid minds of men as they seek to defend their life's savings. I send your writing to the eyes of others, that they may also, engage this enemy, with the thought of keeping our families wealth!
Thank You

One thing Another taught us was the importance of oil to the US guaranteed the Saudis delivery of their gold. Perhaps China's appetite for debt gained a level of importance similar to oil?

MK wrote, "As implied by ANOTHER's own words, his motivation for these postings was the discovery by "big traders" in the Far East of this opportune facility to buy gold at ever lower prices. Their subsequent heavy purchases of physical gold upset the delicate balance."

That was 1997. You may be onto something that would explain a decade-long reprieve.


FOFOA said...


You won't ever be taking your gold to the store for bread. Gold will be liquid in the same way that fine art is today changing hands for all time record amounts of fiat, even during a supposedly deflationary recession. And don't forget Another's warning...

"When a thousand hungry lions fight over one scrap of food, small dogs should hide with what's in their belly".


@mortymer001 said...

Long time no see :o)

The BIS established its Representative Office in Hong Kong SAR on 11 July 1998 to contribute to the growing monetary and financial cooperation among central banks in Asia and the Pacific. The opening of the Office brought the BIS into Asia. Initially, it organised meetings and undertook research. Subsequently, the Asian Office dealing room was opened in 2000 to allow central banks and other official foreign exchange reserve managers to place funds with the BIS during Asian hours.

@mortymer001 said...

It took me some time to find out this information :o) I wander why it is nowhere to be found.

"Czech rep. sold their gold in September 1998 in two rounds. When CSFR (CSSR) split to Czech and Slovak rep. it had 102t, it was split to 63,289t and 39,137t. The first part of selling was 31t. Now Cz.rep has 13t.

Buyer? Germany. For what? For some debt cerificates.

I remember Fekete told the same story about his Hungary and the same goes for Poland & other East European + Baltic countries.

costata said...


Thanks for the feedback.

"That was 1997. You may be onto something that would explain a decade-long reprieve."

(A recap for other readers is at the end of this post.)

I think the reprieve was obtained in two instalments. The first instalment was forced divestitures and "raids" on existing holdings.

I haven't posted anything on the first instalment yet, it may not be necessary. There are references to various sources throughout A/FOA's archive. Often they are almost like a "wink" as in "ask the South Koreans".

I think the quantities moooted were enough to keep things going eg. South Korea 250 tonnes. Brazil and Argentina 400 tonnes. Belgium 294 tonnes (The Barron himself?). BOE etc.

I think you are becoming persuaded, as I am, that by the time FOA started posting regularly the wheels were wobbling again. That's where the Chinese came in with the second of the "buy more time" instalments. By 2001 it was to buy more time for the Euro to fully establish itself.

Perhaps this was worth more to the Arabs than acquiring a bigger gold hoard. It would be truly ironic if the Arabs stepped aside (or assisted?) the BB shorts so that the Chinese could have a free hand to acquire their "catastrophe insurance". The payoff being to prop up the US/USD for a while longer.

IMHO the Chinese are fully hedged. Anyone who thinks they can be blackmailed, via their US Treasury holdings, is mistaken.

FOFOA, this simpleton asks himself if the Chinese are merely content with "not losing". Perhaps they intend to win bigtime (smile).

I am exploring another angle on this (smile). I should have something to post fairly soon.

Recap for other readers:

Another revealed that the parties behind the gold-oil-USD deal had expected that technological developments would keep gold flowing in ever increasing quantities for many years.

Unfortunately after a few years it levelled off. To make matters worse the LBMA and other "boys went nuts" and issued so much paper that they drove the price below the cost of production. By 1997 it seemed that Another thought this might bring matters to a head.

Hence FOFOA's reference to "a decade-long reprieve"

Martijn said...


If you find the time you should certainly start a blog. I'm quite confident that enough people are interested in your undertakings and willing to read. And you might never know what you inspire, but it might very well be worth it, both for the readers and yourself.

