Friday, July 2, 2010

Timing Is Everything

I'm sure you've all heard it said (usually by puffed-up market players, or especially in old movies featuring that sort of character) "My boy, timing isn't everything... it's the ONLY thing!"

To be sure, timing ISN'T everything, and it most certainly isn't the ONLY thing... but one thing about timing bears saying right here, right now....

Did you notice how gold's little slide yesterday occurred... (hmmmmm... how shall I put this for proper emphasis...) YESTERDAY!!?

I don't mean to say did you notice HOW it occurred, or even so much to emphasize THAT it occurred at all (that's a small matter), but rather, that such an event happened YESTERDAY!

And more precisely to the point, it isn't even so very notable that it happened yesterday (or today, or next week, or even at all) because the very significant fact is that it did NOT happen PRIOR to yesterday!!

"Yesterday", of course, being July 1st, the day AFTER June 30th, a very "special" day in the lives of many young central bankers across the world, when love is in the air and their thoughts turn to unwrapping the presents delivered to them (monthly for some, quarterly for others) on the shoulders of the resolute MTM Giants. After the "snapshots" are taken, who really gives a hoot what happens the day after?

And of course, such volatility quickly shakes loose those outsiders of least conviction, and then the price again moves upward as the giants come around again, picking up crumbs dropped by weak hands, bearing their load, bringing the gift of value...

FOA (06/12/00; 19:48:25MT - msg#26)
Put your cards on the table!

The current paper gold world will die (burn) as its value to users erodes, not increases! We have to remember that some 85% (or more) of the long side of our world paper markets will not (perhaps cannot) take delivery of physical gold. If the paper trading price is driven ever lower from new derivative supply, these longs simply "trade out" and take their cash hit. The major banks and players in this arena know this and therefore are not at risk from expanding their positions. Truly, they are only playing behind the real political game today.

Indeed, if the Euro function will ultimately burn the dollar and its paper gold markets and replace it with a physical "free gold" market, then selling paper gold is free money! Right? This is but one segment of the coming currency transition and to date it's progressing right along!

Again, most everyone in the Western Gold bug game is running with the ball in the wrong direction. They are trying to understand just how the Euro zone players are going to get out of our current gold market liabilities when the Euro makes use of the dollar gold market! These same thinkers are looking for some kind of "work out" of our system so its price discovery function will value gold where it should be! My observation from the "Euro Makers" is that one should "forget this notion!" "Nobody" gives a hoot about holding "price discovery" paper contracts as the real thing. Except for those with the real power to trade something for full payment! OIL!

Today, paper gold derivatives are for selling because they will eventually be politically defaulted once their discount to physical drives their value next to nothing.

So who is in danger of being hurt as this unfolds?

That's right, the Western paper gold long! I'm not talking about just the US market! This is about the entire world gold market as we know it today. The real play will be for the ones that get out in front of the move by owning physical.

This stampede out of "paper physical" by the "big boys" will first discount that medium as all the selling comes to play. Then the real buying of physical will ensue. It seems every Gold bug sees only half the trade and has great faith that contract law will favor a short squeeze. Yet, none of them see where it is the long that will be dumping and forcing the discount!

So what did you think of the gold "take down" yesterday? Did July 1st mean anything to you?

Well, if I were a Central Banker who marked my reserve assets to market price (MTM<--MUST READ) like all Central Bankers should... Then perhaps my quarterly performance "kudos" might reflect my performance. Yes? And then, once the "snapshot" is recorded in the books, it is good for what, another three months? Ladies and gentlemen, think this through carefully. Because if any of this rings true, then one conclusion we can draw from yesterday's "price action" is that Freegold can't be very far away. What if yesterday's "dip" was not the result of a coordinated pounding, but from the abrupt and unexpected absence of certain "giant" "longs"? Why did paper gold hold its own all through June -- at or near its ALL TIME NOMINAL HIGH -- only to drop off a small cliff on July 1st as if one of its main support pillars called in sick for the day? Were the "commercials" REALLY just waiting to turn the calendar page before pounding the snot out of gold? Or were certain "giant" LONGS propping up PAPER GOLD to book important numbers... on an important day? And if so, what does this imply about the real PHYSICAL prospects for the paper gold market going forward?

As long as the "paper gold" price is imputed widely to all pieces of real physical gold held tightly in vaults, it is fairly important to certain... how shall I say... published reports? Yes?

The timing of yesterday's "attack" on gold is most auspicious for physical gold. Notice I didn't say suspicious, but auspicious!

What do you think about yesterday's gold action? Please tell me in the comments below.

Happy 4th to everyone! Have a great weekend and please be safe and sane!



Indenture said...

Now that makes sense!
My favorite line, "Why did paper gold hold its own all through June -- at or near its ALL TIME NOMINAL HIGH -- only to drop off a small cliff on July 1st as if one of its main support pillars called in sick for the day?"

I was expecting a little more upward movement today but that's the trouble with the word 'expect'. These swings are wonderfully crazy to watch because your words once again soothe any feelings of doubt.

answer2me said...

TYROONE......Reveal thyself!

Auspicious indeed. Makes one wonder what comes in the following months. Was a good day to buy.

costata said...


Timely post. It made me think of another FOA quote about the fate that awaits the speculator longs.

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

"But, eventually (perhaps over only one day!) the outside the exchange demand for physical and it's escalating premium, will most likely see legal force from their physical buyers driving long players to demand delivery. 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."

"For you new people, this is exactly what they did during the Hunt silver fiasco. They have to do this because the articles these exchanges were created under manifest these trading places as price setting and price hedging establishments. Where the greatest majority of their trading is meant for cash contract settlement, not physical delivery settlement."

