Sunday, July 1, 2012


Three weeks ago Vivek Kaul contacted me requesting an interview for the Daily News and Analysis (DNA), an English newspaper published out of six centers in India including Mumbai and Bangalore. The interview comes out today (Monday morning) in India. You can download the pdf here. Below is the interview just as it appears in the paper. (They always include a caricature made from a photo of the interviewee which is why he mentioned something about me refusing to be photographed. ;)


An interview with the mysterious, reclusive ‘Fofoa’

The dollar is as safe as a bomb shelter that's rigged to blow up once everyone is "safely" inside...

Gold will be repriced somewhere around $55,000 per ounce in today's purchasing power

Half way through the interview, I ask him where does he see the price of gold reaching in the days to come. “Well, I don't see gold's trajectory being typical of what you'd expect to see in a bull market….And I expect that physical gold will be repriced somewhere around $55,000 per ounce in today's purchasing power. I have to add that purchasing power part because it will likely be concurrent with currency devaluation,” he replies.
Meet Fofoa, an anonymous blogger whose writings on have taken the world by storm over the last few years. In a rare interview – one of his preconditions was he won't be photographed – he talks to Vivek Kaul on paper money, the fall of the dollar, the coming hyperinflation and the rise of 'physical' gold.

The world is printing a lot of paper money to solve the economic problems. But that doesn’t seem to be happening. What are your views on that?

Paper money being printed to solve the problems… this was *always* in the cards. It doesn't surprise me, nor does it anger me, because I understand that it was always to be expected. The monetary and financial system we've been living with—immersed in like fish in water—for the past 90 years uses the obligations of counterparties as its foundation. These obligations are noted on paper. In describing the specific obligations these papers represent, we use well-known words like dollars, euro, yen, rupees and yuan. But what do these purely symbolic words really mean? What are these paper obligations really worth in the physical world? Ultimately, after 90 years, we have arrived at our inevitable destination: the intractable problem of an unimaginably intertwined, interconnected Gordian knot of purely symbolic obligations. A Gordian knot is like an unsolvable puzzle. It cannot be untangled. The only solution comes from "thinking outside the box." You've got to cut the knot to untangle it. So the endgame was always going to be debasing these purely symbolic units. Anyone who expected anything else simply fooled themselves into believing the rules wouldn't be changed.

Do you see the paper money continuing in the days to come?

Yes, of course! Paper money, or today's equivalent which is electronic currency, is the most efficient primary medium of exchange ever used in all of human history. To see this you only need to abandon the idea of accumulating these symbolic units for your future financial security. They aren't meant for that! They are great for trading in the here-and-now, not for storing for the unknown future. To paraphrase Silvio Gesell, an economist in favor of symbolic currency almost a century ago, "All the physical assets of the world are at the disposal of those who wish to save, so why should they make their savings in the form of money? Money was not made to be saved!" In hindsight, this statement is true whether money is a hard commodity like gold or silver, or a symbolic word like dollar, euro or rupee. In both cases, saving in "money" leads to monetary tension between the debtors and the savers. When money was a hard commodity, this tension was sometimes even released through bloodshed, like the French Revolution. So no, I don't think we're swinging back to a hard currency this time.

Do you see the world going back to the gold standard?

No, of course not! "The gold standard" means different things depending on which period you are talking about. But in all cases it used gold to denominate credit, the economy's primary medium of exchange. Today we have a really efficient and ultimately flexible currency. Bank runs like the 1930s are a thing of the past. But that's not to say that gold will not play a central role in the future. It will! The signs of it already happening are everywhere! Gold is not going to replace our primary medium of exchange which is paper or electronic units with those names I mentioned above. Instead, physical gold will replace paper obligations as the reserves—or store of value—within the system. Physical gold in unambiguous ownership has no counterparty. This is a much more resilient foundation than the tangled web of obligations we have today.

Can you give an example?

If you'd like to see this change in action, go to the ECB (European Central Bank) website and look at the euro-system's balance sheet. On the asset side gold is on line 1 and obligations from counterparties are below it. Additionally, they adjust all their assets to the market price every three months. I have a chart of these MTM (marked to market) adjustments on my blog. Over the last decade you can see gold rising from around 30% of total reserves to over 60% while paper obligations have fallen from 70% to less than 40%. I expect this to continue until gold is more than 90% of the reserves behind the euro.

Where do you see all this money printing heading to? Will the world see hyperinflation?

Yes, this will end. I am pretty well known for predicting dollar hyperinflation. As controversial as that prediction is, I think it is a fairly certain and obvious end. I don't like to guess at the timing because there are so many factors to consider and I'm no supercomputer, but ever since I started following this stuff I've always said it is overdue in the same way an earthquake can be overdue. As for other currencies, I don't know. Perhaps yes for the UK pound and the yen, but I don't know about the rupee. The important things to watch are the balance of trade and the government's control over the printing press. If you're running a trade deficit and your government can (and will) print, then you are a candidate for hyperinflation.

In that context what price do you see gold going to?

Well, I don't see gold's trajectory being typical of what you'd expect to see in a bull market. Instead it will be a reset of sorts, kind of like an overnight revaluation of a currency. I'm sure some of your readers have experienced a bank holiday followed by a devaluation. This will be similar. And I expect that gold will be repriced somewhere around $55,000 per ounce in today's purchasing power. I have to add that purchasing power part because it will likely be concurrent with currency devaluation. So, in rupee terms, I guess that's about Rs3.2 million (32 lakh) per ounce at today's exchange rate.

The price of gold has been rather flat lately. What are the reasons for the same? Where do you see the price of gold going over the next couple of years?

"The price of gold" is an interesting turn of phrase because I use it often to express "all things goldish" in the gold market. In today's market, "gold" is very loosely defined. What passes for "gold" in the financial market is mostly the paper obligations of counterparties. These include forward sales, futures contracts, swaps, options and unallocated accounts. I often use the abbreviation "$PoG" to refer to the going dollar price for this loose financial "gold".

The LBMA (London Bullion Market Association) recently released a survey of the total daily trading volume of unallocated (paper) gold. That survey revealed a trading flow of such magnitude that it compares to every ounce of gold that has ever been mined in all of history changing hands in just three months, or about 250 times faster than gold miners are actually pulling metal out of the ground. Equally stunning were the net sales during the survey period. The rate at which the banking system created "paper gold" was 11 times faster than real gold was being mined.

What is the point you are trying to make?

The point is that gold is being used by the global money market as a hard currency. But it is being treated by the marketplace as both a commodity that gets consumed and also as a fiat currency that can be credited at will. It is neither, and gold's global traders are in for a rude awakening when they find out that ounce-denominated credits will not be exchangeable for a price anywhere near a physical ounce of gold in extremis—ironically failing at the very stage where they were expected to perform.

So what are you predicting?

But don't get me wrong. It is not a short squeeze that I am predicting. In a short squeeze, the paper price runs up until it draws out enough real supply to cover all of the paper. But this paper will not be covered by physical gold in the end. It will be cash settled, and it will be cash settled at a price much lower than the price of a real ounce of gold, like a check written by an overstretched counterparty. It is a tough job to make my case for the future of the $PoG in just a few paragraphs. The $PoG will fall and then some short time later we will find that the market has changed out of necessity into a physical-only market at a much higher price. If you were holding paper you will be sad. If you were holding the real thing you'll be very happy.

Why is the gold price so flat these days?

Today's surprisingly stabilised $PoG tells me that someone is throwing money into the fire to delay the inevitable. Where do I see the $PoG going over the next couple of years? Maybe to $500 or less, but you won't be able to get any physical at that price. I think that today's price of $1,575 is still a fantastic bargain for physical gold.

Franklin Roosevelt had confiscated all the gold that Americans had in 1933. Do you see something similar happening in the days to come?

Not at all! The purpose of the confiscation was to stop the bank run epidemic at that time. There's no need to do it again. The dollar is no longer defined as a fixed weight of gold, so the reason for the last confiscation—and subsequent devaluation—no longer exists. Gold that's still in the ground is a different story, however. Gold mines will likely be considered strategically important national assets after the revaluation, and will therefore fall under tight government control.

The irony of the entire situation is that a currency like “dollar” which is being printed big time has become the safe haven. How safe do you think is the safe haven?

Indeed, everyone seems to be piling into the dollar. Especially on the short end of the curve, helping drive interest rates ridiculously low. The dollar is as safe as a bomb shelter that's rigged to blow up once everyone is "safely" inside. You can go check it out if you want to (sure, from the outside it might look like shelter), but you don't want to be in there when it blows up. You've got to realize that it is both economically and politically undesirable for any currency to appreciate against its peer currencies due to its use as a safe haven. Remember the Swiss franc? As soon as it started rising due to safe haven use they started printing it back down. The dollar is no different except that it's got a whole world full of paper obligations denominated in it. So when it blows, the fireworks will be something to behold.

What will change the confidence that people have in the dollar? Will there be some catastrophic event?

That's the $55,000 question. It is impossible to predict the exact pin that will pop the bubble in a world full of pins, but I have an idea that it will be one of two things. I think the two most likely proximate triggers to a catastrophic loss of confidence are a major failure in the London gold market, or the U.S. government's response to an unexpected budget crisis due to consumer price inflation. Most people who expect a catastrophic loss of confidence in the dollar seem to think it will begin in the financial markets, like a stock market crash or a Treasury auction failure or something like that. But I think it is more likely to come from where, as I like to say, the rubber meets the road. And here I'm talking about what connects the monetary world to the physical world: prices. I think these "worlds" are connected in two ways. The first is the general price level of goods and services and the second is the price of gold. If one of these two connections is broken by a failure to deliver the real-world items at the financial-system prices, then we suddenly have a real problem with the monetary side. So I think it will be a relatively quick and catastrophic event, but maybe not as dramatic as a major stock market crash. It will be confusing to most of the pundits as to what it really means, so it will take a little while for reality to sink in.

The Romans debased the denarius by almost 100% over a period of 500 years. The dollar on the other hand has lost more than 95% of its purchasing power since the Federal Reserve of United States was established in 1913, nearly 100 years back. Do you think the Federal Reserve has been responsible for the dollar losing almost all of its purchasing power in hundred years?

Yes, inflation was a lot slower in Roman times because it entailed the physical melting and reissuing of coins of a certain face value with less metal content than previous issues. This was a physical process so it occurred on a much longer time scale. The dollar, on the other hand, has lost nearly 97% of its purchasing power in roughly a hundred years. Do I think the Federal Reserve is responsible for this? Well, given that the lending/borrowing dynamic causes expansion of the money supply, I think the government and the people of the world share in the responsibility. But just because the dollar has lost 97% of its purchasing power doesn't mean that any individual lost that much. How many people do you think are still holding onto dollars today that they earned a hundred years ago? How long would you hold dollars today? As long as the prices of things you want to buy don't change during the time you are holding the currency, what have you lost? So imagine that you simply use currency for earning, borrowing and spending, but not for saving. Will it matter how much it falls over a hundred years? Your earning and spending will happen within a month or so, and prices won't change much in a month. Also, your borrowing will be made easier on you as your currency depreciates. And your gold savings will rise. So with the proper use of money, there is no need for alarm if the currency is slowly falling at, say, 2% or 3% per year.

Do you see America repaying all the debt that they have taken from the rest of the world? Or will they just inflate it away by printing more and more dollars?

The debts that exist today can never be repaid in real terms. And as I mentioned before, they are all denominated in symbolic words like dollars, euro, yen, yuan and rupees. The debt of the US Treasury, most of all, will of course be inflated away.

What does Fofoa stand for?

I remain anonymous because my blog is not about me. It is a tribute to "Another" and "Friend of Another" or "FOA" who wrote about this subject from 1997 through 2001. So FOFOA could stand for Friend of FOA or Follower of FOA or Fan of FOA. I never really stated what it stands for, so you can decide for yourself! Sincerely, Fofoa.

(Interviewer Kaul is a writer and can be reached at


«Oldest   ‹Older   201 – 400 of 548   Newer›   Newest»
KnallGold said...

Anyone else had a strange dream last night?

Totally off-topic, but on TV I'm just seeing reports that they finally found the Higgs Boson at CERN, although precise confirmation will take until end of year. But one scientist from ETH Zurich said that they're actually quite sure now.

How good when such predictions finally become confirmed, or as Hannibal of the A-Team used to say " I love it when a plan comes together!"

Off to smoking a cigar after a little pause, and then onward on the Goldtrail, my fellow Goldmeisters!

Unknown said...

@ those responding to "Gary"

On this thread, this individual has passed from (presumed) innocent participant, through a state similar to that of a narcissistic adolescent, to out-and-out troll.

IMHO, it's time to give him the silent treatment and not feed the continuing devolution of the community discourse. He's like a loudmouth in a library: he's been shown the books, and the door, and it's time for him to choose.

costata said...

Gary writes to Uncle costata:

you must think yourself very clever

Ordinarily I wouldn't dream of it but if Gary insists ("must" forsooth) who am I to refuse the accolade (blush).

Anonymous said...

How would this alleged Saudi revaluation of gold correct the structural US trade deficit, which is the driver for HI? The only way to maintain the deficit would be by shipping gold, and at anything but a free-floating physical gold price that structural deficit won't last long...

So yeah basically we're talking about the USG voluntarily inducing freegold & relinquishing their exorbitant privilege to avoid HI. Probably not gonna happen.

Robert said...

Jeff, you completely lost me. I think it is obvious that the US is not going to let any country or the BIS lay claim to gold in the UST for $42 per ounce. Do you? If there was any way to do it, don't you think someone would have tried by now? Politically it might create a stir if the USG were to open up the UST gold. But an intractible legal mess? After all this time? And after all of the international monetary agreements since 1971? I am skeptical. The BIS might complain, and rightfully so, but would it amount to anything other than hot air? That is the question I am asking. You say the onus is on my to show all those claims can be ignored. No, I am simply saying that as a political matter they would be ignored, and simply asking what the BIS or anyone else would be able to do about it -- other than complain.