Martijn said...


I recently came across the best book I've read in years: Ubiquity, why disasters happen - Mark Buchanan.

Written by someone with a Phd. in physics it offers a highly interesting take on social, political and economic history and the developments we witness today.

If I were to recommend reading anything it would be this book.

Martijn said...


I hope he's right. I've noticed Jim has a tendency to exaggerate a bit at times, but in any case it's about damn time!

Jim has indeed made quite some ultimate calls that did not come true over the past year.

On side note: although understandable, getting emotional over stuff does not aid a clear perception. Why not just look at things as they are and work from there?

Martijn said...

Btw, how do you guys feel about Greta and your gold?

Some here seem to be anxiously waiting for 56,000 gold, but did you ever consider the fact that 56,000 gold might be the only thing standing at the same height as today? That the rest of civilization might have sunk a lot, leaving many off well below Greta's "level"?

Those yellow bricks might make you relatively wealthy, but in absolute sense you might have to give in despite.

Who knows...

Martijn said...


You might indeed be on to something...!

Unknown said...

@ Martijn,

I understand your $56,000 point exactly. If people are looking to gold as their savior I would caution them not to put all their eggs in one basket. Greta seems to have a much more balanced approach. Wealthy is not restricted to only monetary valuations. There are issues related to quality of life which have much less basis in the physical realm than they do in the mental and spiritual. As a word to the wise, expect the best but prepare for the worst. I applaud Greta's preparation.


I'm not so worried about the lions as I am about the bigger dogs. I believe that there will be liquidity at the upper end of the scale but that at the lower end $56,000 an ounce or anything close to it will amplify the "character" of anyone I am dealing with. One only need look to Wall Street to see the character of many in today's world. (dogs, lions, bulls, bears, lots of cunning and/or dangerous animals out there)

Anonymous said...

I am not prepared as well as I should be. I am lacking the gold that I should now be holding. I have not purchased gold coins because I am plagued by the following concerns.

In a US dollar collapse or hyperinflation scenario:
1. What position will the US government take regarding citizens ownership of physical silver and gold? I don’t believe they will try confiscation again but they could make it illegal to use our coins/bars as a medium of exchange.

2. Why suddenly are citizens in many counties being pushed to own physical gold? My guess is because CBs/ governments have devised a plan to use their citizens gold when they decide they want it. I am also very sure the plan will not benefit the people.

3. Where are we going to sell coins/bars? I’ll bet the only place you will be able to legally sell or exchange for currency will be at banks.

4. Who will be setting the price we get for physical metals? I highly doubt there will be a free market system of pricing in the case of currency collapse.

Sadly, I believe that, in the event of currency collapse or even hyperinflation, any physical metals we possess theoretically should be worth a fortune but could in fact turnout to be almost worthless.

Please share your thoughts on these issues and tell me where I’m wrong. I am trying to get educated before it is too late!

Jeff said...

Greta, here is what I think:

1. Gold may be made illegal but will still trade on a black market. Making things illegal also increases their value.

2. I don't know, and am not overly concerned.

3. Legally to dealers or indiviuals. If illegal, black market. I use black market and free market interchangably, as I fail to see a difference between them.

4. The market will set the price. In the event of a collapse, even more so as government intervention will cease to exist.

Martijn said...

Sadly, I believe that, in the event of currency collapse or even hyperinflation, any physical metals we possess theoretically should be worth a fortune but could in fact turnout to be almost worthless.

Real life tends to differ from theory, hence my remarks as well.

Mike said...