"In this light, only Gold Advocates understand that default on Comex is really the forced non metal settlement of a contract at a contrived paper price. A price far below the physical traded price. Most likely a last day of trading price that settles out hundreds of percent below the world price for physical metal trading,,,,,, as it appears the very next day."

erik said...

"Ladies and gentlemen, think this through carefully. Because if any of this rings true, then one conclusion we can draw from yesterday's "price action" is that Freegold can't be very far away".

If you turn out to be correct , you are possibly the only person that actually know what the hell they are talking about. Hope you're right.

1.618 said...


One thing that is very clear, is that no one else seems to know, do they? Just a lot of mish mash talk and 'analysis' of what has already occurred. And very little agreement even on that. No one else even has the belief in their views to stick their neck out and make a call. So clearly they do not know.

Unknown said...

Central bankers have variable bonuses tied to the increase in asset value in the quarter? That just does not have the ring of truth to it. Who would be setting these bonuses? I would think that if there was any variable bonus scheme at all for cenbankers, it would be tied to consumer inflation and other such political factors, not easily gamed stats like assets under management.

erik said...

@ Blondie

Yap... alot of opinion and no crystal balls. It takes a person with a very clear understanding of monetary matters to even be right some of the time.

FOFOA said...


Thank you for pointing out that the quotation marks around bonus were not clear enough. I changed it to "kudos" for you!

By the way, did you read the MUST READ link?


PS. Huey, go away. I know who you are, your two blogs and on Cash forum. Guess I took the comments off moderate too soon. You are worse than Shelby. If you lost money, you shouldn't have been trading paper gold. I never advised that. Your 5 ugly comments have been deleted.

Unknown said...

Thanks FOFOA. I figured that "bonus" was not necessarily literal. But even "kudos" - somehow I doubt that cenbankers are going to be given high-5's because of the delta in MTM asset value under administration.

And yes, I did read the MUST READ link and understand it well. I understand how the Euro has a fundamentally different architecture because its gold is MTM. But I don't see the benefit for gaming the numbers, by having an artificially low paper gold price for the first day of the quarter.

BTW because all of my readings here about Freegold, which I have come to accept, I have made the decision to liquidate 90% of my gold company shareholdings and purchase physical with the proceeds. I was 50% in physical, going to 85% now, with the rest cash and maybe some productive farmland. Thank you for the incredible effort you have put into educating us about Freegold theory.

GG said...

Paper shorts reach all time high!

FOFOA said...

For those of you that missed the fun, Huey accused me of lying, not only about being unemployed, but also about the amount of the donations that came in. He said that because I do not publish the names of the donors, I must be lying.

Well, first of all here is a screencap of my latest PayPal balance. This does not include the money coming in by snail mail, but it does have the 3% PayPal "vig" already subtracted...


And on the subject of anonymity, some people prefer to donate anonymously, like the European Royal that donated to FOFOA. The donations that came in ranged from $5 to $2,000. And trust me, the hedge fund managers and public figures that donated prefer anonymity.


Total donations now stand at $11,763.26. The 26 cents is because someone donated $17.76 today!!

Thank you to you all, most sincerely!!!!!!!

Lastly, he accused me of being Another and FOA, all a big fraud. To this accusation I do not have a reply nor a jpeg.


Angel Eyes said...

Debt based fiat currency = built for speed.

Asset based currency = built to last.

Calum said...

Non Farm Payroll unemployment data is released on the first Friday of every month. And virtually every month, precious metals take a hit on or directly before this date. Plain and simple. You can set your watch to it, more importantly: you can bank on profiting from it. Get in on the trade and enjoy the ride.

GG said...


And here I was thinking Karl Denninger was the biggest a**hole around. Or maybe Huey IS Karl...who knows? ;-)

Flore said...

I was predicting 100 dollar swings a couple of years ago... people laughed at it... Sinclair is now predicting 300 dollar swings... nobody is laughing now...

The hedgies don't like swinging...

Indenture said...


You don't have to prove anything to anyone that takes the time to read your work! I am glad you have given 'us' a glimpse into your donation numbers only because I feel it is satisfying to know you are being compensated and properly supported.

erik said...

Thanks for you're honesty FOFOA , but when it comes to reasoning with the unreasonable, really you should have just said... FU

Dave Narby said...


I know FOFOA is intentionally vague so as to get us to think, but I'm having a bit of trouble here.

It seems that the USAGOLD article referenced indicates that the Eurobankers use quarterly MTM accounting. Therefore it is in their interests to mark as high as possible on all assets before the end of the quarter so as to "window dress" their assets as high as possible, as this gives them the largest amount possible to show on their books as reserves.

However, gold presents them with a problem as a competing currency w/the Euro, so it's in their interest to suppress the price via paper gold.

Thus they are caught between a rock and a hard place.

So I'm assuming they wait until after the quarter to sell into the paper gold market. This makes their books look as good as possible, but the day after they suppress gold to as to keep up the appearance their fiat notes are strong vs. gold.

Seems a bit of a stretch as the "bang for the buck" from such operations seems minimal, but if they are getting desperate, I suppose that they might do it from the rational that "every little bit helps" (or rather, every little bit gives us time to secure fake IDs & plastic surgery so we can flee to Paraguay, Haiti, Myanmar etc.).

costata said...


"Lastly, he accused me of being Another and FOA, all a big fraud."

Would that be the "big fraud" Another who revealed in 1998 that the LBMA was leveraged 100:1 paper to metal?

I recall Another mentioned why they were leveraged 100:1 ...
I recall he mentioned who else benefitted....
I recall he told us who would lose from this...
I recall, he told us how we could protect ourselves from this ......

If you are a fraud, you are in noble company.

Flore said...

those hedgefundmanagers have to make Q booking some profits never hurts to look the shop nice...Realised gains....

shiloh1862 said...