You say I "should explain how the US, sketchy junkie that it is, can repeatedly default on its debts while being supported by the rest of the world, ad infinitum." You lost me. The US defaulted more than 4 decades ago. Nothing ever came of those claims. Do you really think anything ever will?

costata said...


You wrote:
The US defaulted more than 4 decades ago. Nothing ever came of those claims.

Pardon me for butting in.

Do you really think anything ever will?


Gary Morgan said...
This comment has been removed by the author.
Gary Morgan said...
This comment has been removed by the author.
Robert said...

Well, Costata, I think I agree with you on that. And I think that means that the U.S. still has some weapons in its arsenal to keep kicking the can down the road (if it uses that UST gold to hold off a run on the bullion banks). I have already raised the suggestion that the USG may have already been doing this on the sly, but that is just the paranoid conspiracy theorist in me.

Edwardo said...
This comment has been removed by the author.
Anonymous said...

@Gary, but you say the Saudis do it with US permission, so it is the US voluntarily inducing it, is it not?

And how bout that structural trade deficit? Do you think USG will fall on its sword and downsize to avoid HI, or will they print like crazy to maintain the status quo? I think the latter...

Edwardo said...

I'm with Robert. I regard the robustness of the law with respect to the called "Golden Outlaws" to be in doubt. Even if the claims of those who were defaulted on long ago are still technically valid, in these, to put it mildly, legally challenged times, one is, in my view, really taking a leap of faith when asserting that certain outcomes will follow as a matter of the law taking its course. No doubt, at least I have no doubt, that the dictum once burned twice shy would rear its head should the U.S. try any sort of gold standard redux. Which is why I view that outcome as having about as much chance of occurring as the U.S. capital being moved to Ypsilanti.

Robert said...

Gary, regarding your question, which I think was a good question, may I offer a few reasons why I think the Saudis are unlikely to lead the charge:

(1) Historically the Saudis have never rocked the boat before. They seem to be happy with whatever the U.S. wants as long as they get the military umbrella and continue to make enough to stay fat and happy.

(2) From everything I hear about the regime, the only way they stay in power is by buying off the citizenry. I don't see them blazing their own trail and unilaterally changing the course of the global financial architecture. There would be way too risky for a precarious regime that loves stability.

(3) I wonder whether the Saudis are still as astute about gold now as they were back in the 1970s. I wonder if some members of the royal family have been drinking the $IMFS koolaid and have lost sight of what is in the kingdom's best long term interests? The long term alliance/partnership with the U.S. may have clouded their judgment.

Even if their unilateral action was a possible alternative outcome that ANother identified, I think that the historical flow of events is leading in a different direction.

Woland said...

Dear FOFOAites: I am bidding you adieu for a whole month, as
I drive across the country to visit grandchildren, and perhaps see
a few sights. With all the focus on the dollar, gold, the euro and
which specific sequence of events may trigger Freegold, I wonder
if any thought has been given to what might rightly be considered
in the West an outlier: The gold Dinar and the silver Dhiram - in
short, an emergent pan Islamic currency. While I was combing thru
Ender's posts over at USA Gold, I came across a reference to a
long video by an islamic scholar on this topic. He had a few
things to say about it, which I won't go into. It would be interesting
to hear what, if anything, the many commenters here think about
this. Have a happy "Woland free" July 2012!

Gary Morgan said...
This comment has been removed by the author.
Gary Morgan said...
This comment has been removed by the author.
50sQuiff said...

Hi Gary,

At $55,000/oz, the US has approximately $13.05 trillion in gold. This would fund the current trade deficit for little over two decades, even if the US was willing to expend its entire reserve. This also assumes the US' balance of trade doesn't deteriorate from here.

Without dollar hyperinflation (presuming an arbitrary gold revaluation that happens in a vacuum), how are existing dollar-denominated claims going to be converted into real goods production?

Gary Morgan said...
This comment has been removed by the author.
Nickelsaver said...

Will someone please call Stanley Steamer. The stench in the rug is getting unbearable!

Motley Fool said...


You are doing quite a bit of what you are accusing others of, making unbacked statements.


What reason can you provide for the Saudi's or anyone else for that matter finding it in their interests to initiate freegold?

Further I will reiterate that the price is not arbitrary. If it were the USA could do the same with say 16 one ounce platinum coins, revalue them to a trillion each and 'pay' their debts.

There is the small matter of the other party being willing to accept your offer.

Your argue at present that the USG would rather ship off a substantial portion of their power/gold rather than simply destroy their debts and keep the gold. I don't get that position.

They are being supported at present in that others are buying their debt, do you think that will continue if gold is repriced? If not, and if others are not willing to accept a say $500,000 an ounce valuation, the only option left for the USG would be to print out.


Jeff said...

It's an idiot parade (no, another one): Gold to I hear 10000. I'm bid 500k!

Gary Morgan said...
This comment has been removed by the author.
Motley Fool said...


That is a reasonable position. Legalities mean little without the power to implement them.

From recollection the argument was not about laws, as much as other countries' response in that scenario. As in...oh you wasn't to bring your gold to the table...ohh you won't honour prior claims...well then fuck you and your dollar. But perhaps even this is not a necessity.

My thoughts are that if the USG initiated Freegold, those old debts would still stand. Despite Gary's claims freegold is about the freemarket price of gold being reached, not some edict price of gold being declared. At a price of $55,000 per ounce as noted by someone earlier, they still don't have enough to repay old debts. Even assuming the $65,000 or so that would be needed, I don't think one can argue the USG will start day one by shipping off all their gold and concurrently killing their own overconsumption.

So the legality in this sense means that even at Freegold prices they would lose their gold, which they would find unacceptable, and not meeting those claims is also unacceptable to the international community. So they will be nominal terms. ;)


Gary Morgan said...
This comment has been removed by the author.
Motley Fool said...



The statement by another was that they could initiate the process.


It is not a process of setting an arbitrary price. It's a process of gold finding it's true value in the SoV function.

In your ridiculous scenario above the Saudi's would be fucking themselves. They would have to immediately pledge their whole oil wealth for a fraction of the gold it is worth. Their self interests...wasn't that what we were talking about. Being underpaid is in their self-interest is your current argument.


Gary Morgan said...
This comment has been removed by the author.
Motley Fool said...


You are right, they have not thusfar. That is because they have been paid too much for their oil, in gold. They made the deal because it benefited them.

That does not mean they can create a arbitrary high price.

If it did then say a price of $1 trillion an ounce would really help the USG. They could then repay their debt with 16 ounces, with the Saudi's pledging their whole oil wealth for that cause..and then gold would fall to it's real price after the Saudi oil wealth is thus squandered. Likely? Not so much.

Any number in between is just different levels of their repaying the USG debt. Maybe they could even have some oil left after repaying it.


Motley Fool said...


I'm also now bowing out of this conversation. You have wasted enough of this fool's time.

I tried to help, but cannot force understanding on you.


Gary Morgan said...
This comment has been removed by the author.
Nickelsaver said...


Might I suggest a visit to your physician. Bipolar disorder is treatable.


paladin said...

I always thought your name was ..

friend of a friend of another

paladin said...

I always though your name was..

Friend of a Friend of Another

Motley Fool said...


The writings of ANOTHER are cryptic, and interpretations can differ.

I think we are simply differing in our interpretations.

Furthermore I am of the opinion that anyone can make a mistake, this includes myself, Another and FOFOA.

Your accusations of groupthink is strange, in that in just this, myself and costata disagreed. I concede it is possible that gold could be set free without USD HI, I just think it extremely unlikely, as the implication is that the USG would lose their gold stock in settling their debt. Costata said HI would happen regardless.

How does your accusation hold water?

You also accuse us of following blindly, and then where I say I think Another was wrong here, call me unworthy of his Thoughts in doing so.

You need to pick a side it seems to me, and not the side of arguing for arguments sake. You cannot hold all these positions concurrently and expect to be taken seriously.

Anyhow, do as you must.



KnallGold said...

ANOTHER one of those FOA predictions which never materialized is that the UK would join the euro zone some day.

Frankly, I trashed it, knowing the Brits too well, plus all talks with englisch friends, even liberal ones, simply yielded the same, unisono and resolute "NEVER!". Actually I fully understood them from the heart, being myself Swiss and sFr. stamped, as you might remember.

Though I kept the forecast in the back of my brain, just in case. Oh, and this is just coming to my mind now, you might remember pandagold (that old-time and sometimes arrogant (ah those arrogant pesky smart asses) with his into-your-face "inside" view) !?

He used to post regularly on, occasionally also on USAGOLD, well into 2000 or so - he too made that same prediction and a couple of others like his "Silver going and holding" 7$/oz as a prerequisite to watch for the readyness of TPTB.

As a side note, on his last appearance on gold-eagle, he signed off with RN, whatever that meant (I could construe something, but identity never interested me much as he was also one of those well established "class 1) anonymous identity", to borrow Ender's(?) classification.

To make the point, pandagold hinted to doubters that there would be even a whatever "event" "in time", facilitating UK's entry and that we shouldn't doubt.

With that Barclays LIBOR scandal, reaching now even to the gov and the BOE, I'm beginning to scratch my (tinfoiled ;-) ) head if we are witnessing the onset of something veerry significant to the whole citi? Surely much time has passed and the political scene evolved dramatically since panda left, though.

At least this is something very serious and big as costi mentioned the other day. Stay tuned as events unfold...

Anand Srivastava said...


I think there is significant evidence some Governments are looking to solve the problems in the current system. They are setting up networks of trade to escape the $IMFS settlement system.

It is being done in individual currencies. But these currencies are not being managed well (Yuan is not even freely convertible), and are all fiat currencies. I thought this was a temporary solution.

Are you saying this will be the final solution? Everybody trading in whatever currency they feel like. And then gold transfers do the final settlement? Yeah that could work. And then Euro becomes a better currency and a major reserve currency, because it is more stable post crisis. And we have our freegold.

Thanks BH. This makes sense.

Robert said...

Gary, you should stick around. You should cut FOFOA some slack for not responding to comments right away, especially given his time zone, and especially if you want a thought out response.

JMan1959 said...

Thanks for the clarification on dollar credibility.

After catching up on the last fifty posts or so, I know for certain one thing that requires serious deflation: Gary's opinion of himself. Too bad, as he sometimes had some interesting comments (in between the fits).

Proverbs 11:2: "When pride comes, then comes disgrace, but with humility comes wisdom."

ChrisF said...

What about this line of thinking?

The proposal from FDIC/BIS? that Gold becomes Tier 1 capital in the banking system,
like cash/T-Bills etc, may imply that there is an implicit floor price for Gold in $ terms very close to current values.
Otherwise, how else could Gold qualify ...?

In other words buyers of physical may have a free put option today at approx. current pricing.

Any serious follower of FOFOA's thesis, as so wonderfully explained here, should be able to borrow $ and buy physical Gold kept in possession
at a 3rd party fiduciary as collateral. This strikes me as a perfect 'no brainer' bet with little downside and massive (55,000 $/oz.?) upside.
The possible future dump of the paper Gold price would hardly affect physical, I understand. This Tier 1 proposal for physical Gold reinforces this idea IMHO.
After the great 30 times $ price reset you sell a tiny portion, pay off the loan and buy sushi island!

This is a better play than out-of-the-money call options I was working on a few months ago with 'physical in possession' built in.
Just looking for action.

Indenture said...

Gary said, "Nope, it's a fairly simple question: if Saudi Arabia with US agreement priced gold at a very very high level, could it save the US from hyperinflation. ust consider that point alone. If you do, you'll reach the same conclusion I have done: yes, it is possible, Another saw it many years ago."

Saudi prices gold very high with US agreement

So in your scenario the US voluntarily gives up it's Exorbitant Privilege. Question: When the Saudis price gold very, very high... Has the fractionalized paper gold been destroyed and in order to price gold very, very high doesn't Saudi Arabia have to sell their gold and accept dollars in return to set the market price?

Don't forget, Gold bids for Dollars not the other way around.

burningfiat said...


I would speculate that among the billions of people on this earth there are numerous individuals who, like Pope Sr., don't want to trust anyone with their wealth (for numerous reasons) and therefore just store it away in the form of gold coins, disposing of them from time to time as needed.

This might give the appearance of creating a flood of coins, but would merely be the orderly downstream flow of wealth from generation to generation in an uncertain world. Anyway, that's my guess.

Great speculation!

Plausibly the world is full of Mr. Chang-like people?


Indenture said...

Gary: At 7:38 you said, "Well, we have free-floating gold now, we would have it then, but at much higher physical only levels."

How can you write such a thing? We have free floating gold right now? As Costata would say, "No".

"we would have it then, but at much higher physical only levels. So if it going to be higher at physical only levels how is the price free floating now if it is not physical only?

Based on your comment I would say you don't understand the basic definition of Freegold.

AdvocatusDiaboli said...

Hi Gary,
this is getting funny, a deep religious Another follower is starting to question the new messias, reminds me a little of the discussion between christians, jews and muslims followers <8)
The really funny part is, the more they claim to know it all and can predict the exact outcome, the more in the conversation you notice that they are just waiting for their personal salvation from the mummy's basement
to become "finally rich". Believing the more they service their church and tell their mummy about FG the faster paradise will arrive for them.
Any reality that is proving a statements wrong is "just a sideshow" or "manipulation", no matter what.
My personal take on gold until now: Will gold rise? Sure, but not due to some "hidden FG agenda", but rather because the impoverishment of the people (aka gini index). It's the same principle like "The scream" sold for $120mio. Just occams razor, you dont need any giants, saudis, oil, chinese, old aristocrats, eurogold... and all that other BS which comes up time after time and can easily be debunked when looking at real life.
Greets, AD

burningfiat said...

Woland, have a great trip!
Until then...


Indenture said...

AD: Someone with Dollars, excess dollars, decided to store that value in a painting. Since there is only one 'Scream' that person is confident when the next 'Someone with excess Dollars' wants to bid on it there will still be only one painting so the Store of Value function of the painting remains the same.

Currently, Physical Gold does not share the same attributes as a rare painting because the number of 'units of gold' is diluted with Paper Gold while the number of 'units of Scream' are not.