2. china can't have all there people hold US dollars and they know they as a country are in huge risk if the only reserves they have are US dollars, so helping the people get gold from the rest of the world will help the Chinese gov on their ultimate plan of a gold/asset backed currency perhaps without showing that the gov are the big buyers. the Chinese gov lied about how much gold they have in reserves until this year and now they make announcements that affect the market which i think they do on purpose to see how big their influence might be.
they let the people buy gold so they dont give away what they are doing behind the scenes but all the smart buyers (gold buyers) know what they are most likely going to do in the end and its not dollar friendly. the physical market is tight and any rich people in paper would are not positions correctly will try to do so and this will destroy the paper market or they will be destroyed.

how long did it take for the Chinese to make announcements that would move the markets? they have the same affects as the US as an example.

costata said...

Hi All,

To put that US$56,000 number into context it has to be looked at as the inverse of the realisable value of the US Treasury securities it is offsetting. This is a catastrophe scenario where, say, a 2010 US$1 = 0.01 cent of purchasing power in the future and US debt is repudiated.

Under that scenario you might need US$100 to buy one Euro. I'm not suggesting that this is likely to happen. These high numbers may seem fantastic but perhaps not to a Japanese citizen used to handing over 98,000 Yen for an ounce of gold. Everything is relative.

Hi greta,

I was captivated by your description of the lifestyle you have embraced. FWIW I agree that gold is not a total solution. In my corner of the world reliable rainfall, fertile soil, DIY knowledge and other basic considerations have influenced our preparations.

IMO the key issue that we latecomers have all had to confront in making a decision about going into gold has been whether or not we trust "paper" to get us through this transition. As in "paper" money and "paper" promises to repay debts in "paper" money.

For the farsighted ones who took a position at US$300 to US$400 it has simply been a splendid investment regardless of any other events on the horizon.

On the issue of what Governments may do we have no way to be certain. A/FOA seemed to think that confiscation was unlikely with taxation of capital gains as the more likely response of Govt. A/FOA also predicted that the burden would fall on gold miners and holders of gold in the ground.

Greyfox "It's the Debt, Stupid" said...

Per Jim Sinclair 2/12/10

"Greece is the Lehman Brothers of the euro, making it harder to accept Soc Gen's position today that the euro is about to break up.

I see this as a crisis situation by design for the establishment, in time, of a single Western currency and a single Western central bank of central banks. Gold will then be attached at the hip in the inverse to this single Western world currency with the single western currency trading lower against Asian currencies or a single Asian currency.

In that situation gold emerges as the only real storehouse of value.

My feeling is that this well publicized event of sundering confidence in the euro will simply accelerate the devolution of paper money as any storehouse of value, upgrading gold in the final analysis as the most trustworthy currency form."

Greyfox "It's the Debt, Stupid" said...

Seems as if Jim Sinclair has begun to read the FOFOA website and has received his first installment of "enlightment".

@ FOFOA, THANKS again for your time and efforts expended on all the great articles.

Anonymous said...

Hi Martijin, Jeff & Costata,

Thanks for your input. After reading FOFOA’s 02/12 blog, I now understand where gold fits into my future. It will not be bought as an investment. It will be purchased instead “to store our excess wealth in the most universally liquid vehicle” and to stop supporting the fractional reserve system. I now understand that if every citizen took their entire saving out of the banks and paper investments, there would be a very quick collapse. Then we could get this over with and maybe do it a little better the next time around.

Next week I will finally buy gold coins. The week after that I am going to get rid of some more paper by bidding on a military Deuce & Half truck and mobile diesel generator. Currently my favorite hard assets to invest in are found in the local military surplus auctions. I’m thinking that 2.5 ton truck is going to be a lot more fun to own than that Krugerrand that I will have to give up to buy it.

Wendy said...

Sir Oldinvestor,

You said "There may come a time when actual paper money kept as a reserve will prove useful just as keeping a longer store of wealth in gold."

I couldn't agree more, and I do keep a paper researve (bird in the hand type)

In the summer of '07 I obsearved some big SHTF and decided I would need a really big umbrella to protect myself from the inevitable down pour. My umbrella will cover my A$$ets.

Thank you for your Thoughts.

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