I am 50% farmland, 25 in PMs and 25in CEF. Not worried because of humans like FOFOA, Another and FOA. I sleep well at night regardless of the day's movement.


Jeff said...


I wouldn't be bothered responding to trolls; it only encourages them.

As to the drop in paper gold, well, there is obviously terrible stress on various economic systems. The euro moved 2.5% against the dollar! A gigantic move even for fiat against fiat. I think no large system like Euro banking, currencies, etc. can take such motions for long. Something is going to break.

Unknown said...

Happy 4th of July weekend, FOFOA! THANK YOU -- Once again, your perspective is priceless.

This is such a complex issue, and I value your insight like no one else's. I can't believe I let awareness of the end-of-quarter on the BIS slip my mind. Not so much yours -- and for that again I thank you.

Walking the gold trail can feel very lonely in the everyday world, but reading your blog gives me the courage of my convictions. Without you, I would still be indecisive and confused.

You have a rare talent, FOFOA, making the complex simple is a skill, and one indicative of a profound intellect. Never, never stop writing!


costata said...

Dave Narby,

"However, gold presents them with a problem as a competing currency w/the Euro, so it's in their interest to suppress the price via paper gold."

This is a misconception. From the ECB's perspective gold is a reserve asset not a currency competing with the Euro. For them it is a win-win.

If gold, priced in Euro, goes up it inceases the asset backing of all Euro. If the Euro price of gold falls then more gold will flow into the EU zone. This increases the gold assets backing the whole EU economy. That is one of the reasons why they are encouraging people to buy gold. It is not altruism. It is pure pragmatism.

Recently when demand spiked in Germany etc the EU mints couldn't meet demand. The Perth Mint was selling retail product into Europe. (Aussies haven't started running to gold en masse yet, so the Perth Mint can usually supply demand spikes in other markets.)

Incidentally I am not sure why the gold price fell on July 1st. FOFOA may be right but I guess it is equally possible that some big buyers just stepped back from the market and allowed the BBs to smack the gold price down. If you want physical you don't want competition. Why not make a few bucks harvesting the weak hands using margin and knock out a few competitors in the process?

Indenture said...

Any thoughts on Mr. Organ's reason for drop in price. "It is now quite clear that one or a few hedge funds blew up on July 1.2010." (today's post)

And Y said...


I agree with erik. Besides, the screenshots you posted would be incredibly easy to fabricate. And even if you didn't photoshop them, showing us a total and transaction count means nothing. I can transfer $10,616.19 into my PayPal account right now if I want, and send myself a $2000 payment, too.

Don't get me wrong, I don't believe you went through the trouble. I believe you. I donated and pledged physical gold.

Just sayin'. Your word is stronger than a couple jpegs.


Ender said...

Yes, FOFOA, timing is a significant element in many events in life. When applied to the future’s playground for gold, the activity at the start of July really does give us all a glimpse at the real future!

You state “So what did you think of the gold "take down" yesterday? Did July 1st mean anything to you?” I will do just that.

You’re take on the events hint towards profit taking or image development. This may very well be the case, but I tend to look at these activities from a different angle.

The first thing that comes to mind is really simple. The amount sold could be likened to someone having found a new dump truck of gold that they had to sell that very minute. Yet, everyone knows that if you’re in the market to maximize profits, you quietly sell your load at the best prices over time. Or, with your big load all you’d have to do is publically announce that you have this gold and you’d have China, Russia and a bunch of other big boys lining up to bid on that physical. They would gladly pay you yesterday’s bid and even buy the truck. That would actually driver the ‘price’ of gold up.

That didn’t happen here. This was a panic sell by someone. These types of sales overwhelm the market and produce lowered prices. This was not physical gold, but rather paper gold. This is a clear case of a ‘big footprint’ in the market where profit had to be taken at any cost or an intentional loss was the motivation.

Reading a little more into it, this just appears to be more evidence that the futures market is where perception is bought. Losing a few billion in the market while maintaining the function of a currency is a no-brainer – if that is what’s happening here. It’s probably a good way for the ‘management team’ to start with the New Year’s budget.

To a gold advocate, seeing that no real physical gold is trading here, it has to make you wonder what the ‘real’ price of gold would be if the market where really based on physical trading.

Let the paper market burn – for the more that see it as perception arena, the more that will load up on physical gold.

You can’t stop the rising tide! Get your coins at a temporary discount.


Wendy said...

YTD Euro Gold up 24%. Makes the ECB balance sheet look quite healthy inspite of all the noise.

I have to wonder if there is a connection between a 3% drop in paper gold the same day there was a 2.5% increase in Euro paper?

Anyone with any ideas in this regard?

erik said...

Gold Bug Music....

Anonymous said...

as the economic system sloughs away into inevitable and irrevocable collapse, events such as the appropriately coined term "little slide"in gold have naturally less and less significance. any reservations or qualms in regards to the paper evaluation of gold have only relevance to day trading and profit-taking in an arbitrary market which is passing away. I, for one, fully expected this transparent gaming. It replicated the "retracement" from $1190+ to $1040 some months ago. Some of us felt a deep and painful twinge of buyer's remorse at that previous "little slide". looked at from the present vantage what appeared so monumental was a mere echo of disquiet, ultimately quite uneventful as will be realized of this disappearing footfall. As one studies and absorbs the revelations so generously bestowed on this excellent blog and other sources regarding the origins and deeper soundings of gold, the more one will rest in the timeless confidence and assurance it affords rather than the nagging, momentary and ever changing lustres of profit and loss.

Ivo Cerckel said...