Would the buyer of 'Scream' feel the same way if there was a 'Paper Scream' circulating and exchangeable for the same number of dollars also?

Anonymous said...

I was unable to post comments yesterday, so here it goes. Sorry if I am messing up the flow of conversation on here.

Milamber wrote - I am really surprised that an Indian/English newspaper would give an anonymous blogger so much ink.

Do Indian people really understand gold? Perhaps they do But my opinion is they really do not - not the present population anyway. Yes it is increasing the price annually. But do they really understand the real value? They know the govt cannot be trusted so they pile into it.

I have a different theory why a anonymous blogger will get 'ink spent on his theory'.

For any Indian Rupees 55000 per Ounce is remarkable. this is not rupees but $$$$. Thats crazy for him or her. Ofcourse Vivek Kaul might be one of the readers of this blog but how many really do get it-what gold really stood for.

The socio-economic story of Indic civilization which spanned from 6000BC to 1000AD uninterrupted with the net inflow of gold for productivity perhaps is a strange occurrence.

The intent to unite Europe to prevent wars and mutually assured destruction perhaps has been a hall mark of the Indic civilization.

3 things were (ARE?) important from the point of view of the natives;

zar - meaning gold

zor- meaning people

zamin- meaning land

Thinking through this as long as we have the 3 why should we need to worry what happens to the king or the chieftain. As long as he can have people he can employ for a effort on a land he can own and keep profits in a undilutable medium of saving wealth, the rulers of the land can come and go - the life of people can go on.

Every Indian buys gold because his mom and pop really told him to buy it. Generations back it was understood but today perhaps not that well. Nevertheless the fascination for gold remains among Indians. They can dream too of a utopia where the access to wealth will take away the difficulties of life. For the majority of the world including Indians- THE USA still embodies the utopia.

Perhaps hence there was a mention of FOFOA in the MSM. If more Indians start buying in larger quantities we can only expect the current economic paradigm changing even faster to a more equitable one.

Just my 2 paisa worth of opinion.

Best wishes


AdvocatusDiaboli said...

no, that was not my point. The point is the number of (strong) hands and the size of those hands holding such (useless) stuff. That's the principle what I meant when comparing gold to "The Scream".
And impoverishment stands exactly for less people holding/controlling more (tokens of) "wealth" (regardless of the single serfs lifestyle itself).
Greets, AD

Michael dV said...

in reply to your comment about Gary
In the past 24 hours almost all the comments were from or addressed to Gary.
I find his style offensive and not helpful. He relies on accusations of 'groupthink' whenever a topic seems to have general agreement.
I have him on 'ignore' along with another commentator. His motives seem to be to get attention and to irritate. I simply can't stand to read him so I don't.

Indenture said...

Ad: I agree there are "Strong Hands". They would be Savers like Zenscreamer (and FOFOA) wrote about. But what is "useless stuff"? Gold or 'The Scream'?
Your reply added to my confusion.

AdvocatusDiaboli said...

"The Scream" is just as usefull as gold -> nothing, cant eat it, cant drink it, cant drive around with it, cant manufacture anything usefull from it. It's neutral to the rest of human mankind.
If I can choose between 3t of gold or the scream, I'll take gold, but some "stackers" prefered the scream, so what. In fact, I wouldnt pay a penny for the scream, but that's not my point.
My thesis is: The longterm price of gold is mostly influenced (besides mining costs) by the numbers and type of hands that hold gold and the amount of currency those hands can and are willing to activate for something rare (e.g. gold here's the 2.similiarity to the scream).
And in order for some hands to have huge amounts of cash (to exchange useless fiat tokens for useless physical existing tokens), others need to have less of that cash.
Probably also conforming to regular textbook economics:
"the less number of entities hold gold, the smaller the number of streams(amount), the higher the price..."
(<=because the less number of people hold gold, also means that the people that do hold gold, hold more of it).
You might as well look at it from the metaphysical standpoint: Just as in the natural physical process on how gold concentrates itself, it continues to concentrate in human hands right now, looks like its the nature of gold even before mankind existed.
And maybe now some people might understand why I dont believe in promoting gold to some poor proletarian suckers (it'll be poison for my stash).

Greets, AD

Indenture said...

AD: I'm still confused. If 'The Scream' and Gold are both useless ("cant eat it, cant drink it, cant drive around with it, cant manufacture anything usefull from it") why did someone buy it? Why did someone exchange their Dollars for this useless stuff? Why not just burn the Dollar Bills in the fireplace so their use can be warmth?

AdvocatusDiaboli said...

yep, your right. Your dollar bills are definitely more usefull ;)
Blondie has some nice ideas around value, much better than I could do with my pidgin english.
Because, remember, for most humans value!=use.

BTW: That's why I also stack silver, paladium, platinum, and anything I can find that last longer and is usefull for me and/or others. Also probably most FGbugs scream "you are holding the wrong metal...", I cant see anything wrong with doing so (as long I consider the price okay).
Greets, AD

AdvocatusDiaboli said...

to extended (the confusion):
An ownership title or contract, what is its use vs. its value?
FOFOA: "money is a social contract."
JPMorgan: "gold is money and nothing else"
Greets, AD

Indenture said...

AD: You didn't answer my question. I'm a simple potato farmer so I can't even think in the same terms as Blondie but I believe when someone asks you a question it is only polite to try and answer the question. So I will try again.

If "for most humans value!=use" then why did someone buy 'The Scream'. There was value in the Dollars they were holding and they exchanged the Dollars for a painting that according to you has no use. So why did the person exchange Dollars for oil on canvas?

Anonymous said...

Just a quick note that Jim Rickards has tweeted about QE3 on August 1. As far as Fed policy is concerned, his predictions have been generally quite accurate.


Jeff said...

"The Scream" is just as usefull as gold ->"

Wrong again. Have you ever put your elbow through one of your 400oz bars, Anno Domini?

Gold is better than the Scream because I can own it, and I'm not even a paranoid German wannabe giant. Even AD can only own a little scrap of the Scream.

FOFOA: But another funny thing also happens when gold "tends to dry up as the price rises." Even more people join the "many people worldwide that think of it as money." And this means that gold violates the economic law of demand as well, delivering a positive price elasticity of demand. In other words, gold is a Veblen good. But unlike a Rolls or the Mona Lisa, gold is divisible and fungible making it the Veblen good that puts the common man on equal footing with the Giants!

Jeff said...

Keep stacking lead, copper, and zinc, AD. Another brilliant decision.

FOFOA: To recap, a rising gold price is evidence of increasing investment demand, which confirms the belief of those that already invested in gold that it was a good investment. And because investment demand is over and above the relatively stable industrial supply and demand dynamic, any new investment dollars must bid gold away from its current owners. And because saving in gold is a Nash Equilibrium, the price will rise very high. And because gold is THE monetary metal with the highest monetary to industrial use ratio, it will have no reason to fall back when it reaches its top.

AdvocatusDiaboli said...

sorry if I cant answer you that specific question, didnt mean to be unpolite to an honest potato farmer. As I said, I personally would give a penny for that ugly psychic kindergarten painting. But looks like somebody asociated some value with it (in fact, quite a lot).

I hope the person how bought the scream is reading this and can tell us under which considerations he bought it: Selling it to an even dumber sucker with even less taste or enjoying its ownership by himself (because it is so "beautiful" or so "expensive")?
If I buy something, in order to sell it to somebody else, I try to take an value investing attempt. If I buy it to enjoy it, okay depends, but for enjoying a painting, I wouldnt need the extremly expensive original, a perfect copy would do. (for me personally Dali is my hommie)
Therefore: I personally dont understand why FOFOA sometimes refers to "fine art", at least it does not appeal to me at all.
Greets, AD

AdvocatusDiaboli said...

thanks, good idea about those other industrial metals. Too bad that those would not fit in my basement and spread is quite huge, otherwise I would follow your advise.
To get at least some exposure to those (and to avoid ETF/derivatives), I bought BHP.
Greets, AD

JMan1959 said...

"US should avoid spending cuts, new taxes," IMF says.

Man, it just doesn't get any funnier than that.   The Keynesian madness knows no boundaries.   I guess the IMF is the new poster child for hyperinflation.  We can't cut spending, or raise taxes (I agree on that one), yet nobody buys our debt anymore (other than Ben).  So what's a fella to do?

 " II'll take print for two hundred, Alex".

Beer Holiday said...

Haiku for AD

Paranoid German banker:
Stocks gold, silver and coins
Winter is coming.

Anonymous said...

@Beer Holiday LOL!!!

A man sits alone
With imagined golden bars
In his mind he wins

Texan said...

AD, The Scream is a first rate masterpiece - you have to think of the context and time. This was the visual birth of existentialism and "angst" in human culture at the start of the 20th century.

And there are 4 of them, by the way.

Your Gini coefficient comment is well put, but don't forget fiat money supply expands. So it's not zero sum. It doesn't have to be like that.

costata said...

Continuing The Thought Experiment On Currency Management

I would like to take this experiment in a different direction now. In my last comment I described currency savings account depositors as "irrelevant" to the banking system from a funding perspective. Now I'd like to examine the interest rate incentives for retail depositors to hold currency versus gold from a CB's perspective.

Before doing that we need to revisit the market maker role of a CB under a Freegold-RPG regime. In a previous thread we thrashed out this issue of how a CB/Treasury can set the market price of gold using their fiat currency issuing power.

The market maker could expend a relatively tiny amount of gold and currency to set the price of gold. Bearing in mind that the aim of the excercise would be to encourage the private market to balance supply and demand around a price point that floats. The currency issuer is not trying to "make a profit" or anything like that.

The market maker would be seeking a bid and offer spread that the private market can undercut and overbid so the private gold market remains liquid.

In our earlier discussion of this scenario I think we made a reasonable argument that depositors could be ignored from a credit supply perspective given the tools available to a CB. Likewise these tools allow a CB to adjust the effective cost of funds for banks without using the blunt instrument of official interest rates alone.

Taking this thought further interest rates paid to depositors would become a discreet incentive system. Under a Freegold-RPG regime if a currency manager wants retail money out of gold and into currency or vice versa they can do this by moving interest rates.

The sharper knives in the cutlery drawer may be thinking about the impact of taxation on this interest rate currency management tool. Taxation systems function as a set of economic incentives and disincentives in the economy affecting as they do many financial descisions.

So it would be a big advantage for a CB using interest rates and gold to incentivize retail money to help them manage the currency they issue if interest income is taxed (even better if it is taxed "progressively") and there are no taxes on gold that impair the CB's ability to play with the incentives in the system. The reason why tax on interest helps the professional meddlers is because, coupled with inflation, it creates a bias toward spending and amplifies the impact of small changes in interest rates. This can work to their advantage in a Freegold-RPG regime as well.

This management tool is rather ineffectual in a system like the one we have today - a hybrid paper gold and physical gold market complex. The signals that a CB can send to currency holders are muted and/or distorted by the paper gold instruments. A price signal delivered by the CB could end up moving GLD rather than physical gold in isolation with spillover effects that aren't easy to anticipate which complicate the task of managing your currency's price.

In the same vein the FOREX market can't be relied upon to respond appropriately to gold signals under this hybrid system. The over-arching problems in attempting to use gold to manage a currency today are twofold. The FOREX market is relativistic and the main reference point is the US dollar. The existence of the Euro as the "anti-dollar" doesn't change the dynamics of the situation in a useful way at present from a currency manager's perspective.

In a follow up comment to this series I'm going to put some ideas on the table about how a CB can incentivize big currency deposit holders and international trade hedging vis a vis gold under the Freegold-RPG regime to help them manage their currency's exchange rate.

costata said...

The former editor of The Diplomat magazine (Bio below) discusses the implications of direct convertibility of the Yuan and the Aussie dollar. I think this is probably the most important part of the extract:

...In a world with a fully floating yuan and functional euro, US bonds will simply lose their appeal and the nation will be held to yardsticks of fiscal rectitude that it has been able flout for generations of global policing.

The writer doesn't appear to "get" how gold factors into the "equation" but no matter. That may come later.

Australia is positioning itself to become the third country allowed to directly convert its currency to the yuan, a move that would lower transaction costs for Australian miners and importers.

...The biggest question of all is our relationship with the United States. A fully floating yuan is, by definition, a developing reserve currency. It is immediately a strategic competitor with the US dollar and will seriously diminish the special powers enjoyed by United States Treasury and the military machine that it funds.

In a world with a fully floating yuan and functional euro, US bonds will simply lose their appeal and the nation will be held to yardsticks of fiscal rectitude that it has been able flout for generations of global policing.

The state of the US Budget is already (probably) only one decent war away from crisis and, in a world of yuan convertibility, the decline of US hegemony can only accelerate.

Bio: David Llewelyn-Smith

David Llewellyn-Smith writes as Houses and Holes. David is the founding publisher and former editor-in-chief of The Diplomat magazine, now the Asia Pacific’s leading geo-politics website.

He is a regular contributor at The Sydney Morning Herald, The Age and The Drum and is a former commentator at Business Spectator. He is also the co-author of The Great Crash of 2008 with Ross Garnaut. He edits MacroBusiness.

costata said...

Alternative To The Pettis View Of China's Economy

This analysis looks at consumption from the perspective of the low (Mao era) starting point in the development of China's capital stock. Basically the writer argues that the build out isn't over-investment or malinvestment it is laying the foundation for the future growth of consumption.

Nobel laureate Edmund Phelps’s ‘golden rule of capital accumulation’ states that a country should invest and consume so that children experience the same improvement in living standards as their parents did.

According to Phelps’s golden rule the optimal investment rate for an economy depends on the size of its capital stock relative to the economy and the productivity of investment.

Applied to China, the golden rule suggests that the policy objective should not be to maximise present-day consumption (or its share of the economy), but to maximise growth in consumption over time.

By coincidence or design, China’s consumption pattern has followed this golden rule for most of the post-Mao reform era.

Beer Holiday said...

@Anand Srivastava

Costata's posts above are an excellent example.

You say the yuan isn't managed well... to whose purpose? Robert Mundell on the yuan management.