Date: Fri Dec 12 1997 21:33
If you owned an oilwell in your back yard and no-one could take control of it, then oil is the best investment. But, most people use various forms of western paper to trade oil and that paper will burn in a currency fire. Make no mistake, a currency fire is now in process and it has much fuel remaining. Even Korea will find out that oil is all that counts. Their paper will die! Gold would have helped them in a different world, but for now gold is in the background as the IMF tries to add more paper to this inferno. If one owns real gold , it will be with ease to view the world currency developments. They will be truly of biblical proportions!

No delay for issuance of Gulf Cooperation Council currency - Kuwait
by Neeraj Gangal on Saturday, 03 July 2010
Gulf Cooperation Council (GCC) states are pursuing the process of issuing a single currency capitalising on the SUCCESSFUL [Ivo’s capitalisation] European experience in this respect, the Governor of the Central Bank of Kuwait (CBK) affirmed, according to a report.
A single currency for the Gulf Cooperation Council would be “a step towards a more stable international” financial system, Italian central bank Governor Mario Draghi told the conference in Rome on July 1.

Timing, isn’t it?

Arabian Business says that Kuwait said that the euro was a successful experience.
KUNA, Kuwait News Agency, says that Kuwait said that the euro has shortcomings.

Euro short-comings to help forming GCC unified currency -- official
02 July 2010
ROME -- The short-comings facing the euro currency and means to face such problems would be very useful input for the GCC states' intentions to form a unified GCC currency, said an official here on Friday.
Director of the Board for the GCC Monetary Council Dr. Mohammad Al-Jasser told KUNA on the sideline of the Euro-GCC forum for heads of monetary unions that the meeting was part of a long history of events aimed at bolstering economic relations between Europe and the GCC region.

costata said...


I meant to say this earlier. I was very grateful for your comments and insights when I first started reading this blog. You helped me to understand many things.

Thank you for sharing your calm wisdom.


I felt like a jerk when gold drifted $100+ lower after we made one of our early purchases. Since then that gold we "paid too much for" has roughly doubled in price in our local currency.


Harvey Organ has an explanation for the price action in gold in his latest post at his blog.

Anonymous said...

Hey erik,

this here is goldbug music, my friend!

The Ecstasy Of Gold by Ennio Morricone, The Good, The Bad And The Ugly Soundtrack

miked said...

Do day-to-day price movements need to be explained? Or is it even possible?

We still don't know what caused the flash crash and that was far a more significant event than a 3% blip in gold, which was also against a weak USD.

I can't see a tiny blip like this being a predictor of a paper collapse. Perhaps if you believe the market behaves like fractals you might trace the event backwards ex-post, but it's probably impossible in reverse.

Anonymous said...

Ah! how uninformed people are and how high they value their paper currencies, this is what I was replied to at an Indian forum,

You can live in a flat. It serves a need.

You can only make jewellery from gold.

Cant eat it.

Cant wear it.

Cant make a house out of it.

We keep gold in the fond hope that we can buy roti(food) kapda(cloth) and makaan(shelter) with it in an emergency.

What if the seller refused to part with these useful thing for useless gold?

I was expecting something better with respect to gold, at least from India.

I remember Another writing that the the masses will realize the value of Gold when it is too late(very very high prices), I thought that I was from among the late comers, but it seems I am still too early considering such mentality!

Anonymous said...

Most commentators seem to agree on the point that this was some hedge fund scrambling for profits dumping on the market all that they had...

Good enough for me, I got a discount yesterday in a very tight physical market...

Anonymous said...

Hey Samix,

Most commentators wouldn't know if their ass was on fire, my friend!

Dave Narby said...

@cosata (and whoever)

""However, gold presents them with a problem as a competing currency w/the Euro, so it's in their interest to suppress the price via paper gold."

This is a misconception. From the ECB's perspective gold is a reserve asset not a currency competing with the Euro. For them it is a win-win."

How is gold not a competing currency with all fiat?

The Sim said...

The picture on a chart of the price action in gold looks to me like when you press down really hard on a tight spring.. What happens when the pressure is eventually released?

erik said...

@ Tuco

Ya.. that is awesome. What a great team of mind and raw talent it took to compose that sound.

Nothing quit so grand as you're link but here is another little piece that goes along with being a Gold Bug..... After all we do own a piece of our own Bonanza!!

FOFOA said...

Hello Dave Narby,

"How is gold not a competing currency with all fiat?"

Excellent question. My friend, you ask the $55,000 question. Unfortunately the answer is so simple and elegant that I will have to direct you to hundreds of pages of reading just to begin to understand it.

But most simply, it has to do with the natural separation of MONETARY FUNCTIONS that is happening in the world today. "Store of value" going to gold, the hands-down winner in that department for 6,000 years. And "medium of exchange" going to modern fiat, the most efficient lubricator of trade ever!

Never before, in all of history, have we had a paper fiat currency that was so spectacularly efficient in one of its main functions (medium of exchange), yet such a miserable failure in the other (long term wealth reserve).

The euro architects recognized this structural reality, and they built the euro around it.

Look at ANOTHER'S first line below. "You see, all currencies now compete with each other, not for value of wealth but for "USAGE". This was the first clue, delivered back in 1997.

"Not for value of wealth" means the "wealth reserve" function of money or "store of value", and "USAGE" means the "medium of exchange" function or role. Modern currencies need only "USAGE demand" to be strong, but the dollar is different. It desperately needs to be loved and desired in the "wealth reserve" role. It is mainly here that it competes with gold. It is also in "the pricing of oil" that the dollar competes against gold, in order to retain its present level of "USAGE" demand...

Date: Sun Nov 02 1997 21:52

You see, all currencies now compete with each other, not for value of wealth but for "USAGE". The game has now become "whose currency gets used the most for trading" not for value against goods! It was easy to know the currency that got used for oil would win this game. Today, all currencies are traded against the dollar for its usage as a medium of oil exchange! Take away that link and the entire currency/ debt exchange system, as we know it will collapse! The US$ must be maintained as the "most used" if the other currencies are to have a chance to survive.

Will Japan sell US treasury debt and risk taking dollars out of "usage"? Not in your life! Nor will any other CB! They will talk about it. They will sell a little. But sell a lot? It will not happen. You see oil is the key and that connection to the dollar is changing. Foreign CBs will even sell some gold to try and keep the US$ in play ( see my other posts ) . Ever wonder why the US treasury has not sold gold, it would have the opposite effect! The oil that sense the early 70s, held together the world monetary system is now causing it to slide apart! We are not going to see inflation or deflation again. What we are now seeing is the "destruction" of our paper monetary system.

Someone once asked "if the currency/ banking system breaks down, how will we know what gold is worth?". My answer, gold above ground will be worth a lot more than gold below ground, a lot MORE!


FOFOA said...



There is more: Many say, how to defend Euro without much currency reserves? If gold go to many thousands US, what will be used to bid for Euro as defense? I say, these persons will find a problem on their computer screens! You see, the Euro will start as "nothing", no holdings of size, anywhere! The dollar is held as reserves as "the stars in heaven"! It is to say, "the dollar will bid for the Euro", not "the Euro will bid for the dollar"! All currencies will "flow into the Euro for trade". But, if the Euro becomes so strong, how to compete in world trade? It will be the price of oil that will make the "trading field" level! The soaring US$ price of gold will make even a 10% Euro reserve be as 100% today, in USD! Oil will become, very, very cheap in Euros and allow that economy to do well! Many other countries will see this and also want to join the new "world reserve currency" that has become"the new world oil currency"!

Dave, please also read the (MTM<--MUST READ) link from the above post. It will really help you understand how the euro benefits from a rising gold price while the same thing is deadly to the dollar. And Confiscation Anatomy will reveal a couple reasons (out of many) why the dollar, in its decrepit old age, cannot simply change and become like the euro.

The first ECB president, Dr. Willem F. Duisenberg, hinted at this uniqueness built into the euro in a 2002 speech when he said, "[The euro] is the first currency that has not only severed its link to gold, but also its link to the nation-state."

Also please read Gold is Money - Part 3 where I illustrate the separation of monetary roles visually. (You might want to start with Part 1.)


FOFOA said...


And lastly - for now - here is a bit of wisdom from the master, Aristotle, on this subject:

We can generally blunder our way through day to day and year to year in the comfortable fact of life that, through the open market--through the ability to trade with others--we can generally obtain what we materially need in one facet in exchange for some of our own wealth in another facet. Food for clothing seems like a pretty reasonable medieval exchange, doesn't it?

We all know the inefficiencies of barter, don't we? As civilization and trade evolved from the dawn of man to the 20th century, Gold revealed itself to be the single most reliable, universal agent that could be traded in various quantities for anything anywhere on Earth. Maybe most remarkable in this is that Gold is not itself something that is needed or consumed in satisfaction of our basic material needs for survival. But due to it being perfectly and uniquely suited for this universal role in trade for any other person's available wealth as necessary to meet our own specific needs, Gold has become such a near proxy for the real wealth we require for life that many of us have permitted ourselves the casual inclusion of Gold into our otherwise strict definition of wealth.

Those in the financial industry have come to call this universal wealth asset (Gold) by the name "money," but that unnecessarily confuses the issue. In their efforts to facilitate various objectives in modern life, those in the financial industry endeavored to master the alchemist's craft--to methodically create "money" from such substances as worthless base metals or from paper. Even the village idiot can clearly see that "the bankers and others" didn't succeed in creating Gold. But the village idiots were never so sure that these nickel coins and paper notes weren't in fact successfully turned into this other thing that the experts called "money." As for me, I'm comfortable calling these lesser creations by the name "currency," and further, I recognize that they can and do serve a useful purpose in modern society. With this distinction I am not so easily baffled as the village idiots into thinking that these currencies created in the image of "real money" can actually attain the superior wealth function of the asset they sought to imitate--that being Gold. And you shouldn't be fooled either.


FOFOA said...


Every currency made in imitation of Gold goes hand in hand with the financial architecture that supports it right into the trashbin of failed efforts, and are logged into the collective wisdom of those who vow not to be fooled again. Based on the "conception, care, and feeding" of the various currencies and their supporting architectures, the life span--or timeline--of predictable rise and fall milestones may vary in length from one currency to another. They may serve a purpose while they last, but they all suffer the same eventual demise at the hands of inflation. Remember, these currencies are man's artificial attempt, time and time again, to imitate Gold for use in modern commerce. They are built for speed--built to be borrowed specifically, and spent rapidly! They are not suitable for saving. For that you must turn to the master--the near-wealth proxy upon which all currencies must bow down in inferior imitation.

So you see, learning how the world works is all about each man coming to the understanding about the real wealth we all require to best ensure our survival. Knowing that Gold is the master proxy for our life's day-to-day and year-to-year shifting requirements for food, clothing, shelter, and energy, it simply makes more sense to gather in Gold for later use than to gather in clothes (that we may outgrow,) food (that may spoil,) houses which are more than our needs, or energy (that we can't store.) You see, time bears witness to this undeniable fact: Gold can be called wealth because it is an enduring wealth proxy in exchange for our life's needs. Currency, on the other hand, serves a specific modern economic purpose--to be borrowed and inflated in placation of man's immediate desires. It is not wealth, it fails as a proxy for the Gold it tries to imitate. Do not confuse the two.

Happy 4th of July! Now go drink some beer and light some fireworks!


FOFOA said...