Would you say the euro isn't "managed" well? It's been a sea-saw against the US recovery.

China won by keeping the yuan low, and somehow living with the resulting inflation. Now they have a reason to let if float. Which way will it float? The only thing for sure is that they have a long term plan.

Beer Holiday said...

@Costata very exciting news, thank you for posting.

costata said...

Beer Holiday,

Thanks for the Mundell link. I note too from David Llewellyn-Smith's post that China has expressed a desire to reduce the proportion of its trade conducted in US dollars from 90 per cent currently to 70 per cent by 2015.


costata said...

Hi sean,

An embarrassment of fossil riches it would seem. My emphasis in bold.

Apache's Monster Find

Back in 2009, Houston-based Apache Corp. drilled a well in the Liard Basin of northern British Columbia. It was just a normal exploration well, like the thousands it had drilled before in its quest to find gas reservoirs. Then the drill hit gas.

It hit so much gas that Apache didn't release results from the well until last week, almost three years later, because the company wanted to snap up as much of the surrounding land as possible.

You do that when a single well produces 21 million cubic feet per day in its first month. Making things even better, the well was only fracked six times – in many other shale reservoirs wells are fracked as many as 18 times to enable the gas to flow freely.

Apache has now drilled three wells in the Liard, with a fourth under way, and has examined logs from 16 others drilled since the 1960s. With those results in hand the company believes the Liard could be "the best unconventional gas reservoir in North America."

Based on initial results, the company estimates that the Liard Basin holds 210 trillion cubic feet (tcf) of natural gas, of which 48 tcf is recoverable. For comparison, total US recoverable gas reserves stand at 300 tcf.

costata said...

Comment to Jim Sinclair published at JSmineset:

Hello Jim,

Singapore is abolishing the 7% tax on gold purchase from October this year. It seems the government here wants to encourage its citizens to hold gold as a part of their saving/national reserve as seen in China.

The monsoon season will start in October here in SE Asia and India. Let’s see if the rains will bring back rupees and farmers in our market.

Thank you,
CIGA Yoshiki

FOFOA said...

Earlier Bron said that I had misinterpreted the LBMA survey data. He wants me to "wipe/clean" it from my blog because he "doesn't want it getting out there in the blogosphere as one of those established facts" and he has emailed me about it a couple of times since then.

The issue surrounds a discrepancy between sales and purchases reported by the LBMA members. For the three month period of the survey, they reported $7.754T in sales and $7.417T in purchases. That's a $337B difference, or a 4.5% discrepancy.

I think the best explanation of this discrepancy is that the LBMA bullion banks obviously sold more "gold" than they bought. They expanded the amount of unallocated gold credits in the system by $337B or, in weight terms, the equivalent of 7,575 tonnes over the three months of the survey. And they did this in response to demand from the FOREX market which is using BB unallocated as a hard currency trade.

Bron has a serious problem with my explanation because it sounds a lot like the huge short position gold bugs have been claiming for years. Bron and I agree that the banks don't do that. They don't take on unhedged exposure to gold like those in the suppression camp suggest. And 7,575 tonnes is more than could have been hedged in the gold market over a three month period. The market is simply not big enough.

So Bron went looking for a better explanation. And he thinks he found not only a better explanation, but a really simple one in a statistical anomaly caused by the survey methodology. But before I get into that, I want to explain more of the reasoning behind my explanation. What kind of demand could cause the banks to expand "credit gold" by $337B in one quarter, and how might they have hedged their exposure if not in the gold market?

We know that "spot gold" or BB unallocated (credit gold) is used like a currency in the FOREX market. It has its own FOREX code – Gold Currency Code Ounces (XAU). Here's an actual wire transmission from "the interbank" that a currency trader sent me using that code. This one is from Sept. 13 last year:

"Interbank reports China bid spot XAU $1815 into NY close, further bid interest expected from same $1725-$1750."

The currency trader goes on to explain:

"The interbank is what we refer to as the aggregate price posted by a bunch of banks, same way the spot forex market works. There is no single exchange and no single posted price, rather a bunch of bank run ECNs which aggregate against each other to provide a 'best bid/offer'… It isn't often you see such wires about interbank gold transactions."

In light of the idea that "gold" is being traded like just another currency in the FOREX market, here's an interesting quote from an article by Adrian Ash at Bullion Vault back in 2007:

"At Royal Bank of Canada, we trade gold bullion off our foreign exchange desks rather than our commodity desks," says Anthony S. Fell, chairman of RBC Capital Markets, "because that’s what it is – a global currency…"


FOFOA said...


According to this snapshot of the FOREX market on, average daily turnover is $4.0 trillion:

◦More than 12 times the average daily turnover of global equity markets
◦More than 50 times the average daily turnover of the NYSE
◦More than $500 a day for every man, woman, and child on earth
◦An annual turnover more than 10 times world GDP

There were about 67 trading days during the period of the LBMA survey. So a net increase of $337B would average out to about $5B per day. In the context of a $4T/day market, that would be a tiny 0.125%/day net swing in preference from fiat currencies toward gold. The LBMA survey said that 90% of the volume reported was spot transactions, so compared to only the $1.49T/day spot portion of the FOREX market, that's still only a 0.33%/day swing. Doesn't seem so big in this context, does it?

During the survey quarter, the price of gold only rose about $30 from beginning to end, although it did have a $100 swing in between. If all positions in spot gold were hedged (offset) somewhere in the gold market, then the price would have exploded a lot more than $100 with a net inflow of $337B. So, assuming my explanation of the discrepancy is correct, where might the banks have hedged these positions if not in the gold market?

Obviously no one can know for sure, but we had a good discussion about it which you can pick up here. Here's just a sample from the discussion:

"The only answer I can think of is that they hedge it by going long correlated (but not identical) assets. What's correlated with paper gold? Silver, copper, euros, crude oil, interest rates, yield curve spreads, whatever."

The job of the trader is to use quantitative methods to build a synthetic instrument with a delta as close as possible to the desired underlying.

I made a quick delta-0.7 using some regression and eyeballing, with AUDUSD + (0.5*CADUSD) + (0.2*10YNotePrice) providing a good starting 'kernel'. Good enough that you could make up the other 0.3 deltas dynamically in the OTC/FOREX gold options market. Obviously any quants who want can build their own synthetic too. If they have access to OTC markets, it will be very very simple."

This concludes the portion of this comment on the reasoning behind my explanation for the 4.5% discrepancy between purchases and sales in the LBMA survey. We now move on to Bron's explanation.

The key to understanding Bron's explanation lies in the methodology of the survey. As I wrote in my earlier comment, they collected purchase and sales data divided into two categories, purchases and sales with other banks, and purchases and sales with outside counterparties. And then they divided the "between banks" numbers by 2 to avoid double counting.

The problem is that with an incomplete sample (not all of the banks reporting), dividing by two will automatically render some discrepancy between purchases and sales. Bron made a great little model consisting of 4 banks, 4 clients and 9 trades to illustrate this effect. You can see his model here.


FOFOA said...


In Bron's model you can clearly see that the discrepancy emerges as soon as you have one of the banks not reporting its results. In his model purchases were 10.5 oz. and sales were 9.5 oz., a 10% discrepancy. In his model, it wouldn't matter if we changed that to 10,500 tonnes and 9,500 tonnes instead of ounces. The result would be the same. So Bron's argument is that this statistical effect alone sufficiently explains the 4.5% discrepancy in the LBMA survey. It doesn't.

Explaining why will get a little complicated. I had hoped a real statistician would weigh in, but since no one has I will do my best to explain why his model doesn't scale up in the way he thinks it does.

What the halving of interbank transactions does when looking at an individual bank is it statistically underweights its interbank transactions relative to its transactions with clients. So its client transactions appear relatively "heavier" after we divide the interbank transactions by two. This creates the illusion of that individual bank having that direction of exposure.

In the model BB4 is the non-reporting bank. After halving it appears to have short exposure of 1 ounce. In reality (pre-halving) it had no net exposure but it had double that 1 ounce in net exposure to its clients. It had sold 2 ounces to clients while buying none from clients. The same goes for the reporting members. In the model, in aggregate, the halving gives the illusion that BB1, BB2 and BB3 are net long 1 ounce. In reality they are net long vis-à-vis their clients by twice that number, 2 ounces. They bought 7 ounces from clients and sold 5 ounces to clients.

The point is that what the survey reveals about the reporting members in aggregate must be the opposite among the non-reporting members in aggregate. So let's look at this in terms of the real LBMA survey. The 36 reporting banks appear to be short 7575 tonnes. So in the reality of Bron's model they must be short 15,150 tonnes vis-à-vis their clients, and long those same 15,150 tonnes vis-à-vis the 20 non-reporting banks.

This is simply too big of a discrepancy to be explained by the statistical method of halving alone. It absolutely requires another explanation. To break it down over 56 banks and 67 trading days, the 20 non-reporting banks on average would have had to be buying 11.3 more tonnes each day from their clients than they were selling to clients. Meanwhile the reporting banks would, on average, have to have been selling 6.3 more tonnes each of the 67 trading days to their clients than they were buying from clients.

Hopefully you can see why this requires more than just a statistical explanation. We have a significant one-way flow from clients to non-reporting banks to reporting banks and then back out to their clients. This makes no sense unless you try to explain why the banks doing most of the selling reported their trades to the LBMA while the banks doing the buying declined.

It is in no way random, and therefore the LBMA survey methodology cannot explain it. The halving in the survey can explain some of the discrepancy, but only a very tiny portion on the order of 1% or less in my estimation. Yet in Bron's toy model the discrepancy is entirely explainable by the halving method.

Still can't see the difference?

In statistics, especially in statistical testing, a result is called statistically significant if it is unlikely to have occurred by chance, and hence provides enough evidence to reject the hypothesis of 'no effect'. The hypothesis of no effect is sometimes called the 'null hypothesis'. In this case, Bron is arguing that the null hypothesis is true.


FOFOA said...


"The amount of evidence required to accept that an event is unlikely to have arisen by chance is known as the significance level or critical p-value… the p-value is the probability of observing data at least as extreme as that observed, given that the null hypothesis is true. If the obtained p-value is small then it can be said that either the null hypothesis is false or an unusual event has occurred."

I am not equipped to calculate the actual p-value for the LBMA survey, but I can show that the survey results are so far outside of the bounds that either Bron's null hypothesis is false or an "unusual event" has occurred.

In this case, the "unusual event" would be what I just described in that the banks doing most of the selling reported their trades to the LBMA while the banks doing the buying declined. If that didn't happen, then Bron's "null hypothesis" is false. I don't think that happened and I do think the null hypothesis is false. I think my explanation at the top of this post is far more logical than the "unusual event" required to keep Bron's hypothesis true.

But first I need to show that the 4.5% discrepancy we see in the LBMA survey is statistically significant even though the 10% discrepancy in Bron's model is obviously not.

It is my contention that, even though the "dividing by 2" does yield a discrepancy, that 10% discrepancy in Bron's model will fall very quickly toward zero as we scale the model up to make it more realistic. In the real world LBMA survey we are dealing with 56 banks, 67 trading days, an unknown number of trades each day, and an unknown number of clients for each of the 56 banks. That's a lot more complex than the model with 4 banks, 4 clients and 9 trades. Each trade is assumed to be random as are the choice of non-reporting banks, otherwise we have an "unusual event" that needs explaining, but Bron is not arguing for that and neither am I.

So what I decided to do to prove my contention was to figure out a way to use Bron's numbers in his model and scale them up gradually to see how quickly the discrepancy falls. And by scale up, I'm talking about increasing the number of random iterations we call "a trade" rather than the raw size of the numbers.

The best way I found was to reiterate his same 4 banks and 9 trades and simply randomize which banks reported. In his model 75% of the banks reported, so I kept that the same. I always picked a random 75% of the banks to report. In my first iteration I brought it up from 4 banks to 28 banks with a random 7 banks not reporting. Same trades so net position is still neutral, but randomized by which 25% decided not to report. This brought the 10% discrepancy between purchases and sales in Bron's model down to 5.6%. You can see my first iteration here.

Next I doubled the number of banks to 56 with 25% or 14 banks not reporting. I wanted to find an easy way to randomize the banks and what I came up with was pasting some of Woland's old comments into Excel and sorting by that column. This worked well because of the way Woland formats his comments. This iteration brought the discrepancy down to 2.7%. You can see it here.


FOFOA said...


I decided to do it one more time, doubling again to 112 banks with a random 28 not reporting. You can see here that this brought the discrepancy down to 1.69%. The trick is in the random selection of the reporting banks. If you simply double the number of banks/trades and leave the same ones reporting, the discrepancy doesn't change. It only changes with the reiteration of more randomness, but it does head inexorably toward zero as I expected.

This last iteration aggregated a total of 252 trades. In the real LBMA survey with 56 banks and 67 trading days, if each bank only made one single trade each day, that would be 3,752 trades. But, in fact, we can assume a much greater number with an unknown number of clients and an unknown number of trades each day.

The threshold for significance in the results due to "dividing by 2" gets smaller and smaller approaching zero the more iterations (random trades) you add. In Bron's toy model the threshold was obviously higher than 10%, because his results were statistically insignificant. But in the real LBMA survey, the amount of the discrepancy that can be solely attributed to "dividing by 2" is probably on the order of 0.0__%. Using a guess of .01%, that would mean that of the 7,575 tonne discrepancy, 13 tonnes are attributable to this statistical effect and the rest of the 7,562 tonne discrepancy requires another explanation.

So to recap, we have three possibilities, one of which is true:

1. My explanation – the large discrepancy means the BBs were expanding the paper gold arena, probably due to demand from the currency market.

2. Bron's "null hypothesis" – the statistical effect of "dividing by 2" explains the whole discrepancy with no need for further explanation.

3. "Unusual event" – Bron's idea that "dividing by 2" is the reason for the discrepancy is correct, but it is still far too large to be explained solely by that. There must be an additional explanation, an "unusual event" like some reason why half of the banks sell more to clients while the other half buy more from clients, and then why the sellers (on average) reported and the buyers didn't.