Saudi Arabian King Abdullah Orders a Halt to Oil Exploration in the Nation
By Mourad Haroutunian - Jul 3, 2010

Saudi Arabia has stopped exploring for oil to protect the interests of future generations, the Saudi News Agency reported, citing King Abdullah Bin Abdul Aziz.

The monarch told Saudi scholars studying in Washington that he had ordered that all prospecting for oil to cease “in order to keep the earth’s wealth for our sons and grandsons”, the Riyadh-based agency said.

costata said...


"that all prospecting for oil to cease 'in order to keep the earth’s wealth for our sons and grandsons'" ... and he added off camera 'to make it even harder for anyone to make an accurate assessment of our oil reserves'

Ivo Cerckel said...

Oman oil reserves fall 3 pct in 2009
Jul 04, 2010 at 15:07 By Saleh al-Shaibany
MUSCAT - Oman's oil reserves slipped just over 3 percent in 2009 as the country failed to find as much oil as it produced, according to official data in the country's annual central bank report.
Oman is a small independent oil producer in a region housing OPEC's largest crude exporters, but its oil has a big influence on international markets, as it is used in benchmark pricing for around 12 million barrels per day (bpd) of crude exported from the Middle East to Asia.

Kuwait's oil reserves below 100 bln barrels
Jun 10, 2010 at 12:44
KUWAIT - Oil reserves of OPEC member Kuwait have fallen to below 100 billion barrels as daily withdrawals are not being compensated for by an increase in stocks, a newspaper reported on Thursday.
"The probability of boosting reserves through new finds is diminishing more and more, especially due to Kuwait's limited area ... which makes technological development the only practical means to raise Kuwaiti reserves," daily newspaper al-Rai reported, citing oil sources.

Peak oil is the point in time [Ivo: Timing is Everything?] when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline, says Wikipedia.

Is this a myth?

Ivo Cerckel said...

Geel Ijzer (Yellow Iron) at asks what King Abdullah wanted to achieve with this announcement.

Why should this obvious fundamental again be publicly stressed?

Is the cheap gold source disappearing?

Does Abdullah expect, or want to provoke, (heeft hij voor ogen?), a dollar devaluation?

Is there according to Abdullah something wrong in the Middle-East – USA relationship?
asks Geel Ijzer.

Although there is now a permanent president of the European Union, there is still every six month a rotating president, i.e., rotating among the EU member states.

Since 01 July 2010, the rotating president is Belgium.

Belgium has no government for the moment.
There were elections last month and no new government has yet come up.

The previous government headed by Yves Leterme is taking care of current (running?) affairs.

Last week-end (no, this week-end time), Belgium’s De Tijd newspaper printed an article from Belga news-agency under the title "Belgium becomes EU-president at a hinge moment"
"België wordt EU-voorzitter op scharniermoment"
(my comments in Dutch under the article are here

If the Belgian presidency occurs at a hinge moment, the said presidency cannot possibly be a current affair.

The Belgian government cannot decide anything.

Perhaps, King Abdullah is inviting King Albert of the Belgians to decide together what should be done at this hinge moment.

Is King Abdullah inviting King Albert to bypass the impotent (because only care-taking) Belgian government?

The gold-euro, wasn’t it?

The European royal contributing to this blog has contacts with His Majesty King Albert of the Belgians?

Ivo Cerckel

Here the Zawya Dow Jones article:
2ndUPDATE: Saudi King: Halt To Oil Exploration To Save Wealth

Wendy said...

In spite of the UN's refusal to agree, on July 1, Obama signed into law, new sanctions against Iran.

In this light, the following article is timely. Warning: it is long!! If you don't have time, it's worth reading the conculsion at the end.

Regards, and Happy 4th of July to my American neighbors.

costata said...


"Warning: it is long!!"

Don't fret, we are accustomed to long articles around here.


FOFOA, is this comment going to get past the moderator?

Anonymous said...

The UN has called for the dumping of the dollar, freegold next ?

FOFOA: I feel that to maintain the status quo the powers that are will try to find a replacement system like SDR/Basket of Currencies etc

Why do you feel that all this will fail and freegold will reign ?

Also, when freegold kicks in, how much gold do you feel a person holds will be enough to make the most of it , I mean can you hint towards a base line ?

Martijn said...

The UN has called for the dumping of the dollar, freegold next ?

That quote is not exhaustive.

The UN called for dumping the USD in favor of the SDR and did not mentioned gold anywhere.

Angel Eyes said...

@ samix,

SDR/debt-backed paper will be rejected because the debt is unsustainable. It has already reached its maximum, and the whole world, except the US, is moving away from additional spending. The US, as much as it would like to, cannot force the ROW to spend.

How much gold a person should hold is a personal decision, with many variables. There is no "correct" amount. I believe FOFOA has indicated that it is his opinion is that someone holding 5-10% of their wealth in gold will hold their total purchasing power through the transition, roughly speaking. A greater % would therefore yield an increase in relative purchasing power.
This is most certainly not an area where any speculation should be regarded as anything more than speculation, IMO.

The only thing we can have confidence in is that holders of gold should do okay, or better ;)

To hold all wealth in gold would be foolhardy. There is much scope for disruptions of many kinds ahead, so there are many things to take into consideration. There may be any number of potential situations from which gold would offer one no protection at all.
Exercise prudence.

costata said...


"I feel that to maintain the status quo the powers that are will try to find a replacement system like SDR/Basket of Currencies etc"

I have been interested in SDRs for a while so I'd like to respond to this part of your question.

I don't think that the SDR can be a viable alternative to the failing US$ as an international reserve currency for several reasons.

Firstly the US$ was never an unbacked fiat currency. Since 1973 (Nixon removed the gold backing in 1971) the US$ was backed by oil and, in A/FOA's time, ridiculously cheap gold in terms of public presentation.