I think I've proven the null hypothesis false. Again, perhaps a real statistician could weigh in.

So that leaves us with choices 1 and 3. I'm sure the fine conspiracy minds we have around these parts can come up with a few ideas for #3, but clearly I think that Occam's razor supports my explanation. So I won't be wiping or cleaning anything until someone comes up with a better explanation.

Maybe Gary could get in on this one. He seems to enjoy imagining he has me cornered. ;)


PS. Bron has read this comment before posting. We are friendly, not at war! ;) In fact, Bron is looking forward to the feedback it garners as much as I am, and we are both open to the possibility of a joint post on this subject and submitting questions to the LBMA. However we are still not anywhere near agreement. ;)

tintin said...

just noticed on kitco that the one month and two month gold lease rates are currently negative.

Beer Holiday said...

FOFOA, great job at explaining the issue.

I'll have to spend more playing with Bron's toy model.

1. What do you make of the effect of the distribution of the trades by banks who reported verses the distribution of those who did't report. ?
2. Do you assume the distributions are random? 3. Are you saying distribution argument dies out over time? (your language is different to mine)?

(yes/no answers are fine)

Say a non-reporting bank made unusually many sales to other banks who all reported, but that "selling" bank didn't report, you have skewed the result.

It would've been nice if the LBMA did this instead:

1. Match up all of transaction between reporting seller and reporting buyer, and divide that number by 2 = T

2. Add T to the remaining trades between a) non-reporting seller and reporting buyer and b) visa versa.

Beer Holiday said...

Hoping to sketch out my example more:

1. Non-reporting bank A has a habit of buying a lot from not-repoting bank B.

2. Non-reporting A also has a habit of selling to many reporting banks.

I suspect this would skew the result is you just divide by zero. In fact, it probably skews them even if you add up the trades properly.

Beer Holiday said...

Edit # 2 hehe divide by zero doesn't help here! I meant divide by 2.

AdvocatusDiaboli said...

very nice analysis. But anyway, does it really matter at all? So even if they sold/promised yellow moonstones they dont have, or promised further promises on something somebody else does not have, so what?
IMHO Thats the whole idea of fractional reserve "lubrication", nothing new, invented 500yrs ago. As long as the Corzines of the world get away with it and laughing their butt of, that will not change. So when to expect a "change", better wait for the crooks hanging from the street lamp pols, instead of waiting for a golden bankrun.
Greets, AD

tintin said...

AD: you are wearing singlets attending a blacksuit bowtie party.

AdvocatusDiaboli said...

you are perfectly right, I can't think of a better description of my position.
And to put a parable upon your statement: I wonder how the bowtie party in old roman empire developped, discussing, if the coinage was diluted or not.
Greets, AD

Piripi said...

Major reason Roman coinage became diluted: perpetual trade deficit with the Far East drained the empire of gold and silver.

Piripi said...

Another:'In the new valuation the US$ would still be intact. But its monopoly role would be altered.'

This Saudi revaluation of gold would make the dollar weak in both gold and oil. Well guess what pretty much every real good and service is heavily (existentially in many cases) reliant on and therefore closely linked to the price of oil, so the dollar would become weak in everything… so how is the USG going to function with these new (higher) prices considering they already run a monster deficit?

Another’s statement does not say the dollar does not HI, only that it would not die. The two are not mutually exclusive.

Another: ”Oil is managed from the standpoint of "supply" not demand, as demand is infinite for this now indispensable substance. The world economic need for oil has build our modern financial structure as an upside down pyramid, on oil! Every business, asset, debt, currency and army is "priced in currency terms" that reflect a "full supply of cheap oil"!“

So when Gary says: ”Perhaps the Saudis step in when the first domino (Japan perhaps) falls, and America really does escape any serious damage“ I’m afraid I can’t see it.

DP said...



I also think, in addition to misinterpreting 'intact', he was under-appreciating the significance of "But its monopoly role would be altered."

Piripi said...

Close inspection of the recent FDIC/Fed/OCC NPR proposal to assign gold a zero risk-weighting in response to the BCBS’s consideration of elevating gold to Tier1 capital has given me reason to reconsider the potential effects such a move may have on the gold market, based upon this clause (emphasis mine):

”A [BANK] may assign a risk- weighted asset amount of zero to… gold bullion held in the [BANK]’s own vaults, or held in another [BANK]’s vaults on an allocated basis, to the extent the gold bullion assets are offset by gold bullion liabilities.

The bank does not benefit from a rising gold price, because it has liabilities denominated in gold offsetting its gold bullion assets (being the gold it owes its depositors.) As its assets increase when MTMed (should the goldprice rise), so too do its liabilities. This change in risk-weighting will however improve the bank's capital ratios, whilst also extending/conceding "official credibility" to gold.

Whilst researching this two further salient points arose: my knowledge of the finer details of the banking system is lacking, and my interest in obtaining this knowledge is not high. Researching and rereading such proposals and their associated commentary was both tedious and time-consuming, and I would not have felt obliged to do so had I not opened my mouth in the first instance; henceforth I will desist from speculating on such matters.

I have not read the proposal/s of the BCBS (the Basel Committee), only heard rumour of their content, so cannot comment upon their possible impact, if any, on the gold market.

AdvocatusDiaboli said...

BTW: did FOFOA mention that silver has a "currency code" as well? XAG
Jep,...and even aluminum does (XAA).

AdvocatusDiaboli said...

BTW: "Interbank reports China bid spot XAU $1815 into NY close, further bid interest expected from same $1725-$1750."
What does that mean? China?
The PBC? Or the treasury, or a chinese jewery maker or whoever?

Nickelsaver said...


Thanks for explaining statistical significance in relation to the LBMA survey. In the end, we are left with the choice as to whether the survey is of any use at all. I think your explanation makes a lot of sense. At the very least, I don't think Bron can disprove it. Statistics can lie, but they can also be silent.


Thank you for putting Gary's objection to rest in very short order.


That "is one of the greatest prospects on how to take an approach on considerations" :)

JMan1959 said...

Floating Yuan or not, raise your hand if you trust the Chinese enough to enter into Yuan denominated/affected transactions of any kind. I wouldn't.

Anonymous said...

Concerning the 7500 tonnes of net sales of unallocated gold, I agree with FOFOA that it will be very difficult to explain this with non-reporting firms selling to a client and buying from other banks. The reason is that you would need 15000 tonnes of new positions accumulated per quarter. That sounds like the wrong order of magnitude to me.

Something else. The ECB does require the collateral of their LTRO loans to be marked to market. When bond prices fall, the banks have to post additional collateral.

Zero-Hedge gets it wrong and writes This is yet another unintended consequence of the LTROs. I guess it never was the intention of the ECB to print the ongoing budget deficits of the governments. They are just providing liquidity to banks, just as in the textbook.


Michael dV said...

after seeing fofoa post a 5 part comment at 1AM I believe we can conclude our host is not so much 'reclusive' as stated by the interviewer but simply entirely nocturnal.

Edwardo said...

The breaking news of the Libor scandal has not been adequately discussed in these pages, but, I think, it is enormous in its implications from the standpoint that- even though the reality of this story has likely not come as news to a coterie of certain savvy observers- its emergence into public consciousness will, in time, have a profoundly negative impact on the one thing the system can't conjure up by hitting ctrl+p and/or the government issuing happy sounding press releases about pending international bailouts, namely, confidence.

The Libor scandal would seem to be behind the recent remarks by Jim Sinclair to the effect that $3500 gold is now a done deal. Clearly Mr. Sinclair, doesn't quite understand what Jim Willie (who I sometime ago cast onto the great dung heap of analysts who had little, if anything useful to say) may be beginning to grasp.

"Gold price charts mean little, when the enter paper system is in the process of imploding, first bonds, then currencies, then sham gold markets."

ForLiberty said...

This whole 'paper gold is holding the price down' argument makes zero sense to me. It is just a logical nonsense. All paper trades have two parties - bidup and biddown. A paper gold trade could have never taken place if nobody wanted to short it. This is how all markets work. There are paper tomatoes sold too. Is there a conspiracy there too?

Edwardo said...

JMan1959 said...


ECB providing liquidity yes, but not without risk. What if they cannot post additional collateral? The ECB may not be printing them out of their problems, but it is taking on incremental risk to their balance sheet. If they default, wouldn't those losses devalue the Euro in the same way as printing?

AdvocatusDiaboli said...

absolutely, what is most of the time not considered, that the trade is: gold that does not exist, for money that does not exist aka a trade on margin.
So your right, that "they dont have the gold" is nonsense, lets talk about it again, when the margin is raised to 100% in the future market and gold is in backwardation over a longer period of time.
Also remember, any person that buys paper gold gives a sh!t about the physical gold. He does never ever wants to have it (because gold is useless), but some people just dont get that in their head!!! He gives paper to get paper back, simple as that. Otherwise he would go to a supplier in the first place. This is just common sense, but to defy reality you just make up some "illuminati giants" that starts a "bankrun" because "upps the gold is not there", but being so stupid to keep their "huge" gold positions for decades in paper in the first place, therefore suddenly the paper price drops....
On the other hand gold is not a demand driven commodity, but the flow is treated as such by the paper. Therefore I made the post above about the flow of coins that is visible for everybody, to look at it from another approach.
But the dudes that scream "they dont have the gold", are also unable to predict a realistic different type of market place which would take that into consideration. And I dont see TPTB to be interested in such change of a market place at all anyway. Before they would do so, they break and change the rules to keep it "their way", did it before and will do it again.
Greets, AD

KnallGold said...

The citi is burning in a colossal interest rate manipulation scandal.

This August Forum witnesses the intrusion of a certain kind of "interesting" posters.

KnallGold just LIKES these coincidences ;-)

Good Night to all,

Michael dV said...

From ZH
either a fofoa-ist or he drinks from the same tap

Winters said...

From a few posts back - response from my mom after reading the DNA article: "I prefer to know who is giving the advice, not some annonymous person"
Queue argument from me that if anything the anonymity ensures the ideas stand on their merit alone however it is of litle use. She pays too much respect to high priests of a discipline without thinking for herself. shrug.

FOFOA: lol. It would appear now Gary may have actually vomitted on himself rather than the carpet.

Indenture said...

AD: The word useless is starting to be synonymous with your name.

milamber said...


Thank you for addressing Bron's critiques (and ignoring others comments). I have found his thoughts to be very cogent (especially how they show a refiners viewpoint in the current IMF$ system) & definitely worthy of a response. It is always instructive to read the back & forth between you two.


(Except non naive non groupthinkers):

In addition to tape 606, I have found that EOB tape 273 (August 12-15, 1971) is a must listen.

A peak:

Conversation No. 273-7

Date: August 12, 1971
Time: 3:11 pm - 4:20 pm
Location: Executive Office Building

I have found the following location to be the best one to reliably get the tapes, tape logs, and excel spreadsheet that tracks where the conversations begin on the tapes.

Unfortunately, there are no transcripts of these tapes at this time. So it is a slog. The voices are hard to pick out, but it can be done if you adjust your equalizers to pick up certain voice frequencies.

After listening to several of these tapes, I stand by my comments that it is desperation followed by arrogance that drives these decisions.

In most cases, these are not stupid people making decisions. Nor are they evil greedy bankers (or "Shills" for the banksters) trying to screw me (J6P). At least American J6P's. Yes, ROW, they were trying to screw you. :(

Instead these are people that realized that the gold convertibility gig was up & if they wanted to keep the dollar "in control" then they had to do something. These candid tapes are incredible from the perspective that they do not give a sanitized version (IE someone's "spin") found in most memoirs of what happened (as reported) at the time. Instead these are the raw conversations that took place in the Whitehouse, EOB & on the phones.

They provide the *INTERNAL* give & take and most importantly the internal rationale for why the president believed he needed to do what he ultimately did.

Watergate is often the focus of the Nixon tapes. But the real burglary was Nixon stopping gold convertability. The coverup was blaming "international speculators" so that American preeminence would not be challenged.

Back then when the choice was the Americans or the Soviets; most chose the Americans, warts & all.

We are witnessing the slow motion train wreck of the IMF$ system stemming from that decision made back in 71. And that decision traces its lineage back to Bretton Woods in '44 and Genoa in '22.

As Lenin said,

"The best way to destroy the capitalist system is to debauch the currency."


Aaron said...

An audio link to one of the conversations Milamber referenced above.

Good stuff Milamber!

Aaron said...

...and three days after that recorded conversation Nixon's Shock.

enough said...

Argentina bans buying dollars as a way to save

Fri Jul 6, 2012 2:16am BST

* Cenbank changes norms to reflect new gov't policy

* Dollars can be bought for travel abroad, mortgages

* Currency controls stoke black-market trade

BUENOS AIRES, July 5 (Reuters) - Argentina's central bank on Thursday formally banned people from buying dollars for the purpose of saving them, confirming the government's de facto policy aimed at safeguarding foreign reserves.

Argentines tend to convert their pesos into greenbacks as a hedge against high inflation and to protect against potential currency devaluations, which they have endured through decades of boom and bust economic cycles.

President Cristina Fernandez slapped new controls on foreign currency purchases just after winning re-election in October, requiring the tax agency approve each individual transaction.

But starting in May, the government sharply limited those approvals, permitting people to buy foreign currency only if they could show they would be traveling abroad.

This sent the black-market rate for dollars soaring. Argentines now pay about 5.95 pesos per dollar on the black market while the official rate is 4.53.

Thursday's central bank statement suspended a norm that had allowed individuals to buy up to $2 million a month without having to specify the destination of the funds.

People will be able to buy foreign currency if they are traveling overseas or need to repay dollar-denominated mortgage loans, the central bank said. They can also buy dollars at the official rate to make humanitarian donations.

Argentina's economic growth is slowing sharply and the government uses central bank reserves to pay its debts. It has been virtually shut out of global credit markets since staging a massive 2002 debt default.

The currency controls are aimed at stemming capital flight and easing downward pressure on the peso in the local foreign-exchange market, where the central bank intervenes nearly every day

Victory said...

...for a non-statistical (or stat professor) that was an inspiring breakdown, but it sure reminded me of how much I hate statistics!

FOFOA = Beautiful Mind

Victory said...

...I imagine Argentines will be buying more gold now, they can thank Cristina later (unless it's paper)

Beer Holiday said...

I hope my comment above is useful, and not missing the point. I'd like to take a shot at answering my own question.

Answer: Add an assumption that all of the banks trade in the exactly same way. This evens out the trade distributions, and what you are left with are straight forward but very interesting numbers (+ 1 assumption). I'm satisfied this answers every question I posted previously - even divide by 2 issues.

It sounds like a reasonable assumption to me, but Bron would have an informed opinion.

If people complain, you just say "Yes it's an incomplete data set, I can only work with the data I'm given".

Beer Holiday said...

I'd like to to the above:

It would be a reasonable assumption to make because;

The LBMA make the same assumption implicitly in their analysis. When they divide all LBMA bank transactions by 2, they use the assumption above implicitly.

Victory said...

I wonder if we will be able to have more confidence in the signals from Gold lease rates now that Liebor is going under the microscope...or maybe BB's will sift focus to manipulating Gold Swap rates

Bron Suchecki said...


My response, most of which I emailed you previously (but for the benefit of anyone else interested) is here

costata said...

AD and ForLiberty,

I'd like to clarify something about this paper gold versus physical gold discussion. Put aside the issue of market manipulation, the effect of paper gold on prices and so on for the moment. Let's be clear on a key difference between the paper gold leverage of the period Another discussed (the late 1990s) compared to the paper gold trading markets today.

Another was describing a situation where the BBs had written commitments to deliver physical gold that they could not fulfill. Buyers, principally Asian, were demanding the delivery of the physical gold. To be crystal clear - gold which the BBs could not deliver.

The buyers taking the other side of the trades and buying up the "paper" weren't leveraged speculators trading on margin who couldn't afford to take delivery even if they wanted to do so. These buyers demanded delivery and had the cash to pay for it.

The situation then is in no way comparable to the present. I doubt anyone here who has delved deeply into the matters we discuss would assert that a "paper" based exchange is, in and of itself, a tool for manipulation of any commodity. The paper, be it physical or electronic, is a proxy for the commodity being traded - nothing more.

Don't confuse what we are discussing here with the claims made about naked shorts and conspiracies on Comex (for example) by some of the goldbugs.

If you want me to flesh out the background to the period Another was discussing I'm happy to do so. But don't toss around accusations of conspiracy theories and insult our intelligence with stuff like this: "All paper trades have two parties.." LDO

Nick said...

Front lawn dump anyone?

FOFOA said...

ForLiberty wrote: "This whole 'paper gold is holding the price down' argument makes zero sense to me. It is just a logical nonsense. All paper trades have two parties - bidup and biddown. A paper gold trade could have never taken place if nobody wanted to short it. This is how all markets work. There are paper tomatoes sold too. Is there a conspiracy there too?"

Then the town jester piled on with: "any person that buys paper gold gives a sh!t about the physical gold. He does never ever wants to have it (because gold is useless)… This is just common sense"

Someone else (guess who) wrote: "They argue that paper gold depresses the price of gold and this is why it is not where it should be right now. You can make the same argument about anything traded today from wheat to stocks and bonds."

My response: No you can't. The paper market for commodities is just as likely to have a levitating effect as a suppressing one because it allows for financial participation by those who have no need or ability to hold the actual commodity. Gold is the only one that is unequivocally suppressed by the existence of a paper market.

No conspiracy. The mere existence of a commodity-like paper market for gold suppresses the price naturally, systemically. Long term systemic suppression of gold is something totally separate and different from short term price manipulation or distortion which can occur in any commodity or paper market.

Here's ANOTHER explaining that the BIS (primarily European central banks) not only knew that a paper gold market would lower the price of gold, but that in the 1980s they supported the creation and expansion of this market for that very purpose:

"The BIS leads the creation of a paper gold market that will lower the world price of gold to the extent that it remains above "production costs".

Guess what, it worked! Contrary to all expectations of oil shortages, inflation, debt collapse and what have you, It Worked! But, there is one small problem?

The BIS and other various governments that developed this trade (notice I didn't use conspiracy as it was good business, as the world gained a lot), thought that the paper gold forward market would have allowed the gold industry to expand production some five times over! Don't ask where they got this, as they are the same people that bring us government finance and such."

In other places he explains that we should not be upset with the CBs because they were just buying us time. And later he explains what they were buying time for—to make it to the launch of the euro. He also muses about the fact that it's the Westerners playing in this new paper gold market who are most upset about the low price. The physical buyers in the East see it as a gift. But I digress.

There is probably far more real physical gold in the world than paper gold. Enough physical to cover all the paper a few times over perhaps. But that doesn't matter, it is only the flow that matters. It's the same with commodities that get produced and then consumed. It's the flow between production and consumption where the price is discovered in the paper markets. But gold doesn't get consumed at a rate anywhere close to its next closest competitor. It just accumulates.

In commodities the paper market regulates the flow between the producers and consumers, acting as a kind of a shock absorber against unexpected supply and demand shocks. But gold is different because it just accumulates. There are two main differences between gold and everything else. The first is that gold just accumulates rather than getting consumed, so there is no reason for there to ever be a supply side shock, even if all the mines suddenly stopped producing. In fact, today we have a 60 year "supply overhang" in gold. Nothing else comes close.


FOFOA said...


The second difference is that the vast majority of demand for gold is in currency terms, not weight terms. This is not true for commodities. If you need a ton of copper for a construction site, you need a ton of copper. That's weight-denominated demand. But gold's demand is overwhelmingly in currency terms. If you need a tonne of gold, what you really need is $50,000,000 worth of gold. It doesn't matter how much it weighs because you're just going to stick it in a vault.

Having a paper market as a shock absorber for the gold market only has the effect of keeping the price too low. My explanation for the LBMA survey discrepancy is a perfect example.

Since gold is not consumed by consumers or industry the way corn, oil, copper and grains are, and because it simply accumulates, supply shocks are not economically critical. On the demand side, gold is apparently used as a "safe haven currency". And we apparently had a demand shock of around 7,575 tonnes in Q1 2011. The normal supply for that period would have been around 700-1000 tonnes, so the paper gold market acted as a shock absorber and absorbed that demand shock by expanding. That way the price of gold only rose $30 in a quarter with a demand shock of 10 times the normal supply flow.

But that wasn't really demand for 7,575 tonnes of gold. It was demand for $337B worth of gold. If the price of gold had been $55,000/oz. in Q1 2011, that demand still would have been for $337B worth of gold, the only difference being that the $337B demand could have been supplied by only 190 tonnes (a mild 20% increase in flow rather than an extreme 1,000% increase) and the price of gold would therefore have barely felt a bump in the road, even without a paper market shock absorber.

Therefore, having an elastic paper market shock absorber for gold is only necessary if the price is too low, because there will always be plenty of supply if the price is high enough (60 year supply overhang, remember?). At today's price, having a paper market shock absorber is apparently necessary to keep the gold market from blowing up.

It logically follows that it is the very existence of the paper market which is keeping the price too low, because if you took it away, price alone would have to regulate the flow. Take the paper market away from other commodities and you simply remove the investor/speculator money in the middle thereby exposing producers (and consumers) to unpleasant shocks.

Because of the magnitude of the LBMA survey discrepancy, I think this is a much simpler explanation than any explanation for asymmetric reporting put forward so far. The discrepancy is simply too large. Note also that the discrepancy between sales and purchases is 9.5% in the number of trades reported. Perhaps they didn't "divide by 2" there.

And Bron: "The assumption is that this is not a one off and the outstanding paper gold position is much larger."

We have no idea what the "stock" of paper gold is. This survey only gave us a glimpse of the flow over a given time period, and I'm not making assumptions beyond the scope of the survey. The "stock" may have been steady in Q2 which is why the price rose sharply, and maybe it shrunk by 10,000 tonnes in Q3 when the price crashed. Who knows? We only got a lucky glimpse because they (the BBs) were lobbying for a technical rule change that would make their compliance easier.


FOFOA said...

PS. To Bron: I like that you now have your picture on your blog. Feels more like I'm reading the words of a real person. And you're damn good looking for an Aussie too! So I thought I'd add a picture. What do you think?

AdvocatusDiaboli said...

"The mere existence of a commodity-like paper market for gold suppresses the price naturally, systemically."

The word "suppress" has quite some bias, anyway: Yes, if there would not be a paper market like it is today, the price would probably be higher. But wake up, it is what it is.
IMHO to break down the whole ANOTHER storry in short: He claimed that due to the MTM feature of the Euro that market would somehow magically change. No it didn't, just as with a lot of prediction he was dead wrong. In what type of realistic market, still >13yrs later FO(FO(A)) could not tell.
And as long as there are free miners somewhere left in the world and todays financial world is in place, the market will not change, get that in your head.

FOFOA said...

AD: "the market will not change, get that in your head."

Monday, August 6, 2001 - GOLD @ $267.20 - FOA: "The result will be a massive dollar price rise in gold that performs over several years."

Michael H: "Who says that events since 2001 haven't played out as A/FOA expected?"

Tuesday, January 1, 2002 - Launch of euro notes and coins
Friday, February 8, 2002 - GOLD ABOVE $300
Monday, December 1, 2003 - GOLD ABOVE $400
Thursday December 1, 2005 - GOLD ABOVE $500
Monday, April 17, 2006 - GOLD ABOVE $600
Tuesday, May 9, 2006 - GOLD ABOVE $700
Friday, November 2, 2007 - GOLD ABOVE $800
Monday, January 14, 2008 - GOLD ABOVE $900
Monday, March 17, 2008 - GOLD ABOVE $1000
Monday, November 9, 2009 - GOLD ABOVE $1100
Tuesday, December 1, 2009 - GOLD ABOVE $1200
Tuesday, September 28, 2010 - GOLD ABOVE $1300
Wednesday, November 9, 2010 - GOLD ABOVE $1400
Wednesday, April 20, 2011 - GOLD ABOVE $1500
Monday, July 18, 2011 - GOLD ABOVE $1600

Max De Niro said...

You beat me to it FOFOA

FOFOA said...

Where you been, Max?

Max De Niro said...

A few times, I have typed out a response to AD's nonsense, then I remember that picture of the guy ranting at his computer with the caption 'Someone is wrong on the internet!', and then I think f it, and delete.

Life is too short to engage with idiots.

FOFOA said...

You mean this?

Max De Niro said...

I've been taking a break from this crazy world, FOFOA, by delving into the normal world.

I have nothing of value to add here, so there is no point making posts. I've made my decisions, I'm happy about them.

The knowledge I've gained here has enabled me to get on with the busy business of living without worrying too much about stuff, so that's what I've been doing.

My perspective has changed radically, I view it all with a whimsical smile nowadays. Que sera sera.

Thanks to you and the excellent commenters here.

Max De Niro said...

That's the one! That used to be me.
Fortunately I retired that version of Max - put him out to pasture.

dojufitz said...

A much higher Gold price solves more problems than it creates.....then given the debt mess the world is in...what aren't the Euroepeans and Americans talking about a Gold revaulation....what the hell is wrong with people?

FOFOA said...

Hey Max,

After four long years of doing this blog I've learned that everyone on the Internet is wrong except me. And of course Jeff and JR, because they quote me mindlessly, so how could they be wrong? Oh, and Michael H is pretty good too. And, of course, Ari, because if he says something all I can do is light a candle, put on my custom embroidered FOA pajamas and pray to ANOTHER.


Max De Niro said...

Amen Mr SockPuppet

costata said...

Somehow our favourite sock puppet doesn't have the same ring to it as our favourite Yeti.

FOFOA said...

You should see the Yeti hand inside that sock, Costata. It's enought to strike fear in the hearts of men, which is why I must sock it.

Robert said...

Not sure if this has been discussed here before, but I found this to be an interesting read:

Gold and the International Monetary System:
A Report by the Chatham House Gold Taskforce

Includes mention of Triffin's Dilemma and Zoellick's proposal

Bron Suchecki said...

Its pretty cute but I'm sure you don't need a sock.

I never had my picture up because I thought it would help maintain some privacy, but after doing this interview with The Street, I realised I should just give up.

"There is probably far more real physical gold in the world than paper gold. Enough physical to cover all the paper a few times over perhaps. But that doesn't matter, it is only the flow that matters." and "because if you took it away, price alone would have to regulate the flow"

Interesting idea, and good focus on the flow, will give me something to think about. I'm currently playing with the idea that gold banking operates under the same controls as Free Banking (as per this and think your idea of a fluctuating paper gold balances is related somehow.

Mr T said...

FOFOA - thank you, I always enjoy your offerings.

A request of sorts. A revisit about deflation, QE to infinity and their consequences.

My contention is that "QE to infinity" has already been reached, ie to the point at which obligations cannot be covered by economic activity any longer. But yet the Gold community continues to nail Gold to this "QE cross" and the "bears" have a wedge to put into the Gold argument. So Gold is stymied by Gold enthusiasts themselves by arguing that more QE is coming. Jim Sinclair is the biggest proponent of this mantra.

This leads into the deflation debate all over again. Looking back at your offerings about deflation it was exactly at the 2008 low where this debate flourish. So this thing gets hashed over and over again. And recently by Rick Ackerman once again.

To put deflation into context. In a debtless/obligationless/liabilityless environment deflation is a wonderful thing. Goods and services become more affordable/cheaper.

However in a saturated debt/obligation environment deflation leads to the destruction of those debts and obligations.

So the consequence of deflation in this environment will be a "hard default" in the future and thus a currency event.

I know you have spent much time on this issue - but it seems very fitting presently again. It seems cycles don't change much!!

Thank you - T

FOFOA said...

See? Now that's what I'm talkin' 'bout! Friends. Good friends.

costata said...


I haven't visited your link so I'm just presuming you mean the Scottish Free Banking model. If so I think it's a good angle. It's the only way the BBs could protect their interests in the absence of a lender of last resort.

It would explain the joint ownership of the clearing corporation in London and the participation as AP's in GLD etcetera. In other words the touch points where the common good of the BBs intersect versus the areas where they compete.