The SDR was originally backed by gold. The link was formally severed in 1978 (if memory serves me). According to the IMF since then the SDR has represented a basket of fiat currencies. If it remains a basket of fiat currencies it cannot be a store of value. That is the essential flaw of the US$ as a "reserve currency". It isn't a reliable, durable store of value.

As someone quipped: "Happy 4% of July" the current purchasing power of the US$ compared to 1913.

There has been a lot of talk about including other things in the basket in order to make the SDR a viable reserve currency. Let's consider two proposed inclusions in the SDR basket, oil and gold.

If oil is included in the SDR basket we have to deal with the fact that oil is consumed. Unless a particular quantity of oil backing an SDR is "stored" for the life of the SDR it, logically, cannot be a store of value. If it is stored there are, at minimum, two problems the storage cost and the fluctuation in the price of the stored oil. If it is backed by oil in the ground a whole host of issues emerge that can be summarised by one word - risk.

If gold is part of the SDR basket a different problem emerges i.e. declining marginal utility. From a political/banking perspective the whole point of a traditional fiat currency is that through inflation it devalues over time.

If gold is included in a revamped SDR at a fixed price the SDR will fail because the quantity of gold backing the SDR could go to zero in the currency it is priced in. Pricing the gold component in multiple currencies only increases the risk assessment. In a rational market this version of the revamped SDR basket will be discounted in line with the risk and if the risk cannot be assessed it will be assumed to be 100%.

If gold is included in the SDR at a fixed weight the SDR becomes a call option on gold. As the inflation of the fiat currencies in the basket drives down their value relative to gold the gold component of the SDR becomes increasingly valuable.

By way of example. Let's assume the IMF issues 1 trillion SDRs with 10% gold as part of the basket. If the countries holding any of the trillions of US$ reserves want to increase their gold reserves they simply buy up all of the SDRs using their US$. Can the IMF (the USG One World Bank*) refuse to accept US dollars in exchange for SDRs?

* Please, please some feckless idiot tell me I'm wrong about the IMF being the USG designated World Bank. I'm happy to debate the facts. Shelby, are you out there?

miked said...

>>Also, when freegold kicks in, how much gold do you feel a person holds will be enough to make the most of it , I mean can you hint towards a base line ?

There is one ounce of physical gold per person on the planet and 85% is already in private hands. That should give you a baseline to start from Samix :)

miked said...

And of course if things remain as they are today 1% of the population will own 50% of the wealth and 10% of the population will own 90% of the wealth.

1% will own 2.5 billion ounces. That's about 50 ounces each. Of course it works out more per family. If your family consists of 5 members, to be in the top 1% your family will need to own 250 ounces. That's if you assume the top 1% will all own the same amount, which of course they won't.

costata said...


Is this the beginning of the debt restructuring?

"'Greece has already started to restructure its state debts,' says John Dizard in today's FTfm supplement, citing a little-noticed decision by the Greek Ministry of Health and Social Welfare to repay debts of €5.36 billion ($6.7bn) – owed to medical suppliers – with either zero-coupon bonds or a 'haircut' of 19%."

Tyrone said...

Local currencies in Germany?...

German Local Currencies

Anonymous said...

Thank you guys for all your explanations, that really makes a lot of sense.

Another problem that I see with SDR's is that why will other sovereign nations accept IMF created SDR's, another shot at American hegemony ?

Anonymous said...

FOFOA why are we not talking on King Abdullah's halt on further oil explorations ?

Have they decided to stop swapping their precious oil for worthless dollars and very high prices gold ?

S said...

Far be it to point out the obvious, but with gold selling off presumably because there is deflation everywhere (money supply shrinkage), the base metals are skyrocketing today on renewed demand/inflation. SPX futures were down 10 last night around 11 and rebounded a full 22 points to indicate an +11 open. The DXY sold down because of some rumor that the stress tests mean something in europe and the Aussy's told us everything is great in China as the BDI falls another 4% for the longest drop on record?

All this says the timing of the gold take down has little to do with quarter end and much more to do with inducing risk and perhaps preparing the way for another QE program as those leaks have been rampant over the past several weeks. This would set the base lower for the paper rally on the news of more debasement. The takedowns are now so obvious, as Jesse pointsd out.

S said...

Far be it to point out the obvious, but with gold selling off presumably because there is deflation everywhere (money supply shrinkage), the base metals are skyrocketing today on renewed demand/inflation. SPX futures were down 10 last night around 11 and rebounded a full 22 points to indicate an +11 open. The DXY sold down because of some rumor that the stress tests mean something in europe and the Aussy's told us everything is great in China as the BDI falls another 4% for the longest drop on record?

All this says the timing of the gold take down has little to do with quarter end and much more to do with inducing risk and perhaps preparing the way for another QE program as those leaks have been rampant over the past several weeks. This would set the base lower for the paper rally on the news of more debasement. The takedowns are now so obvious, as Jesse pointsd out.

Anonymous said...

Gold seems to be taking a pounding on comex again today.

Traded well during the Asian Markets crashing half way after london

GG said...


"and he added off camera 'to make it even harder for anyone to make an accurate assessment of our oil reserves"

Yup. Especially with criminals/thieves like the United States around. Perhaps they have realized that the Western powers will never stop plundering their natural resources via the fiat money system.

costata said...


If A/FOA were right the House of Saud is probably positioning itself to defend its finances against LOW oil prices rather than trying to hide reserves from acquisitive Empires.

They have always known that fiat currency is a lousy deal for long term wealth storage.

Peak Cheap Oil notwithstanding they are pumping around 8.5m barrels a day while they have the capacity to pump 12.5m.