FOFOA said...

Hello Mr. T (I like your bling by the way),

I would recommend that you read this post and spend some time on it (how can you not? It's 12,000 words! "That FOFOA guy sure is long-winded" ;). "QE to infinity" takes on a whole new meaning once you realize that it's really all about the USG maintaining its "weight-denominated" inflow of goods and services.


Anand Srivastava said...
This comment has been removed by the author.
Gary Morgan said...
This comment has been removed by the author.
costata said...


If Gary ever leaves us the barely tolerable will get an immediate upgrade to insufferable.

All things are relative

Uncle confustata

Anonymous said...

Just wanted to inform readers here of this India and gold policy article. The author suggests several policy changes on gold for the country -
Might just be easier to read them on the link, but quote is below.

"Augment gold reserves: Gold imports are viewed as a drain on foreign currency. But it is equivalent to foreign currency, since it forms part of international reserves. As part of augmenting its reserves, the Reserve Bank of India can purchase gold from the domestic market to augment its reserves base in the face of dwindling foreign currency reserves.

A suggestion has been made earlier that the central bank can deal in gold as part of its market operations. In a way, augmenting gold reserves will help the central bank sell dollars in the domestic market to preserve the value of the rupee, without losing its reserves base.

Encourage gold deposit schemes: Commercial banks, in particular, State Bank of India, offer gold deposit schemes at low rates of interest. Gold savings deposits and term deposits can be encouraged. Here is a ‘good’ Turkish example. Turkey, like India, is a large consumer of gold.

Gold, handed down through families over generations, is hoarded as savings. But in recent months, commercial banks have entered the fray to mobilise gold deposits, encouraged by the central bank policies, according to a Reuters report.

Such deposits have increased four-fold in the past one year. The country’s commercial banks are pouring their technical expertise and marketing resources into offering their customers gold deposit accounts. Customers give their gold to a bank and can make withdrawals from their accounts in gold bars or the lira currency; the accounts offer interest rates that are substantially lower than those on normal time deposits.

Allow banks to hold CRR in gold: Turkey pursued this goal by adjusting reserve requirements, the proportion of deposits that commercial banks must hold at the central bank.

In September 2011 the central bank increased the ratio of lira reserves that could be held in the form of gold from zero to 10 per cent, raising it further to 20 per cent in March 2012 and 25 per cent last month. This had the effect of drastically increasing banks’ appetite for gold.

Allow banks to issue gold bonds to augment capital: In the context of banks facing constraints in augmenting their capital base due to the more stringent Basel III, a possible solution is to allow them to issue long-term gold bonds on a preferential basis to augment their Tier II capital, as part of a host of other innovative products already introduced. In fact, this should provide banks an avenue for mobilising capital at a lower cost. "

Robert said...

I have been trying to research the law of the international monetary system and the question of whether the U.S. as a "gold outlaw" is a real legal problem, or simply a political issue. Although I cannot find the text, it appears that the 1976 Jamaica Accord settled the issue and formally ratified the end of the Bretton Woods system, legalizing the system that had evolved after the U.S. default in August 1971. So the question appears to be: By formally approving the new system, haven't the signatories agreed to relinquish all of their claims to gold in the UST? Without having seen the text of the Jamaica Agreement, and instead only a few snippets about what has been written about it, my hunch is the answer is probably Yes. The practical significance is that UST gold is therefore a potential deep pool that the USG could tap to stop any run on the bullion banks and preserve the $IMFS. Right?

Robert said...

Here is an idea for the presidential candidates to consider to pander for votes: Distribute all of the gold in the UST. Everybody knows that gold is a barbaric relic, just a piece of shiny metal, not money in itself, but just a monetary asset. So instead of sending out stimulus checks, the government will instead send out U.S. gold coins to every U.S. citizen. These are worthless to the USG after all, and they are only kept in the UST because of an outdated tradition. Do you think either campaign could latch onto that idea? ;-)

Jeff said...

Are you suggesting the US would deliver physical gold at the current paper price, or that they would try to maintain a fixed higher price, or just go ahead and intiate freegold (free floating price)? And have you read Open Letter to Ron Paul?

KnallGold said...

FOFOA, just thought the above 2/2 posts could make it into a intro essay, really. It explained it so good (and in short...) why the architecture of Comex/LBMA essentially IS the Gold "conspiracy" oops I should have used a much better and more technical word instead.

I'm aware that this is actually what Ari or FOA used to say, long ago, "there's no Gold manipulation, COMEX's design actually IS the "manipulation" ", or so were their words.

To take up AD's point about a reality check, ie that COMEX still exists, "it is as it is": yes, you're right, that is completely true,period. (hey brother, btw, we really live in one damned decadent world, I can deeply relate to your bitterness/sadness/anger, really! I often struggle where to use/invest anymore my intelligence).

But I also remember FOA claiming/suggesting more than once a physical-only Gold market, he called it once EBES, the euro bullion exchange system, with centers in Dubai, Shanghai (PAGE??), Frankfurt and Zurich. Yes, THAT indeed would make the change to the machinations FOFOA explained in his two-parted 5. July posts.

It remains a mystery to me why it never came, c'mon, a bit a higher POG wouldn't hurt anyone, actually thats even a FOFOA saying. I also remember a poster called JacobMarley who forecasted 10(?) years ago that we otherwise would fall into the endless agony of the $IMF system.(hmm, China not only gained versus US, but essentially cratered Europe, though we bought time and KnallGold mucho Goldcoins, hmm)

And/but, to back up Jacob (hello btw!), what has been proposed here often, that a true meritocracy would arose then as a consequence, leading to a better future-has my full support, but so far those who would be the base of it are being fouled out one by one (ever heard of the Burn-out disease? the small sane business etc).

Being myself a bit a victim to this, well at least I quit job on my own 2 years ago after having had ENOUGH of the socialist/collectivist/bureaucrat idiots. I used to be the best in my job (something scientific, but you'll guess by my nick ;-). Now don't call me an arrogant ass :-)

I'm just a bit PO'ed too by this never ending agony, but mind you, I DO see many the changes already having occurred. Now do I worry about the 2 ridiculous copycat Goldbops of the last 2 days? Not really, actually in sFr I gained on my Gold portfolio. And don't worry/collect for me, I have Roulette as an income (smart as I am), its even taxfree. I might even teach it to FOFOA, someday, in case he really should go "hamburgers" *biggrin*

Best Regards,

KnallGold said...

Still wanna buy mining shares?

KnallGold said...

Remember my "coincidental posters" post yesterday in tune with the big LIBOR scandal in London? Also coincidentally, GATA site was also hacked yesterday.

Of course I can imagine other suspects as some easy-money socialists/ spenders networks - would it be so hard to imagine of NGO's/ Occupy / "Gutmenschen" / Piratenparty from Germany (which IMHO are also socialist, richtig Mr. AD?), and where the heck stands the Anonymous breed? The ones profiting the most from the present system would logically lose the most. I always said the welfarespendersocialist is actually in bed with the easymoney bankers.

Funny, just recently I've read something similar from FOFOA. What surprised me is that the occupy movement used the mask from V for Vengeance, one of the best movies for me btw but I never seen V "red".

And Another btw, the recent "blondie-on-the-mount" art of Dirty Harry and other similar melt-ins: did anyone else also disover a pose of Mr. V in the movie, in the subway, like a knife thrower? I know I saved the pic but can't find it...

Michael dV said...

fofoa is using light hearted humor...the end must be near

Dante_Eu said...


You got some issues man, I think you need some counseling. :-)

Gary Morgan said...
This comment has been removed by the author.
KnallGold said...

Haha, more about Aurum Fulminans (unfortunately just in German):

"Knallgold, lateinische Bezeichnung Aurum fulminans, ist ein Gemisch aus Sesquiaminaurioxid und Diamidoimidoaurichlorid.

Getrocknet detonierte das Gemisch bei einem Schlag oder wenn man es erhitzt, daher der Name. Knallgold wurde seit dem ausgehenden 16. Jahrhundert im Mittelalter in unterschiedlicher Weise mit anderen Stoffen vermischt und medizinisch angewendet.

Für Knallgold gab es ein komplexes Herstellungsverfahren: Gold wurde in Salpetersäure, dem man Ammoniumchlorid zugesetzt hatte, gelöst und mit Kaliumkarbonatlösung - oder aber auch mit "Spiritus urinae" (hergestellt aus gefaultem, destilliertem Urin und Weingeist) - gefällt und behutsam getrocknet.

Neben der schweißtreibenden und abführenden Wirkung wurde die Anwendung von Knallgold gegen „melancholische Krankheiten“ sowie als „letztes Mittel bei verzweifelsten Krankheiten und bösen hitzigen Fiebern“ tangelo. Die erste Beschreibung von Knallgold wurde von Basilius Valentinus verfasst und 1666 in die Nürnberger Pharmakopöe aufgenommen. "

Anonymous said...

Just for your information:

Since the GLD puke on 22 May, there has been no buy signal and no sell signal. The gold taken out originally was almost replenished (in many small steps, hence no sell signal), but the inventory declined again last week. Today, GLD is still lighter than on 22 May.


Issas Ekeret said...

I love this website!

Issas Ekeret said...

The best part is when people come back and try to clean their fails up!

Indenture said...

Knall: Translated "Fulminating gold, aurum fulminans Latin name, is a mixture of Sesquiaminaurioxid and Diamidoimidoaurichlorid.

Dried, the mixture exploded upon impact, or when it is heated, hence the name. Fulminating gold has been since the end of the 16th Century in the Middle Ages in different ways and mixed with other substances used medicinally.

For fulminating gold, there was a complex production process: Gold has been in nitric acid, which had been added ammonium chloride and mixed with potassium carbonate solution - or even with "spirit of urine" (made from gefaultem, distilled urine and alcohol) - cut down and carefully dried.

In addition to the sweaty, laxative effect, the application of electrolytic gold for "melancholy disease" as well as a "last resort when verzweifelsten diseases and bad fevers' tangelo. The first description of fulminating gold was written and recorded by Basilius Valentinus, 1666 in the Nuremberg pharmacopoeia."

JC said...

Getting closer to Robert Prechter's 15 minutes?

"In the first five months of 2012, there were twenty times as many Google searches on "inflation" as there were on "deflation." This is down from a ratio of fifty times in June 2008. . . . . . My firm was so excited about that lopsided ratio of Internet search terms that we went out and bought the domain name,, and we just fired it up. Our new site is the only source where you can learn about deflation and what to do about it"

Aaron said...

Gary said...

This comment has been removed by the author.

That's the smartest thing you've said all week! Keep it going brah.

DP said...

So, Gary (welcome back by the way). We are to expect that the USG will keep on spending $1T/year beyond its means, but the rest of the world will continue to suck it up and keep the one-way traffic of containers flowing, taking more and more, always more, dollars in return? And this even after the value of their $ reserves were already recently destroyed in comparison to the value of their gold reserves.

I guess those stupid foreigners will just never get it, eh?

DP said...

You do realise that your $100,000 starting price isn't really a number, but a purchasing power of gold in terms of other real things, expressed in today's dollar terms? The actual $price of gold on the day could already be much higher than $100,000, and it's a floating $price of gold, not a new fixed price.

So I personally find it a little hard to believe that any profligate government that is continuing with check-kiting away its bills won't see its currency continue to sink further and further against gold, the more it persists in its profligacy.

Or to put it another way, no I don't believe they would be able to make the Treasury's gold last for over 200 years while they still engorge themselves on all the world's cake. Nor do I believe for a second that the US public will let them run down every single last ounce before they get with the program and pull the plug on whoever is mishandling the ship.

Do you really not understand what FOFOA means by "international structural support of the dollar"? Or the implications for absence of same.

Flore said...

DP.. like ;)

KnallGold said...

Thanks you, Sir Indenture!

Issas Ekeret said...

@DP: How can Gary understand that, when it seems even the great Martin Armstrong can't - and he's a GOD, donchaknow!

Edwardo said...

FOFOA said...

Hello Gary,

Allow me to quote a few of your comments from the not-so-distant past:

March 15, 2012 5:24 PM "Read it again AD, then sit down and consider why you post such nonsense...perhaps you are drunk frequently, or a crack addict?"

March 28, 2012 3:30 PM "my cat understands freegold better than AD"

April 2, 2012 6:33 AM "To AD (again) just go and read Another, FOA, and all of FOFOA, then think for a few years, and then feel free to come back.

Otherwise, stop wasting our time, you're an obnoxious dullard.

To those that are still enagaging with him.....why? You just make the board a lesser place.

I wonder if blogger allows the host to delete posters comments? Fofoa, save us from this madness please!"

April 12, 2012 11:16 AM "Ozzy, I never fed him, just attempted to drive him away by pointing out he was a troll. Seems I was succesful?"

May 17, 2012 1:42 AM "Re Carl, whilst he's not a typical troll, I still think just ignoring him will make him go away. I stopped reading his comments last week.

Carl, did you know you have a very rude tone which is uncalled for? Why not waste your time in learning some civility, rather than boring this blog. Or get a real life?"

May 23, 2012 3:49 PM "Do yourself a favour, consider the hours of YOUR life, never to return, that you have wasted posting here. Consider it, and then do the right thing:

fuck off someplace else."

Gary, allow me to point out that you are now the troll. I know you won't like me saying that, but it is apparent to almost everyone but you. And by not responding to you I am, in fact, taking your advice.

It is a little unclear what caused your meltdown last month, but it seemed to begin right after the last time I answered one of your questions and you didn't like the answer. And so now, a month later, you are taking the low road and trashing me on other sites, like this:

"Sad to see, he [FOFOA] has lost a huge amount of credibility over this, plenty that read the blog will see that. He wasmn't man enough to turn up for the debate at all!

He actively encourages his followers to attack those who raise issues with his own sarcastic nasty little quips, I guess he's not really a very nice guy?"

You really think I've lost credibility over not debating you? You haven't even brought a coherent argument to debate! I know you think you have, but I don't have time to explain everything to everyone who thinks his argument is worthy of a debate. Those followers who you thought were attacking you were simply trying to help you see why I wasn't bothering to take up your "challenge".

So please allow me to quote myself from an old comment to someone else:

"As I've written in the past, if I didn't respond to your special question, you can safely assume that I was unimpressed by it. And now that I see your question for the second time, I am happy with my initial decision to ignore it."


costata said...

China Watchers

This newsletter by a writer (calling himself Phat Dragon) for a big Australian bank has a good track record of calling the turns in China.

h/t MacroBusiness blog

PD was expecting a cut in the reserve ratio for banks in China to stimulate the economy. Instead the authorities delivered a second interest rate cut and they increased the latitude of banks to 30 per cent in pricing their loans around the official rate.

It's interesting to see how much energy is being expended dissecting moves by China to internationalize the Yuan when the much bigger story could be the rapid moves to liberalize interest rates.

What has happened between early June and early July to precipitate such a break?
Phat Dragon would submit that the round of global business surveys for June were worse than awful; the aforementioned gap between prospective borrowers and lenders at home was not being alleviated sufficiently by the first rate cut; and very importantly, the first signs that the domestic labour market was beginning to suffer from the downturn in construction activity and exports.

ampmfix said...

Way to go Gary!

costata said...

Further evidence of slowing in China.

The fleet, previously unnoticed by the global market, is suffering from a slowdown in China’s coastal trade amid weaker domestic demand from utilities and steel mills and a growing glut in Chinese coal and iron ore stockpiles.

The writer ends with this comment about Australian mining stocks:

Some nice discounts coming for the miners.

Of course there is an old saying about "catching a falling knife" as well that might merit consideration.

Beer Holiday said...

@Knallgold: Love reading your comments, pretty sure I missed the point of the one directed at me 1 week ago, sorry about that. Yes, that's how well I remember them.

Now off to drink some gold to help my with "melancholy disease" (Thanks Indenture).

Hopefully I end up like the silver drinkers
:-) But I think I know the reason why I won't.

Nickelsaver said...


I know that song. The was the Michael Jordan led Bulls victory chant.

I guess all that glitters really is not gold.

Beer Holiday said...


I think the article you posted earlier, Alternative To The Pettis View Of China's Economy, is very useful in understanding a slowdown in China.

A slowdown would be a disaster for China, simply because the current model is pulling so many out of poverty and industrializing the poor west of China. They will do everything they can to keep it going.

There's a mountain of capital creation necessary for China (especially agriculture) to catch up with the west. It seems like the current high growth model tends to sometimes misdirect capital formation, e.g ghost cities. But to focus only on that misses their unending appetite for growth.

It will be fascinating to see how it plays out.

As for mining stocks, ask AD, he's the BHP expert.

Piripi said...


Your linked Chatham House report.

Wow. Where to start? I pulled so many quotes that I couldn’t possibly post less than a 6-8 part comment they were so good. Sadly they began their entire presentation, and took it all the way to its conclusion, without considering that gold may have a function outside of being fixed to another currency, so I’ll save readers the inconvenience of the lengthy quotes that, however well researched and professionally presented, served only to beat their golden strawman.

It was notable that they felt it necessary to address Zoellick's RPG comment.

I've little doubt that they will become acutely aware of FOFOA's dilemma at some not too distant point in time (assuming they are not already.)

Piripi said...

Beer Holiday,

I beg to differ; a slowdown will be a disaster for China only from a short-term $IMFS perspective (and such disaster would likely herald the end of the $IMFS.)

From an RPG perspective, if there is unrealised productive potential in China then it will be realised, without the misallocation of capital and consequential 'creative destruction' the $IMFS engenders.

The disaster, IMO, would be the continuance of the status quo.

Michael dV said...

re: Gary
thank you

Piripi said...

KnallGold said: " FOFOA, just thought the above 2/2 posts could make it into a intro essay, really. It explained it so good (and in short...) why the architecture of Comex/LBMA essentially IS the Gold "conspiracy" "


Such explanation could be the flick of a switch for many a HMS, but it is not particularly accessible at present, way down on page2 of the comments, amongst tens of thousands of others.

Robert LeRoy Parker said...


Anonymous said...

Hello VtC - something I don't understand re GLD (actually a lot of things I don't understand about many things over here . . . )

If a Puke of around 120t today would break the system, how did they put the fund together in the first place, back in 2004? Surely they must have taken delivery from the BBs back then of around 1000t? Did they start small and grow big very slowly, or maybe they don't really have the Gold they say they have?

Thanks - FoNoah

Anonymous said...


in my GLD article, the blue curve in the very first chart shows the total inventory.

The inventory of GLD grew until the summer 2010 and has stagnated or slighly fallen since.


from the Financial Times:

Money market funds close after ECB cuts

JPMorgan Chase, BlackRock and Goldman Sachs have restricted access to some money market funds after the European Central Bank cut interest rates to historic lows.

The moves highlight the struggle for yield in an ultra-low interest rate environment. On Thursday the ECB reduced its benchmark rate to a record low of 0.75 per cent from 1 per cent and cut its deposit rate from 0.25 per cent to zero. Fund managers warned interest rates were skirting negative territory.

JPMorgan, the biggest provider of money market funds, told clients: “The cut in the deposit facility rate to zero will almost certainly move cash bids in short-dated instruments into negative territory, and so we have taken the step to restrict subscriptions and switches into the funds in order to protect existing shareholders from yield dilution.”

“This is a big deal obviously,” said John Donohue, chief investment officer of global liquidity for JPMorgan Asset Management. “It’s not so much that they cut the base rate, it’s that they cut the deposit rate to zero from 25 basis points.”

He said that before Thursday’s decisions, banks were borrowing from money market funds and placing the money on deposit at the ECB.

Apparently, the change of the deposit rate to zero came as a surprise to most. It seems the ECB wants to be the only one who provides liquidity to their commercial banks. This way, they are easier to control I suppose. Also, some further ties to the dollar world are cut.


costata said...

Interest rates in Denmark used as an exchange rate management tool (my emphasis).

EU member, but euro outsider, Denmark conducts a fixed exchange-rate monetary policy to keep the crown steady within a narrow band to the euro, and the central bank changes interest rates for the sole purpose of carrying out that mandate.

The Nationalbank cut its lending rate to 0.20 percent from 0.45 percent and lowered its certificates of deposit (CD) rate to negative 0.20 percent from 0.05 percent to match the ECB's move and to curb strength in the Danish currency.

"When the ECB moves downwards, we are moving in parallel," central bank Governor Nils Bernstein told Reuters.

"Our main concern is the pegging of the crown to the euro, and therefore we want to make sure that the effect of the interest rate is felt," Bernstein said.

EU member, but euro outsider, Denmark conducts a fixed exchange-rate monetary policy to keep the crown steady within a narrow band to the euro, and the central bank changes interest rates for the sole purpose of carrying out that mandate.....

.... The Nationalbank, whose policy aims to keep the crown steady within a narrow band to the euro, left its current account rate unchanged at 0.0 percent and raised the limits on how much money banks can hold in the current account at the central bank.

It tripled the total limit on the current account to 69.7 billion Danish crowns ($11.60 billion) from 23.15 billion.

Banks hold 186.3 billion crowns in CDs and 21.0 billion crowns in the current account at the central bank, so the increased limits on their current account deposits will enable them to shift some, but not all, of their money out of CDs with a negative rate of interest.

"With this action, the Nationalbank is trying to reduce some of the pain which negative current account rates would unavoidably mean for Danish banks and mortgage institutions," Nordea's Nielsen said.

burningfiat said...

Hi Folks,

Can someone please help me find a FOFOA post? I have tried myself but failed so far.

Gary's question about US HI inevitability made me think of one of the older FOFOA posts. I believe the post was shaped like an open letter to Obama or USG...
IIRC the point of the post was that US HI could be avoided if USG did front run Freegold, and revalued their stash ahead of the other global players.
So the point of this particular post was that theoretically USA could avoid HI by following FOFOA's prescription, but practically this has infinitesimal chances of happening, because politicians wont give up their deficit spending rights.

Hints, links?

Thanks a lot.


Beer Holiday said...
This comment has been removed by the author.
Beer Holiday said...


It's called "open letter to Ron Paul"

DP said...


When you're done giving yourself a refresher of that open letter post, you might also enjoy reviewing the one addressing the EMU heads of state, too.

DP said...

And, if you're STILL thirsty for knowledge, you may enjoy pondering who exactly Another(60253) is.

burningfiat said...

@Beer Holiday

Thanks, good suggestion, but that wasn't it!

Fortunately "Open letter to Ron Paul" actually references the post I was thinking about, so thanks. You led me in the right direction.
It is called Reference point Gold update 2
FOFOA makes a whole rant to Congress and Timmay about the stupidity of keeping gold on the books at $42.22 in this post. And further down in the comments notes:

I have written in the past that the only hope there is to avoid a full-blown hyperinflation would be for the U.S. to proactively introduce Freegold, even inadvertently. This is not something I just thought of. But I have also pointed out how this scenario has a near-zero probability because the morons in Washington would never think to do that. But heck, it's worth a shot, isn't it?

To bad Congress didn't listen to FOFOA then, but there is still time right? Maybe the interview in DNA will open some doors/ears?


burningfiat said...


I would love to know who the real Another was, but I don't see how your link leads me closer to that.

Beer Holiday said...

Burningfiat, no, but he showed us who the FakeAnother is. The whole episode is pretty sad.

Oh well, here's how I feel about it: the Bush quote.

Pretty sure I was the only one who got suckered, Oh well I can laugh at it now.

Gary Morgan said...
This comment has been removed by the author.
costata said...

It's interesting to see how Gary's perspective on the power relationship between the Saudis and the USA gets it 180 degrees wrong.

Gary Morgan said...
This comment has been removed by the author.
Gary Morgan said...
This comment has been removed by the author.
Anonymous said...


Regardless of what ushers in freegold, in order to avoid HI, USG would have to avoid the reflexive reaction (printing) to a sudden loss of purchasing power of the dollar (which the onset of free floating physical gold guarantees) i.e. USG would have to be ON BOARD WITH IT. This is what is so unlikely to happen - they'll never preemptively hop on board since they very much like the present status quo of paper for free stuff, and mostly are punch-drunk on all the MMT/Keynesian socialist economic kool-aid that has been served to them.

What you're talking about is functionally the same as what FOFOA referred to as the ECB's "nuclear option", except it's far less likely to happen than the nuclear option, which in and of itself is less likely to happen than just letting nature take its course.

Nickelsaver said...


So the snail was posing as Another via 60253.

Next thing you know, he'll claim that his google account was hacked and that all of the activity over the past month was not him.

The snail needs a new shell.

burningfiat said...


What kind of douchebaggery is this? China already has MTM reserves to the best of my knowledge! Saudi Arabia announcing MTM wouldn't anything to the $IMFS. It's not like the world saves in Riyal denominated debt.

It's all about the US debt and public deficit. It's the dollar and dollar-denominated debt that acts as reserve of the current system!

I think you're rambling.

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

@Beer Holiday and DP

Alright I see. I had some script-blocker turned on, so I couldn't see the comments on Ye Olde Blogge. Works now.

So FakeAnother is Gary huh?

Tommy2Tone said...

"FOFOA said...
See? Now that's what I'm talkin' 'bout! Friends. Good friends."

I like your dreads FOFOA.

Tommy2Tone said...
This comment has been removed by the author.
Beer Holiday said...
This comment has been removed by the author.
Beer Holiday said...

Maybe it was Mr G.

Tommy2Tone said...

Can we pin this to every post?

"As I've written in the past, if I didn't respond to your special question, you can safely assume that I was unimpressed by it. And now that I see your question for the second time, I am happy with my initial decision to ignore it."

Tommy2Tone said...

DP said...
And, if you're STILL thirsty for knowledge, you may enjoy pondering who exactly Another(60253) is.

Cough Cough

Anonymous said...

Just wanted to inform readers here of this India and gold policy article. The author suggests several policy changes on gold for the country -
Might just be easier to read them on the link, but quote is below. Not sure if you have read/discussed it already.

"Augment gold reserves: Gold imports are viewed as a drain on foreign currency. But it is equivalent to foreign currency, since it forms part of international reserves. As part of augmenting its reserves, the Reserve Bank of India can purchase gold from the domestic market to augment its reserves base in the face of dwindling foreign currency reserves.

A suggestion has been made earlier that the central bank can deal in gold as part of its market operations. In a way, augmenting gold reserves will help the central bank sell dollars in the domestic market to preserve the value of the rupee, without losing its reserves base.

Encourage gold deposit schemes: Commercial banks, in particular, State Bank of India, offer gold deposit schemes at low rates of interest. Gold savings deposits and term deposits can be encouraged. Here is a ‘good’ Turkish example. Turkey, like India, is a large consumer of gold.

Gold, handed down through families over generations, is hoarded as savings. But in recent months, commercial banks have entered the fray to mobilise gold deposits, encouraged by the central bank policies, according to a Reuters report.

Such deposits have increased four-fold in the past one year. The country’s commercial banks are pouring their technical expertise and marketing resources into offering their customers gold deposit accounts. Customers give their gold to a bank and can make withdrawals from their accounts in gold bars or the lira currency; the accounts offer interest rates that are substantially lower than those on normal time deposits.

Allow banks to hold CRR in gold: Turkey pursued this goal by adjusting reserve requirements, the proportion of deposits that commercial banks must hold at the central bank.

In September 2011 the central bank increased the ratio of lira reserves that could be held in the form of gold from zero to 10 per cent, raising it further to 20 per cent in March 2012 and 25 per cent last month. This had the effect of drastically increasing banks’ appetite for gold.

Allow banks to issue gold bonds to augment capital: In the context of banks facing constraints in augmenting their capital base due to the more stringent Basel III, a possible solution is to allow them to issue long-term gold bonds on a preferential basis to augment their Tier II capital, as part of a host of other innovative products already introduced. In fact, this should provide banks an avenue for mobilising capital at a lower cost. "

«Oldest ‹Older   201 – 400 of 548   Newer› Newest»

Post a Comment

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