Oversupply seems to be the more likely problem while the price signals in just about everything you can think of are subject to "rigged market capitalism" (h/t Max Keiser)

This would partially explain why they are pumping so much money into building their downstream oil processing infrastructure (petrochemicals etc). This suggests a desire to add value to the resource rather than an expectation that the raw material is going sky high.


Dave Narby said...

@ Cosata

"This would partially explain why they are pumping so much money into building their downstream oil processing infrastructure (petrochemicals etc). This suggests a desire to add value to the resource rather than an expectation that the raw material is going sky high."

That makes a lot of sense.

dojufitz said...

This is all an old

Had a chuckle when i stumbled upon it out of no where....

Anonymous said...


PDF of entire book is available here:
William Gouge, The Curse Of Paper Money And Banking, 1833

dojufitz said...


thanks so much! I will read this over a few glasses of red. All the best.

FOFOA said...

Eurosystem gold reserves climb by 65.4 billion euros
Jul 7th, 2010 13:30 by RS

In the consolidated financial statement of the Eurosystem released today by the ECB for the week ended Friday July 2nd, the numbers therein capture the latest mark-to-market quarterly revaluation of assets.

With no material transactions by Euro-member central banks during the week, the 65.4 billion euro growth in gold reserves was solely delivered on account of the Eurosystem’s MTM architecture, bringing their total gold reserves to a new record high at €352.092 billion, up from €266.9 billion at the start of the year.

By comparison, the Eurosystem’s net position in foreign currency for the quarter grew by only 18.2 billion euro, of which 18bln was from MTM effects and 0.2bln from CB transactions. Foreign currency reserves now stand at €190.9 billion.

Consequently, the proportion of gold reserves in Eurosystem coffers have grown over the course of the past 6 months from 62% of total reserves to 65%.

Regarding the previous post, don’t think for a second that China is not already keenly aware and tactfully desirous of the counter-cyclical strength, stability and flexibility available in this gold-centric reserve architecture.

For more background on this new paradigm in the reserve management of the international monetary system, see my Jan 8th post.


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

Maybe Jeff has started reading FOFOA and has seen the "light".

How The Banksters Serve The Gold-Buyers
Jeff Nielson
July 5, 2010

Enter the anti-gold cabal. The same arrogant bankers who smugly once believed that they could control the gold market "forever" with the (once) vast hoards of bullion which they held are now beginning to comprehend the truth. All they have really accomplished is to allow the big-buyers the opportunity to buy all these banksters' gold at a tiny fraction of its true value...

The big-buyers are not the "white knights" who have come to slay the evil banker-dragons. Instead, they merely intend to 'ride' these beasts - until they eventually collapse with exhaustion. Following that disillusionment, a more practical thought comes to the surface: how does knowing this help us as investors?

Contrary to what many commentators (including myself) have written previously, the big-buyers have no intention of simply "marching" the price of gold higher, and certainly don't want to prematurely trigger the defaults which must eventually occur in the gold and silver markets. Instead, these buyers want the price of gold to be knocked-down again and again, and rises in the price of gold are not a desired result for these big-buyers, but rather an unwanted side effect of their purchases...

However, investors cannot afford to become complacent, and assume that they will have plenty more "buying opportunities"- before gold truly begins its revaluation to its fair-market value...

While "white knights" don't exist in the gold market, the reckless, scheming bankers are all too real. As I have pointed out several times before, such psychopaths frequently self-destruct before they are ever "caught" and held accountable for their crimes. Thus, we must always view the precious metals market as one where our "last chance to buy" could be today. Do not waste any time in filling your own quota for this necessary insurance.

FOFOA said...

Hello Greyfox,

Did you ever read this one by Jeff?

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

That link answers my question about whether or not he has been reading your blog. Most important/significant is that he has been heavily influenced by your articles as reflected in his writings. Now we need to convince/induce him to donate a cut of his writing income to support "The Blog".

costata said...


I would argue that there is a rising floor price under gold that will never be breached again. Another explained that it would bring the whole game undone.

The price of gold can never be allowed to fall below the cost of production. Another explained that this happened in the late 1990s. He explained that this could have choked off mine supply and prompted the (Saudi) "oil to bid for gold".

Apparently it was one of the main concerns that inspired he and FOA to start posting.

In a recent interview on KWN Pierre Lassonde explained to Eric King that the price of the major gold miners had not risen to the expected heights because the cost of production had been rising in lockstep to gold prices.

Do you see the connection?

It is my contention that the rise in the price of gold has been managed both on the upside and downside to keep it rising to a level that maintains a profit margin for the gold miners so that they will maintain and/or attempt to increase the mine supply of gold.

As you probably know mine supply has been falling despite the reliable profitability of the big miners. Likewise they have been exiting their hedges to gain more exposure to the rising gold price.

What does this suggest?

IMO it suggests that the gold price manipulators have allowed profit margins to expand in order to coax out new mine supply to offset the falling supply from traditional sources. At the same time the upside has been capped in order to allow gold to be acquired in quantity at reduced prices.

I know Jim Sinclair has talked about the "China put" underwriting the demand and price of gold. To me, this is the wrong way to look at the situation. As pointed out in the links that you posted, NO buyer wants higher prices.

I think that what JS is seeing is the "cost of production put" at work. We can monitor this price by looking at the costs of the BIG miners. The little fish wont make a difference. Likewise the industry average cost of production is of no use to us.

Grades have been falling for over a hundred years. (I can provide links to statistics.) Suffice to say the really huge remaining deposits are all LOW grade compared to the deposits mined in the distant past.

Obviously LOW grade = HIGH cost of production. IMO that's the figure to watch if you want to obtain a rock solid floor price for gold.

Anonymous said...

Greyfox "It's the Debt, Stupid, its likely that he donated already ?

Post a Comment

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